PLACEMENT AGENCY
AGREEMENT
THINKEQUITY
PARTNERS LLC
31 West 52nd Street
17th Floor
New York, NY 10019
Youbet.com, Inc., a Delaware corporation (the
“ Company ”), proposes, subject to the terms and
conditions stated herein, to issue and sell up to an aggregate of
6,200,000 shares (the “ Shares ”) of the
Company’s common stock, $0.001 par value per share (the
“ Common Stock ”) to certain investors (each an
“ Investor ” and, collectively, the “
Investors ”). The Company desires to engage
ThinkEquity Partners LLC (the “ Placement Agent
”) as its exclusive placement agent as set forth herein in
connection with such issuance and sale. The Shares are more fully
described in the Registration Statement (as hereinafter
defined).
1. Agreement to Act as Placement Agent;
Delivery and Payment . On the basis of the representations,
warranties, and agreements of the Company herein contained, and
subject to the terms and conditions set forth in this
Agreement:
(a) The Company hereby engages the
Placement Agent to act as its exclusive placement agent in
connection with the issuance and sale by the Company of Shares to
the Investors, and the Placement Agent hereby agrees, as agent of
the Company, to use its best efforts to solicit offers to purchase
the Shares from the Company upon the terms and conditions set forth
in the Prospectus (as hereinafter defined). Upon the occurrence of
the Closing (as hereinafter defined), the Company shall pay to the
Placement Agent, by wire transfer of immediately available funds
payable to the order of the Placement Agent, to an account
designated by the Placement Agent, an aggregate of five and
one-half percent (5.5%) of the gross proceeds received by the
Company from its sale of the Shares. Prior to the earlier of
(i) the date on which this Agreement is terminated, or
(ii) the Closing Date (as hereinafter defined), the Company
shall not, without the prior written consent of the Placement
Agent, solicit or accept offers to purchase Shares (other than
pursuant to the exercise of options or warrants to purchase shares
of Common Stock that are outstanding at the date hereof) otherwise
than through the Placement Agent in accordance herewith.
(b) The Company expressly acknowledges and
agrees that the Placement Agent’s obligations hereunder are
on a best efforts basis and this Agreement shall not give rise to a
commitment by the Placement Agent or any of its affiliates to
underwrite or purchase any of the Shares or otherwise provide any
financing, and the Placement Agent shall have no authority to (and
agrees not to purport to) bind the Company in respect of the sale
of any Shares. The sale of the Shares shall be made pursuant to the
subscription terms in the form included as Exhibit A
hereto (the " Subscription Terms ”). The
Company shall
have the sole right to accept offers to purchase the Shares and
may, at the Company’s sole discretion, reject any such offer
in whole or in part, and, except as set forth in Section 4
hereof, in no event shall fees be payable by the Company on any
proposed purchase which is rejected for any reason or which
otherwise does not close for any reason. Notwithstanding the
foregoing, it is understood and agreed that the Placement Agent or
any of its affiliates may, solely at their discretion and without
any obligation to do so, purchase Shares as principals;
provided, however , that any such purchase by the Placement
Agent (or its affiliates) shall be fully disclosed to the Company
and shall be subject to the prior approval of the Company, at the
Company’s sole discretion, in accordance with the immediately
preceding sentence.
(c) Concurrently with the execution and
delivery of this Agreement, the Company, the Placement Agent and
Wells Fargo Bank, N.A., as escrow agent (the “ Escrow
Agent ”), shall enter into an escrow agreement (the
“ Escrow Agreement ”), pursuant to which an
escrow account (the “ Escrow Account ”) will be
established for the benefit of the Company and the Investors who
settle their purchases through the facilities of The Depository
Trust Company’s DWAC system. Prior to the Closing Date, each
such Investor shall deposit into the Escrow Account an amount equal
to the product of (x) the number of Shares such Investor has
agreed to purchase, and (y) the purchase price per share as
set forth on the cover page of the Prospectus (the “
Purchase Amount ”). The aggregate of the Purchase
Amounts deposited by all of the Investors is herein referred to as
the “ Escrow Funds .” On the Closing Date, the
Escrow Agent will disburse the Escrow Funds from the Escrow Account
to the Company, the Placement Agent and the Escrow Agent as
provided in the Escrow Agreement, and the Company shall cause its
transfer agent to deliver the Shares purchased by such Investors,
which delivery shall be made through the facilities of The
Depository Trust Company’s DWAC system.
(d) Payment of the purchase price for, and
delivery of, the Shares shall be made at a closing (the “
Closing ”) at the offices of Dow Lohnes PLLC, counsel
for the Company, located at 1200 New Hampshire Ave., N.W.,
Washington, D.C. 20036-6802, at 10:00 a.m., Eastern Time, on
the third or fourth business day (as permitted under
Rule 15c6-1 under the Securities Exchange Act of 1934, as
amended (collectively with the rules and regulations promulgated
thereunder, the “ Exchange Act ”)) after the
determination of the public offering price of the Shares (such date
of payment and delivery being herein called the “ Closing
Date ”). All such actions taken at the Closing shall be
deemed to have occurred simultaneously. No Shares which the Company
has agreed to sell pursuant to this Agreement and the Subscription
Terms shall be deemed to have been purchased and paid for by an
Investor, or sold by the Company, until such Shares shall have been
delivered to such Investor against payment therefor by such
Investor. If the Company shall default in its obligations to
deliver Shares to an Investor whose offer it has accepted, the
Company shall indemnify and hold the Placement Agent harmless
against any loss, claim, or damage arising from or as a result of
such default by the Company.
(e) The Shares shall be registered in such
names and in such denominations as the Placement Agent shall
request by written notice delivered to the Company at least two
(2) business days prior to the Closing Date and as shall have
been agreed to by the Company pursuant to Section 1(b)
hereof.
2. Representations and Warranties of
the Company . The Company represents and warrants to the
Placement Agent as follows:
(a) Registration Statement and
Prospectus . The Company has prepared and filed with the
Securities and Exchange Commission (the “ Commission
”) a registration statement on Form S-3 (File
No. 333-126131) under the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder
(collectively, the “ Securities Act ”), and such
amendments to such registration statement as may have been required
to the date of this Agreement. Such registration statement has
been
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declared
effective by the Commission. Such registration statement, at any
given time, including amendments thereto at such time, the exhibits
and any schedules thereto at such time, the documents incorporated
by reference therein pursuant to Item 12 of Form S-3 under the
Securities Act at such time and the documents and information
otherwise deemed to be a part thereof or included therein by
Rule 430A, 430B, or 430C under the Securities Act or otherwise
pursuant to the Securities Act at such time, is herein called the
“ Registration Statement .” Any registration
statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the “ Rule 462(b) Registration
Statement ” and, from and after the date and time of
filing of the Rule 462(b) Registration Statement, the term “
Registration Statement ” shall include the Rule 462(b)
Registration Statement.
The Company proposes to file with the Commission
pursuant to Rule 424 under the Securities Act a final
prospectus supplement to the prospectus included in the
Registration Statement in the form heretofore delivered to the
Placement Agent. Such prospectus included in the Registration
Statement at the time it was declared effective by the Commission
or in the form in which it has been most recently filed with the
Commission on or prior to the date of this Agreement is hereinafter
called the “ Base Prospectus .” Such prospectus
supplement, in the form in which it shall be filed with the
Commission pursuant to Rule 424(b) (including the Base Prospectus
as so supplemented) is hereinafter called the “
Prospectus .” Any preliminary form of Prospectus which
is filed or used prior to filing of the Prospectus is hereinafter
called a “ Preliminary Prospectus .” Any
reference herein to the Base Prospectus, any Preliminary
Prospectus, or the Prospectus or to any amendment or supplement to
any of the foregoing shall be deemed to refer to and include any
documents incorporated by reference therein pursuant to
Item 12 of Form S-3 under the Securities Act as of the date of
such prospectus, and, in the case of any reference herein to the
Prospectus, also shall be deemed to include any documents
incorporated by reference therein, and any supplements or
amendments thereto, filed with the Commission after the date of
filing of the Prospectus under Rule 424(b) under the Securities
Act, and prior to the termination of the offering of the Shares by
the Placement Agent.
For purposes of this Agreement, all references
to the Registration Statement, the Rule 462(b) Registration
Statement, the Base Prospectus, any Preliminary Prospectus, the
Prospectus or any amendment or supplement to any of the foregoing
shall be deemed to include the copy filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval
System (“ EDGAR ”). Any reference to any
Preliminary Prospectus or the Prospectus shall be deemed to refer
to and include any documents incorporated by reference therein
pursuant to Form S-3 under the Securities Act as of the date of
such Preliminary Prospectus or the Prospectus, as applicable. Any
reference to any amendment or supplement to any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and
include any document filed under the Exchange Act, after the date
of such Preliminary Prospectus or the Prospectus, as applicable,
and before the date of such amendment or supplement and
incorporated by reference in such Preliminary Prospectus or the
Prospectus, as applicable; and any reference to any amendment to
the Registration Statement shall be deemed to include any annual
report of the Company on Form 10-K filed with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act after the
effective date of the Registration Statement.
The Company and the transactions contemplated by
this Agreement meet the requirements and comply with the conditions
for the use of Form S-3 under the Securities Act. The offering of
the Shares by the Company complies with the applicable requirements
of Rule 415 under the Securities Act. The Company has complied
to the Commission’s satisfaction with all requests of the
Commission for additional or supplemental information. The
Registration Statement has become effective under the Securities
Act. No stop order preventing or suspending use of the Registration
Statement, any Preliminary Prospectus, or the Prospectus or the
effectiveness of the Registration Statement, has been issued by the
Commission, and no proceedings for such purpose have been
instituted, are pending or are contemplated or, to the
Company’s knowledge, threatened by the Commission.
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(b) Compliance with Registration
Requirements . Each part of the Registration Statement and any
post-effective amendment thereto, at the time such part became
effective (including each deemed effective date with respect to the
Placement Agent pursuant to Rule 430A or Rule 430B under
the Securities Act) and as of the Closing Date, complied and will
comply, in all material respects, with the requirements of the
Securities Act and did not and will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus (or any amendment or
supplement to the Prospectus), at the time of filing or the time of
first use within the meaning of the Securities Act and as of the
Closing Date, complied and will comply, in all material respects,
with the requirements of the Securities Act and did 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,
in the light of the circumstances under which they were made, not
misleading; provided , that the Company makes no
representations or warranty in this paragraph with respect to any
Placement Agent Information (as defined in
Section 7).
(c) Disclosure Package . As of the
Time of Sale (as hereinafter defined) and as of the Closing Date,
neither (A) any Issuer General Free Writing Prospectus(es) (as
defined below) issued at or prior to the Time of Sale, the
Statutory Prospectus (as hereinafter defined), and the information
included on Exhibit D hereto (which information the
Placement Agent hereby agrees to convey orally to prospective
purchasers at or prior to confirming sales of the Shares in the
offering), all considered together (collectively, the “
Disclosure Package ”), nor (B) any individual
Issuer Limited-Use Free Writing Prospectus (as hereinafter
defined), when considered together with the Disclosure Package,
included or will include any untrue statement of a material fact or
omitted or will 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; provided , that
the Company makes no representations or warranty in this paragraph
with respect to any Placement Agent Information. No statement of
material fact included in the Prospectus has been omitted from the
Disclosure Package and no statement of material fact included in
the Disclosure Package that is required to be included in the
Prospectus has been omitted therefrom. The statements (including
the assumptions described therein) included in or incorporated by
reference in any of the Registration Statement, Disclosure Package,
or the Prospectus are within the coverage of Rule 175(b) under the
Securities Act to the extent such data constitute forward-looking
statements as defined in Rule 175(c) and were made by the Company
with a reasonable basis and reflect the Company’s good faith
estimate of the matters described therein. As used in this
paragraph and elsewhere in this Agreement:
(1) “ Time of Sale ” with
respect to any Investor, means 5:00 p.m. Eastern Time on the date
of this Agreement.
(2) “ Statutory Prospectus ”
as of any time means the Prospectus (including any preliminary
prospectus) immediately prior to the Time of Sale, including any
document incorporated by reference therein.
(3) “ Issuer Free Writing
Prospectus ” means any “issuer free writing
prospectus,” as defined in Rule 433 under the Securities
Act (“ Rule 433 ”), relating to the Shares
in the form filed or required to be filed with the Commission or,
if not required to be filed, in the form retained in the
Company’s records pursuant to Rule 433(g) under the
Securities Act.
(4) “ Issuer General Free Writing
Prospectus ” means any Issuer Free Writing Prospectus
that is intended for general distribution to prospective investors
as identified on Schedule I hereto, and does not include a
“bona fide electronic road show” as defined in
Rule 433.
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(5) “ Issuer Limited-Use Free Writing
Prospectus ” means any Issuer Free Writing Prospectus
that is not an Issuer General Free Writing Prospectus, including
any “bona fide electronic road show” as defined in
Rule 433, that is made available without restriction pursuant
to Rule 433(d)(8)(ii), even though not required to be filed
with the Commission.
(d) Conflict with Registration
Statement . Each Issuer Free Writing Prospectus, as of its
issue date and at all subsequent times through the completion of
the offering and sale of the Shares or until any earlier date that
the Company notified or notifies the Placement Agent, did not, does
not, and will not include any information that conflicted,
conflicts, or will conflict with the information contained in the
Registration Statement, any Statutory Prospectus, or the Prospectus
including any document incorporated by reference therein and any
prospectus supplement deemed to be a part thereof that has not been
superseded or modified; provided , that the Company makes no
representations or warranty in this paragraph with respect to any
Placement Agent Information.
(e) Distributed Materials . The
Company has not, directly or indirectly, distributed and will not
distribute any prospectus or other offering material in connection
with the offering and sale of the Shares other than any Preliminary
Prospectus or the Disclosure Package, and other materials, if any,
permitted under the Securities Act to be distributed and consistent
with Section 4(d) below. The Company will file with the Commission
all Issuer Free Writing Prospectuses required to be filed in the
time required under Rule 433(d) under the Securities Act. The
Company has satisfied or will satisfy the conditions in
Rule 433 under the Securities Act to avoid a requirement to
file with the Commission any electronic road show in connection
with the offering of the Shares. The parties hereto agree and
understand that the content of any and all “road shows”
related to the offering of the Shares contemplated hereby is solely
the property of the Company.
(f) Not an Ineligible Issuer .
(1) At the earliest time after the filing of the Registration
Statement that the Company or the Placement Agent made a bona fide
offer (within the meaning of Rule 164(h)(2) under the
Securities Act) of the Shares and (2) at the date hereof, the
Company was not and is not an “ineligible issuer,” as
defined in Rule 405 under the Securities Act, without taking
account of any determination by the Commission pursuant to
Rule 405 that it is not necessary that the Company be
considered an ineligible issuer, including, without limitation, for
purposes of Rules 164 and 433 under the Securities Act with
respect to the offering of the Shares as contemplated by the
Prospectus.
(g) Incorporated Documents . The
documents incorporated by reference in the Disclosure Package, when
they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements
of the Exchange Act and were filed on a timely basis with the
Commission, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not
misleading.
(h) Due Incorporation . The Company
has been duly incorporated and validly exists as a corporation in
good standing under the laws of the State of Delaware, with the
corporate power and authority to own its properties and to conduct
its business currently being carried on and as described in the
Registration Statement and the Disclosure Package. The Company is
duly qualified to transact business as a foreign corporation in
good standing under the laws of each other jurisdiction in which
its ownership or leasing of property or the conduct of its business
requires such qualification, except where the failure to be so
qualified and in good standing would not, individually or in the
aggregate, reasonably be expected to result in any material adverse
effect upon, or material adverse change in, the general affairs,
business, operations, properties, financial condition, or results
of operations of the Company taken as a whole (a “
Material Adverse Effect ”).
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(i) Capitalization . All of the
issued and outstanding shares of capital stock of the Company,
including the outstanding shares of Common Stock, have been duly
authorized and validly issued and are fully paid and nonassessable,
have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for, purchase, or
acquire any securities of the Company that have not been waived in
writing or otherwise complied with; and the holders thereof are not
subject to personal liability by reason of being such
holders.
(j) The Shares . The Shares have
been duly and validly authorized by the Company and, when issued,
delivered, and paid for in accordance with the terms of this
Agreement and the Subscription Terms, will have been validly issued
and will be fully paid and nonassessable and will not be subject to
any statutory or contractual preemptive rights or other rights to
subscribe for or purchase or acquire any shares of Common Stock
that have not been waived or complied with.
(k) Description of Capital Stock .
The capital stock of the Company, including the Common Stock,
conforms as to legal matters to the description thereof, if any,
contained in the Registration Statement and the Statutory
Prospectus, and as of the date thereof, the Company had authorized
capital stock as set forth in the Prospectus. The Shares are in due
and proper form and the holders of the Shares will not be subject
to personal liability by reason of being such holders.
(l) Rights to Acquire Securities;
Registration Rights . Except as otherwise described in the
Registration Statement or the Disclosure Package, there are no
preemptive rights or other rights to subscribe for or to purchase,
or any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company’s certificate of
incorporation, bylaws, or any agreement or other instrument to
which the Company is a party or by which the Company is bound
(other than rights which have been waived in writing or that have
been otherwise satisfied within the time or times required under
the terms and conditions of any such right). Except as otherwise
described in the Registration Statement or the Disclosure Package,
there are no contracts, agreements, or understandings between the
Company and any person granting such person the right to require
the Company to file a registration statement under the Securities
Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such
securities in the securities registered pursuant to the
Registration Statement (other than rights which have been waived in
writing in connection with the transactions contemplated by this
Agreement or otherwise satisfied).
(m) Subsidiaries . The Company has
no significant subsidiaries (as such term is defined in Rule
1-02(w) of Regulation S-X promulgated by the Commission) other
than United Tote Company and International Racing Group
N.V.
(n) Due Authorization and
Enforceability . Each of this Agreement and the Subscription
Terms has been duly authorized, executed, and delivered by the
Company, and constitutes a valid, legal, and binding obligation of
the Company, enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, or similar laws affecting
the rights of creditors generally, may be subject to general
principles of equity and may be limited by federal and state
securities laws with respect to rights of indemnification or
contribution.
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(o) No Conflict . The execution,
delivery, and performance by the Company of this Agreement and the
Subscription Terms and the consummation of the transactions herein
contemplated, including the issuance and sale by the Company of the
Shares, will not conflict with or result in a breach or violation
of, or constitute a default under (nor constitute any event which
with notice, lapse of time, or both would result in any breach or
violation of or constitute a default under) (i) any provision
of the certificate of incorporation or bylaws of the Company,
(ii) any indenture, mortgage, deed of trust, bank loan or
credit agreement or other evidence of indebtedness, or any license,
lease, contract, or other agreement or instrument to which the
Company is a party or by which it or any of its properties may be
bound or affected, except for such conflicts, breaches or
violations that will not, individually or in the aggregate, result
in a Material Adverse Effect, or (iii) any material federal,
state, local or foreign law, regulation or rule or any decree,
judgment or order applicable to the Company.
(p) No Consents Required . No
approval, authorization, consent or order of or filing with any
federal, state, local or foreign governmental or regulatory
commission, board, body, authority, or agency, or of or with any
self-regulatory organization or other non-governmental regulatory
authority or approval of the stockholders of the Company, is
required in connection with the issuance and sale of the Shares or
the consummation by the Company of the transactions contemplated
hereby other than (i) as may be required under the Securities
Act, (ii) any necessary qualification of the Shares under the
securities or blue sky laws of the various jurisdictions in which
the Shares are being offered by the Placement Agent and
(iii) under the listing standards, policies, and requirements
of the NASDAQ Capital Market (“ NASDAQ ”). The
Company has full corporate power and authority to enter into this
Agreement and the Subscription Terms and to authorize, issue, and
sell the Shares as contemplated by this Agreement and the
Subscription Terms.
(q) No Violation . The Company is
not in breach or violation of or in default (nor has any event
occurred which with notice, lapse of time, or both would result in
any breach or violation of, or constitute a default) (i) under
any material provision of its certificate of incorporation or
bylaws, or (ii) in the performance or observance of any term,
covenant, obligation, agreement, or condition contained in any
indenture, mortgage, deed of trust, bank loan or credit agreement
or other evidence of indebtedness, or any license, lease, contract,
or other agreement or instrument to which the Company is a party or
by which it or any of its properties may be bound or affected,
which breach, violation or default would have a Material Adverse
Effect, or (iii) in the performance or observance of any
statute, law, rule, regulation, ordinance, judgment, order or
decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its properties, as
applicable, which breach, violation or default would have a
Material Adverse Effect.
(r) Absence of Material Changes .
Subsequent to the respective dates as of which information is given
in the Disclosure Package (and taking into account any update
included within the Disclosure Package), (i) the Company has
not sustained any material loss or interference with its business
from fire, explosion, flood, or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order, or decree; (ii) the Company has
not incurred any material liability or obligation, direct or
contingent, or entered into any material transaction not in the
ordinary course of business; (iii) the Company has not
purchased any of the Company’s outstanding capital stock
(other than the shares of Common Stock held in treasury, as set
forth in the Company’s balance sheet as of September 30,
2006), or declared, paid, or otherwise made any dividend or
distribution of any kind on the capital stock; and (iv) there
has not been any (A) change in the capital stock (other than a
change in the number of outstanding shares of Common Stock due to
the issuance of shares upon the exercise of outstanding options or
warrants), (B) material change in the short-term debt or long-term
debt of the Company, (C) issuance of options, warrants,
convertible securities, or other rights to purchase the capital
stock (other than grants of stock options under the Company’s
stock option plans existing on the date hereof) of the Company, or
(D) any Material Adverse Effect.
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(s) Permits . The Company
possesses, and is operating in compliance in all material respects
with, all necessary franchises, licenses, grants, permits,
easements, authorizations, consents, certificates and orders of any
governmental or self-regulatory body required for the conduct of
its business and all such franchises, licenses, grants, permits,
easements, authorizations, consents, certificates, and orders are
valid and in full force and effect, except where the failure to
have obtained any such permit has not had and will not have a
Material Adverse Effect. The Company has made all filings required
under any federal, state, local or foreign law, regulation or rule,
in order to conduct its business other than such filings the
failure of which to make will not, individually or in the
aggregate, have a Material Adverse Effect. The Company has not
received notice of any proceedings relating to revocation or
material modification of, any such franchise, license, grant,
permit, easement, authorization, consent, certificate and
order.
(t) Legal Proceedings . There are
no legal or governmental proceedings pending or, to the
Company’s knowledge, threatened or contemplated to which the
Company is or would be a party or of which any of its properties is
or would be subject at law or in equity, before or by any federal,
state, local, or foreign governmental or regulatory commission,
board, body, authority or agency, or before or by any
self-regulatory organization or other non-governmental regulatory
authority (including, without limitation, NASDAQ), or that are
required to be discussed in the Registration Statement or the
Disclosure Package, but are not so described.
(u) Statutes; Contracts . There are
no statutes or regulations applicable to the Company or contracts
or other documents of the Company which are required to be
described in the Registration Statement or the Disclosure Package
or filed as exhibits to the Registration Statement by the
Securities Act which have not been so described or
filed.
(v) Good Title to Property . The
Company has good and valid title to all property (whether real or
personal) described in the Registration Statement or the Disclosure
Package as being owned by it, in each case free and clear of all
liens, claims, security interests, other encumbrances or defects,
except such as are described in the Registration Statement or the
Disclosure Package and do not have or will not result in a Material
Adverse Effect to the use of the property or the conduct of the
business of the Company. All of the property described in the
Registration Statement and the Disclosure Package as being held
under lease by the Company is held thereby under valid, subsisting,
and enforceable leases, without any liens, restrictions,
encumbrances, or claims, with only such exceptions as described in
the Registration Statement or the Disclosure Package and, in the
aggregate, do not have or will not result in a Material Adverse
Effect to the use of the property or the conduct of the business of
the Company.
(w) Intellectual Property Rights .
The Company owns, or has rights to use, the inventions, patent
applications, patents, trademarks (both registered and
unregistered), tradenames, copyrights, trade secrets, and other
proprietary information described in the Registration Statement or
the Disclosure Package as being owned or licensed by it or which
are necessary for the conduct of all or any material part of its
business (collectively, “ Intellectual Property
”); except where the failure to own or obtain a license or
right to use any such Intellectual Property has not and will not
have a Material Adverse Effect, (i) to the Company’s
knowledge, there are no third parties who have or will be able to
establish rights to any Intellectual Property, except for the
ownership rights of the owners of the Intellectual Property which
is licensed to the Company; (ii) to the Company’s knowledge,
there is no infringement by third parties of any Intellectual
Property; (iii) there is no pending or, to the Company’s
knowledge, threatened action, suit, proceeding or claim by others
challenging the Company’s rights in or to, or the validity,
enforceability, or scope of, any Intellectual Property owned by the
Company, and the Company is unaware of any facts which could form a
reasonable basis for any such claim; (iv) to the
Company’s knowledge, there is no pending or threatened
action, suit, proceeding or claim by others challenging
the
8
Company’s
rights in or to, or the validity, enforceability, or scope of, any
Intellectual Property licensed to the Company, and the Company is
unaware of any facts which could form a reasonable basis for any
such claim; (v) there is no pending or, to the Company’s
knowledge, threatened action, suit, proceeding or claim by others
that the Company infringes or otherwise violates any material
patent, trademark, copyright, trade secret or other proprietary
rights of others, and the Company is unaware of any facts which
could form a reasonable basis for any such claim; (vi) to the
Company’s knowledge, there is no material patent or patent
application that contains claims to the same patentable invention
claimed by any issued patent owned or licensed by the Company; and
(vii) to the Company’s knowledge, no grounds exist to
invalidate or render unenforceable any material patent owned or
licensed by the Company.
(x) Financial Statements . The
financial statements of the Company, together with the related
schedules and notes thereto, set forth or incorporated by reference
in the Registration Statement and the Disclosure Package, comply in
all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as applicable, and present
fairly in all material respects (i) the financial condition of the
Company, taken as a whole, as of the dates indicated, and
(ii) the consolidated results of operations,
stockholders’ equity and changes in cash flows of the
Company, taken as a whole, for the periods therein specified; and
such financial statements and related schedules and notes thereto
have been prepared in conformity with United States generally
accepted accounting principles (“ GAAP ”),
consistently applied throughout the periods involved (except as
otherwise stated therein and subject, in the case of unaudited
financial statements, to the absence of footnotes and normal
year-end adjustments). The pro forma financial statements
incorporated by reference in the Prospectus and the Registration
Statement include assumptions that provide a reasonable basis for
presenting the significant effects directly attributable to the
transactions and events described therein, the related pro forma
adjustments give appropriate effect to those assumptions, and the
pro forma adjustments reflect the proper application of those
adjustments to the historical financial statement amounts in the
pro forma financial statements incorporated by reference in the
Prospectus and the Registration Statement. The pro forma financial
statements incorporated by reference in the Prospectus and the
Registration Statement comply as to form in all material respects
with the applicable accounting requirements of Regulation S-X
under the Securities Act and the pro forma adjustments have been
properly applied to the historical amounts in the compilation of
those statements. There are no other financial statements
(historical or pro forma) that are required to be included in the
Registration Statement and the Disclosure Package; and the Company
does not have any material liabilities or obligations, direct or
contingent (including any off-balance sheet obligations), not
disclosed in the Registration Statement and the Disclosure Package;
and all disclosures contained in the Registration Statement and the
Disclosure Package regarding “non-GAAP financial
measures” (as such term is defined by the rules and
regulations of the Commission) comply with Regulation G of the
Exchange Act and Item 10(e) of Commission Regulation S-K, to
the extent applicable, and present fairly the information shown
therein and the Company’s basis for using such
measures.
(y) Independent Accountants . Each
of Piercy, Bowler, Taylor, & Kern (“ PBTK ”)
and Crowe Chizek and Company LLC, who have certified certain of the
financial statements of the Company and its subsidiary, United Tote
Company, respectively, is (i) an independent public accounting
firm within the meaning of the Securities Act and (ii) a
registered public accounting firm (as defined in
Section 2(a)(12) of the Sarbanes-Oxley Act of 2002 (the
“ Sarbanes-Oxley Act ”). PBTK is not in
violation of the auditor independence requirements of the
Sarbanes-Oxley Act or NASDAQ.
(z) Taxes . The Company has timely
filed all federal, state, local, and foreign income and franchise
tax returns (or timely filed applicable extensions therefore) that
have been required to be filed (other than certain state or local
tax returns, as to which the failure to file, individually or in
the aggregate, would not have a Material Adverse Effect), and the
Company is not in default in the payment of any material amount of
taxes which were payable pursuant to said returns or any
assessments with
9
respect
thereto, other than any which the Company is contesting in good
faith and for which adequate reserves have been provided and
reflected in the Company’s financial statements included in
the Registration Statement and the Disclosure Package. Except as
described in the Registration Statement or the Disclosure Package,
the Company does not have any material tax deficiency that has been
or, to the knowledge of the Company, might be asserted or
threatened against it.
(aa) NASDAQ; Exchange Act
Registration . The Common Stock is registered pursuant to
Section 12(b) or Section 12(g) of the Exchange Act and is accepted
for trading on the NASDAQ, and the Company has taken no action
designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the NASDAQ, nor has the Company
received any notification that the Commission or the National
Association of Securities Dealers, Inc. (“ NASD
”) is contemplating terminating such registration or listing.
The Company has complied in all material respects with the
applicable requirements of the NASDAQ for maintenance of inclusion
of the Common Stock thereon. The Company has filed an application
to include the Shares on the NASDAQ.
(bb) Accounting Controls . The
Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with
management’s general or specific authorization;
(ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management’s general or
specific authorization; and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
Except as described in the Registration Statement or the Disclosure
Package, since the most recent audit of the effectiveness of the
Company’s internal control over financial reporting, there
has been (i) no material weakness in the Company’s
internal control over financial reporting (whether or not
remediated) and (ii) no change in the Company’s internal
control over financial reporting that has materially affected, or
is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
(cc) Disclosure Controls . The
Company has established, maintains, and evaluates “disclosure
controls and procedures” (as such term is defined in
Rule 13a-15(e) and 15d-15(e) under the Exchange Act), which
(i) are designed to ensure that material information relating
to the Company is made known to the Company’s principal
executive officer and its principal financial officer by others
within the Company, particularly during the periods in which the
periodic reports required under the Exchange Act are being
prepared, (ii) have been evaluated for effectiveness as of the
end of the last fiscal period covered by the Registration
Statement; and (iii) such disclosure controls and procedures
are effective to perform the functions for which they were
established.
(dd) Sarbanes-Oxley Act . The
Company, and to its knowledge after due inquiry, all of the
Company’s directors or officers, in their capacities as such,
is in compliance in all material respects with all applicable
effective provisions of the Sarbanes-Oxley Act and any related
rules and regulations promulgated by the Commission.
(ee) Not an Investment Company .
The Company is not now, nor immediately after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will the Company be,
(i) required to register as an “investment
company” as defined in the Investment Company Act of 1940, as
amended (the “ Investment Company Act ”), and
the rules and regulations of the Commission thereunder, or
(ii) a “business development company” (as defined
in Section 2(a)(48) of the Investment Company Act).
10
(ff) Insurance . The Company
maintains insurance in such amounts and covering such risks as the
Company reasonably believes to be adequate for the conduct of its
business and the value of its properties and as is customary for
companies engaged in similar businesses in similar industries. All
such insurance is fully in force on the date hereof and will be
fully in force as of the Closing Date. 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 reasonably be likely to result in
a Material Adverse Effect.
(gg) Brokers Fees . The Company is
not a party to any contract, agreement, or understanding (other
than this Agreement) with any person that would give rise to a
valid claim against the Company or the Placement Agent for a
brokerage commission, finder’s fee, or other like payment in
connection with the offering and sale of the Shares.
(hh) Integration . The Company has
not sold or issued any securities that would be integrated with the
offering of the Shares contemplated by this Agreement pursuant to
the Securities Act or interpretations thereof by the
Commission.
(ii) Corrupt Practices; Money
Laundering Laws . Neither the Company nor, to the
Company’s knowledge, any other person associated with or
acting on behalf of the Company, including without limitation any
director, officer, agent, or employee of the Company has, directly
or indirectly, while acting on behalf of the Company (i) used
any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political
activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds,
(iii) violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended, or (iv) made any other unlawful
payment. The operations of the Company and its subsidiaries are and
have been conducted at all times, in all material respects, in
compliance with applicable financial recordkeeping and reporting
requirements of the Currency and Foreign Transactions Reporting Act
of 1970, as amended, the money laundering statutes of all
applicable jurisdictions, the rules and regulations thereunder, and
any related or similar rules, regulations, or guidelines, issued,
administered, or enforced by any governmental agency (collectively,
the “ Money Laundering Laws ”), and no action,
suit, or proceeding by or before any court or governmental agency,
authority, or body or any arbitrator involving the Company or any
of its subsidiaries with respect to the Money Laundering Laws is
pending or, to the best knowledge of the Company,
threatened.
(jj) Critical Accounting Policies .
The section entitled “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations—Critical Accounting Policies” in the
Company’s most recent Annual Report on Form 10-K and
Quarterly Report on Form 10-Q accurately and fully describes
(i) the accounting policies that the Company believes are the
most important in the portrayal of the Company’s financial
condition and results of operations and that require
management’s most difficult, subjective, or complex judgments
(“ Critical Accounting Policies ”); and
(ii) the material judgments and uncertainties affecting the
application of Critical Accounting Policies.
(kk) No Price Stabilization .
Neither the Company nor, to the Company’s knowledge, any of
its officers, directors, affiliates, or controlling persons has
taken or will take, directly or indirectly, any action designed to
cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to
facilitate the sale of the Shares.
11
(ll) No Undisclosed Relationships; No
Off-Balance Sheet Arrangements . No relationship, direct or
indirect, exists between or among the Company on the one hand and
the directors, officers, stockholders, customers, or suppliers of
the Company on the other hand which is required to be described in
the Registration Statement or the Disclosure Package, which has not
been so described. There are no transactions, arrangements, or
other relationships between or among the Company, its subsidiaries,
any of its affiliates (as such term is defined in Rule 405 of
the Securities Act) and any unconsolidated entity, including any
structured finance, special purpose, or limited purpose entity that
could reasonably be expected to materially affect the
Company’s liquidity or the availability of or requirements
for its capital resources required to be described in either the
Registration Statement or the Disclosure Package that have not been
described as required.
(mm) Exchange Act Requirements .
The Company has filed in a timely manner all reports required to be
filed pursuant to Sections 13(a), 13(e), 14, and 15(d) of the
Exchange Act during the preceding 12 months (except to the
extent that Section 15(d) requires reports to be filed pursuant to
Sections 13(d) and 13(g) of the Exchange Act, which shall be
governed by the next clause of this sentence); and the Company has
filed in a timely manner all reports required to be filed pursuant
to Sections 13(d) and 13(g) of the Exchange Act since
January 1, 2003.
(nn) NASD Affiliations . To the
Company’s knowledge, there are no affiliations or
associations between (i) any member of the NASD, and
(ii) the Company or any of the Company’s officers,
directors or 5% or greater securityholders.
(oo) Compliance with Environmental
Laws . The Company (i) is in compliance with any and all
applicable foreign, federal, state and local laws, orders, rules,
regulations, directives, decrees, and judgments relating to the
protection of human health and safety, the environment or hazardous
or toxic substances or wastes, pollutants or contaminants (“
Environmental Laws ”), (ii) has received all
permits, licenses, or other approvals required of it under
applicable Environmental Laws to conduct its business, and
(iii) is in compliance with all terms and conditions of any
such permit, license, or approval, except where such noncompliance
with Environmental Laws, failure to receive required permits,
license, or other approvals or failure to comply with the terms and
conditions of such permits, licenses or other approvals would not,
individually or in the aggregate have a Material Adverse Effect.
There are no material costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of
properties, or compliance with Environmental Laws or any permit,
license, or approval, any related constraints on operating
activities and any potential liabilities to third
parties).
(pp) No Labor Disputes . There is
(i) (A) no unfair labor practice complaint pending or, to the
Company’s knowledge, threatened against the Company before
the National Labor Relations Board, and no grievance or arbitration
proceeding arising out of or under collective bargaining agreements
is pending or threatened, (B) no strike, labor dispute,
slowdowns, or stoppage pending or, to the Company’s
knowledge, threatened against the Company, and (C) no material
union representation dispute currently existing concerning the
employees of the Company, and (ii) (x) to the Company’s
knowledge, no union organizing activities are currently taking
place concerning the employees of the Company, and (y) there
has been no violation of any federal, state, local, or foreign law
relating to discrimination in the hiring, promotion, or pay of
employees or any applicable wage or hour laws concerning the
employees of the Company, except where the activities or failure to
comply with any such law has not, and will not, have a Material
Adverse Effect.
(qq) ERISA . The Company is in
compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974,
as amended, including the regulations and published interpretations
thereunder (“ ERISA ”); no “reportable
event” (as defined in ERISA) has occurred with respect to any
“pension plan” (as defined in ERISA) for which the
Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i)
12
Title IV of
ERISA with respect to termination of, or withdrawal from, any
“pension plan” or (ii) Sections 412 or 4971
of the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the “
Code ”); and each “pension plan” for which
the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such
qualification.
(rr) Statistical or Market-Related
Data . Any statistical, industry-related, and market-related
data included or incorporated by reference in the Registration
Statement and the Disclosure Package are based on or derived from
sources that the Company reasonably and in good faith believes to
be reliable and accurate, and such data agree with the sources from
which they are derived.
(ss) NASD Review . To enable the
Placement Agent to rely on Rule 2710(b)(7)(C)(i) of the NASD,
the Company represents that the Company (i) has a
non-affiliate, public common equity float of at least
$150 million or a non-affiliate, public common equity float of
at least $100 million and annual trading volume of at least
three million shares and (ii) has been subject to the Exchange
Act reporting requirements for a period of at least
36 months.
(tt) Lock-Up Agreements . The
Company has procured letters, substantially in the form of
Exhibit B attached hereto (the “ Lock-Up
Agreement ”) from each of the Company’s executive
officers and directors.
Any certificate signed by any officer of the
Company and delivered to the Placement Agent or to counsel for the
Placement Agent in connection with the offering of the Shares shall
be deemed a representation and warranty by the Company to the
Placement Agent as to the matters covered thereby.
3.
Covenants . The Company covenants and agrees with the
Placement Agent as follows:
(a) Reporting Obligations; Exchange Act
Compliance. The Company will (i) file any Preliminary
Prospectus and the Prospectus with the Commission within the time
periods specified by Rule 424(b) and Rules 430A and 430B, as
applicable under the Securities Act, (ii) file any Issuer Free
Writing Prospectus to the extent required by Rule 433 under
the Securities Act, if applicable, (iii) file timely all
reports and any definitive proxy or information statements required
to be filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14, or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and during such period as
the Prospectus would be required by law to be delivered (whether
physically or through compliance with Rule 172 under the
Securities Act or any similar rule) (the “ Prospectus
Delivery Period ”), and (iv) furnish copies of each
Issuer Free Writing Prospectus, if any, (to the extent not
previously delivered) to the Placement Agent prior to
10:00 a.m., Eastern Standard Time, on the second business day
next succeeding the date of this Agreement in such quantities as
the Placement Agent shall reasonably request.
(b) Abbreviated Registration
Statement . If the Company elects to rely upon Rule 462(b)
under the Securities Act, the Company shall file a registration
statement under Rule 462(b) with the Commission in compliance with
Rule 462(b) by 8:00 a.m., Eastern Standard Time, on the business
day next succeeding the date of this Agreement, and the Company
shall at the time of filing either pay to the Commission the filing
fee for such Rule 462(b) registration statement or give irrevocable
instructions for the payment of such fee pursuant to the Rules and
Regulations.
(c) Amendments or Supplements . The
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