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LETTER OF INTENT
[Name and title of officer of the issuer] Discussions have been held between you and [name of the underwriter] ("Underwriter") concerning a proposed public offering by [name of the issuer] (hereinafter the "Company"). The Underwriter hereby confirms its interest in underwriting the proposed public offering. 1. Registration Statement. The parties hereto shall forthwith agree upon a timetable for the filing of a Registration Statement, and amendments thereto, blue-sky filings, and all other steps necessary to effectuate the proposed public offering at a date acceptable to the Underwriter. A Registration Statement, together with exhibits, covering the shares proposed to be offered will be carefully prepared by the Company with the cooperation of the Underwriter and filed with the United States Securities and Exchange Commission ("SEC"). The Registration Statement filed pursuant to this paragraph shall also cover the shares underlying the warrants referred to in paragraph 12 hereof and such additional shares as may be issuable under the antidilution provisions of the warrants. The Company shall select counsel qualified and experienced in the preparation of filings under the Securities Act to prepare the Registration Statement, and will consult with the Underwriter prior to engaging such counsel. All financial statements contained in the Registration Statement, as amended from time to time, will be in form and content satisfactory to the Underwriter and to the Underwriter's counsel, and will have been prepared and reported on by independent certified public accountants satisfactory to the Underwriter. The proposed Registration Statement will be submitted to the Underwriter and to the Underwriter's counsel as soon as possible but not later than thirty (30) days before the Company proposes to file such Registration Statement with the SEC. The content of any oral comments and copies of all comment letters shall immediately be supplied to the Underwriter and its counsel and all Amendments to the Registration Statement shall be submitted to the Underwriter and its counsel for review prior to the time they are filed with the SEC. 2. Underwriter's Counsel. The Underwriting Agreement and Selected Dealer Agreement shall be prepared by counsel for the Underwriter, and such counsel shall make all required filings with the National Association of Securities Dealers, Inc. All corporate proceedings undertaken by the Company and other legal matters which relate to the public offering and other related transactions shall be satisfactory in all material respects to counsel for the Underwriter. The Registration Statement and all amendments thereto shall be reviewed by counsel to the Underwriter prior to filing with the SEC. 3. Public Offering, Closing and Cold Comfort Letter. The Company proposes to offer through the Underwriter and/or an underwriting group selected by the Underwriter [number of shares to be offered] shares of common stock ("Shares") at a price to be mutually agreed to by you and the Underwriter. The Underwriter shall have an overallotment option to purchase up to an additional 10 percent of the shares offered. The Underwriter contemplates, subject to paragraph 18 hereof, to firmly underwrite the offering. The offering shall be closed only upon receipt by the Underwriter of a cold-comfort letter from the independent certified public accountant, which letter is acceptable to the Underwriter and the basic content of which is agreed to by the independent certified public accountant prior to its engagement by the Company. 4. Warrants and Options. Warrants and options issued and to be issued by the Company within a specified time period shall be acceptable to the Underwriter. 5. Future Sales. It is understood that during the period of the proposed offering and for one year from the date of the definitive Prospectus, the Company will not sell any equity or long-term debt securities without the Underwriter's prior written consent which may not be unreasonably withheld. Prior to the effective date of the Registration Statement, the Company will cause each of its officers, directors, and each shareholder who owns over [percentage of outstanding shares agreed to by the parties] percent of the Company's shares outstanding prior to the effective date of the Registration Statement, to enter into an undertaking to the Underwriter pursuant to the terms of which such officer, director, or shareholder will agree he will not sell any shares owned directly or indirectly by him to the public for [period of time the undertaking is to be effective] months from the date of the definitive Prospectus used in the offering without the Underwriter's prior written consent. 6. Reciprocal Indemnification. It is understood that the proposed Underwriting Agreement will provide for reciprocal indemnification between the Company and the Underwriter as to certain liabilities, including liabilities under the Securities Act of 1933, as amended. 7. Information Available. It is understood and agreed between the Company and the Underwriter that all documents and other information relating to the Company's affairs will be made available upon request to the Underwriter and its attorneys at the Underwriter's office or at the office of the Underwriter's attorney and copies of any such document will be furnished upon request to the Underwriter or its attorneys. Without limiting the generality of the foregoing, the following documents must be made available as soon as possible: Articles [Certificate] of Incorporation and Amendments, By-Laws and Amendments, Minutes of Meetings of the Company's Incorporators, Directors, Committees, and Shareholders; all financial statements, and correct copies of all material contracts to which the Company is a party. The Company will furnish Underwriter at the earliest practicable date a business plan showing projected cash flow (or deficiencies) covering a three-year period and reconciled to the proposed Use of Proceeds section of the prospectus. In addition, the Company will provide the Underwriter with unaudited monthly financial data concerning the Company from this date until termination of the offering. 8. Properties, Capital Structure, Dilution, Employee Benefit Plans. The properties owned or held under option by the Company, the capital structure of the Company immediately preceding the public offering, the contemplated dilution to the public investor, and the Company's business plan shall be acceptable to the Underwriter. It is contemplated that the Shares held by the public upon completion of the public offering will represent approximately [percentage of stock to be held by public on completion of offering] percent of the outstanding Shares. Shares underlying options and warrants, other than warrants held by the Underwriter, shall be deemed outstanding for this purpose. Any employee (including officers and/or directors) incentive plan (including royalty plan), of whatever nature, presently contemplated, shall be fully disclosed to the Underwriter and shall be subject to the approval of the Underwriter. 9. Blue-Sky Laws. It is understood and agreed between the Company and the Underwriter that it shall be the obligation of the Company to qualify the sale of the Company's common stock in such states as may be reasonably designated by the Underwriter. The officers, directors and promoters of the Company will comply with applicable Blue-Sky escrow requirements, including those pertaining to the escrow of shares, provided such escrow shall in no event extend beyond a period of two years. The parties hereto shall agree on the division of legal work pertaining to blue-sky qualification. 10. Underwriting Discount. The Shares (including over-allotment shares) will be sold by the Company to the Underwriter and members of the underwriting group at a discount from the public offering price to be mutually agreed to by the Company and the Underwriter. 11. Underwriter's Expense Allowance. It is understood that the Company shall reimburse the Underwriter for its expenses on a nonaccountable basis in the amount of $[agreed amount of underwriter's nonaccountable expense allowance] of which $[amount of underwriter's expense allowance payable in advance] shall be paid on the execution of this Agreement and the balance on closing. In the event the offering for any reason is not closed, the Underwriter will retain so much of the $[amount of underwriter's expense allowance payable in advance] received from the Company as is equal to its actual accountable expenses and reimburse the Company for the remainder, if any. 12. Warrants. Upon termination of the offering, the Company will sell to the Underwriter Common Stock Purchase Warrants, for a purchase price of $[agreed purchase price of warrants] per Warrant, entitling the Underwriter to purchase one share of the Company's Common Stock for each ten shares of the Company's Common Stock which have been sold (or purchased by the Underwriter) in the offering, excluding, however, over-allotment shares. The Warrants shall be nonexercisable for a period of twelve (12) months following the date of the definitive Prospectus. However, if the Company merges or reorganizes in such a way as to terminate the Warrants, the Warrants may be exercised immediately prior to such action. The Warrants will contain antidilution provisions acceptable to the Underwriter. The Warrants will be exercisable for a period of four (4) years, such period to commence twelve (12) months after the date of the definitive Prospectus used in this offering and if the Warrants are not exercised during this term, they shall by their terms automatically expire. The exercise price of the Warrants shall be 120 percent of the per share offering price. The Company will set aside and at all times have available a sufficient number of shares of its Common Stock to be issued upon the exercise of the Warrants to be sold to the Underwriter. The Warrants will not be transferable to anyone, for a period of twelve (12) months after the date of the definitive Prospectus, except to officers of the Underwriter. 13. Registration Rights. The Company agrees that, upon written request of the then holder(s) of at least 80% of the total Common Stock issued upon the exercise of the Warrants, made at any time within the period commencing twelve (12) months and ending five (5) years after the date of the definitive Prospectus, the Company will file, no more than once, a Registration Statement, and all necessary amendments thereto, under the Securities Act of 1933, as amended, registering the shares of Common Stock underlying the Warrants. The Company agrees to use its best efforts to cause the registration statement to become effective. All expenses of such registration or qualification, including, but not limited to, legal, accounting, and printing fees, will be borne by the Company, but the Company shall not be responsible for the cost of any separate counsel to review the registration statement on behalf of or to advise the selling shareholders. In addition to the above, the Company understands and agrees that if, at any time, it should file a Registration Statement with the Securities and Exchange Commission pursuant to the Act, regardless of whether some of the holder(s) of the Warrants and Common Stock issued upon the exercise of the Warrants shall have theretofore availed itself (themselves) of the right above provided, the Company, at its own expense, will offer to said holder(s) the opportunity to register the shares of Common Stock issued upon the exercise of the Warrants. This paragraph is not applicable to a Registration Statement filed by the Company with the SEC on Form S-4 or Form S-8, or any other inappropriate form. In addition to the rights above provided, the Company will cooperate with the then holder(s) of the Warrants and Common Stock issued upon the exercise of the Warrants in preparing and signing any Registration Statement in addition to the Registration Statements discussed above, required in order to sell or transfer the shares of Common Stock issued upon the exercise of the Warrants and will supply all information required therefor, but such additional Registration Statement or Notification shall be at the then holder(s) cost and expense. 14. Right of First Refusal. Subject to compliance by the Underwriter with the terms of the Underwriting Agreement, the Company and the Underwriter understand and agree that for a period of [period of right of first refusal] years from the date of the definitive Prospectus, the Underwriter shall have a preferential right to purchase for its account or to sell for the account of the Company any equity or debt securities with respect to which the Company may seek a public offering or private offering for cash. Specifically excluded from the Underwriter's right of first refusal are public or private offerings of the Company's shares in exchange for properties, assets or stock of other individuals or corporations. The Company will consult the Underwriter with regard to any such covered offering for cash prior to consulting any other prospective underwriter. The Company shall notify the Underwriter in writing of the Company's intention to offer its securities in a covered offering and the terms (including the price to the Underwriter or other method of determining the underwriting discount or fee) and conditions of the proposed offering. Underwriter shall then have [period of time within which underwriter must exercise right of first refusal] days from the date it receives such written notice from the Company to decide whether it wishes to participate as Manager, Co-Manager, or otherwise, as determined by the Underwriter, in the proposed offering. If Underwriter determines that it does not wish to participate in the proposed offering, then it shall so notify the Company of its intention in writing within such [period of time within which underwriter must exercise right of first refusal]-day period. The Company may within a period of [period within which company must enter into letter of intent with another underwriter if right of first refusal is not exercised] days from the date of receipt of such notice then enter into a letter of intent for the public sale or, as appropriate, a contract for the private sale, of any of its securities through any other person, firm or corporation on the same general terms and conditions as those which were tendered to Underwriter. Provided, however, as to a public offering, if a definitive underwriting agreement with a firm commitment is not executed by the Company with such third party within [number of days within which underwriting agreement must be entered into] days thereafter, all the rights of the Underwriter hereunder shall be reinstated. Nothing in this Agreement shall be construed as granting the continuation of such preferential right on the part of Underwriter beyond such five-year period. The Company shall not be required to consult with the Underwriter concerning any borrowings from banks and institutional lenders or concerning financing under any equipment leasing or similar arrangements. 15. Expenses. The Company shall bear all costs and expenses incident to the issuance, offer, sale and delivery of the Shares, including all expenses and fees incident to the filing of the Registration Statement with the SEC and the NASD filing, the costs and counsel fees of qualification under state securities laws, fees and disbursements of counsel and accountants for the Company, all travel and other expenses incurred by the Company's officers and personnel in making presentations to prospective members of the underwriting and selling groups and to institutional investors as reasonably requested by the Underwriter, costs for preparing and printing the Registration Statement, and cost of printing as many copies of the underwriting documents, Prospectuses and Preliminary Prospectuses as the Underwriter may deem necessary and related exhibits, including all amendments and supplements to the Registration Statement. The printer selected by the Company shall be a financial printer acceptable to the Underwriter. The Underwriter agrees to pay all fees and expenses of any legal counsel whom it may employ to represent it separately in connection with or on account of the proposed offering by the Company other than counsel fees relating to blue-sky filings, all advertising, mailing, telephone, travel, clerical or other office costs incurred or to be incurred by the Underwriter or by its sales personnel in connection with the Company's proposed offering which is the subject of this Letter of Intent. To the extent blue-sky work is undertaken by counsel to the Underwriter pursuant to paragraph 9 hereof, it shall be separately billed to the Company and shall be the financial obligation of the Company. 16. Representations of the Company. The Company represents to the Underwriter that no person has acted as a finder or investment adviser in connection with the transactions contemplated herein and will indemnify the Underwriter with respect to any claim for finder's fee in connection herewith. The Company represents and warrants that no officer, director or shareholder of the Company is a member of the NASD, an employee or associated member of the NASD. The Company represents and warrants that it has not promised or represented to any person that any part of the Shares will be directed or otherwise made available to them in connection with the proposed public offering. The Company represents that it has separately disclosed to the Underwriter all potential conflicts of interest involving officers, directors, principal shareholders and/or employees. 17. 1934 Act Registration and Quarterly Reports to Shareholders, Listing on NASDAQ, Listing in Moody's, Transfer Agent. The Company agrees that it will prepare and file a Registration Statement with the SEC under the Securities Exchange Act of 1934, as amended, as soon as possible and in time to become effective concurrently with the Securities Act registration statement The Company agrees that for at least five years after its Common Stock is registered under the Securities Exchange Act of 1934 the Company will issue to the Company's shareholders, within 45 days after the end of the Company's first three fiscal quarters, quarterly reports containing unaudited financial information. The Company, upon request of the Underwriter, will promptly apply for listing on the NASD Automatic Quotation System and, if eligible, the National Market System. The Company will within 120 days from completion of the offering apply for "listing" in Moody's Over-the-Counter Manual and maintain such "listing" on a current basis. The Company shall obtain a CUSIP number for its certificates and shall engage a transfer agent acceptable to the Underwriter. 18. Formal Agreement Contemplated. It is understood that this letter is merely a letter and statement of intent and not a legally enforceable agreement except as to matters set forth in Paragraphs 11, 15 and 16 hereof. The Underwriter reserves the right in its uncontrolled discretion (until a formal underwriting agreement has been negotiated and executed) to determine whether the offering can be successfully marketed through an underwriting syndicate, and may, without any obligation to the Company, for any reason, including, without limiting the generality of the foregoing, market conditions (both those relating to securities and commodities generally and those relating to the Company's stock) and the reaction of prospective members of the underwriting syndicate and selling group to the proposed offering, decline to proceed further with the offering. 19. Effective Date. The Company shall not obtain an effective date from the SEC or allow the Registration Statement to become effective without the prior approval of the Underwriter. If this letter correctly sets forth our understanding, please so indicate by signing and returning to us the enclosed copy of this letter.
Very truly yours,
[name of the underwriter]
By ____________________________________________________________________________
[name and title of authorized officer of the underwriter]
Understood and accepted on ________ _____, 20__.
[name of the issuer]
By ______________________________
[name and title of officer of the issuer]
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