EXHIBIT 1.01
XXXXXXXX.XXX
_______ Shares
UNDERWRITING AGREEMENT
______, 1997
Xxxxxxx & Co., Inc.
(As Representative of the Several
Underwriters Named in Schedule 1 hereto)
00000 XxxXxxxxx, 0xx Xxxxx
Xxxxxx, Xxxxxxxxxx 00000
Dear Sirs:
Xxxxxxxx.Xxx, a California corporation (the "Company"), hereby confirms its
agreement (this "Agreement") with the several underwriters named in Schedule 1
hereto (the "Underwriters"), for whom Xxxxxxx & Co., Inc. has been duly
authorized to act as representative (in such capacity, the "Representative"), as
set forth below:
SECTION 1.
DESCRIPTION OF TRANSACTION
The Company proposes to issue and sell to the Underwriters on the Closing
Date (as defined below), pursuant to the terms and conditions of this Agreement,
an aggregate of ___________ shares ("Firm Shares") of the Company's Common Stock
("Common Stock") at a price of $_______ per Share on the terms as hereinafter
set forth. The Company also proposes to issue and sell to the several
Underwriters on or after the Closing Date not more than ___________ additional
Shares if requested by the Representative as provided in Section 3.2 of this
Agreement (the "Option Shares"). The Firm Shares and any Option Shares are
collectively referred to herein as the "Shares."
SECTION 2.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Underwriters to enter into this Agreement, the
Company hereby represents and warrants to and agrees with the Underwriters that:
2.1 Registration Statement and Prospectus. A registration statement
on Form SB-2 (File No. __________) with respect to the Shares, including the
related prospectus, copies of which have heretofore been delivered by the
Company to the Underwriters, has been filed by the Company in conformity with
the requirements of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), and one or more
amendments to such registration statement have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(a) if such 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 an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration statement),
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 Representative prior to the execution of this Agreement, or (b) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Representative prior to the execution of this
Agreement. As used in this Agreement, the term "Registration Statement" means
such registration statement on Form SB-2 and all amendments thereto, including
the prospectus, all exhibits and financial statements, as it becomes effective;
the term "Preliminary Prospectus" means each prospectus included in said
Registration Statement before it becomes 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 required to be filed pursuant to said Rule
424(b), such term means the prospectus included in the Registration Statement
when it becomes effective.
2.2 Accuracy of Registration Statement and Prospectus. Neither the
Commission nor the "blue sky" or securities authority of any jurisdiction has
issued any order preventing or suspending the use of any Preliminary Prospectus.
When (a) any Preliminary Prospectus was filed with the Commission, (b) the
Registration Statement or any amendment thereto was or is declared effective,
and (c) the Prospectus or any 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 to be so filed, when the Registration Statement or
the amendment thereto containing such amendment or supplement to the Prospectus
was or is declared effective) and on the Closing Date the Prospectus, as amended
or supplemented at any such time, such filing (i) contained or will contain all
statements required to be stated therein in accordance with, and complied or
will comply in all material respects with the requirements of, the Act and the
rules and regulations of the Commission promulgated thereunder (the "Rules and
Regulations") 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 in light of the circumstances under which they
were made. The foregoing representation does not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement or any
amendment thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representative specifically for use
therein.
2.3 Incorporation and Standing. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of California and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the Company.
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2.4 Due Power and Authority. The Company has full corporate power to
own or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus; and the Company has full
corporate power to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it. The execution and delivery of this
Agreement and consummation of the transactions contemplated herein have been
duly authorized by the Company and this Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with the terms
hereof, except as may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
general equitable principles, and as rights to indemnity and contribution
hereunder may be limited by applicable law.
2.5 Consents; No Defaults. The issuance, offering and sale of the
Shares to the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (a) require
the consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained, or as may be
required under the Act or under the securities or blue sky laws of any
jurisdiction, or (b) conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, lease or other material agreement or instrument to
which the Company is a party or by which the Company or any of its properties is
bound, or the charter documents or bylaws of the Company, or any statue or any
judgment, decree, order, rule or regulation of any court or other governmental
authority or any arbitrator applicable to the Company.
2.6 No Breach or Default. The company is not in breach of any term
or provision of its Articles of Incorporation or Bylaws; no default exists, and
no event has occurred which with notice or lapse of time or both, would
constitute a default, in the Company's due performance and observance of any
term, covenant or condition of any indenture mortgage, deed of trust, lease,
note, bank loan or credit agreement or any other material agreement or
instrument to which the Company or its properties may be bound or affected in
any respect which would have a material adverse effect on the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company.
2.7 Licenses. The Company possesses all certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary for the conduct of its business, and the Company has not
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business,
prospectus, net worth or results of operations of the Company, except as
described in or contemplated by the Registration Statement. Each approval,
registration, qualification, license, permit, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body or agency necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions contemplated (except such additional actions as may be required by
the National Association of Securities Dealers, Inc. or may be necessary to
qualify the Common Stock for public offering under state securities or blue sky
laws) has been obtained or made and each is in full force and effect.
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2.8 Compliance with Laws. Except as disclosed in the Registration
Statement and in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), the Company is not in violation of any
laws, ordinances, governmental rules or regulations to which it is subject which
would have a material adverse effect on the condition (financial or otherwise),
business, properties, prospects, net worth or results of operations of the
Company.
2.9 Existing Capital Structure and Shareholder Rights. The Company
has an authorized, issued and outstanding capitalization as set forth in, and
capital stock conforms in all material respects to the description contained in,
the Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus. Except as described in the Registration Statement and in
the Prospectus there are no outstanding (a) securities or obligations of the
Company convertible into or exchangeable for any capital stock of the Company,
(b) warrants, rights or options to subscribe for or purchase from the Company,
any such capital stock or any such convertible or exchangeable securities or
obligations, or (c) obligations of the Company to issue such shares, any such
convertible or exchangeable securities or obligations, or any such warrants,
rights or obligations. All of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, and have been issued in compliance with all federal and state
securities laws. No preemptive rights of shareholders exist with respect to any
capital stock of the Company. No shareholder of the Company has any right
pursuant to any agreement which has not been waived or honored to require the
Company to register the sale of any securities owned by such shareholder under
the Act in the public offering contemplated herein except as disclosed in the
Registration Statement. The Company has no subsidiaries, and does not own any
shares of stock or any other equity interest in any firm, partnership,
association or other entity.
2.10 Authority for Issuance of Shares. The issuance of the Common
Stock issuable in connection with the Shares has been duly authorized and at any
Firm or Option Closing Date as defined herein after payment therefor in
accordance herewith, such Common Stock will be validly issued, fully paid and
nonassessable. The Shares will conform in material respects with all statements
with regard thereto in the Registration Statement and the Prospectus.
2.11 Title to Tangible Property. Except as otherwise set forth in or
contemplated by the Registration Statement and Prospectus. The Company has good
and marketable title to all items of personal property owned by the Company,
free and clear of any security interest, liens, encumbrances, equities, claims
and other defects, except such as do not materially and adversely affect the
value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company, and any real property and
buildings held under lease by the Company are held under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such property
and buildings by the Company.
2.12 Title to Intellectual Property. Except as described in the
Prospectus, the Company does not own any patents or trademarks. The Company owns
or possesses, or can acquire on reasonable terms, all material, service marks,
trade names, licenses, copyrights and propriety or other confidential
information currently employed by it in connection with its business, and the
Company has not received any notice of infringement of or conflict with asserted
rights of any third party with respect to any of the foregoing intellectual
property rights which, singly or in the aggregate, if the subject of any
unfavorable decision, ruling of finding would 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.
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2.13 Contract Rights. The agreements to which the Company is a party
described in the Registration Statement and Prospectus are valid agreements,
enforceable by the Company in accordance with their terms, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditor's rights generally or by equitable principles, and, to the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any such agreements.
2.14 No Market Manipulation. The Company has not taken nor will it
take, directly or indirectly, any action designed to cause or result, or which
might reasonably be expected to cause or result, in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Stock.
2.15 No Other Sales or Commissions. The Company has not since the
filing of the Registration Statement (i) sold, bid for,purchased, attempted to
induce any person to purchase, or paid anyone any compensation for soliciting
purchases of, its capital stock or (ii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any securities of the Company
except for the sale of Shares by the Company under this Agreement.
2.16 Accuracy of Financial Statements. The financial statements and
schedules of the Company included in the Registration Statement and the
Prospectus, or if the Prospectus is not in existence, the most recent
Preliminary Prospectus, fairly present in all material respects the financial
position of the Company and the results of operations and changes in financial
condition as of the dates and periods therein specified. Such financial
statements and schedules have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as otherwise noted therein and include all financial information
required to be included by the Act. The selected financial data set forth under
the captions "PROSPECTUS SUMMARY--Summary Financial Information," "SELECTED
FINANCIAL DATA" and MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS and the information set forth under the captions
"CAPITALIZATION" and "DILUTION" in the Prospectus, or, if the Prospectus is not
in existence the most recent Preliminary Prospectus, fairly present in all
material respects, on the basis stated in the Prospectus or such Preliminary
Prospectus the information included therein .
2.17 Independent Public Accountant. Singer, Lewak, Xxxxxxxxx &
Xxxxxxxxx LLP, which have certified or shall certify certain of the financial
statements of the Company filed or to be filed as part of the Registration
Statement and the Prospectus, are independent certified public accountants
within the meaning of the Act and the Rules and Regulations.
2.18 Internal Accounting. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (a)
transactions are executed in accordance with management's general or specific
authorization; (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (c) access to assets is
permitted only in accordance with management's general or specific
authorization; and (d) the record accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2.19 Litigation. Except as set forth in the Registration Statement
and Prospectus, there is and at the Closing Date there will be no action, suit
or proceeding before any court or governmental
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agency, authority or body pending or to the knowledge of the Company threatened
which might result in judgments against the Company not adequately covered by
insurance or which collectively might result in any material adverse change in
the condition (financial or otherwise), the business or the prospects of the
Company, or would have a material adverse effect on the properties or assets of
the Company. The Company is not subject to the provisions of any injunction,
judgement, decree or order of any court, regulatory body, administrative agency
or other governmental body or arbitral forum, which might result in a material
adverse change in the business, assets or condition of the Company.
2.20 No Material Adverse Change. Subsequent to the respective dates as
of which information is given in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), (a) the Company has not incurred any material adverse change in or
affecting the condition, financial or otherwise, of the Company or the earnings,
business affairs, management, or business prospects of the Company, whether or
not occurring in the ordinary course of business, (b) there has not been any
material transaction entered into by the Company, other than transactions in the
ordinary course of business or tranactions specifically described in the
Registration Statement as it may be amended or supplemented, (c) the Company has
not sustained any material loss or interference with its business or properties
from earthquake, fire, flood, windstrom, accident or other calamity, (d) the
Company has not paid or declared any dividends or other distribution with
respect to its capital stock and the Company is not in default in the payment of
principal or interest on any outstanding debt obligations, and (e) there has not
been any change in the capital stock (other than the sale of the Common Stock
hereunder or the exercise of outstanding stock options or warrants as described
in the Registration Statement) or material increase in indebtedness of the
Company. The Company does not have any known material contingent obligation
which is not disclosed in the Registration Statement (or contained in the
financial statements or related notes thereto), as such may be amended or
supplemented.
2.21 Transactions With Affiliates. Subsequent to the respective dates
as of which information is given in the Registration Statement and Prospectus or
if the Prospectus is not in existence the most recent Preliminary Prospectus and
except as may otherwise be indicated or contemplated herein or therein, (a) the
Company has not entered into any transaction with an "affiliate" of the Company,
as defined in the Act and the Rules and Regulations, or (b) declared, paid or
made any dividend or distribution of any kind on or in connection with any class
of its capital stock, and (c) the Company has no knowledge of any transaction
between any affiliate of the Company and any significant customer or supplier of
the Company, except in its ordinary course of business.
2.22 Insurance. Except as otherwise set forth in or contemplated by
the Registration Statement and Prospectus, 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 business 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.
2.23 Tax Returns. The Company has filed all foreign, federal, state
and local tax returns that are required to be filed or has requested extensions
thereof and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of the
foregoing is due
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and payable or adequate accruals have been set up to cover any such unpaid
taxes, except for any such assessment, fine or penalty is currently being
contested in good faith.
2.24 Political Contributions. The Company has not directly or
indirectly, (a) made any unlawful contribution to any candidate for public
office, or failed to disclose fully any contribution in violation of law, or (b)
made any payment to any federal, state, local, or foreign governmental officer
or official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any other such jurisdiction.
2.25 Investment Company Act. The Company conducts its operations in
a manner that does not subject it to registration as an investment Company under
the Investment Company Act of 1940, as amended, and the transactions
contemplated by this Agreement will not cause the Company to become an
investment Company subject to registration under the Investment Company Act of
1940, as amended.
2.26 Sales of Securities. No securities of the Company have been
sold by the Company or any predecessor of the Company, or by, or on behalf of,
or for the benefit of, any person or persons controlling, or controlled by, or
under common control with the Company within three years prior to the date
hereto, except as set forth in the Prospectus and in Item 26 of the Registration
Statement.
2.27 Finder's and Brokers. The Company and the Representative each
represent to the other that no person has acted as a finder in connection with
the transactions contemplated herein and each will indemnify the other party
with respect to any claim for finder's or broker's fees in connection herewith.
Except as set forth in the Registration Statement and in the Prospectus, the
Company further represents that it does not have any management or financial
consulting agreement with any person and that, except as set forth in the
Registration Statement and in the Prospectus or otherwise disclosed to the
Representative in writing prior to the date hereof, no promoter, officer,
director or five percent or greater shareholder of the Company is, directly or
indirectly, affiliated or associated with an NASD member-broker-dealer.
2.28 Use of Proceeds. The Company will apply the proceeds from the
sale of Shares in the manner set forth in the Prospectus under the caption "Use
of Proceeds."
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SECTION 3.
PURCHASE, SALE AND DELIVERY OF THE SHARES
3.1 Purchase of Firm Shares. 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 of
the Underwriters named in Schedule 1 hereto, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company, at a purchase
price of $___ per Share, the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto. The Company will make one or more
certificates for Common Stock constituting the Firm Shares, in definitive form
and in such denomination or denominations and registered in such name or names
as the Representative shall request upon notice to the Company at least 48 hours
prior to the Firm Closing Date, available for checking and packaging by the
Representative at the offices of the Company's transfer agent or registrar or
the correspondent or the agent of the Company transfer agent or registrar at
least 24 hours prior to the Firm Closing Date. Payment for the Firm Shares shall
be made by bank wire payable in same day funds to the order of the Company drawn
to the order of the Company for the Firm Shares, against delivery of
certificates therefor to the Representative. Delivery of the documents,
certificates and opinions described in Section 6 of this Agreement, the Firm
Shares and payment for the Firm Shares and the Option Shares shall be made at
the offices of Xxxxxxx & Co., Inc., 19000 MacArthur, 0xx Xxxxx, Xxxxxx,
Xxxxxxxxxx 00000, at 9:00 a.m, Los Angeles time, on the third full business day
following the date hereof (on the fourth full business day if this Agreement is
executed after 12:30 p.m, California time), or at such other places, time or
date as the Representative and the Company may agree upon or as the
Representative may determine pursuant to Section 9 hereof, such time and date of
delivery against payment being herein referred to as the "Firm Closing Date."
3.2 Over-Allotment, Option Shares. For the purpose of covering any
over-allotments in connection with the distribution and sale of the Firm Shares
as contemplated by the Prospectus, the Company hereby grants to you on behalf of
the several Underwriters an option to purchase, severally and not jointly, the
Option Shares, The purchase price to be paid for any Option Shares shall be the
same price per share as the price per Share for the Firm Shares set forth above
in Section 3.1, plus, if the purchase and sale of any Option Share takes place
after the Firm Closing Date and after the Common Stock is trading "ex-dividend,
"an amount equal to the dividends payable on the Common Stock contained in such
Option Shares. The option granted hereby may be exercised in the manner
described below as to all or any part of the Option Shares from time to time
within forty-five days after the date of the Prospectus. The Underwriters shall
not be under any obligation to purchase any of the Option Shares prior to the
exercise of such option. The Representative may from time to time exercise the
option granted hereby by giving notice in writing or by telephone (confirmed in
writing) to the Company setting forth the aggregate number of Option Shares as
to which the several Underwriters are then exercising the option and the date
and time for delivery of and payment for such Option Shares. Any such date of
delivery shall be determined by the Representative but shall not be earlier than
two business days or later than seven 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 or as the Representative may
determine pursuant to Section 9 hereof, is herein called the "Option Closing
Date" with respect to such Option Shares. Upon each exercise of the option as
provided herein, subject to the terms and conditions herein set forth, the
Company shall become obligated to sell to each of the several Underwriters, and
each of the Underwriters (severally and not jointly) shall become obligated to
purchase from the Company, the same percentage of the total number of the Option
Shares as to which the several Underwriters are then exercising the option as
such Underwriter is obligated to purchase of the aggregate
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number of Firm Shares, as adjusted by the Representative in such manner as it
deems advisable to avoid fractional shares. If the option is exercised as to all
or any portion of the Option Shares, one or more certificates for Common Stock
contained in such Option Shares, in definitive form, and payment therefore,
shall be delivered on the related Option Closing Date in the manner, and upon
the terms and conditions, set forth in Section 3.1, except that reference
therein to the Firm Shares and Firm Closing Date shall be deemed, for purposes
of this Section 3.2, to refer to such Option Shares and Option Closing Date,
respectively. No Option Shares shall be required to be, or be, sold and
delivered unless the Firm Shares have been, or simultaneously are, sold and
delivered as provided in this Agreement.
3.3 Default by an Underwriter. It is understood that you,
individually and not as the Representative, may (but shall not be obligated to)
make payment on behalf of any Underwriter or Underwriters for any of the Shares
to be purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their obligations
hereunder.
SECTION 4.
OFFERING BY THE UNDERWRITERS
Upon payment by the Underwriters of the purchase price of $_______ per
Share and the Company's authorization of the release of the Firm Shares, the
several Underwriters shall offer the Firm Shares for sale to the public upon the
terms set forth in the Prospectus. The Representative may from time to time
thereafter change the public offering prices and other selling terms. If the
option set forth in Section 3.2 of this Agreement is exercised, then upon the
Company's authorization of the release of the Option Shares the several
Underwriters shall offer such Shares for sale to the public upon the foregoing
terms.
SECTION 5.
COVENANTS OF THE COMPANY
Except as otherwise stated below, the Company covenants and agrees
with each of the Underwriters that:
5.1 Company's Best Efforts to Cause Registration Statement to Become
Effective. The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto, 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 Common
Stock is required to be delivered under the Act, the Company (a) will comply
with all requirements imposed upon it by the Act and the Rules and Regulations
to the extent necessary to permit the continuance of sales of or dealings in the
Common Stock in accordance with the provisions hereof and of the Prospectus, as
then amended or supplemented, and (b) will not file with the Commission the
prospectus or the amendment referred to in the second sentence of Section 2.1
hereof, any amendment or supplement to such prospectus or any amendment to the
Registration Statement unless and until the Representative have been advised of
such proposed filing, has been furnished with a copy for a reasonable period of
time prior to the proposed filing, and has given its consent to such filing,
which shall not be unreasonably withheld or delayed.
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5.2 Preparation and Filing of Amendments and Supplements. The Company
will prepare and file with the Commission, in accordance with the Rules and
Regulations of the Commission, promptly upon written request by the
Representative or counsel for the Representative, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be reasonably necessary or advisable in connection with the distribution of the
Shares by the several Underwriters, and the Company 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
Representative, 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 Representative of each such
filing or effectiveness.
5.3 Notice of Stop Orders. The Company will advise the Representative
promptly after receiving notice or obtaining knowledge of: (a) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any amendment thereto, or any order preventing or
suspending the use of any Preliminary Prospectus of the Prospectus or any
amendment or supplement thereto; (b) the suspension of the qualification of the
Shares for offering or sale in any jurisdiction; (c) the institution,
threatening or contemplation of any proceeding for any such purpose; or (d) 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.
5.4 Blue Sky Qualification. The Company will arrange and cooperate
with counsel to the Representative for the qualification of the Shares for
offering and sale under the securities or blue sky laws of such jurisdictions as
the Representative may designate and will continue such qualifications in effect
for as long as may be necessary to complete the distribution of the Shares;
provided, however, that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction.
5.5 Post-Effective Amendments. If, at any time when a prospectus
relating to the Shares 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 not misleading,
in the light of the circumstances under which they were made, 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, the Company will promptly
notify the Representative thereof and subject to Section 3 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.
5.6 Delivery of Prospectuses. The Company will, without charge,
provide (a) to the Representative and to counsel for the Representative a signed
copy of the Registration Statement originally filed with respect to the Shares
and each amendment thereto (in each case including exhibits thereto), (b) to
each other Underwriter so requesting in writing, a conformed copy of such
Registration Statement and each amendment thereto (in each case without exhibits
thereto) and (c) so long as a prospectus relating to the Shares 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 Representative may
reasonably request.
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5.7 Section 11(a) Financials. The Company will, as soon as
practicable but in any event not later that 90 days after the period covered
thereby, make generally available to its security holders and to the
Representative a consolidated earnings statement of the Company and its
subsidiaries that satisfies the provisions of Section 11(a) of the Act and Rule
158 thereunder covering a twelve-month period beginning not later than the first
day of the Company's fiscal quarter next following the effective date of the
Registration Statement.
5.8 Application of Proceeds. The Company will apply the net proceeds
from the sale of the Shares as set forth in the Prospectus and Registration
Statement and will not take any action that would cause it to become an
investment Company under the Investment Company Act of 1940, as amended.
5.9 Sales of Securities. Except as set forth in the Registration
Statement, the Company will not, directly or indirectly, without ten (10) days
prior written notice to the Representative, offer, sell, grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of any option
to purchase or other disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of two years after the date hereof, except (a) to the
Underwriters pursuant to this Agreement; and (b) up to _________ options to be
granted pursuant a stock option plan to be adopted by the Company provided that
such persons have delivered to the Representative the agreement described in
Section 7.7 of this Agreement.
5.10 Application to NASDAQ. The Company will cause the Shares to be
duly included for quotation on the Nasdaq SmallCap Market prior to the Closing
Date. If requested by the Representative, the Company will also cause the Shares
to be duly included for listing on the Pacific Stock Exchange. The Company will
use its best efforts to ensure that the Shares remain included for quotation on
the Nasdaq SmallCap Market and the Pacific Stock Exchange (if applicable)
following the Closing Date for a period of not less than three years.
5.11 Application for Secondary Market Exemptions. To the extent
necessary or appropriate, the Company will make such application, file such
documents, and furnish such information as may be necessary to list the Shares
in the securities listing manuals of Standard & Poor's Corporation or Xxxxx'x
Industrial Services contemporaneous with the filing of the Prospectus with the
Commission, and shall maintain listing in such manuals thereafter for a period
of no less than five years. As of the first date that the Company and its
securities are eligible, the Company will apply with the Department of
Corporations in the State of California to have the Shares listed as an
"Eligible Security" for purposes of secondary market exemptions in the State of
California. The Company will take such other similar steps as are reasonably
necessary to obtain exemptions for secondary trading of the Company's Shares in
various United States jurisdictions.
5.12 Reports to Shareholders. So long as any Common Stock is
outstanding until five years after the Closing Date, the Company will furnish to
the Representative (a) as soon as available a copy of each report of the Company
(i) mailed to shareholders and (ii) filed with the Commission and (b) from time
to time such other information concerning the Company as the Representative may
reasonably request.
5.13 Delivery of Documents. At or prior to the Closing, the Company
will deliver to the Representative true and correct copies of the Articles of
Incorporation of the Company and all amendments thereto, all such copies to be
certified by the Secretary of State of the State of California, a good standing
certificate from the Secretary of State of California, dated no more than five
business days prior to the
11
Closing Date; true correct copies of the bylaws of the Company, as amended,
certified by the Secretary of the Company and true and correct copies of the
minutes of all meetings of the directors and shareholders of the Company held
prior to the Closing Date which in any way relate to the subject matter of this
Agreement.
5.14 Underwriters' Warrant. On or prior to the Closing Date, the
Company shall deliver to the Representative warrants (the "Underwriter's
Warrants"), at an aggregate purchase price of $100, to purchase Shares equal to
10% of the Firm Shares sold in the Offering, which Underwriter's Warrants shall
be exercisable for a per Share exercise price equal to 120% of the per Share
public offering price of the Firm Shares.
5.15 Right of First Refusal. The Company grants to the
Representative a three (3) year right of first refusal (a) to underwrite or
place any public or private sale of equity or debt securities of the
Company, or any subsidiary or successor of the Company, offered for sale by the
Company or any of its subsidiaries, successors or shareholders and (b) to
purchase for the Representative's account or to sell for the account of the
Company's officers, directors and 10% or greater shareholders any securities
owned by such persons that such persons desire to sell, whether privately,
pursuant to a registered offering, pursuant to Rule 144 promulgated pursuant to
the Act or otherwise; provided, however, that such right shall not apply if the
-------- -------
Company proposes to conduct, subsequent to the date hereof, a secondary public
offering that is underwritten by a major - tier investment banking firm. Such
right must be exercised by the Representative within twenty (20) days after it
receives written notice from the Company or such persons, as applicable, of a
proposed sale, which notice shall specify the terms of such proposed sale in
reasonable detail. If the Representative declines to exercise the right granted
hereunder but subsequent thereto the terms of such proposed sale change, the
Company or such persons, as applicable shall again provide written notice to the
Representative of the new terms and the Representative shall again have twenty
(20) days after it receives such written notice to exercise the right granted
herein.
5.16 Merger; Sale of Assets of other Acquisition of or by the
Company. For a period of three (3) years from the date hereof the Company agrees
to consult with the Representative with respect to any merger, consolidation,
acquisition, or sale of substantially all of the Company's assets. The
Representative agrees to evaluate such merger, consolidation, acquisition, or
sale of substantially all of its assets, or proposal, consult with the officers
of the Company and perform such other financial advisory services with respect
to such proposal as the Company may request. In consideration of such services,
the Company agrees to pay the Representative at the closing of such merger,
consolidation, acquisition, or sale of substantially all of its assets a fee
equal to 5% of the first one million dollars of Aggregate Value of such
transaction, 4% of the second million dollars of Aggregate Value of such
transaction, 3% of the third million dollars of Aggregate Value of such
transaction, 2% of the fourth million dollars of Aggregate Value of such
transaction and 1% of the Aggregate Value of such transaction in excess of $4
Million. For purposes hereof, "Aggregate Value" would mean the fair market value
of all consideration (including without limitation cash, securities, other
assets and contingent payments such as earnouts) received or paid by the Company
and/or its shareholders, together with the fair market value of debt or
liabilities assumed or refinanced as part of such transaction.
5.17 Cooperation With Representative' Due Diligence. At all times
prior to the Closing Date, the Company will cooperate with the Representative in
such investigation as the Representative may make or cause to be made of all the
properties, business and operations of the Company in connection with
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the purchase and public offering of the Shares and the Company will make
available to the Representative in connection therewith such information in its
possession as the Representative may reasonably request.
5.18 Stock Transfer Agent. The Company has appointed U.S. Stock
Transfer, Glendale, California, as Transfer Agent for the Common Stock. The
Company will not change or terminate such appointment for a period of two years
from the effective date without first obtaining the written consent of the
Representative, which consent shall not be unreasonably withheld.
5.19 Publicity. Prior to the Firm Closing Date, or the Option
Closing Date, as the case may be, the Company shall not issue any press release
or other communication directly or indirectly and shall hold no press conference
with respect to the Company, its financial condition, results of operations,
business, properties, assets, liabilities and any of them, or this offering,
without the prior written consent of the Representative. If at any time during
the 90 day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in the opinion of the Representative the market price of the
Common Stock has been or is likely to be materially affected, regardless of
whether such rumor, publication of event necessitates a supplement to or
amendment of the Prospectus, the Company will, after written notice from the
Representative, evaluate the propriety of disseminating a press release or other
public statement reasonably acceptable to the Representative and their counsel,
commenting on such rumor, publication or event.
5.20 Board of Directors Meetings. The Company shall notify the
Representative of all meetings of the Board of Directors and shareholders of the
Company and shall have the right, for a period of three (3) years from the date
of the Prospectus to have an observer at such meetings. Such designee will also
be sent all communications which the Company sends to its directors at the same
time as such directors receive communications and shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings,
including, but not limited to, food, lodging, and transportation
5.21 Forecasts and Projections. For a period of two years from the
effective date of the Registration Statement, the Company shall provide the
Representative with routine internal forecasts if any such reports are prepared
by the Company for dissemination to the public.
5.22 Key Man Insurance. The Company will maintain for a period of
at least five (5) years, Key Man Insurance on Xxxxxx X. XxXxxxx in the amount of
$1,000,000. The Representative reserves the right to write the above policy at
the next renewal date thereof providing it can do so on terms no less favorable
to the Company.
SECTION 6.
EXPENSES
6.1 Offering Expenses. The Company will pay upon demand all costs
and expenses incident to the performance of the Company's obligations under this
Agreement, whether or not the transactions contemplated herein are consummated
or this Agreement is terminated pursuant to Section 11 hereof, including all
costs and expenses incident to (a) the printing or other production of documents
with respect to the transactions, including any costs of printing the
Registration Statement originally filed with respect to the Shares and any
amendment thereto, any Preliminary Prospectus and the Prospectus and any
amendment or supplement thereto, this Agreement, the Agreement Among
Underwriters, the Selected Dealer
13
Agreement, and any blue sky memoranda, (b) all arrangements relating to the
delivery to the Underwriters of copies of the foregoing documents, (c) the fees
and disbursements of counsel, accountants and any other experts or advisors
retained by the Company, (d) preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Common Stock, including
transfer agent's and registrar's fees, (e) the qualification of the Shares under
state securities and blue sky laws, including filing fees and fees and
disbursements of counsel for the Representative relating thereto, (f) the filing
fees of the Commission and the National Association of Securities Dealers, Inc.
relating to the Shares, (g) any listing fees for the quotation of the Common
Stock on the Nasdaq SmallCap Market or listing on the Pacific Stock Exchange (if
applicable), (h) the cost of placing "tombstone advertisements" in any
publications which may be selected by the Representative (provided that any such
cost in excess of $5,000 shall require the consent of both the Company and the
Representative), and (i) all other advertising that has been approved in advance
by the Company relating to the offering of the Shares (other than as shall have
been specifically approved in writing by the Representative to be paid for by
the Underwriters). In addition to the foregoing the Company agrees to pay to the
Representative a non-accountable expense allowance of 3% of the gross amount to
be raised from the sale of the Shares hereunder, payable at the Closing(s), of
which $________ has already been paid by the Company in connection with this
offering. If the sale of the Shares provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 7 (other than Section 7.5) hereof is not satisfied, because this
Agreement is terminated pursuant to Section 11 hereof or because of any failure,
refusal or inability on the part of the Company to perform all obligations and
satisfy all conditions on its part to be satisfied hereunder other than by
reason of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
counsel fees and disbursements) that shall have been reasonably incurred by them
in connection with the proposed purchase and sale of the Shares, excluding any
costs in excess of $50,000. The Company shall in no event be liable to any of
the Underwriters for the loss of anticipated profits from the transactions
covered by this Agreement.
6.2 INTERIM INDEMNIFICATION. The Company agrees that as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 8.1 hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Underwriters shall promptly
return such payment to the Company together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) listed from time to time in THE WALL
STREET JOURNAL which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
The Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim action, investigation, inquiry or other
proceeding described in Section 8.2 hereof, they will reimburse the Company on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigation or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Underwriters' obligation to reimburse
the Company for such expenses and the possibility that such payments
14
might later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement payment is so held to have
been improper, the Company shall promptly return such payment to the
Underwriters together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made to
the Company within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
SECTION 7.
CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS
The obligations of the several Underwriters to purchase and pay for the
Firm Shares shall be subject, unless waived by the Representative in its sole
discretion, to the accuracy of the representations and warranties of the Company
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:
7.1 Effectiveness of Registration Statement. If the Registration
Statement or any amendment thereto filed prior to the Firm Closing Date has not
been declared effective as of the time of execution hereof, the Registration
Statement or such amendment shall have been declared effective not later than 11
a.m., California time, on the date on which the amendment to the Registration
Statement originally filed with respect to the Shares or to the Registration
Statement, as the case may be, containing information regarding the initial
public offering price of the Shares has been filed with the Commission, or such
later time and date as shall have been consented to by the Representative, 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 or any amendment thereto 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 Representative, 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) to the reasonable satisfaction of
counsel for the underwriters.
7.2 Opinion of Counsel. The Representative shall have received an
opinion, dated the Firm Closing Date, of Xxxxx, X'Xxxxx, Xxxxxxxx & Xxxxxxxx
LLP, Los Angeles, California counsel for the Company, substantially to the
effect that:
(a) the Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of California, and
duly qualified to transact business as a foreign corporation and is in good
standing under the laws of all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company;
(b) the Company has the corporate power to own or lease its
properties; to conduct its business as described in the Registration Statement
and the Prospectus; to enter into this Agreement and to carry out all of the
terms and provisions hereof to be carried out by it;
15
(c) the Company has an authorized capital stock as set forth
under the heading "CAPITALIZATION" in the Prospectus; other than as disclosed
in the Registration Statement and the Prospectus, there are no outstanding
options, warrants, or other rights calling for the issuance of, and no
commitment, plan or arrangement to issue or register, any share of capital stock
of the Company; all of the shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable; the Shares
have been duly authorized by all necessary corporate action of the Company, and,
when issued and delivered to and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable; the shares of capital stock of the
Company have been duly authorized for quotation on the Nasdaq SmallCap Market;
no holders of outstanding shares of capital stock of the Company are entitled as
such to any preemptive or other rights to subscribe for any of the Shares; and
no holders of securities of the Company are entitled to have such securities
registered under the Registration Statement;
(d) the capital stock of the Company conforms, as to legal
matters, to the statements set forth under the heading "DESCRIPTION OF
SECURITIES" in the Prospectus in all material respects;
(e) the execution and delivery of each of this Agreement and the
agreement representing the Underwriter's Warrants have been duly authorized by
all necessary corporate action of the Company and each of this Agreement and the
agreement representing the Underwriter's Warrants is a valid and binding
obligation of the Company except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally and subject to general principles
of equity and, with respect to this Agreement, except as rights to indemnify and
contribution hereunder may be limited by applicable federal or state securities
laws.
(f) The Underwriter's Warrants will conform to the description
thereof in the Registration Statement and the Prospectus, and when issued and
paid for in accordance with the terms of the agreement representing the
Underwriter's Warrants, will constitute legal, valid and binding obligations of
the Company entitled to the rights and benefits of such agreement. The shares of
Common Stock of the Company issuable upon exercise of the Underwriter's Warrants
have been duly and validly authorized and reserved for issuance upon exercise of
the Underwriter's Warrants and when issued upon such exercise in accordance
with the terms of the agreement representing the Underwriter's Warrants at the
price therein provided, will be duly and validly issued, fully paid and non-
assessable and free of preemptive rights.
(g) no legal or governmental proceedings are pending to which
the Company is a party or to which the property of the Company is subject that
are required to be described in the Registration Statement or the Prospectus
and are not described therein, and, to the best knowledge of such counsel, no
such proceedings have been threatened against the Company or with respect to any
of its properties that can reasonably be expected to, or, if determined
adversely to the Company, would, in any individual case or in the aggregate,
result in any material adverse change in the business, prospects, financial
condition or results of operations of the Company;
(h) 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;
(i) the issuance, offering and sale of the Shares and the
Underwriter's Warrant by the Company pursuant to this Agreement, the compliance
by the Company with the other
16
provisions of this Agreement and the agreement representing the Underwriter's
Warrants and the consummation of the other transactions herein and therein
contemplated do not require the consent, approval, authorization, registration
or qualification of or with any governmental authority, except such as have been
obtained and such as may be required under state securities or blue sky laws, or
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, lease or other agreement or instrument, known to such counsel, to which
the Company is a party or by which the Company or any of its properties are
bound, or the Articles of Incorporation or Bylaws of the Company, or any
statute or any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator known to such counsel and applicable to
the Company;
(j) 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 by the Commission, and no proceedings for that purpose
have been instituted or, to the knowledge of such counsel, are threatened or
contemplated by the Commission;
(k) the Registration Statement and the Prospectus and each
amendment or supplement thereto (in each case, other than the financial
statements 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;
(l) the Company is not required, and, if the Company uses the
proceeds of the sale of the Firm Shares and the Option Shares solely as
described in the Prospectus, will not be required as a result of the sale of
such Shares to be registered as an investment Company within the meaning of the
Investment Company Act of 1940, as amended; and
(m) such counsel shall also state that they have no reason to
believe that the Registration Statement, as of its effective date, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, as of its date or the date of such opinion,
included or includes any untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided
that in each case such counsel need not express any opinion as to the financial
statements and other financial and statistical information contained therein.
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. The foregoing opinion may be limited to the
laws of the United States, the laws of the State of California and the General
Corporation Law of the State of California. References to the Registration
Statement and the Prospectus in the Section 7.2 shall include any amendment or
supplement thereto at the date of such opinion. Such counsel shall permit
Xxxxxxx, Mesereau & Leids LLP to rely upon such opinion in rendering its opinion
in Section 7.3.
7.3 Review by and Opinion of Representative's Counsel. The
Representative shall have received an opinion, dated the Firm Closing Date, of
Xxxxxxx, Mesereau & Leids LLP, counsel for the Representative, with respect to
certain matters as the Representative may reasonably require, and the
17
Company shall have furnished to such counsel such documents and certificates as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
7.4 Accountant's Letter. The Representative shall have received from
Singer, Lewak, Xxxxxxxxx & Xxxxxxxxx LLP, a letter or letters dated,
respectively, the date hereof and the Closing Date, in form and substance
reasonably satisfactory to the Representative, substantially to the effect that:
(a) they are independent accountants with respect to the Company
within the meaning of the Act and the Rules and Regulations;
(b) in their opinion, the financial statements audited by them
and included in the Registration Statement and the Prospectus comply in form in
all material respects with the applicable accounting requirements of the Act and
the related published rules and regulations;
(c) on the basis of a reading of the audited financial
statements of the Company, for the year-ended January 31, 1997, and the
unaudited financial statements of the Company for the period ended July 31, 1997
and the notes thereto, carrying out certain specified procedures (which do not
constitute an audit made in accordance with generally accepted auditing
standards) that would not necessarily reveal matters of significance with
respect to the comments set forth in this paragraph, a reading of the minute
books of the shareholders, the board of directors and any committees thereof of
the Company, and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters, nothing came to their
attention that caused them to believe that:
(i) the unaudited financial statements of the Company
included in the Registration Statement and the Prospectus do not comply in form
in all material respects with the applicable accounting requirements of the Act
and the related published rules and regulations thereunder or are not in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements included
in the Registration Statement and the Prospectus; and
(ii) at a specific date not more than five business days
prior to the date of such letter, there were any changes in the capital stock or
long-term debt of the Company or any decreases in net current assets or
shareholders' equity of the Company, in each case compared with amounts shown on
the July 31, 1997 balance sheet included in the Registration Statement and the
Prospectus, or for the period from July 31, 1997 to such specified date there
were any decreases, as compared with the corresponding period in the preceding
year, in net sales, gross profit, selling, general and administrative expenses,
employee plans and bonuses, income (loss) from operations, interest expenses,
income (loss) before income taxes, provision (benefit) for income taxes, net
income (loss) or net income (loss) per share of the Company, except in all
instances for changes, decreases or increases set forth in such letter; and
(d) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting records of
the Company and are included in the Registration Statement and the Prospectus,
and have compared such amounts, percentages and financial information with such
records of the Company and with information derived from such records and have
found them to be in agreement, excluding any questions of legal interpretation.
18
In the event that the letters referred to above set forth any such changes,
decreases or increases, it shall be a further condition to the obligations of
the Underwriters that such letters shall be accompanied by a written explanation
of the Company as to the significance thereof, unless the Representative deems
such explanation unnecessary, and such changes, decreases or increases do not,
in the sole judgment of the Representative, make it impractical or inadvisable
to proceed with the purchase and delivery of the Shares as contemplated by the
Registration Statement, as amended as of the date hereof.
References to the Registration Statement and the Prospectus in this Section
7.4 with respect to either letter referred to above shall include any amendment
or supplement thereto at the date of such letter.
7.5 Officer's Certificate. The Representative shall have received a
certificate, dated the Firm Closing Date, of the president and the principal
financial or accounting officer of the Company to the effect that:
(a) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing Date,
the Registration Statement, as amended as of the Firm Closing Date, does not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading, in light of the
circumstances in which they were made and the Prospectus, as amended or
supplemented as of the Firm Closing Date, does not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein not misleading, in the light of the circumstances under
which they were made; and the Company has in all material respects 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;
(b) 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
of their knowledge, are contemplated by the Commission; and
(c) subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company has not
sustained any material loss or interference with its business or property from
fire, flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental proceeding,
and there has not been any material adverse change, or any development involving
a prospective material adverse change, in the condition (financial or
otherwise), business, prospects net worth or results of operations of the
Company, except in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto).
7.6 NASD Review. The NASD, upon review of the terms of the public
offering of the Firm Shares and Option Shares, shall not have objected to the
Underwriters' participation in such offering.
7.7 Lockups. The Representatives shall have received from each person
who owns Common Stock, or securities convertible into Common Stock, an agreement
to the effect that such person will not, directly or indirectly, without the
prior written consent of the Representative, offer, sell or grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of an option
to purchase or other disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable for, shares of Common Stock for a
period of twelve months.
19
7.8 Due Diligence Examination. The counsel to the Representative and
other persons retained by the Representative to conduct a due diligence
investigation with respect to the offering, shall be reasonably satisfied with
the results of their respective due diligence investigations.
7.9 Blue Sky Qualification. The Shares shall be qualified in such
states as the Representative may reasonably request pursuant to Section 5.4, and
each such qualification shall be in effect and not subject to any stop order or
other proceeding on the Closing Date or Option Closing Date, as the case may be.
7.10 Other Documents. On or before the Firm Closing Date, the
Representative and counsel for the Representative shall have received such
further certificates, documents or other information as they may have reasonably
requested from 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 Representative. The
Company shall furnish to the Representative such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representative and the counsel to the Representative shall reasonably request.
The respective obligations of the several Underwriters to purchase and pay
for any Option Shares shall be subject, in the Representative discretion, to
each of the foregoing conditions to purchase the Firm Shares, except that all
references to the Firm Shares and the Firm Closing Date shall be deemed to refer
to such Option Shares and the related Option Closing Date, respectively.
SECTION 8.
INDEMNIFICATION AND CONTRIBUTION
8.1 Indemnification by Company. The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934 (the "Exchange Act") against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(a) any untrue statement or alleged untrue statement made by the
Company in Section 2 of this Agreement;
(b) any untrue statement or alleged untrue statement of any
material fact contained in (i) the Registration Statement or any amendment
thereto or any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (ii) any application or other document, or any amendment
or supplement thereto, executed by the Company and based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify the Shares under the securities or blue sky laws thereof or
filed with the Commission or any securities association or securities exchange
(each an "Application"); or
20
(c) the omission or alleged omission to state in the
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 in light of the circumstances in which they are made, and
will reimburse, as incurred, each Underwriter and each such controlling person
for any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; 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 or 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 any Underwriter
through the Representative specifically for use therein; and provided further
that the Company will not be liable to any Underwriter or any person controlling
such Underwriter with respect to any such untrue statement or omission made in
any Preliminary Prospectus that is corrected in the Prospectus (or any amendment
or supplement thereto) if the person asserting any such loss, claim, damage or
liability purchased Shares from such Underwriter but was not sent or given a
copy of the Prospectus (as amended or supplemented), other than the documents
incorporated by reference therein at or prior to the written confirmation of the
sale of such Shares to such person in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Act, unless failure
to deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5.5 of this Agreement. 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 each Underwriter
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out if such claim, action, suit or proceeding.
8.2 Indemnification by Underwriters. Each Underwriter will indemnify
and hold harmless the Company, each of its directors, each of its officers 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
Exchange Act against any losses, claims, damages or liabilities to which the
Company, any such director or officer of the Company or any such controlling
person of the Company may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (a) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement to any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application or (b) 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 light
of the circumstances in which are made, 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 any Underwriter through the
Representative 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
21
director, officer or controlling person of the Company in connection with
investigation or defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or any action in respect
thereof. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have. No Underwriter will, without the prior
written consent of the Company, 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, any of its directors, any of its officers who signed the Registration
Statement or any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding), unless such settlement, compromise or consent
includes an unconditional release of the Company and each such director, officer
and controlling person from all liability arising out of such claim, action,
suit or proceeding.
8.3 Notice of Defense. 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 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 (which may not be unreasonably withheld or delayed 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 (a) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel at any one time in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Representative in the case of
Section 8.1, representing the indemnified parties under such Section 8.1 who are
parties to such action or actions) or (b) 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, unless such indemnified party
waived its rights under this Section 8 in which case the indemnified party may
effect such a settlement without such consent.
8.4 Contribution. In circumstances in which the indemnity agreement
provided for in the proceeding paragraphs of this Section 8 is unavailable or
insufficient to hold harmless an indemnified party in respect to any losses,
claims, damages or liability (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
22
such proportion as is appropriate to reflect (a) 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 Shares or (b) if the allocation provided
by the foregoing clause (a) 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 in the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liability (or action 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 (after 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
related to information supplied by the Company or the Underwriters, the parties'
relative intents, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any 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 (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable consideration referred to in the first sentence of
this Section 8.4. Notwithstanding any other provision of this Section 8.4. no
Underwriter shall be obligated to make contributions hereunder that in the
aggregate exceed the underwriter discount on the Shares purchased by such
Underwriter under this Agreement, less the aggregate amount of any damages that
such Underwriter 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 was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Agreement Among Underwriters. For purposes of this Section 8.4, each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter, 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 Exchange Act, shall have the same right to contribution as the Company
as the case may be.
SECTION 9.
DEFAULT OF UNDERWRITERS
If one or more Underwriters default in their obligations to purchase Firm
Shares, or Options Shares hereunder and the aggregate number of such Shares that
such defaulting Underwriter or Underwriters agreed but failed to purchase is ten
percent or less of the aggregate number of Firm Shares or Option Shares to be
purchased by all of the Underwriters at such time hereunder, the other
Underwriters may make arrangements satisfactory to the Representative for the
purchase of such Shares by other persons (who may include one or more of the
non-defaulting Underwriters, including the Representative), but if no such
arrangements are made by the Firm Closing Date or the related Option Closing
Date, as the case may be, the other Underwriters shall be obligated severally in
proportion to their respective commitments hereunder to purchase the Firm
Shares, or Option Shares that such defaulting Underwriter or Underwriters agreed
but failed to purchase. In the event of any default by one or more Underwriters
as described in this Section 9, the Representative shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the
23
case may be, established as provided in Section 3 hereof for not more than seven
business days in order that any necessary changes may be made in the
arrangements or documents for the purpose and delivery of the Firm Shares or
Option Shares, as the case may be. As used in this Agreement, the term
"Underwriter" includes any persons substituted for an Underwriter under this
Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
SECTION 10.
SURVIVAL
The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company, its officers and directors and
the several Underwriters 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 (a) any investigation made by or on behalf of the Company,
any of its officers or directors, any Underwriter or any controlling person
referred to in Section 8 hereof and (b) delivery of and payment for the Shares.
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 this Agreement.
24
SECTION 11.
TERMINATION
11.1 By Representative. This Agreement may be terminated with
respect to the Firm Shares or any Option Shares in the sole discretion of the
Representative 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 hereunder at or prior
thereto or, if at or prior to the Firm Closing date or such Option Closing Date,
respectively:
(a) the Company shall have sustained any material loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from any
labor dispute or any legal or governmental proceeding or there shall have been
any material adverse change, or any development involving a prospective material
adverse change (including financial or otherwise), in the business, prospects
net worth or results of operations of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(b) trading in the Common Stock shall have been suspended
by the Commission or the National Association of Securities Dealers Automated
Quotation SmallCap Market or trading in securities generally on the New York
Stock Exchange or the American Stock Exchange shall have been suspended or
minimum or maximum prices shall have been established on any such exchange or
market system;
(c) a banking moratorium shall been declared by New York,
California, or United States authorities; or
(d) there shall have been (i) an outbreak or escalation of
hostilities between the United States and any foreign power, (ii) an outbreak or
escalation of any other insurrection or armed conflict involving the United
States or (iii) any other calamity or crisis having an effect on the financial
markets that, in the reasonable judgement of the Representative, makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares as contemplated by the Registration Statement, as amended as of
the date hereof.
11.2 Effect of Termination Hereunder. Termination of this Agreement
pursuant to this Section 11 shall be without liability of any party to any other
party, except as provided in Section 10 hereof.
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SECTION 12.
INFORMATION SUPPLIED BY UNDERWRITERS
The statements set forth in the last paragraph on the front cover page
and under the heading "Underwriting" in any Preliminary Prospectus or the
Prospectus, to the extent such statements relate to the Underwriters constitute
the only information furnished by any Underwriter through the Representative to
the Company for the purposes of Section 8 and 10 hereof. The Underwriters
represent and warrant to the Company that such statements, to such extent, are
correct as of the date hereof and at each Closing Date.
SECTION 13.
NOTICES
All communications hereunder shall be in writing and if sent to any of the
Underwriters, shall be mailed (certified or registered mail, postage prepaid,
return receipt requested) or delivered or sent by facsimile transmission and
confirmed in writing to Xxxxxxx & Co., Inc., 00000 XxxXxxxxx, 0xx Xxxxx, Xxxxxx,
Xxxxxxxxxx 00000, Attention: Mr Xxxx Xxxxx, with a copy to Xxxxx X. Xxxxx, Esq,
Xxxxxxx, Mesereau & Leids LLP, 0000 Xxxxxx xx xxx Xxxxx, Xxxxx 0000, Xxx
Xxxxxxx, Xxxxxxxxxx 90067), if sent to the Company, shall be mailed (certified
or registered mail, postage prepaid, return receipt requested), delivered or
telegraphed and confirmed in writing to the Company at 0000 Xxxx Xxxxx Xxxxxxx,
Xxxxxx Xxxxx, Xxxxxx del Mar, California 92625, Attention: Xxxxxx X. XxXxxxx
(with copy to Xxxx Xxxxxx, Esq., Xxxxx, X'Xxxxx, Xxxxxxxx & Xxxxxxxx LLP, 000
Xxxxx Xxxxxxxx, Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 90012). Notices shall be
effective if mailed, 48 hours after deposit in the mail properly addressed, sent
by facsimile, upon receipt and in any other instance, when delivered.
SECTION 14.
SUCCESSORS
This Agreement shall inure to the benefit of and shall be binding upon the
several Underwriters, the Company and their respective successors and legal
representatives, and 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 (a) 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 (b) the indemnities
of the Underwriters 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 Shares from any Underwriter shall be deemed a
successor because of such purchase.
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SECTION 15.
APPLICABLE LAW
The validity and interpretation of this Agreement, and the terms and
conditions set forth herein, shall be governed by and construed in accordance
with the laws of the State of California without giving effect to any provisions
relating to conflicts of laws.
SECTION 16.
COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
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 each of the
several Underwriters.
Very truly yours,
XXXXXXXX.XXX
By:______________________________________
Xxxxxx X. XxXxxxx
Chief Executive Officer and President
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Xxxxxxx & Co., Inc.
(As Representative of the several
Underwriters named in Schedule 1 hereto)
By:________________________________________
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SCHEDULE 1
UNDERWRITERS
Number of Firm Shares
Underwriter to be purchased
----------- ---------------
Xxxxxxx & Co., Inc.
Total __________
