1,450,000 SHARES
TAG-IT PACIFIC, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
December __, 1997
CRUTTENDEN XXXX INCORPORATED
As Representative of the several Underwriters
c/o Cruttenden Xxxx Incorporated
00000 Xxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
TAG-IT PACIFIC, INC., a Delaware corporation (the "Company"), and Xxxxxx
Xxxx (the "Selling Stockholder") address you as the Representative of each of
the persons, firms and corporations listed in Schedule A hereto (herein
collectively called the "Underwriters") and hereby confirm its agreement with
the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
1,280,000 shares of its authorized and unissued Common Stock, and the Selling
Stockholder proposes to sell an aggregate of 170,000 shares of the Company's
Common Stock (such 1,450,000 shares being referred to herein as the "Firm
Shares") to the several Underwriters. The Company also proposes to grant to the
Underwriters an option to purchase up to 192,000 additional shares of the
Company's Common Stock (the "Option Shares"), as provided in Section 7 hereof.
As used in this Agreement, the term "Shares" shall include the Firm Shares and
the Option Shares. All shares of Common Stock of the Company to be outstanding
after giving effect to the sales contemplated hereby, including the Shares, are
hereinafter referred to as "Common Stock."
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2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING STOCKHOLDER.
(a) Each of the Company and the Selling Stockholder hereby represents
and warrants to and agrees severally with each Underwriter that:
A registration statement on Form B-2 (File No. 333-_______)
with respect to the Shares, including a prospectus, has been prepared by the
Company in conformity in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses and such abbreviated registration statements pursuant to
Rule 462(b) of the Rules and Regulations as may have been required prior to the
date hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement,
such amended prospectuses and such abbreviated registration statements as may
hereafter be required. Copies of such registration statement and amendments
together with each exhibit filed therewith, of each related prospectus (the
"Preliminary Prospectuses") and of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Cruttenden Xxxx Incorporated, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Cruttenden
Xxxx Incorporated, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations. The term "Registration Statement" as
used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits (including exhibits incorporated by
reference), in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
or Rule 434(d) of the Rules and Regulations) and, in the event of any amendment
thereto
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or the filing of any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations); PROVIDED, HOWEVER, that if in reliance on Rule 434 of the
Rules and Regulations and with the consent of Cruttenden Xxxx Incorporated, on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of Cruttenden Xxxx Incorporated, on behalf of
the several Underwriters, the Company shall have provided to the Underwriters a
term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time that
a confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
Prospectus and the term sheet, together, will not be materially different from
the prospectus in the Registration Statement.
The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased,
(i) the Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained and will contain all material information
required to be included therein by the Act and the Rules and Regulations and
will in all material
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respects conform to the requirements of the Act and the Rules and Regulations,
(ii) the Registration Statement, and any amendments or supplements thereto, did
not and will not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (iii) the Prospectus, and any amendments
or supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that none of the representations and warranties
contained in this subparagraph (b) shall apply to information contained in or
omitted from the Registration Statement or Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
Each of the Company and its subsidiaries is duly incorporated and validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation with full power and authority (corporate and other) to own,
lease and operate its properties and conduct its business as described in the
Prospectus; each of the Company and its subsidiaries is duly qualified to do
business as a foreign corporation and in good standing in each jurisdiction in
which the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or be
in good standing would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries, taken as a whole; no proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing, or seeking
to revoke, limit or curtail, such power and authority or qualification; each of
the Company and its subsidiaries is in possession of and operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, federal and other regulatory authorities that are material to the
conduct of its business, all of which are valid and in full force and effect;
none of the Company or its subsidiaries is in violation of its charter or bylaws
or in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material bond, debenture, note
or other evidence of indebtedness, or in any material lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which its properties may be bound; and none of the Company or its
subsidiaries is in material violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company, its
subsidiaries or over each of their respective properties. The Company owns all
of the outstanding capital stock of each of its subsidiaries free and clear of
all claims, liens, charges and encumbrances.
The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and
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constitutes a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles; the making and performance of this Agreement by
the Company and the consummation of the transactions herein contemplated will
not conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute either by itself or upon notice or the passage of
time or both, a default under, (i) any bond, debenture, note or other evidence
of indebtedness, or under any lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which any of its
respective properties may be bound, (ii) the articles of incorporation or bylaws
of the Company or any of its subsidiaries or (iii) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, administrative
agency, regulatory body, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or any
of their respective properties. No consent, approval, authorization or order of
or qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties is required for the execution
and delivery of this Agreement and the consummation by the Company of the
transactions herein contemplated, except such as may be required under the Act,
by the National Association of Securities Dealers, Inc. (the "NASD"), the rules
of the American Stock Exchange, or under state or other securities or Blue Sky
laws, all of which requirements have been satisfied in all material respects.
There is not any pending or threatened action (legal or
governmental), suit, claim or proceeding against the Company or any of its
subsidiaries, any of each of the Company's or its subsidiaries' officers, any of
the respective properties (owned or leased), assets or rights of the Company or
its subsidiaries before any court, administrative agency, regulatory body,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company, its subsidiaries, each of the Company's or its
subsidiaries' officers or properties (owned or leased) or otherwise which
(i) except as accurately described in all material respects in the Registration
Statement and the Prospectus (A) might, individually or in the aggregate, result
in any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and any of
its subsidiaries, taken as a whole, or might materially and adversely affect the
properties, assets or rights of the Company and any of its subsidiaries, taken
as a whole, or (B) might prevent consummation of the transactions contemplated
hereby or (ii) is required to be disclosed in the Registration Statement or
Prospectus and is not so disclosed; and there are no agreements, contracts,
leases or documents of the Company or any of its subsidiaries of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the Act
or the Rules and Regulations which have not been accurately described in all
material respects
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in the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement. None of the Company or its subsidiaries is a party or
subject to the provisions of any injunction, judgment, decree or order of any
court, regulatory body, administrative agency, government or governmental agency
or body domestic or foreign, that could be expected to result in a material
adverse change in the condition (financial or other), earnings, operations,
business or business prospects of the Company and its subsidiaries, taken as a
whole.
All outstanding shares of capital stock of the Company and
all issued and outstanding shares of capital stock of the subsidiaries of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" and conforms in all material
respects to the statements relating thereto contained in the Registration
Statement and the Prospectus (and such statements correctly state the substance
of the instruments defining the capitalization of the Company); the Shares have
been duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement, and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable, and will be sold free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right of
first refusal or other similar right of stockholder exists with respect to any
of the Shares or the issuance and sale thereof. No stockholder of the Company
or any of its subsidiaries has any right to require the Company to register the
sale of any shares owned by such stockholder under the Act in the public
offering contemplated by this Agreement. No further approval or authorization
of any stockholder, the Board of Directors of the Company or others is required
for the issuance and sale or transfer of the Shares except as may be required
under the Act or under state or other securities or Blue Sky laws. Except as
disclosed in the Registration Statement, Prospectus and the financial statements
of the Company, and the related notes thereto included in the Prospectus, the
Company has no outstanding options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. Except as disclosed in the Registration Statement and the
Prospectus, the Company has not granted any option or other right to purchase,
or issued any security or obligation convertible into, or entered into any
contract or commitment to sell, shares of any of the Company's subsidiaries.
The description of the Company's stock option, stock bonus and other stock plans
or arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus fairly and accurately presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
BDO Xxxxxxx independent auditors, which have audited the
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consolidated financial statements of the Company, together with the related
schedules and notes, as of ___________________ and for the years ended _______,
all filed with the Commission as a part of the Registration Statement, which are
included in the Prospectus, are independent accountants within the meaning of
the Act and the Rules and Regulations; the audited consolidated financial
statements of the Company, together with the related schedules and notes, and
the unaudited financial information, forming part of the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company and its subsidiaries at the respective dates and for
the respective periods to which they apply; and all consolidated audited
financial statements of the Company and its subsidiaries, together with the
related schedules and notes, and the unaudited financial information, filed with
the Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the Registration
Statement, which are included in the Prospectus, present fairly the information
shown therein and have been compiled on a basis consistent with the audited
consolidated financial statements presented therein. No other financial
statements or schedules are required to be included in the Registration
Statement pursuant to the Rules and Regulations.
Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as set forth in
the Registration Statement and Prospectus, there has not been (i) any material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company or any of its subsidiaries, taken
as a whole, (ii) any transaction that is material to the Company or any of its
subsidiaries, (iii) any obligation, direct or contingent, that is material to
the Company or any of its subsidiaries, incurred by the Company or any of its
subsidiaries, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, (vi) any default in
the payment of principal of or interest on any outstanding material debt
obligations of the Company or any of its subsidiaries, or (vii) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company or any of its
subsidiaries, taken as a whole.
Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its subsidiaries has good and marketable
title to all properties and assets described in the Registration Statement and
Prospectus as owned by them, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as would not
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company or any of
its subsidiaries, taken as a whole, (ii) the agreements to which
7
the Company and any of its subsidiaries is a party described in, or filed as
exhibits to, the Registration Statement and Prospectus are valid agreements,
enforceable by the Company or its subsidiaries, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles and, the other contracting party or
parties thereto are not in material breach or material default under any of such
agreements, and (iii) the Company and its subsidiaries have valid and
enforceable leases for all properties described in the Registration Statement
and Prospectus as leased by any of them, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration Statement
and Prospectus, the Company and its subsidiaries own or lease all such
properties as are necessary to their operations as now conducted or as proposed
to be conducted.
The Company and its subsidiaries have timely filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes shown thereon as due (except in any case in which the failure to
do so would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries, taken as a whole, and there is no tax deficiency that has
been or might be asserted against the Company (or any of its subsidiaries) that
might have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries, taken as a whole); and all tax liabilities are adequately provided
for on the books of the Company.
Each of the Company and its subsidiaries maintains insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed prudent for its business and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering the Company against general liability and
errors and omission for contract and temporary placements, and real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism, products liability, errors and
omissions, workers' compensation claims and all other risks customarily insured
against, all of which insurance is in full force and effect; none of the Company
or its subsidiaries has been refused any insurance coverage sought or applied
for; and none of the Company or its subsidiaries has any 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), earnings, operations,
business or business prospects of the Company and its subsidiaries, taken as a
whole.
No labor disturbance by the employees of the Company or any
of its subsidiaries exists or is imminent that might be expected to result in a
material
8
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and any of its subsidiaries, taken
as a whole. No collective bargaining agreement exists with any of the employees
of the Company or any of its subsidiaries and, to the knowledge of the Company
and its subsidiaries, no such agreement is imminent.
Each of the Company and its subsidiaries owns or possesses
exclusive rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names, copyrights and other
intellectual property which are necessary in all material respects to conduct
its business as now conducted and as described in the Registration Statement and
Prospectus; except as set forth in the Registration Statement and the
Prospectus, the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names, copyrights or other intellectual
property would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries, taken as a whole; none of the Company or its subsidiaries
has received any notice of, and has knowledge of, any infringement of or
conflict with asserted rights of the Company or its subsidiaries by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names, copyrights or other similar intellectual
property rights; and none of the Company or its subsidiaries has received any
notice of, or has any knowledge of, any infringement of or conflict with
asserted rights of others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names, copyrights or
other similar rights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and any of its subsidiaries, taken as a whole.
The Common Stock is registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is
approved for listing on the American Stock Exchange, and the Company has taken
no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the American Stock Exchange, nor has the Company received any
notification that the Commission or the American Stock Exchange is contemplating
termination of such registration or listing.
There are no arrangements, contracts, agreements or other
documents (verbal or written) required to be described in the Registration
Statement or to be filed as exhibits to the Registration Statement by the Act or
by the Rules and Regulations which have not been described or filed as required.
The arrangements, contracts, agreements and documents so described in the
Prospectus are in full force and effect on the date hereof; and neither the
Company nor any of the subsidiaries nor any other party is in breach of or
default under any of such arrangements, contracts, agreements and documents,
except as to breaches or defaults which individually or in
9
the aggregate would not have a material adverse effect on the Company, or to the
best of their knowledge is aware of any imminent termination thereof.
The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it is not and will not become an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the 1940 Act and such rules and regulations.
(i) Each of the Company and its subsidiaries has not distributed
and will not distribute prior to the later of (i) the Closing Date, or any date
on which Option Shares are to be purchased, as the case may be, and
(ii) completion of the distribution of the Shares, any offering material in
connection with the offering and sale of the Shares other than any Preliminary
Prospectuses, the Prospectus, the Registration Statement and other materials, if
any, permitted by the Act.
(ii) The Company (nor any of its subsidiaries) has not at any
time during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state 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 jurisdiction thereof.
The Company (nor any of its subsidiaries) has not taken and
will not take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
Each officer and director of the Company, and each
stockholder that holds five percent (5%) or more of the Company's Common Stock
has executed a Lock-Up Letter (the "Lock-Up Agreement") in a form approved by
Cruttenden Xxxx Incorporated pursuant to which such persons have agreed not to,
except as described therein, for a period of 365 days from the date of the final
Prospectus (the "Lock-Up Period"), sell, offer to sell, solicit an offer to buy,
contract to sell, loan, pledge, grant any option to purchase, or otherwise
transfer or dispose of (collectively, a "Disposition"), any shares of Common
Stock, or any securities convertible into or exercisable or exchangeable for
Common Stock (collectively, "Securities"), now owned or hereafter acquired by
such person or with respect to which such person has or hereafter acquires the
power of disposition. The Company has provided to counsel for the Underwriters
a complete and accurate list of all securityholders of the Company as of
_______________, 1997 and the number and type of securities held by each
securityholder. The Company hereby agrees not to take any action which would
release any of its officers, directors or other stockholders from any Lock-Up
Agreements currently existing or hereafter effected without the prior written
consent of Cruttenden
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Xxxx Incorporated.
The Company and each of its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company or any of its subsidiaries to or for the benefit
of any of the officers or directors of the Company or its subsidiaries, or any
of the members of the families of any of them, except as disclosed in the
Registration Statement and the Prospectus.
Other than Cruttenden Xxxx Incorporated, on behalf of the
several Underwriters, and except as disclosed in writing to Cruttenden Xxxx
Incorporated, no person is or will be owed any finders fee or commission or
similar payment in connection with the transactions contemplated by this
Agreement.
Except for employee benefit plans disclosed in the Prospectus,
the Company does not maintain any employee benefit plan subject to Title IV of
the Employee Retirement Income Security Act of 1974, as amended.
The Selling Stockholder, represents and warrants, to the several
Underwriters and the Company as follows:
The Selling Stockholder now has, and/or on the Closing Date
will have, good and marketable title to all of the Shares to be sold by him,
hereunder, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever, with full right and authority to deliver the
same hereunder, subject to the rights of ____________________, as custodian
(herein called the "Custodian"), and that upon the delivery of payment for such
Shares hereunder, the several Underwriters will receive good and marketable
title thereto, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever.
Certificates in negotiable form for the Shares to be sold by
the Selling Stockholder have been placed in custody under a Custody Agreement
(herein called the "Custody Agreement") for delivery under this Agreement by the
Custodian; the Selling Stockholder specifically agrees that the Shares
represented by the certificates so held in custody for the Selling Stockholder
are subject to the interest of the several
11
Underwriters and the Company hereunder, that the arrangements made by the
Selling Stockholder for such custody, including the power of attorney (herein
called the "Power of Attorney") provided for in the Custody Agreement, are to
that extent irrevocable, and that the obligations of the Selling Stockholder
shall not be terminated by any act of the Selling Stockholder or by operation of
law, whether by the death, incapacity or dissolution of the Selling Stockholder
or the occurrence of any other event; if any such death, incapacity, dissolution
or other such event should occur before the delivery of the Shares hereunder,
certificates for the Shares shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death, incapacity,
dissolution or other event had not occurred regardless of whether the Custodian
shall have received notice of such death, incapacity, dissolution or other
event.
All consents, approvals, authorizations and orders necessary
for the execution and delivery by the Selling Stockholder of this Agreement, the
Power of Attorney and the Custody Agreement, and for the sale and delivery of
the Shares to be sold by the Selling Stockholder hereunder, have been obtained;
and (assuming all filings required under Rule 430A are made) the Selling
Stockholder has full right, power and authority to enter into this Agreement,
the Power of Attorney and the Custody Agreement and to sell, assign, transfer
and deliver the Shares to be sold by the Selling Stockholder hereunder; this
Agreement, the Power of Attorney and the Custody Agreement constitute valid and
binding obligations and agreements of the Selling Stockholder in accordance with
their respective terms.
The execution and delivery by the Selling Stockholder of,
and the performance by the Selling Stockholder of this Agreement, the Power of
Attorney and the Custody Agreement and the consummation of the transactions
herein and therein contemplated will not result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any material
statute, indenture, mortgage, deed of trust, note agreement or other agreement
or instrument to which the Selling Stockholder is a party or by which the
Selling Stockholder is bound, or any order, rule or regulation of any court or
(assuming due qualification of the Shares for public offering under state and
foreign securities laws and assuming all filings required under Rule 430A are
made) governmental agency or body having jurisdiction over the Selling
Stockholder or the property of the Selling Stockholder.
The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which has constituted, or which is designed
to or might reasonably be expected to cause or result in, stabilization or
manipulation of the price of sale or resale of the Shares.
The information pertaining to the Selling Stockholder under
the caption "Principal and Selling Stockholder" in the Registration Statement
and the Prospectus is complete and accurate, and neither the Registration
Statement nor of any amendment thereto, nor of the Prospectus nor of any
supplement thereto, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material
12
fact required to be stated therein or necessary in order to make the statements
therein not misleading.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell 1,280,000
Shares of the Firm Shares to the Underwriters, the Selling Stockholder agrees to
sell to each of the Underwriters the number of Firm Shares set forth in SCHEDULE
A, and each Underwriter agrees, severally and not jointly, to purchase from the
Company and the Selling Stockholder, at a purchase price of $_____ per share,
the respective number of Firm Shares which is set forth opposite the name of
such Underwriter in SCHEDULE A hereto (subject to adjustment as provided in
Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 from the Company and
the Selling Stockholder shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company and to the
order of Custodian, for the account of the Selling Stockholder (and the Company
and the Selling Stockholder agree not to deposit any such checks in the bank on
which it is drawn, and not to take any other action with the purpose or effect
of receiving immediately available funds, until the business day following the
date of delivery to the Company and the Custodian and, in the event of any
breach of the foregoing, the Company and the Selling Stockholder shall reimburse
the Underwriters for the interest lost and any other expenses borne by the
Underwriters by reason of such breach), at the offices of Cruttenden Xxxx
Incorporated, 00000 Xxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxx (or at such other
place as may be agreed upon between Cruttenden Xxxx Incorporated, the Selling
Stockholder and the Company, at 7:00 A.M. Pacific daylight savings time, (a) on
the third (3rd) full business day following the first day that Firm Shares are
traded, (b) if this Agreement is executed and delivered after 1:30 P.M. Pacific
daylight savings time, the fourth (4th) full business day following the day that
this Agreement is executed and delivered or (c) at such other time and date not
later than seven (7) full business days following the first day that Firm Shares
are traded as Cruttenden Xxxx Incorporated, the Selling Stockholder and the
Company may determine (or at such time and date to which payment and delivery
shall have been postponed pursuant to Section 10 hereof), such time and date of
payment and delivery being herein called the "Closing Date"; PROVIDED, HOWEVER,
that if the Company has not made available to the Representative copies of the
Prospectus within the time provided in Section 4(d) hereof, Cruttenden Xxxx
Incorporated may, in its sole discretion, postpone the Closing Date until no
later than two (2) full business days following delivery of copies of the
Prospectus to Cruttenden Xxxx Incorporated. The certificates for the Firm
Shares to be so delivered will be made available to you at such office or such
other location including, without limitation, in New York City, as you may
reasonably request for checking at least one (1) full business day prior to the
Closing Date and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to the Closing
Date. If Cruttenden Xxxx
13
Incorporated so elects, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by Cruttenden Xxxx Incorporated.
It is understood that you, individually, and not as the Representative
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section 11 hereof) of the Firm Shares at a public offering price of $_____ per
share. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
The information set forth on the front cover page (insofar as such
information relates to the Underwriters) concerning stabilization,
over-allotment and passive market making by the Underwriters, and under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company and the Selling Stockholder that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDER. Each
of the Company and the Selling Stockholder, as the case may be and as
specifically indicated below, agrees with the several Underwriters that:
The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company or
any Selling Stockholder omitted information from the Registration Statement at
the time it was originally declared effective in reliance upon Rule 430A(a) of
the Rules and
14
Regulations, the Company and/or such Selling Stockholder will provide evidence
satisfactory to you that the Prospectus contains such information and has been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part
of a post-effective amendment to such Registration Statement as originally
declared effective which is declared effective by the Commission; if the Company
files a term sheet pursuant to Rule 434 of the Rules and Regulations, the
Company will provide evidence satisfactory to you that the Prospectus and term
sheet meeting the requirements of Rule 434(b) or (c), as applicable, of the
Rules and Regulations have been filed, within the time period prescribed, with
the Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and
Regulations; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information; promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel for the several Underwriters
("Underwriters' Counsel"), may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify you of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare promptly
upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Act; and it will file no amendment or supplement to the Registration
Statement or Prospectus which shall not previously have been submitted to you a
reasonable time prior to the proposed filing thereof or to which you shall
reasonably object in writing, subject, however, to compliance with the Act and
the Rules and Regulations and the provisions of this Agreement.
The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
15
The Company will use its best efforts (including by providing
full cooperation with your counsel, whose services in this matter are required
and which you and the Company will seek to expedite) to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction for such purpose.
(a) The Company will furnish to you, as soon as available, and, in
the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first full business day following the first
day that Shares are traded, copies of the Registration Statement (two of which
will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if Cruttenden Xxxx Incorporated, on behalf of the
several Underwriters, shall agree to the utilization of Rule 434 of the Rules
and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
The Company will make generally available to its stockholders as
soon as practicable, but in any event not later than the forty-fifth (45th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and, upon request by a stockholder,
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
stockholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's stockholders,
(ii) concurrently with furnishing to its stockholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, of stockholders' equity, and of cash flows of the Company for such
fiscal
16
year, accompanied by a copy of the certificate or report thereon of independent
certified public accountants, (iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders, (iv) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, the American Stock Exchange or any securities exchange,
(v) every material press release and every material news item or article in
respect of the Company or its affairs which was generally released to
stockholders or prepared by the Company, and (vi) any additional information of
a public nature concerning the Company, or its business which you may reasonably
request. During such five (5) year period, the foregoing financial statements
shall be on a consolidated basis to the extent that the accounts of the Company
and its subsidiaries are consolidated, and shall be accompanied by similar
financial statements for any significant subsidiary which is not so
consolidated.
The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(b) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, or if the Company shall
terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 11(a) or 11(b),
then the provisions of Section 11 of that certain letter agreement dated
September 16, 1997 between you and the Company (the "Letter Agreement") shall
govern payment and reimbursement obligations of the parties notwithstanding that
the Letter Agreement shall have ceased to be of full force or effect for any
other purpose.
(c) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company or its subsidiaries shall occur as a result
of which in your opinion the market price of the Common Stock has been or is
likely to be materially affected (regardless of whether such rumor, publication
or event necessitates a supplement to or amendment of the Prospectus), the
Company will, after written notice from you advising the Company to the effect
set forth above, forthwith prepare, consult with you concerning the substance of
and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication or
event.
During the Lock-Up Period, the Company will not, without the
prior written consent of Cruttenden Xxxx Incorporated, effect the Disposition
of, directly
17
or indirectly, any Securities other than the sale of the Firm Shares and the
Option Shares hereunder, the Company's issuance of options or Common Stock or
capital stock of its subsidiaries under the Company's presently authorized stock
option and stock purchase plans described in the Registration Statement and the
Prospectus, the shares of Common Stock pursuant to the exercise of the warrant
described in Paragraph 6(i) below, and the sale of Securities in connection with
acquisition undertaken by the Company.
The terms of paragraph ____ of the Letter Agreement are hereby
incorporated by reference and made obligations of the Company and Cruttenden
Xxxx Incorporated as part of this Agreement notwithstanding that the Letter
Agreement shall have ceased to be of full force or effect for any other purpose.
(d) The Company shall reimburse and pay to Cruttenden Xxxx
Incorporated a nonaccountable expense allowance equal to two percent (2.0%) of
the total Price to Public of the Shares shown on the front cover of the
Prospectus and sold in the offering, including, if exercised, with respect to
the over-allotment option.
18
5. EXPENSES.
The Company and the Selling Stockholder, as the case may be and
as specifically indicated below, agrees severally with each Underwriter that:
The Company will pay and bear all costs and expenses
incident to the performance of the obligations of the Company and the Selling
Stockholder in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto; the printing of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Custody Agreement, the Power of Attorney, the
Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the
Underwriters' Questionnaire and Power of Attorney, and any instruments related
to any of the foregoing; the issuance and delivery of the Shares hereunder to
the several Underwriters, including transfer taxes, if any, the cost of all
certificates representing the Shares and transfer agents' and registrars' fees;
the fees and disbursements of counsel for the Company; all fees and other
charges of the Company's independent certified public accountants and legal
counsel; the cost, including the cost of printing, of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectus and the Prospectus, and any amendments or
supplements to any of the foregoing; the Company's road show costs and expenses;
the cost of preparing bound volumes of the documents for the public offering
pursuant to the Registration Statement; NASD and American Stock Exchange filing
fees and all other related fees and the fees, expenses, and the cost, of
qualifying the Shares under the laws of such jurisdictions as you may designate
(including filing fees and fees and disbursements of Underwriters' Counsel in
connection with such NASD filings and Blue Sky qualifications and all other
expenses directly incurred by the Company in connection with the performance of
its obligations hereunder. The provisions of this Section 5(a)(i) are intended
to relieve the Underwriters from the payment of the expenses and costs which the
Company hereby agrees to pay.
In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) 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
19
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.
In addition to their other obligations under Section 8(b) hereof,
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(b) hereof, they will reimburse the Company 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
Underwriters' obligation to reimburse the Company 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 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.
It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5(a)(ii) and 5(b)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a) and 8(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 8(d) hereof.
The Selling Stockholder will pay any transfer taxes incident to
the transfer to the Underwriters of the Shares being sold by such Selling
Stockholder.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which
20
Option Shares are to be purchased, as the case may be, of the representations
and warranties of the Company and the Selling Stockholder herein, to the
performance by the Company and the Selling Stockholder of their obligations
hereunder and to the following additional conditions:
The Registration Statement shall have become effective not later
than 2:00 P.M., Pacific daylight savings time, on the date following the date of
this Agreement, or such later date and time as shall be consented to in writing
by you; if the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus shall have
been filed in the manner and within the time period required by 424(b) of the
Rules and Regulations; and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
initiated or, to the knowledge of the Company or any Underwriter, threatened by
the Commission, and any request of the Commission for additional information (to
be included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company or any of its subsidiaries from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus.
You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, the opinion of
Troop Xxxxxxxxx Xxxxxxx & Xxxxxx, LLP, counsel for the Company and the Selling
Stockholder, substantially in the following form, dated the Closing Date or such
later date on which Option Shares are to be purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters:
Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as corporations in good standing under the
laws of the jurisdiction of their incorporation.
(i) The Company and its subsidiaries have the corporate power
21
and authority to own, lease and operate their properties and to conduct their
business as described in the Prospectus.
Each of the Company and its subsidiaries is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the Company or each of its subsidiaries owns,
leases or licenses properties or conducts its business, except where the failure
to be so qualified or be in good standing would not have a material adverse
effect on the condition (financial or otherwise), earnings, operations or
business of the Company and its subsidiaries, taken as a whole.
The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization" as
of the dates stated therein; all necessary and proper corporate proceedings have
been taken into order to issue all issued and outstanding shares of Common
Stock; all issued and outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable,
and will not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or other
similar right.
The Firm Shares or the Option Shares, as the case may be, to
be issued by the Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully paid
and nonassessable and will not have been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first refusal
or other similar right contained in the Company's articles of incorporation or
bylaws or in any other agreement or contract to which the Company or any of its
subsidiaries is a party; and the forms of certificates evidencing the Common
Stock comply with Delaware law, and when duly countersigned by the Company's
transfer agent and registrar, and delivered to you or upon your order against
payment of the agreed consideration therefor in accordance with the provisions
of this Agreement, the Shares represented thereby will be duly authorized and
validly issued, fully paid and nonassessable and will conform in all material
respects to the description thereof contained in the Prospectus.
The Company has full corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder.
All of the issued and outstanding shares of each of the
subsidiaries of the Company have been duly authorized and validly issued, are
fully paid and nonassessable and are owned of record by the Company free and
clear of any perfected security interests, liens or encumbrances, and free and
clear of all equities, claims, security interests, voting trusts or other
defects of title whatsoever, except as set forth in the Registration Statement
and Prospectus.
22
Except as disclosed in or specifically contemplated by the
Prospectus, there are no outstanding options, warrants or other rights calling
for the issuance of, and no commitments, or agreements to issue, any shares of
capital stock of the Company or any security convertible into or exchangeable
for capital stock of the Company.
The Company and the Selling Stockholder has full right,
power and authority to enter into this Agreement and to sell and deliver the
Shares to be sold by it to the several Underwriters; this Agreement has been
duly authorized by all necessary corporate action on the part of the Company and
the Selling Stockholder, if applicable, and has been duly executed and delivered
by the Company and the Selling Stockholder and, assuming due authorization,
execution and delivery by you, is a valid and binding agreement of the Company
and the Selling Stockholder, enforceable in accordance with its terms, except
insofar as indemnification provisions may be limited by applicable law or public
policy and except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally or by general equitable principles.
The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been instituted or are
pending or threatened under the Act; any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has
been made in the manner and within the time period required by such Rule 424(b).
The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements (including
supporting schedules), financial data derived therefrom and other financial and
statistical information included therein as to which such counsel need express
no opinion), complied as to form in all material respects with the requirements
of the Act and the applicable Rules and Regulations.
The information in the Prospectus under the captions
"Management," "Shares Eligible For Future Sale," "Description of Capital Stock,"
and Items 14 and 15 of Part II of the Registration Statement to the extent that
it constitutes matters of law or legal conclusions, has been reviewed by such
counsel and is a fair summary of such matters and conclusions in all material
respects.
The description in the Registration Statement and the
Prospectus of the articles of incorporation and bylaws of the Company and of
Delaware statutes are accurate and fairly present in all material respects the
information required to be presented by the Act and the applicable Rules and
Regulations.
There are no agreements, contracts, leases or documents to
which the Company or any of its subsidiaries is a party of a character required
to be
23
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required.
The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not (a) result in any
violation of the articles of incorporation or bylaws of the Company or any of
its subsidiaries or (b) result in a material breach or violation of any of the
terms and provisions of, or constitute, either by itself or upon notice or the
passage of time or both, a default under, any material bond, debenture, note or
other evidence of indebtedness, or any material lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which their properties are bound and of which such counsel is aware, or any
applicable statute, rule or regulation or to such counsel's knowledge, any
order, writ or decree of any court, government or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any of their
properties or operations.
No consent, approval, registration, filing, license, permit,
authorization or order of or qualification with any court, government or
governmental agency or body having jurisdiction over the Selling Stockholder,
the Company or any of its subsidiaries or any of their properties or operations
is necessary in connection with the consummation by the Company and the Selling
Stockholder of the transactions herein contemplated, except such as have been
obtained under the Act or such as may be required by NASD or under state or
other securities or Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters (as to which such counsel need
express no opinion).
There are no legal or governmental proceedings pending or
threatened against the Company or any of its subsidiaries of a character
required to be disclosed in the Registration Statement or the Prospectus by the
Act or the Rules and Regulations, other than those described therein.
Neither the Company nor any of its subsidiaries is in
violation of its respective charter or bylaws.
Except as set forth in the Registration Statement and
Prospectus, no holders of Common Stock or other securities of the Company have
registration rights with respect to securities of the Company and, except as set
forth in the Registration Statement and Prospectus, all holders of securities of
the Company having rights to registration of such shares of Common Stock or
other securities, because of the filing of the Registration Statement by the
Company have, with respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration Statement.
Except as set forth in the Registration Statement and the
24
Prospectus, there are no actual or threatened action, suit, claim or proceeding
relating to patents, patent rights or licenses, trademarks or trademark rights,
copyrights, collaborative research, licenses or royalty arrangements or
agreements or trade secrets, know-how or proprietary techniques or technology,
including, processes and substances, owned by or affecting the business
operations of the Company or any of its subsidiaries which are pending or
threatened against the Company or any of its subsidiaries and which action,
suit, claim or proceeding would, with respect to any of the foregoing, have a
material adverse effect on the condition (financial or other), earnings,
operations, business or business prospects of the Company and its subsidiaries,
taken as a whole.
This Agreement and the several Custody Agreements between
the Selling Stockholder and __________________ as Custodian, and the Power of
Attorney referred to in such Custody Agreements have each been duly executed and
delivered by or on behalf of the Selling Stockholder are valid and binding
agreements of the Selling Stockholder, enforceable against the Selling
Stockholder in accordance with the terms thereof except as the enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting creditors' rights generally or by general
equitable principals and except insofar as indemnification relating to or
affecting provisions may be limited by applicable law or public policy, and
except that provisions as to the irrevocability of the Custody Agreement may be
limited by applicable law upon the death or incapacity of the Selling
Stockholder.
The performance of this Agreement, the Power of Attorney and
the Custody Agreements and the consummation of the transactions therein
contemplated will not result in a material breach or violation of any of the
terms and provisions of, or constitute a default under any material bond,
indenture, mortgage, deed or trust, or other agreement or instrument of which
such counsel is aware, by such Selling Stockholder or an officer or
representative thereof, to which any Selling Stockholder is a party or by which
the Selling Stockholder is bound, or any applicable law or regulation or any
order, writ, injunction, or decree of any jurisdiction, court or governmental
instrumentality.
The Selling Stockholder is the record owner of the Shares to
be sold by such Selling Stockholder under this Agreement and possesses full
right, power and authority to sell, assign, transfer and deliver the Shares to
be sold by such Selling Stockholder hereunder. The Selling Stockholder has good
and indefeasible title to the Shares sold by such Selling Stockholder under this
Agreement, free and clear of all perfected liens, encumbrances or security
interests and free and clear of all equities, claims or other defects of title
whatsoever, and upon the delivery of and payment for the Shares to be sold by
such Selling Stockholder, the Selling Stockholder shall transfer all rights of
the Selling Stockholder in the Shares to the Underwriters who have severally
purchased such Shares under this Agreement, free and clear of all perfected
liens, encumbrances, security interests and claims, assuming the Underwriters
take without knowledge of any adverse claims.
25
The Company is not an "investment company" as defined in the
1940 Act.
In addition, such counsel shall state that such counsel has acted
as outside corporate legal counsel to the Company and participated in
conferences with officials and other representatives of the Company, Cruttenden
Xxxx Incorporated, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although such counsel is not passing upon and does not assume any responsibility
for and has not verified the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus, and have
not made any independent check or verification thereof, on the basis of the
foregoing (relying as to materiality to a large extent upon the facts provided
by officers and representatives of the Company), no facts have come to the
attention of such counsel that lead such counsel to believe that either the
Registration Statement at the time it became effective (including the
information deemed to be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), or any amendment thereof
made prior to the Closing Date as of the date of such amendment, does not comply
as to form in all material respects with the Act and the Rules and Regulations,
or contained an 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 any amendment
thereof or supplement thereto made prior to the Closing Date as of the date of
such amendment or supplement) and as of the Closing Dated contained or contains
an untrue statement of a material fact or omitted or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no belief or opinion with
respect to the exhibits and the financial statements and other financial and
statistical data included therein).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters'
Counsel, familiar with the applicable laws; (B) as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the Company
and certificates or other written statements of officers of departments of
various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and its subsidiaries, provided that
copies of any such statements or certificates shall be delivered to
Underwriters' Counsel. The opinion of such counsel for the Company shall state
that the opinion of any such other counsel is in form satisfactory to such
counsel and, in their opinion, you and they are justified in relying thereon.
(e) You shall have received on the Closing Date and on any later date
26
on which Option Shares are to be purchased, as the case may be, an opinion of
Xxxxxx & Xxxxx, LLP, in form and substance reasonably satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other legal
matters relating to this Agreement and the transactions contemplated hereby as
you may reasonably require, and the Company shall have furnished to such counsel
such documents as they may have requested for the purpose of enabling them to
pass upon such matters.
(f) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter from
BDO Xxxxxxx, Independent Auditors (the "Accountants"), addressed to the
Underwriters, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be (in each case, the "Bring Down Letter"),
confirming that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations and based upon the procedures described in a letter delivered to
you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter that are necessary
to reflect any changes in the facts described in the Original Letter since its
date, or to reflect the availability of more recent financial statements, data
or information. The Bring Down Letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company or any of its subsidiaries from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. The Original Letter from the Accountants shall be addressed to
or for the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their audits of the balance sheet of the
Company as of August 31, 1997 and related statements of operations,
stockholders' equity and cash flows for the twelve (12) months ended August 31,
1997 and state that they have completed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim financial
information as described in SAS No. 71, INTERIM FINANCIAL INFORMATION, on the
unaudited consolidated balance sheet as of as of November 30, 1997 and the
unaudited consolidated statements of operations and cash flows for the three
month period ended November 30, 1997, (iii) state that nothing came to their
attention that caused them to believe that the financial statements included in
the Registration Statement and Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of Rule 11-02
27
of Regulation S-X and that any adjustments thereto have not been properly
applied to the historical amounts in the compilation of such statements, and
(iv) address other matters agreed upon the Accountants and you. In addition,
you shall have received from BDO Xxxxxxx a letter addressed to the Company and
made available to you for the use of the Underwriters stating that their review
of the Company's system of internal accounting controls, to the extent they
deemed necessary in establishing the scope of their audit of the Company's
financial statements as of ______________, 1997, did not disclose any weaknesses
in internal controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the Closing Date or
any later date on which Option Shares are to be purchased, as the case may be,
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued under the Act; no order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus filed as a
part of the Registration Statement, or any amendment thereto, has been issued;
and no proceedings for that purpose have been instituted or are pending,
threatened or contemplated under the Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Act and the Rules and Regulations, and in all material respects conformed to
the requirements of the Act and the Rules and Regulations, the Registration
Statement, and any amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, the Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (a) any material
28
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries, taken as a
whole, (b) any transaction that is material to the Company or any of its
subsidiaries, except transactions entered into in the ordinary course of
business, (c) any obligation, direct or contingent, that is material to the
Company or any of its subsidiaries, incurred by the Company or any of its
subsidiaries, except obligations incurred in the ordinary course of business,
(d) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company and its subsidiaries,
taken as a whole, or is out of the ordinary course of business of the Company or
any of its subsidiaries, (e) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company or any of its subsidiaries
(f) any legal or governmental action, suit or proceeding pending or threatened
against the Company or any of its subsidiaries which is material to the Company
and its subsidiaries, taken as a whole, (g) any verbal or written agreement or
other transaction entered into by either the Company or any of its subsidiaries
which is not in the ordinary course of business of the Company or any of its
subsidiaries as the case may be or (h) any loss or damage (whether or not
insured) to the property of the Company or any of its subsidiaries which has
been sustained or will have been sustained which has a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries, taken as a whole.
(h) The Company shall have obtained and delivered to you the Lock-Up
Agreements.
(i) The Company shall have furnished you a warrant for the purchase
of up to _______ shares of Common Stock at an exercise price per share equal to
one hundred and twenty percent (120%) of the offering price per share of the
Shares, in the form attached hereto as Exhibit A.
(j) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request (including certificates of
officers of the Company) as to the accuracy of the representations and
warranties of the Company herein, as to the performance by the Company of its
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
(k) The Shares shall have been duly accepted for listing quotation,
subject to notice of issuance, on the American Stock Exchange.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
29
7. OPTION SHARES.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to 192,000 Option Shares, at the
purchase price per share for the Firm Shares set forth in Section 3 hereof.
Such notice shall set forth the number of Option Shares as to which the option
is being exercised and the date and time as reasonably determined by you when
such Option Shares are to be delivered. Such option may be exercised by
Cruttenden Xxxx Incorporated, on behalf of the several Underwriters, on one
(1) or more occasions in whole or in part during the period of forty-five (45)
days after the date on which the Firm Shares are initially offered to the public
by giving written notice (the "Option Notice") to the Company. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by Cruttenden Xxxx
Incorporated in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is drawn,
and not to take any other action with the purpose or effect of receiving
immediately available funds, until the business day following the date of its
delivery to the payee). In the event of any breach of the foregoing, the
Company shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach. Such delivery and payment
shall take place at the offices of Cruttenden Xxxx Incorporated, 00000 Xxx
Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxx or at such other place as may be agreed
upon between Cruttenden Xxxx Incorporated and the Company (i) on the Closing
Date, if written notice of the exercise of such option is received by the
Company at least two (2) full business days prior to the Closing Date, or
(ii) on a date which shall not be later than the third (3rd) full business day
following the date the Company receives written notice of the exercise of such
option, if such notice is received by the Company after the date two (2) full
business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and
30
denominations as you may request, such request to be made at least two (2) full
business days prior to such date of payment and delivery. If Cruttenden Xxxx
Incorporated so elects, delivery of the Option Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, to the conditions set forth in Section 6 hereof, and to the condition
that all proceedings taken at or prior to the payment date in connection with
the sale and transfer of such Option Shares shall be satisfactory in form and
substance to you and to Underwriters' Counsel, and you shall have been furnished
with all such documents, certificates and opinions as you may request in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements, the performance of any of the covenants or agreements
of the Company or the satisfaction of any of the conditions herein contained.
31
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach or facts that would constitute a
breach of any representation, warranty, agreement or covenant of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, PROVIDED FURTHER, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The Selling Stockholder agrees to indemnify and hold harmless
each Underwriter and each person (including each partner thereof) who controls
any Underwriter within the meaning of Section 15 of the Securities Act, to the
same extent as the foregoing indemnity from the Company to each Underwriter, but
only with respect to losses, claims, damages or liabilities which arise out of
or are based upon (i) any breach or facts that would constitute a breach of any
representation, warranty or covenant of such Selling Stockholder contained in
this Agreement or (ii) information relating to
32
such Selling Stockholder furnished in writing by or on behalf of such Selling
Stockholder expressly for use in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto; PROVIDED,
HOWEVER, that the Company shall remain jointly and severally obligated to
indemnify each Underwriter pursuant to this Section 8(a). This indemnity
agreement shall be in addition to any liabilities which the Selling Stockholder
may otherwise have.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and the Selling Stockholder against any losses,
claims, damages or liabilities, joint or several, to which the Company and the
Selling Stockholder may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(b) 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 such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and the Selling Stockholder for any legal or other expenses
reasonably incurred by the Company and the Selling Stockholder in connection
with investigating or defending any such loss, claim, damage, liability or
action.
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, and each person, if any, who controls the Company or the Selling
Stockholder within the meaning of the Act or the Exchange Act. This indemnity
agreement shall be in addition to any liabilities which each Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim
33
in respect thereof is to be made against any indemnifying party under this
Section 8, notify the indemnifying party in writing 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 except to the extent that it has been prejudiced by such
omission. In case any such action is brought against any indemnified party, and
it notified the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it shall
elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
PROVIDED, HOWEVER, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it which
are different from or additional to those available to the indemnifying party,
the indemnified party or parties shall have the right to select separate counsel
to assume such legal defenses and to otherwise participate in the defense of
such action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of the indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with appropriate local counsel)
approved by the indemnifying party representing all the indemnified parties
under Section 8(a) or 8(b) hereof who are parties to such action), (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. In no event shall any indemnifying party be
liable in respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement; PROVIDED
that such consent shall not be unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on all
claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that
34
this Section 8 provides for indemnification in such case, all the parties hereto
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion so
that the Underwriters severally and not jointly are responsible pro rata for the
portion represented by the percentage that the underwriting discount bears to
the public offering price, and the Company and the Selling Stockholder are
responsible for the remaining portion, PROVIDED, HOWEVER, that (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the underwriting discount applicable to the Shares purchased by such
Underwriter exceeds the amount of damages which such Underwriter has otherwise
been required to pay and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(d) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter or the Company within the meaning
of the Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholder and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or the Selling Stockholder or by or on behalf of the Company, or
any of its officers, directors or controlling persons within the meaning of the
Act or the Exchange Act, and any Selling Stockholder shall survive the delivery
of the Shares to the several Underwriters hereunder or termination of this
Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed ten percent (10%) of the Firm Shares, the remaining
Underwriters shall be obligated, severally in
35
proportion to their respective commitments hereunder, to take up and pay for the
Firm Shares of such defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds ten percent (10%) of the Firm Shares,
the remaining Underwriters shall have the right, but shall not be obligated, to
take up and pay for (in such proportions as may be agreed upon among them) the
Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If such remaining Underwriters do not, at the Closing Date,
take up and pay for the Firm Shares which the defaulting Underwriter or
Underwriters so agreed but failed to purchase, the Closing Date shall be
postponed for twenty-four (24) hours to allow the several Underwriters the
privilege of substituting within twenty-four (24) hours (including non-business
hours) another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date, the Closing Date may, at the option of the Company, be postponed for a
further twenty-four (24) hours, if necessary, to allow the Company the privilege
of finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and
pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters as
aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, then the Company shall not be liable to
any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company, the Selling Stockholder and the other
Underwriters for damages, if any, resulting from such default) be liable to the
Company or the Selling Stockholder (except to the extent provided in Sections 5
and 8 hereof).
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The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., Pacific daylight savings time, on the first full business day following
the effective date of the Registration Statement, or (ii) the time of the public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the public offering shall mean the
time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 12 before the time this Agreement becomes effective, you, as
Representative of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(i) and 8 hereof.
(b) You, as Representative of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
shall have failed in any material respect, refused or been unable to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
or its Subsidiaries from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional governmental restrictions, not in force and effect on the date
hereof, shall have been imposed upon trading in securities generally or minimum
or maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter market by
the NASD, or trading in securities generally shall have been suspended on either
such exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company or its Subsidiaries regardless of whether or not such loss shall have
been insured, or (iv) if there shall have been a material adverse change in the
general political or economic conditions or financial markets as in your
judgment makes it inadvisable or impracticable to proceed with the offering,
sale and delivery of the Shares, or (v) if there shall have been an outbreak or
escalation of hostilities or of any other insurrection or armed conflict or the
declaration by the United States of a national emergency which, in the opinion
of Cruttenden Xxxx Incorporated, makes it impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus. In the event of
37
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(i), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in
Sections 4(i) and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Cruttenden Xxxx Incorporated, 00000 Xxx Xxxxxx,
Xxxxx 000, Xxxxxx, Xxxxxxxxxx 00000, telecopier number (000) 000-0000,
Attention: General Counsel; if sent to the Company, such notice shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to Tag-It Pacific, Inc., 0000 Xxxxx Xxxx Xxxxxx, Xxx
Xxxxxxx, Xxxxxxxxxx 00000, telecopier number (000) 000-0000, Attention: Xxxx
Xxxx.
13. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company and the Selling Stockholder and their
respective executors, administrators, successors and assigns. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
person or entity, other than the parties hereto and their respective executors,
administrators, successors and assigns, and the controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 8 hereof, any legal or equitable right, remedy or claim 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 the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Underwriters, and the Company shall be entitled
to act and rely upon any statement, request, notice or agreement made or given
by you.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
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If the foregoing correctly sets forth the understanding among the Company,
the Selling Stockholder and the several Underwriters, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement between the Company, the Selling Stockholder and the several
Underwriters.
Very truly yours,
TAG-IT PACIFIC, INC.
By:
Name:
Title:
SELLING SHAREHOLDER:
-----
Accepted as of the date first above written:
CRUTTENDEN XXXX INCORPORATED
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By CRUTTENDEN XXXX INCORPORATED
By
-------------------------------
Authorized Signatory
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SCHEDULE A
Number of Firm
Shares To Be Number of Firm Shares
Purchased From the To Be Purchased From the
Underwriters Company Selling Stockholder
Cruttenden Xxxx
Incorporated __________ ___________
Total __________ ___________
40
