M.D. LABS, INC.
1,300,000 Shares
UNDERWRITING AGREEMENT
________________, 1996
Sentra Securities Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Spelman & Co., Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(As Representatives of the Several
Underwriters Named in Schedule 1 hereto)
Dear Sirs:
M.D. Labs, Inc., a Delaware corporation (the "Company"), hereby
confirms its agreement (this "Agreement") with the several underwriters named in
Schedule 1 hereto (the "Underwriters"), for whom Sentra Securities Corporation
and Spelman & Co., Inc. have been duly authorized to act as representatives (in
such capacity, the "Representatives"), as set forth below:
SECTION 1.
Description of Transaction
The Company proposes to issue and sell to the Underwriters on the
Closing Date (as defined below), pursuant to the terms and conditions of this
Agreement, an aggregate of 1,300,000 shares ("Firm Shares") of the Company's
Common Stock ("Common Stock") at a price of $____ per Share on the terms as
hereinafter set forth. The Company also proposes to issue and sell to the
several Underwriters on or after the Closing Date not more than 195,000
additional Shares if requested by the Representatives as provided in Section
3.02 of this Agreement (the "Option Shares"). The Firm Shares and any Option
Shares are collectively referred to herein as the "Shares."
2
SECTION 2.
Representations and Warranties of the Company
In order to induce the Underwriters to enter into this Agreement, the
Company hereby represents and warrants to and agrees with the Underwriters that:
2.1 Registration Statement and Prospectus. A registration
statement on Form SB- 2 (File No. 333-_______) with respect to the Shares,
including the related prospectus, copies of which have heretofore been delivered
by the Company to the Underwriters, has been filed by the Company in conformity
with the requirements of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), and one
or more amendments to such registration statement have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(a) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration statement),
with such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by the Representatives prior to the execution of this Agreement, or (b) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Representatives prior to the execution of this
Agreement. As used in this Agreement, the term "Registration Statement" means
such registration statement on Form SB- 2 and all amendments thereto, including
the prospectus, all exhibits and financial statements, as it becomes effective;
the term "Preliminary Prospectus" means each prospectus included in said
Registration Statement before it becomes effective; and the term "Prospectus"
means the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act or, if no prospectus is required to be filed pursuant to said Rule
424(b), such term means the prospectus included in the Registration Statement
when it becomes effective.
2.2 Accuracy of Registration Statement and Prospectus. Neither
the Commission nor the "blue sky" or securities authority of any jurisdiction
has issued any order preventing or suspending the use of any Preliminary
Prospectus. When (a) any Preliminary Prospectus was filed with the Commission,
(b) the Registration Statement or any amendment thereto was or is declared
effective, and (c) the Prospectus or any amendment or supplement thereto is
filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus or such
amendment or supplement is not required to be so filed, when the Registration
Statement or the amendment thereto containing such amendment or supplement to
the Prospectus was or is declared effective) and on the Closing Date the
Prospectus, as amended or supplemented at any such time, such filing (i)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
promulgated thereunder (the "Rules and Regulations") and (ii) did not or will
not include any untrue statement of a material fact or omit to state any
material fact necessary to make
3
the statements therein not misleading in light of the circumstances under which
they were made. The foregoing representation does not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement or any
amendment thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein.
2.3 Incorporation and Standing. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Delaware and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the Company.
2.4 Due Power and Authority. The Company has full corporate
power to own or lease its properties and conduct its business as described in
the Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus; and the Company has full
corporate power to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it. The execution and delivery of this
Agreement and consummation of the transactions contemplated herein have been
duly authorized by the Company and this Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with the terms
thereof, except as may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
general equitable principles, and as rights to indemnity and contribution
hereunder may be limited by applicable law.
2.5 Consents; No Defaults. The issuance, offering and sale of
the Shares to the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (a) require
the consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained, or as may be
required under the Act or under the securities or blue sky laws of any
jurisdiction, or (b) conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, lease or other material agreement or instrument to
which the Company is a party or by which the Company or any of its properties is
bound, or the charter documents or bylaws of the Company, or any statute or any
judgment, decree, order, rule or regulation of any court or other governmental
authority or any arbitrator applicable to the Company.
2.6 No Breach or Default. The Company is not in breach of any
term or provision of its Certificate of Incorporation or Bylaws; no default
exists, and no event has occurred which with notice or lapse of time or both,
would constitute a default, in the Company's due performance and observance of
any term, covenant or condition of any indenture, mortgage, deed of trust,
lease, note, bank loan or credit agreement or any other material agreement or
instrument to
4
which the Company or its properties may be bound or affected in any respect
which would have a material adverse effect on the condition (financial or
otherwise), business, properties, prospects, net worth or results of operations
of the Company.
2.7 Licenses. Except as described in the Prospectus, the
Company possesses all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary for the
conduct of its business, including without limitation the Food and Drug
Administration, the Federal Trade Commission, the Consumer Product Safety
Commission, the United States Department of Agriculture, the United States
Postal Service and the Environmental Protection Agency, and the Company has not
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company, except as
described in or contemplated by the Registration Statement. Each approval,
registration, qualification, license, permit, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body or agency necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions contemplated (except such additional actions as may be required by
the National Association of Securities Dealers, Inc. or may be necessary to
qualify the Common Stock for public offering under state securities or blue sky
laws) has been obtained or made and each is in full force and effect.
2.8 Compliance with Laws. Except as disclosed in the
Registration Statement and in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company is not in
violation of any laws, ordinances, governmental rules or regulations to which it
is subject, including but not limited to the Federal Food, Drug and Cosmetic
Act, the Nutrition Labeling and Education Act of 1990, and the Dietary
Supplement Health and Education Act of 1994, which would have a material adverse
effect on the condition (financial or otherwise), business, properties,
prospects, net worth or results of operations of the Company.
2.9 Existing Capital Structure and Shareholder Rights. The
Company has an authorized, issued and outstanding capitalization as set forth
in, and capital stock conforms in all material respects to the description
contained in, the Prospectus or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus. Except as described in the Registration Statement
and in the Prospectus there are no outstanding (a) securities or obligations of
the Company convertible into or exchangeable for any capital stock of the
Company, (b) warrants, rights or options to subscribe for or purchase from the
Company any such capital stock or any such convertible or exchangeable
securities or obligations, or (c) obligations of the Company to issue such
shares, any such convertible or exchangeable securities or obligations, or any
such warrants, rights or obligations. All of the issued shares of capital stock
of the Company have been duly authorized and validly issued and are fully paid
and nonassessable, and have been issued in compliance with all federal and state
securities laws. No preemptive rights of shareholders exist with respect to any
capital stock of the Company. No shareholder of the Company has any right
pursuant to any
5
agreement which has not been waived or honored to require the Company to
register the sale of any securities owned by such shareholder under the Act in
the public offering contemplated herein except as disclosed in the Registration
Statement. Other than MDLA, Inc. and Belnik Investment Group, Inc., the Company
has no subsidiaries, and does not own any shares of stock or any other equity
interest in any firm, partnership, association or other entity.
2.10 Authority for Issuance of Shares. The issuance of the
Common Stock issuable in connection with the Shares has been duly authorized and
at any Firm or Option Closing Date as defined herein after payment therefor in
accordance herewith, such Common Stock will be validly issued, fully paid and
nonassessable. The Shares will conform in all material respects with all
statements with regard thereto in the Registration Statement and the Prospectus.
2.11 Title to Tangible Property. Except as otherwise set forth
in or contemplated by the Registration Statement and Prospectus, the Company has
good and marketable title to all items of personal property owned by the
Company, free and clear of any security interest, liens, encumbrances, equities,
claims and other defects, except such as do not materially and adversely affect
the value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company, and any real property and
buildings held under lease by the Company are held under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such property
and buildings by the Company.
2.12 Title to Intellectual Property. The Company owns the
trademarks described in the Registration Statement to the extent described
therein. The Company has applied for registration of the trademark "M.D. Labs."
The Company does not own any patents. The Company owns or possesses, or can
acquire on reasonable terms, all material, trademarks, service marks, trade
names, licenses, copyrights and proprietary or other confidential information
currently employed by it in connection with its business, and the Company has
not received any notice of infringement of or conflict with asserted rights of
any third party with respect to any of the foregoing intellectual property
rights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding would result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or results of
operations of the Company, except as described in or contemplated by the
Prospectus.
2.13 Contract Rights. The agreements to which the Company is a
party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company in accordance with their terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditor's rights generally or by equitable principles, and, to the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any of such agreements.
6
2.14 No Market Manipulation. The Company has not taken nor
will it take, directly or indirectly, any action designed to cause or result, or
which might reasonably be expected to cause or result, in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Stock.
2.15 No Other Sales or Commissions. The Company has not since
the filing of the Registration Statement (i) sold, bid for, purchased, attempted
to induce any person to purchase, or paid anyone any compensation for soliciting
purchases of, its capital stock or (ii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any securities of the Company
except for the sale of Shares by the Company under this Agreement.
2.16 Accuracy of Financial Statements. The financial
statements and schedules of the Company included in the Registration Statement
and the Prospectus, or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus, fairly present in all material respects the financial
position of the Company and the results of operations and changes in financial
condition as of the dates and periods therein specified. Such financial
statements and schedules have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as otherwise noted therein and include all financial information
required to be included by the Act. The selected financial data set forth under
the captions "PROSPECTUS SUMMARY--Summary Financial Information," "SELECTED
FINANCIAL DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" in the Prospectus, or, if the Prospectus is not in
existence the most recent Preliminary Prospectus, fairly present in all material
respects, on the basis stated in the Prospectus or such Preliminary Prospectus,
the information included therein.
2.17 Independent Public Accountant. Coopers & ▇▇▇▇▇▇▇ L.L.P.,
which have certified or shall certify certain of the financial statements of the
Company filed or to be filed as part of the Registration Statement and the
Prospectus, are independent certified public accountants within the meaning of
the Act and the Rules and Regulations.
2.18 Internal Accounting. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (a)
transactions are executed in accordance with management's general or specific
authorization; (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (c) access to assets is
permitted only in accordance with management's general or specific
authorization; and (d) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2.19 Litigation. Except as set forth in the Registration
Statement and Prospectus, there is and at the Closing Date there will be no
action, suit or proceeding before any court or governmental agency, authority or
body pending or to the knowledge of the Company threatened which might result in
judgments against the Company not adequately covered by insurance or which
7
collectively might result in any material adverse change in the condition
(financial or otherwise), the business or the prospects of the Company, or would
have a material adverse effect on the properties or assets of the Company. The
Company is not subject to the provisions of any injunction, judgement, decree or
order of any court, regulatory body, administrative agency or other governmental
body or arbitral forum, which might result in a material adverse change in the
business, assets or condition of the Company.
2.20 No Material Adverse Change. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), (a) the Company has not incurred any material adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business affairs, management, or business prospects of the
Company, whether or not occurring in the ordinary course of business, (b) there
has not been any material transaction entered into by the Company, other than
transactions in the ordinary course of business or transactions specifically
described in the Registration Statement as it may be amended or supplemented,
(c) the Company has not sustained any material loss or interference with its
business or properties from fire, flood, windstorm, accident or other calamity,
(d) the Company has not paid or declared any dividends or other distribution
with respect to its capital stock and the Company is not in default in the
payment of principal or interest on any outstanding debt obligations, and (e)
there has not been any change in the capital stock (other than the sale of the
Common Stock hereunder or the exercise of outstanding stock options or warrants
as described in the Registration Statement) or material increase in indebtedness
of the Company. The Company does not have any known material contingent
obligation which is not disclosed in the Registration Statement (or contained in
the financial statements or related notes thereto), as such may be amended or
supplemented.
2.21 Transactions With Affiliates. Subsequent to the
respective dates as of which information is given in the Registration Statement
and Prospectus or if the Prospectus is not in existence the most recent
Preliminary Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, (a) the Company has not entered into any transaction with an
"affiliate" of the Company, as defined in the Act and the Rules and Regulations,
or (b) declared, paid or made any dividend or distribution of any kind on or in
connection with any class of its capital stock, and (c) the Company has no
knowledge of any transaction between any affiliate of the Company and any
significant customer or supplier of the Company, except in its ordinary course
of business.
2.22 Insurance. Except as otherwise set forth in or
contemplated by the Registration Statement and Prospectus, the Company is
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the business in
which it is engaged, including without limitation products liability insurance;
the Company has not been refused any insurance coverage sought or applied for;
and the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
8
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise), business prospects, net worth or results of
operations of the Company.
2.23 Tax Returns. The Company has filed all foreign, federal,
state and local tax returns that are required to be filed or has requested
extensions thereof and has paid all taxes required to be paid by it and any
other assessment, fine or penalty levied against it, to the extent that any of
the foregoing is due and payable or adequate accruals have been set up to cover
any such unpaid taxes, except for any such assessment, fine or penalty that is
currently being contested in good faith.
2.24 Political Contributions. The Company has not directly or
indirectly, (a) made any unlawful contribution to any candidate for public
office, or failed to disclose fully any contribution in violation of law, or (b)
made any payment to any federal, state, local, or foreign governmental officer
or official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any other such jurisdiction.
2.25 Relationships with Customers, Suppliers and
Manufacturers. The Company does not currently have any written contracts with
any of its customers, suppliers and manufacturers. The Company is in compliance
with all oral agreements with its customers, suppliers and manufacturers. The
Company has not received notice from any of its customers, suppliers and
manufacturers alleging any breach of contract, representation or warranty which,
in the aggregate, would have a material adverse effect on the financial
condition or operations results of the Company.
2.26 Investment Company Act. The Company conducts its
operations in a manner that does not subject it to registration as an investment
company under the Investment Company Act of 1940, as amended, and the
transactions contemplated by this Agreement will not cause the Company to become
an investment company subject to registration under the Investment Company Act
of 1940, as amended.
SECTION 3.
Purchase, Sale and Delivery of the Shares
3.1 Purchase of Firm Shares. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to each of the Underwriters named in Schedule I hereto, and each
of the Underwriters, severally and not jointly, agrees to purchase from the
Company, at a purchase price of $____ per Share, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule 1 hereto. The Company
will make one or more certificates for Common Stock constituting the Firm
Shares, in definitive form and in such denomination or denominations and
registered in such name or names as the Representatives shall request upon
notice to the Company at least 48 hours prior to the Firm Closing Date,
available for checking and
9
packaging by the Representatives at the offices of the Company's transfer agent
or registrar (or the correspondent or the agent of the Company's transfer agent
or registrar) at least 24 hours prior to the Firm Closing Date. Payment for the
Firm Shares shall be made by bank wire payable in same day funds to the order of
the Company drawn to the order of the Company for the Firm Shares, against
delivery of certificates therefor to the Representatives. Delivery of the
documents, certificates and opinions described in Section 6 of this Agreement,
the Firm Shares and payment for the Firm Shares and the Option Shares shall be
made at the offices of Sentra Securities Corporation, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 9:00 a.m., San Diego time, on the
third full business day following the date hereof (on the fourth full business
day if this Agreement is executed after 1:30 p.m., Arizona time), or at such
other places, time or date as the Representatives and the Company may agree upon
or as the Representatives may determine pursuant to Section 9 hereof, such time
and date of delivery against payment being herein referred to as the "Firm
Closing Date."
3.2 Over-Allotments; Option Shares. For the purpose of
covering any over-allotments in connection with the distribution and sale of the
Firm Shares as contemplated by the Prospectus, the Company hereby grants to you
on behalf of the several Underwriters an option to purchase, severally and not
jointly, the Option Shares. The purchase price to be paid for any Option Shares
shall be the same price per share as the price per Share for the Firm Shares set
forth above in Section 3.1, plus, if the purchase and sale of any Option Share
takes place after the Firm Closing Date and after the Common Stock is trading
"ex-dividend," an amount equal to the dividends payable on the Common Stock
contained in such Option Shares. The option granted hereby may be exercised in
the manner described below as to all or any part of the Option Shares from time
to time within forty-five days after the date of the Prospectus. The
Underwriters shall not be under any obligation to purchase any of the Option
Shares prior to the exercise of such option. The Representatives may from time
to time exercise the option granted hereby by giving notice in writing or by
telephone (confirmed in writing) to the Company setting forth the aggregate
number of Option Shares as to which the several Underwriters are then exercising
the option and the date and time for delivery of and payment for such Option
Shares. Any such date of delivery shall be determined by the Representatives but
shall not be earlier than two business days or later than seven business days
after such exercise of the option and, in any event, shall not be earlier than
the Firm Closing Date. The time and date set forth in such notice, or such other
time on such other date as the Representatives and the Company may agree upon or
as the Representatives may determine pursuant to Section 9 hereof, is herein
called the "Option Closing Date" with respect to such Option Shares. Upon each
exercise of the option as provided herein, subject to the terms and conditions
herein set forth, the Company shall become obligated to sell to each of the
several Underwriters, and each of the Underwriters (severally and not jointly)
shall become obligated to purchase from the Company, the same percentage of the
total number of the Option Shares as to which the several Underwriters are then
exercising the option as such Underwriter is obligated to purchase of the
aggregate number of Firm Shares, as adjusted by the Representatives in such
manner as it deems advisable to avoid fractional shares. If the option is
exercised as to all or any
10
portion of the Option Shares, one or more certificates for the Common Stock
contained in such Option Shares, in definitive form, and payment therefore,
shall be delivered on the related Option Closing Date in the manner, and upon
the terms and conditions, set forth in Section 3.1, except that reference
therein to the Firm Shares and the Firm Closing Date shall be deemed, for
purposes of this Section 3.2, to refer to such Option Shares and Option Closing
Date, respectively. No Option Shares shall be required to be, or be, sold and
delivered unless the Firm Shares have been, or simultaneously are, sold and
delivered as provided in this Agreement.
3.3 Default by an Underwriter. It is understood that you,
individually and not as the Representatives, may (but shall not be obligated to)
make payment on behalf of any Underwriter or Underwriters for any of the Shares
to be purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their obligations
hereunder.
SECTION 4.
Offering by the Underwriters
Upon payment by the Underwriters of the purchase price of $____ per
Share and the Company's authorization of the release of the Firm Shares, the
several Underwriters shall offer the Firm Shares for sale to the public upon the
terms set forth in the Prospectus. The Representatives may from time to time
thereafter change the public offering prices and other selling terms. If the
option set forth in Section 3.2 of this Agreement is exercised, then upon the
Company's authorization of the release of the Option Shares the several
Underwriters shall offer such Shares for sale to the public upon the foregoing
terms.
SECTION 5.
Covenants of the Company
Except as otherwise stated below, the Company covenants and agrees with
each of the Underwriters that:
5.1 Company's Best Efforts to Cause Registration Statement to
Become Effective. The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective as promptly as
possible. If required, the Company will file the Prospectus and any amendment or
supplement thereto with the Commission in the manner and within the time period
required by Rule 424(b) under the Act. During any time when a prospectus
relating to the Common Stock is required to be delivered under the Act, the
Company (a) will comply with all requirements imposed upon it by the Act and the
Rules and Regulations to the extent necessary to permit the continuance of sales
of or dealings in the Common Stock in accordance with the provisions hereof and
of the Prospectus, as then amended or supplemented, and (b) will not file with
the Commission the prospectus or the
11
amendment referred to in the second sentence of Section 2.1 hereof, any
amendment or supplement to such prospectus or any amendment to the Registration
Statement unless and until the Representatives have been advised of such
proposed filing, has been furnished with a copy for a reasonable period of time
prior to the proposed filing, and has given its consent to such filing, which
shall not be unreasonably withheld or delayed.
5.2 Preparation and Filing of Amendments and Supplements. The
Company will prepare and file with the Commission, in accordance with the Rules
and Regulations of the Commission, promptly upon written request by the
Representatives or counsel for the Representatives, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be reasonably necessary or advisable in connection with the distribution of the
Shares by the several Underwriters, and the Company will use its best efforts to
cause any such amendment to the Registration Statement to be declared effective
by the Commission as promptly as possible. The Company will advise the
Representatives, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Representatives of each such
filing or effectiveness.
5.3 Notice of Stop Orders. The Company will advise the
Representatives promptly after receiving notice or obtaining knowledge of: (a)
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or any amendment thereto, or any order preventing or
suspending the use of any Preliminary Prospectus of the Prospectus or any
amendment or supplement thereto; (b) the suspension of the qualification of the
Shares for offering or sale in any jurisdiction; (c) the institution,
threatening or contemplation of any proceeding for any such purpose; or (d) any
request made by the Commission for amending the Registration Statement, for
amending or supplementing the Prospectus or for additional information. The
Company will use its best efforts to prevent the issuance of any such stop order
and, if any such stop order is issued to obtain the withdrawal thereof as
promptly as possible.
5.4 Blue Sky Qualification. The Company will arrange and
cooperate with counsel to the Representatives for the qualification of the
Shares for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representatives may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Shares; provided, however, that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to execute
a general consent to service of process in any jurisdiction.
5.5 Post-Effective Amendments. If, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event occurs as a result of which the Prospectus, as then amended or
supplemented, would include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading, in the light of
12
the circumstances under which they were made, or if for any other reason it is
necessary at any time to amend or supplement the Prospectus to comply with the
Act or the Rules or Regulations, the Company will promptly notify the
Representatives thereof and, subject to Section 3 hereof, will prepare and file
with the Commission, at the Company's expense, an amendment to the Registration
Statement or an amendment or supplement to the Prospectus that corrects such
statement or omission or effects such compliance.
5.6 Delivery of Prospectuses. The Company will, without
charge, provide (a) to the Representatives and to counsel for the
Representatives a signed copy of the Registration Statement originally filed
with respect to the Shares and each amendment thereto (in each case including
exhibits thereto), (b) to each other Underwriter so requesting in writing, a
conformed copy of such Registration Statement and each amendment thereto (in
each case without exhibits thereto) and (c) so long as a prospectus relating to
the Shares is required to be delivered under the Act, as many copies of each
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
as the Representatives may reasonably request.
5.7 Section 11(a) Financials. The Company will, as soon as
practicable but in any event not later than 90 days after the period covered
thereby, make generally available to its security holders and to the
Representatives a consolidated earnings statement of the Company and its
subsidiaries that satisfies the provisions of Section 11(a) of the Act and Rule
158 thereunder covering a twelve-month period beginning not later than the first
day of the Company's fiscal quarter next following the effective date of the
Registration Statement.
5.8 Application of Proceeds. The Company will apply the net
proceeds from the sale of the Shares as set forth in the Prospectus and
Registration Statement and will not take any action that would cause it to
become an investment company under the Investment Company Act of 1940, as
amended.
5.9 Sales of Securities. The Company will not, directly or
indirectly, without the prior written consent of the Representatives, offer,
sell, grant any option to purchase or otherwise dispose (or announce any offer,
sale, grant of any option to purchase or other disposition) of any shares of
Common Stock or any securities convertible into, or exchangeable or exercisable
for, shares of Common Stock for a period of one year after the date hereof,
except (a) to the Underwriters pursuant to this Agreement and (b) options to any
person pursuant to and in accordance with the Company's 1996 Stock Option Plan,
as such plan is in effect on the date hereof, and provided that such person has
delivered to the Representatives the agreement described in Section 7.8 of this
Agreement.
5.10 Application to Nasdaq National Market. The Company will
cause the Common Stock to be duly included for quotation on the Nasdaq National
Market prior to the Closing Date. The Company will use its best efforts to
ensure that the Common Stock remains included for quotation on the Nasdaq
National Market following the Closing Date for a period of not less than three
years.
13
5.11 Reports to Stockholders. So long as any Common Stock is
outstanding until five years after the Closing Date, the Company will furnish to
the Representatives (a) as soon as available a copy of each report of the
Company mailed to stockholders and filed with the Commission and (b) from time
to time such other information concerning the Company as the Representatives may
reasonably request.
5.12 Delivery of Documents. At or prior to the Closing, the
Company will deliver to the Representatives true and correct copies of the
certificate of incorporation of the Company and all amendments thereto, all such
copies to be certified by the Secretary of State of the State of Delaware, a
good standing certificate from the Secretary of State of Delaware, dated no more
than five business days prior to the Closing Date; true and correct copies of
the bylaws of the Company, as amended, certified by the Secretary of the Company
and true and correct copies of the minutes of all meetings of the directors and
stockholders of the Company held prior to the Closing Date which in any way
relate to the subject matter of this Agreement.
5.13 Underwriters' Warrant. On or prior to the Closing Date,
the Company shall deliver to the Representatives warrants (the "Underwriter's
Warrants"), at an aggregate purchase price of $100, to purchase Shares equal to
10% of the Firm Shares sold in the Offering, which Underwriter's Warrants shall
be exercisable for a per Share exercise price equal to 120% of the per Share
public offering price of the Firm Shares.
5.14 Cooperation With Representatives' Due Diligence. At all
times prior to the Closing Date, the Company will cooperate with the
Representatives in such investigation as the Representatives may make or cause
to be made of all the properties, business and operations of the Company in
connection with the purchase and public offering of the Shares and the Company
will make available to the Representatives in connection therewith such
information in its possession as the Representatives may reasonably request.
5.15 Stock Transfer Agent. The Company has appointed Corporate
Stock Transfer , Denver, Colorado, as Transfer Agent for the Common Stock. The
Company will not change or terminate such appointment for a period of two years
from the effective date without first obtaining the written consent of the
Representatives, which consent shall not be unreasonably withheld.
5.16 Publicity. Prior to the Firm Closing Date, or the Option
Closing Date, as the case may be, the Company shall not issue any press release
or other communication directly or indirectly and shall hold no press conference
with respect to the Company, its financial condition, results of operations,
business, properties, assets, liabilities and any of them, or this offering,
without the prior written consent of the Representatives. If at any time during
the 90 day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in the opinion of the
14
Representatives 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 the Representatives, evaluate the propriety of
disseminating a press release or other public statement reasonably acceptable to
the Representatives and their counsel, commenting on such rumor, publication or
event.
5.17 Forecasts and Projections. For a period of two years from
the effective date of the Registration Statement, the Company shall provide the
Representatives with routine internal forecasts if any such reports are prepared
by the Company for dissemination to the public.
5.18 Registration and Transfer of Trademarks. The Company will
use its best efforts to register the trademark "M.D. Labs" and all other
trademarks material to the operation of its business. The Company shall transfer
and assign or caused to be transferred and assigned to it, all trademarks held
or used by any of its subsidiaries or affiliated entities.
SECTION 6.
Expenses
6.1 Offering Expenses. The Company will pay upon demand all
costs and expenses incident to the performance of the Company's obligations
under this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to Section 11 hereof,
including all costs and expenses incident to (a) the printing or other
production of documents with respect to the transactions, including any costs of
printing the Registration Statement originally filed with respect to the Shares
and any amendment thereto, any Preliminary Prospectus and the Prospectus and any
amendment or supplement thereto, this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, and any blue sky memoranda, (b) all
arrangements relating to the delivery to the Underwriters of copies of the
foregoing documents, (c) the fees and disbursements of counsel, accountants and
any other experts or advisors retained by the Company, (d) preparation, issuance
and delivery to the Underwriters of any certificates evidencing the Common
Stock, including transfer agent's and registrar's fees, (e) the qualification of
the Shares under state securities and blue sky laws, including filing fees and
fees and disbursements of counsel for the Representatives relating thereto, (f)
the filing fees of the Commission and the National Association of Securities
Dealers, Inc. relating to the Shares, (g) any listing fees for the quotation of
the Common Stock on the Nasdaq National Market, (h) one-half the cost of placing
"tombstone advertisements" in any publications which may be selected by
15
the Representatives (provided that any such cost in excess of $5,000 shall
require the consent of both the Company and the Representatives), and (i) all
other advertising that has been approved in advance by the Company relating to
the offering of the Shares (other than as shall have been specifically approved
in writing by the Representatives to be paid for by the Underwriters). In
addition to the foregoing, the Company agrees to pay to the Representatives a
non-accountable expense allowance of 3% of the gross amount to be raised from
the sale of the Shares hereunder, payable at the Closing(s), of which $25,000
has already been paid by the Company in connection with this offering. If the
sale of the Shares provided for herein is not consummated because any condition
to the obligations of the Underwriters set forth in Section 7 (other than
Section 7.6) hereof is not satisfied, because this Agreement is terminated
pursuant to Section 11 hereof or because of any failure, refusal or inability on
the part of the Company to perform all obligations and satisfy all conditions on
its part to be performed or satisfied hereunder other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including counsel fees and
disbursements) that shall have been reasonably incurred by them in connection
with the proposed purchase and sale of the Shares. The Company shall in no event
be liable to any of the Underwriters for the loss of anticipated profits from
the transactions covered by this Agreement.
6.2 Interim Indemnification. The Company agrees that as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 8.1 hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Underwriters shall promptly return
such payment to the Company together with interest, compounded daily, determined
on the basis of the prime rate (or other commercial lending rate for borrowers
of the highest credit standing) listed from time to time in THE WALL STREET
JOURNAL which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
The Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8.2 hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses incurred
in connection with 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
16
together with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments which are not made to the Company
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
SECTION 7.
Conditions of the Underwriters' Obligations
The obligations of the several Underwriters to purchase and pay for the
Firm Shares shall be subject, unless waived by the Representatives in its sole
discretion, to the accuracy of the representations and warranties of the Company
contained herein as of the date hereof and as of the Firm Closing Date as if
made on and as of the Firm Closing Date, to the accuracy of the statements of
the Company's officers made pursuant to the provisions hereof, to the
performance by the Company of its covenants and agreements hereunder and to the
following additional conditions:
7.1 Effectiveness of Registration Statement. If the
Registration Statement or any amendment thereto filed prior to the Firm Closing
Date has not been declared effective as of the time of execution hereof, the
Registration Statement or such amendment shall have been declared effective not
later than 11 a.m., California time, on the date on which the amendment to the
Registration Statement originally filed with respect to the Shares or to the
Registration Statement, as the case may be, containing information regarding the
initial public offering price of the Shares has been filed with the Commission,
or such later time and date as shall have been consented to by the
Representatives; if required, the Prospectus and any amendment or supplement
thereto shall have been filed with the Commission in the manner and within the
time period required by Rule 424(b) under the Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto shall have
been issued, and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission; and the Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) to the reasonable
satisfaction of counsel for the underwriters.
7.2 Opinion of Counsel. The Representatives shall have
received an opinion, dated the Firm Closing Date, of ▇▇▇▇▇▇▇ & ▇▇▇▇▇, Phoenix,
Arizona, counsel for the Company, to the effect that:
(a) the Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, and duly qualified to transact business as a foreign corporation
and is in good standing under the laws of all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business requires
17
such qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company;
(b) the Company has the corporate power to own or
lease its properties; to conduct its business as described in the Registration
Statement and the Prospectus; to enter into this Agreement and to carry out all
of the terms and provisions hereof to be carried out by it;
(c) the Company has an authorized capital stock as
set forth under the heading "CAPITALIZATION" in the Prospectus; effective upon
the Closing all of the Company's shares have been duly authorized and validly
issued and are fully paid and nonassessable; the shares have been duly
authorized by all necessary corporate action of the Company, and, when issued
and delivered to and paid for pursuant to this Agreement, will be validly
issued, fully paid and nonassessable; the shares have been duly authorized for
quotation on the Nasdaq National Market; no holders of outstanding shares of
capital stock of the Company are entitled as such to any preemptive or other
rights to subscribe for any of the Shares; and no holders of securities of the
Company are entitled to have such securities registered under the Registration
Statement;
(d) the capital stock of the Company conforms, as to
legal matters, to the statements set forth under the heading "DESCRIPTION OF
SECURITIES" in the Prospectus in all material respects;
(e) the execution and delivery of this Agreement have
been duly authorized by all necessary corporate action of the Company and this
Agreement is a valid and binding obligation of the Company except as rights to
indemnity and contribution thereunder may be limited by applicable federal or
state securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally and subject to general principles
of equity.
(f) no legal or governmental proceedings are pending
to which the Company is a party or to which the property of the Company is
subject that are required to be described in the Registration Statement or the
Prospectus and are not described therein, and, to the best knowledge of such
counsel, no such proceedings have been threatened against the Company or with
respect to any of its properties that can reasonably be expected to, or, if
determined adversely to the Company, would, in any individual case or in the
aggregate, result in any material adverse change in the business, financial
condition or results of operations of the Company;
(g) no contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described therein or filed as
required;
(h) the issuance, offering and sale of the Shares by
the Company pursuant to this Agreement, the compliance by the Company with the
other provisions of this
18
Agreement and the consummation of the other transactions herein contemplated do
not require the consent, approval, authorization, registration or qualification
of or with any governmental authority, except such as have been obtained and
such as may be required under state securities or blue sky laws, or conflict
with or result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument, known to such counsel, to which the Company is a
party or by which the Company or any of its properties are bound, or the
Certificate of Incorporation or Bylaws of the Company, or any statute or any
judgment, decree, order, rule or regulation of any court or other governmental
authority or any arbitrator known to such counsel and applicable to the Company;
(i) the Registration Statement is effective under the
Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made
in the manner and within the time period required by Rule 424(b); and no stop
order suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued by the Commission, and no proceedings for that
purpose have been instituted or, to the knowledge of such counsel, are
threatened or contemplated by the Commission;
(j) the Registration Statement and the Prospectus and
each amendment or supplement thereto (in each case, other than the financial
statements and other financial and statistical information contained therein, as
to which such counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the Rules and
Regulations;
(k) the Company is not required, and, if the Company
uses the proceeds of the sale of the Firm Shares and the Option Shares solely as
described in the Prospectus, will not be required as a result of the sale of
such Shares to be registered as an investment company within the meaning of the
Investment Company Act of 1940, as amended; and
(l) such counsel shall also state that they have no
reason to believe that the Registration Statement, as of its effective date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of its date or the date of
such opinion, included or includes any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided that in each case such counsel need not express any
opinion as to the financial statements and other financial and statistical
information contained therein.
In rendering any such opinion, such counsel may rely as to matters of fact, to
the extent such counsel deems proper, on certificates of responsible officers of
the Company and public officials. The foregoing opinion may be limited to the
laws of the United States, the laws of the State or Arizona and the General
Corporation Law of the State of Delaware. With respect to certain regulatory
compliance issues, such counsel may rely on the opinion of Bass & ▇▇▇▇▇▇
described in Section 7.3. References to the Registration Statement and the
Prospectus in this Section 7.2 shall include any
19
amendment or supplement thereto at the date of such opinion. Such counsel shall
permit ▇▇▇▇, Forward, ▇▇▇▇▇▇▇▇ & Scripps to rely upon such opinion in rendering
its opinion in Section 7.4.
7.3 Opinion of Special Counsel. The Representatives
shall have received an opinion dated the Firm Closing Date, of Bass & ▇▇▇▇▇▇,
New York, New York, Special
Counsel for the Company, to the effect that:
(a) The Company's advertisements and packaging for
its products comply in all material respects with applicable federal and state
regulations.
(b) The Company has received all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary for the conduct of its business, including
without limitation the Food and Drug Administration, the Federal Trade
Commission, the Consumer Product Safety Commission, the United States Department
of Agriculture, the United States Postal Service and the Environmental
Protection Agency, and the Company has not received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material adverse
change in the condition (financial or otherwise), business prospects, net worth
or results of operations of the Company, except as described in or contemplated
by the Registration Statement. Each approval, registration, qualification,
license, permit, consent, order, authorization, designation, declaration or
filing by or with any regulatory, administrative or other governmental body or
agency necessary in connection with the execution and delivery by the Company of
this Agreement and the consummation of the transactions contemplated has been
obtained or made and each is in full force and effect.
(c) The Company is not in violation of any laws,
ordinances, governmental rules or regulations relating to federal, state or
foreign regulatory authorities necessary for the conduct of its business,
including without limitation the Food and Drug Administration, the Federal Trade
Commission, the Consumer Product Safety Commission, the United States Department
of Agriculture, the United States Postal Service and the Environmental
Protection Agency which would have a material adverse effect on the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company.
(d) such counsel shall also state that they have no
reason to believe that the provisions of the Registration Statement under the
captions entitled "PROSPECTUS SUMMARY -- The Company", "RISK FACTORS -- Absence
of Clinical Studies and Scientific Review", "-- Effect of Discontinued Product",
"-- Difficulty in Product Positioning", "-- Uncertainty and Potential Negative
Effects of Government Regulations; Non-Compliance," and "BUSINESS "--Products"
and " -- Proprietary Rights: Trade Name, Trademarks and Copyrights", and
"--Government Regulation" as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or the date of such opinion, included or
includes any untrue statement of a material fact or omitted or omits to state a
material fact necessary
20
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided that in each case such counsel
need not express any opinion as to the financial statements and other financial
and statistical information contained therein.
7.4 Review by and Opinion of Representatives' Counsel. The
Representatives shall have received an opinion, dated the Firm Closing Date, of
▇▇▇▇, Forward, ▇▇▇▇▇▇▇▇ & Scripps LLP, counsel for the Representatives, with
respect to certain matters as the Representatives may reasonably require, and
the Company shall have furnished to such counsel such documents and certificates
as they may reasonably request for the purpose of enabling them to pass upon
such matters.
7.5 Accountant's Letter. The Representatives shall have
received from Coopers & ▇▇▇▇▇▇▇ L.L.P. a letter or letters dated, respectively,
the date hereof and the Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
(a) they are independent accountants with respect to
the Company within the meaning of the Act and the Rules and Regulations;
(b) in their opinion, the financial statements
audited by them and included in the Registration Statement and the Prospectus
comply in form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations;
(c) on the basis of a reading of the audited
financial statements of the Company, for the year ended May 31, 1996, and the
unaudited financial statements of the Company for the period ended [August 31,
1996], and the notes thereto, carrying out certain specified procedures (which
do not constitute an audit made in accordance with generally accepted auditing
standards) that would not necessarily reveal matters of significance with
respect to the comments set forth in this paragraph, a reading of the minute
books of the shareholders, the board of directors and any committees thereof of
the Company, and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters, nothing came to their
attention that caused them to believe that:
(i) the unaudited condensed financial
statements of the Company included in the Registration Statement and the
Prospectus do not comply in form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder or are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements included in the Registration Statement and the
Prospectus; and
(ii) at a specific date not more than
five business days prior to the date of such letter, there were any changes in
the capital stock or long-term debt of the Company
21
or any decreases in net current assets or stockholders' equity of the Company,
in each case compared with amounts shown on the [August 31, 1996] balance sheet
included in the Registration Statement and the Prospectus, or for the period
from [August 31, 1996] to such specified date there were any decreases, as
compared with the corresponding period in the preceding year, in net sales,
gross profit, selling, general and administrative expenses, employee plans and
bonuses, income (loss) from operations, interest expenses, income (loss) before
income taxes, provision (benefit) for income taxes, net income (loss) or net
income (loss) per share of the Company, except in all instances for changes,
decreases or increases set forth in such letter; and
(d) they have carried out certain specified
procedures, not constituting an audit, with respect to certain amounts,
percentages and financial information that are derived from the general
accounting records of the Company and are included in the Registration Statement
and the Prospectus, and have compared such amounts, percentages and financial
information with such records of the Company and with information derived from
such records and have found them to be in agreement, excluding any questions of
legal interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deems such explanation unnecessary, and such changes, decreases
or increases do not, in the sole judgment of the Representatives, make it
impractical or inadvisable to proceed with the purchase and delivery of the
Shares as contemplated by the Registration Statement, as amended as of the date
hereof.
References to the Registration Statement and the Prospectus in this
Section 7.5 with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
7.6 Officer's Certificate. The Representatives shall have
received a certificate, dated the Firm Closing Date, of the president and the
principal financial or accounting officer of the Company to the effect that:
(a) the representations and warranties of the Company
in this Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing Date, does
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading, in light
of the circumstances in which they were made and the Prospectus, as amended or
supplemented as of the Firm Closing Date, does not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein not misleading, in the light of the circumstances under
which they were made; and the Company has in all material respects performed all
covenants and agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Firm Closing Date;
22
(b) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the best
of their knowledge, are contemplated by the Commission; and
(c) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not sustained any material loss or interference with its business or
properties from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a prospective material adverse change, in the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company, except in each case as described in or contemplated by the
Prospectus (exclusive of any amendment or supplement thereto).
7.7 NASD Review. The NASD, upon review of the terms of the
public offering of the Firm Shares and Option Shares, shall not have objected to
the Underwriters' participation in such offering.
7.8 Lockups. The Representatives shall have received from each
officer and director who owns the Company's Common Stock, or securities
convertible into Common Stock, an agreement to the effect that such person will
not, directly or indirectly, without the prior written consent of the
Representatives, offer, sell or grant any option to purchase or otherwise
dispose (or announce any offer, sale, grant of an option to purchase or other
disposition) of any shares of Common Stock or any securities convertible into,
or exchangeable for, shares of Common Stock for a period of six months.
7.9 Due Diligence Examination. The counsel to the
Representatives and other persons retained by the Representatives to conduct a
due diligence investigation with respect to the offering, shall be reasonably
satisfied with the results of their respective due diligence investigations.
7.10 Blue Sky Qualification. The Shares shall be qualified in
such states as the Representatives may reasonably request pursuant to Section
5.4, and each such qualification shall be in effect and not subject to any stop
order or other proceeding on the Closing Date or Option Closing Date, as the
case may be.
7.10 Other Documents. On or before the Firm Closing Date, the
Representatives and counsel for the Representatives shall have received such
further certificates, documents or other information as they may have reasonably
requested from the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives. The
Company shall furnish to the
23
Representatives such conformed copies of such opinions, certificates, letters
and documents in such quantities as the Representatives and the counsel to the
Representatives shall reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Shares shall be subject, in the Representatives' discretion,
to each of the foregoing conditions to purchase the Firm Shares, except that all
references to the Firm Shares and the Firm Closing Date shall be deemed to refer
to such Option Shares and the related Option Closing Date, respectively.
SECTION 8.
Indemnification and Contribution
8.1 Indemnification by Company. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Securities Exchange Act of 1934 (the "Exchange Act") against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(a) any untrue statement or alleged untrue statement
made by the Company in Section 2 of this Agreement;
(b) any untrue statement or alleged untrue statement
of any material fact contained in (i) the Registration Statement or any
amendment thereto or any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or (ii) any application or other document, or
any amendment or supplement thereto, executed by the Company and based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Shares under the securities or blue sky
laws thereof or filed with the Commission or any securities association or
securities exchange (each an "Application"); or
(c) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they are made, and
will reimburse, as incurred, each Underwriter and each such controlling person
for any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission
24
or alleged omission made in such registration statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or any Application in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representatives specifically for use therein; and provided further, that the
Company will not be liable to any Underwriter or any person controlling such
Underwriter with respect to any such untrue statement or omission made in any
Preliminary Prospectus that is corrected in the Prospectus (or any amendment or
supplement thereto) if the person asserting any such loss, claim, damage or
liability purchased Shares from such Underwriter but was not sent or given a
copy of the Prospectus (as amended or supplemented), other than the documents
incorporated by reference therein at or prior to the written confirmation of the
sale of such Shares to such person in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Act, unless such
failure to deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5.5 of this Agreement. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have. The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
8.2 Indemnification by Underwriters. Each Underwriter will
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act against any losses, claims, damages or liabilities to which
the Company, any such director or officer of the Company or any such controlling
person of the Company may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (a) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application or (b) the omission
or the alleged omission to state therein a material fact required to be stated
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or necessary to make the statements therein not misleading in light
of the circumstances in which they are made, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representatives specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company or any director, officer or
controlling person of the Company in connection with investigation or defending
against or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or any action in respect thereof. This
25
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have. No Underwriter will, without the prior written consent of
the Company, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not the Company, any of its
directors, any of its officers who signed the Registration Statement or any
person who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Company and each such director, officer and
controlling person from all liability arising out of such claim, action, suit or
proceeding.
8.3 Notice of Defense. Promptly after receipt by an
indemnified party under this Section 8 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8, notify the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party and the indemnified party shall have
reasonably concluded that there may be one or more legal defenses available to
it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party (which may not be
unreasonably withheld or delayed) under this Section 8 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof, unless (a) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel at any one time in any one action or
separate but substantially similar actions in the same jurisdiction arising out
of the same general allegations or circumstances, designated by the
Representatives in the case of Section 8.1, representing the indemnified parties
under such Section 8.1 who are parties to such action or actions) or (b) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party, unless
such indemnified party waived its rights under this Section 8 in which case the
indemnified party may effect such a settlement without such consent.
26
8.4 Contribution. In circumstances in which the indemnity
agreement provided for in the preceding paragraphs of this Section 8 is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages or liability (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (a) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Shares or (b) if the
allocation provided by the foregoing clause (a) is not permitted by applicable
law, not only such relative benefits but also the relative fault of the
indemnifying party or parties on the one hand and the indemnified party on the
other in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liability (or action
in respect thereof). The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (after deducting expenses)
received by the Company bear to the total underwriting discounts and commissions
received by the Underwriters. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriters, the parties' relative intents, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances. The Company and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take into account the equitable consideration
referred to in the first sentence of this Section 8.4. Notwithstanding any other
provision of this Section 8.4, no Underwriter shall be obligated to make
contributions hereunder that in the aggregate exceed the underwriter discount on
the Shares purchased by such Underwriter under this Agreement, less the
aggregate amount of any damages that such Underwriter has otherwise been
required to pay in respect of the same or any substantially similar claim, and
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute hereunder are several in proportion to their respective underwriting
obligations and not joint, and contributions among Underwriters shall be
governed by the provisions of the Agreement Among Underwriters. For purposes of
this Section 8.4, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, shall have the same right to
contribution as the Company as the case may be.
27
SECTION 9.
Default of Underwriters
If one or more Underwriters default in their obligations to purchase
Firm Shares, or Option Shares hereunder and the aggregate number of such Shares
that such defaulting Underwriter or Underwriters agreed but failed to purchase
is ten percent or less of the aggregate number of Firm Shares or Option Shares
to be purchased by all of the Underwriters at such time hereunder, the other
Underwriters may make arrangements satisfactory to the Representatives for the
purchase of such Shares by other persons (who may include one or more of the
non-defaulting Underwriters, including the Representatives), but if no such
arrangements are made by the Firm Closing Date or the related Option Closing
Date, as the case may be, the other Underwriters shall be obligated severally in
proportion to their respective commitments hereunder to purchase the Firm
Shares, or Option Shares that such defaulting Underwriter or Underwriters agreed
but failed to purchase. In the event of any default by one or more Underwriters
as described in this Section 9, the Representatives shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than seven business
days in order that any necessary changes may be made in the arrangements or
documents for the purpose and delivery of the Firm Shares or Option Shares, as
the case may be. As used in this Agreement, the term "Underwriter" includes any
persons substituted for an Underwriter under this Section 9. Nothing herein
shall relieve any defaulting Underwriter from liability for its default.
28
SECTION 10.
Survival
The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company, its officers and directors and
the several Underwriters set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (a) any investigation made by or on behalf of the Company,
any of its officers or directors, any Underwriter or any controlling person
referred to in Section 8 hereof and (b) delivery of and payment for the Shares.
The respective agreements, covenants, indemnities and other statements set forth
in Sections 5 and 8 hereof shall remain in full force and effect, regardless of
any termination or cancellation this Agreement.
SECTION 11.
Termination
11.1 By Representatives. This Agreement may be terminated with
respect to the Firm Shares or any Option Shares in the sole discretion of the
Representatives by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing date or such Option Closing Date,
respectively:
(a) the Company shall have sustained any material
loss or interference with its business or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding or there shall
have been any material adverse change, or any development involving a
prospective material adverse change (including financial or otherwise), in the
business prospects, net worth or results of operations of the Company, except in
each case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto);
(b) trading in the Common Stock shall have been
suspended by the Commission or the National Association of Securities Dealers
Automated Quotation National Market or trading in securities generally on the
New York Stock Exchange or the American Stock Exchange shall have been suspended
or minimum or maximum prices shall have been established on any such exchange or
market system;
(c) a banking moratorium shall have been declared by
New York, Arizona, or United States authorities; or
29
(d) there shall have been (i) an outbreak or
escalation of hostilities between the United States and any foreign power, (ii)
an outbreak or escalation of any other insurrection or armed conflict involving
the United States or (iii) any other calamity or crisis having an effect on the
financial markets that, in the reasonable judgment of the Representatives, makes
it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares as contemplated by the Registration Statement, as amended
as of the date hereof.
11.2 Effect of Termination Hereunder. Termination of this
Agreement pursuant to this Section 11 shall be without liability of any party to
any other party, except as provided in Section 10 hereof.
SECTION 12.
Information Supplied by Underwriters
The statements set forth in the last paragraph on the front cover page
and under the heading "Underwriting" in any Preliminary Prospectus or the
Prospectus, to the extent such statements relate to the Underwriters constitute
the only information furnished by any Underwriter through the Representatives to
the Company for the purposes of Section 8 and 10 hereof. The Underwriters
represent and warrant to the Company that such statements, to such extent, are
correct as of the date hereof and at each Closing Date.
SECTION 13.
Notices
All communications hereunder shall be in writing and, if sent to any of
the Underwriters, shall be mailed (certified or registered mail, postage
prepaid, return receipt requested) or delivered or sent by facsimile
transmission and confirmed in writing to Sentra Securities Corporation, ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Mr. ▇▇▇▇▇
▇▇▇▇▇▇ (with a copy to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq., ▇▇▇▇, Forward, ▇▇▇▇▇▇▇▇ &
Scripps LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇ 92101), if sent to the
Company, shall be mailed (certified or registered mail, postage prepaid, return
receipt requested), delivered or sent by facsimile transmission and confirmed in
writing to the Company at ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇. ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇, (with a copy to P. ▇▇▇▇▇▇ ▇▇▇▇, Esq., ▇▇▇▇▇▇▇ &
▇▇▇▇▇, One E. Camelback Road, Suite 400, Phoenix, Arizona 85012). Notices shall
be effective if mailed, 48 hours after deposit in the mail properly addressed,
sent by facsimile, upon receipt and in any other instance, when delivered.
SECTION 14.
Successors
30
This Agreement shall inure to the benefit of and shall be binding upon
the several Underwriters, the Company and their respective successors and legal
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (a) the indemnities of the
Company contained in Section 8 of this Agreement shall also be for the benefit
of any person or persons who control any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act and (b) the indemnities
of the Underwriters contained in Section 8 of this Agreement shall also be for
the benefit of the directors of the Company, the officers of the Company who
have signed the Registration Statement and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of Shares from any Underwriter shall be deemed a
successor because of such purchase.
SECTION 15.
Applicable Law
The validity and interpretation of this Agreement, and the terms and
conditions set forth herein, shall be governed by and construed in accordance
with the laws of the State of California without giving effect to any provisions
relating to conflicts of laws.
SECTION 16.
Counterparts
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company, and
each of the several Underwriters.
Very truly yours,
M.D. LABS, INC.
By:_________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
Chief Executive Officer
The foregoing Agreement is hereby
31
confirmed and accepted as of the
date first above written.
Sentra Securities Corporation
Spelman & Co., Inc.
(As Representatives of the several
Underwriters named in Schedule 1 hereto)
By:______________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
32
SCHEDULE 1
UNDERWRITERS
Number of Firm Shares
Underwriter to be purchased
----------- ---------------
Sentra Securities Corporation
Spelman & Co., Inc.
Total __________