1,000,000 Shares
CD WAREHOUSE, INC.
(a Delaware corporation)
(Par Value $.01 Per Share)
UNDERWRITING AGREEMENT
January __, 1997
CAPITAL WEST SECURITIES, INC.
WESTPORT RESOURCES INVESTMENT SERVICES, INC. and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & COMPANY FINANCIAL SERVICES, INC.
c/o Capital West Securities, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇▇▇
16th Floor, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies/Gentlemen:
CD Warehouse, Inc., a Delaware corporation (the "Company"), hereby confirms
its agreement with Capital West Securities, Inc. ("Capital West"), Westport
Resources Investment Services, Inc. and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company Financial
Services, Inc. (herein collectively called the "Underwriters") as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
1,000,000 shares (the "Firm Shares") of its authorized and unissued common
stock, par value $.01 per share (the "Common Stock") to the several
Underwriters. The Company also proposes to grant to the Underwriters an option
as provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common Stock
of the Company, including the Shares, are hereinafter referred to as "Common
Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. Unless
otherwise indicated or the context otherwise requires, references to the
"Company" in this Section 2 are references to CD Warehouse, Inc., a Delaware
corporation. The Company represents and warrants to and agrees with each
Underwriter, as follows:
(a) A registration statement on Form SB-2 (File No. 333-15139) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement and such amended prospectuses subject
to completion, as may have been required prior to the date hereof have been
similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement and such amended prospectuses subject to completion,
as may hereafter be required. Copies of such registration statement and any
amendments and of each related prospectus subject to completion have been
delivered to you.
If the registration statement has been declared effective under the
Act by the Commission, the Company will prepare and promptly file with the
Commission the information omitted from the registration statement pursuant to
Rule 430A(a) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of prospectus).
If the registration statement has not been declared effective under the Act by
the Commission, the Company will prepare and promptly file a further amendment
to the registration statement, including a final form of prospectus. The term
"Registration Statement" as used in this Agreement shall mean such registration
statement, including financial statements, schedules and exhibits, in the form
in which it became or becomes, as the case may be, effective (including, if the
Company omitted information from the registration statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations) and, in the event of any amendment thereto after
the effective date of such registration statement, shall also mean (from and
after the effectiveness of such amendment) such registration statement as so
amended. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations), except that if any revised prospectus shall be provided to the
Underwriters by the Company for use in connection with the offering of the
Shares that differs from the Prospectus on file with the Commission at the time
the Registration Statement became or becomes, as the case may be, effective
(whether or not such revised prospectus is required to be filed with the
Commission pursuant to Rule 424(b)(3) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up,
to and on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act and
the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, and (ii) neither the
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Registration Statement nor the Prospectus, nor any amendments or supplements
thereto, will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties contained in this subparagraph shall apply to information contained
in or omitted from the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon, and in conformity with, written
information furnished to the Company by any Underwriter specifically for
inclusion therein.
(c) Each of the Company and Compact Discs Management, Inc., its
sole Subsidiary (as such term is defined in Rule 405 under the Act) has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its organization, with full corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Registration Statement; each of the Company
and its Subsidiary is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification except where the failure to be so qualified or to be in good
standing would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its Subsidiary considered as a whole; except for regulatory
approvals with respect to the offer and sale of franchise opportunities
(which the Company will obtain prior to conducting any such activity) each of
the Company and its Subsidiary is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders
and permits from state, Federal and other regulatory authorities which are
material to the conduct of its business, all of which are valid and in full
force and effect; neither the Company nor its Subsidiary is in violation of
its charter or bylaws or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
material indenture, mortgage, deed of trust, loan agreement, bond, debenture,
note agreement or other evidence of indebtedness, or any material lease,
contract, joint venture, or other agreement or instrument to which it is a
party or by which its property is bound or in violation of any law, order,
rule, regulation, writ, injunction, judgment or decree of any government,
governmental agency or body or court, domestic or foreign, of which it has
knowledge except such failures to comply as would not, individually or in the
aggregate, have a material adverse effect on the Company and its Subsidiary
considered as a whole.
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement and the Warrant Agreement (the "Warrant Agreement") by and between the
Company and the Underwriters have been duly authorized, executed and delivered
by the Company and are valid and binding agreements on the part of the Company,
enforceable in accordance with their respective terms, except as rights to
indemnification and contribution hereunder may be limited by applicable law and
except as the enforcement hereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally, or by general equitable principles; the
performance of this Agreement and the Warrant Agreement and the consummation of
the transactions herein and therein contemplated will not result in a breach or
3
violation of any of the terms and provisions of, or constitute a default under,
(i) any material indenture, mortgage, deed of trust, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness, or any material
lease, contract, joint venture or other agreement or instrument to which the
Company is a party or by which the property of the Company is bound including
any licenses from third parties, or (ii) the Certificate of Incorporation and
Bylaws of the Company, or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any government or governmental agency or body
or court, domestic or foreign, having jurisdiction over the Company or over the
properties of the Company, except for breaches, violations or defaults that
individually or in the aggregate, would not have a material adverse effect on
the Company; and no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
herein contemplated, except such as may be required under the Act, the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or under
state or other securities or Blue Sky laws, all of which requirements have been
satisfied in all material respects.
(e) Except as disclosed in the Registration Statement or the
Prospectus, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or its
Subsidiary which (i) is required to be disclosed in the Registration Statement
or the Prospectus or which might result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its Subsidiary considered as one
enterprise, or which might materially and adversely affect the properties or
assets thereof; or (ii) which might be expected to materially and adversely
affect the consummation of the transactions contemplated by this Agreement; all
pending legal or governmental proceedings to which the Company or its Subsidiary
is a party or of which any of their respective properties or assets is the
subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to the Company's business, could not
reasonably be expected to result in a material adverse change in the condition,
financial or otherwise, or the earnings, business affairs or business properties
of the Company and its Subsidiary considered as one enterprise; and there are no
contracts or documents of the Company or its Subsidiary which are required to be
described in the Registration Statement or the Prospectus, or to be filed as
exhibits thereto, by the Act or by the Rules and Regulations which have not been
accurately described in all material respects and filed as exhibits to the
Registration Statement. To the best of the Company's knowledge, the contracts
so described in the Prospectus are in full force and effect on the date hereof,
and neither the Company nor its Subsidiary is in breach of or default under, and
to the Company's knowledge, no other party is in material breach of or material
default under, any of such contracts.
(f) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all Federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities (other than such preemptive rights or other
rights to subscribe for or purchase securities as were fully complied with or
expressly waived
4
or with respect to the violation of which the right to make claim is barred by
the applicable statute of limitations), and the authorized and outstanding
capital stock of the Company conforms in all material respects to the
statements relating thereto contained in the Registration Statement and the
Prospectus (and such statements correctly state the substance of the
instruments defining the capitalization of the Company); the Firm Shares and
the Option Shares to be purchased from the Company hereunder have been duly
authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable; the shares of Common Stock
issuable under the warrant (the "Underwriters' Warrant") to be granted to the
Underwriters under the Warrant Agreement have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in accordance
with the terms of the Warrant Agreement, will be duly and validly issued and
fully paid and nonassessable; and no preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
stockholders exists with respect to any of the Firm Shares, Option Shares or
shares of Common Stock issuable under the Underwriters' Warrant or the
issuance and sale thereof other than those that have been expressly waived
prior to the date hereof and those that will automatically expire upon the
consummation of the transactions contemplated on the Closing Date. No further
approval or authorization of any stockholder, the Board of Directors or others
is required for the issuance and sale or transfer of the Shares except as may
be required under the Act, the Exchange Act or under state or other securities
or Blue Sky laws. Except as disclosed in or contemplated by the Prospectus
and the financial statements of the Company (including the notes thereto)
included in the Prospectus, the Company has no outstanding options to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights. The shares of
Common Stock reserved for issuance upon exercise of the Company's outstanding
options and warrants have been duly and validly authorized and are sufficient
in number to meet the exercise requirements of such options.
(g) Ernst & Young LLP, which has examined the financial statements
(together with related schedules and notes) of the Company filed with the
Commission as a part of the Registration Statement and which are included in the
Prospectus, and ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C., which has examined the financial
statements (together with related schedules and notes) of Compact Discs
International, Ltd. ("CDIL") filed with the Commission as a part of the
Registration Statement and which are included in the Prospectus, are to the
Company's knowledge, independent accountants within the meaning of the Act and
the Rules and Regulations; the audited and pro forma financial statements of the
Company and CDIL, together with the related schedules and notes, and the
unaudited financial information, forming part of the Registration Statement and
Prospectus, fairly present the financial position and the results of operations
of the Company at the respective dates and for the respective periods to which
they apply; and all audited and pro forma financial
5
statements, together with the related schedules and notes, and the unaudited
and pro forma financial information, filed with the Commission as part of the
Registration Statement, have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as may be otherwise stated therein. The selected and summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein. No other
financial statements or schedules are required to be included in the
Registration Statement.
(h) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, (i) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company, whether or not arising in the ordinary course of
business, (ii) there have been no transactions entered into by the Company other
than those in the ordinary course of business, which are material with respect
to the Company, (iii) there has been no obligation that is material to the
Company, direct or contingent, incurred by the Company or any Subsidiary, except
obligations incurred in the ordinary course of business, (iv) there has been no
change in the capital stock of the Company, (v) there has been no change in the
outstanding indebtedness of the Company which is material to the Company, (vi)
except as described in the Prospectus, there has been no dividend or
distribution of any kind declared, paid or made by the Company on behalf of any
class of its respective capital stock, or (vii) to the knowledge of the Company,
there has been no change in any Federal, state, or other laws, rules, or
regulations (or interpretations thereof) applicable to the business of the
Company that would have a material adverse effect on the Company, and, to the
knowledge of the Company, no such change is pending other than as described in
the Prospectus.
(i) Except as described in the Prospectus, (i) the Company and its
Subsidiary have good and marketable title to all properties and assets described
in the Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions of any kind, except those described in the
Prospectus, or those not material, singly or in the aggregate, to the business
of the Company and its Subsidiary considered as a whole, (ii) the agreements to
which the Company is a party described in the Prospectus are valid agreements,
enforceable by the Company, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally or by general equitable principles,
and (iii) the Company has valid and enforceable leases for the properties
described in the Prospectus as leased by it except as enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles.
(j) All Federal, state, local and foreign tax returns required to be
filed by the Company or its Subsidiary in any jurisdiction have been filed, and
all material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from such entities
have been paid other than those being contested in good faith and for which
adequate reserves have been provided or those currently payable without penalty
or interest; and adequate charges, accruals and reserves have been provided for
in the financial statements referred
6
to in Section 2(g) above in respect of all Federal, state, local and foreign
taxes for all periods as to which the tax liability of the Company or its
Subsidiary has not been finally determined or remains open to examination by
applicable taxing authorities.
(k) No labor dispute with the employees of the Company or its
Subsidiary exists or, to the knowledge of the Company, is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers, contractors or
customers which might be expected to result in any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its Subsidiary considered as one
enterprise. No collective bargaining agreement exists with any of the Company's
employees and, to the Company's knowledge, no such agreement is imminent.
(l) The Company and its Subsidiary own or possess, or can acquire on
reasonable terms, the patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names presently employed by them in connection with the
business now operated by them and neither the Company nor its Subsidiary has
received any notice or is otherwise aware of any infringement of or conflict
with asserted rights of others with respect to any patent or proprietary rights
or of any facts or circumstances which would render any patent and proprietary
rights invalid or inadequate to protect the interest of the Company or its
Subsidiary therein, and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity or inadequacy singly or
in the aggregate, would result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its Subsidiary considered as one enterprise.
(m) Except as set forth in the Prospectus, the Company and its
Subsidiary are in compliance in all material respects with all applicable laws,
statutes, ordinances, rules or regulations, the enforcement of which,
individually or in the aggregate, would be reasonably expected to have a
material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and its
Subsidiary considered as one enterprise.
(n) The Common Stock has been approved for quotation on the Nasdaq
SmallCap Market subject to official notice of issuance.
(o) The Company has been advised concerning the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior to
the Closing Date or on any date on which Option Shares are to be purchased, as
the case may be, any offering
7
material in connection with the offering and sale of the Shares other than the
Prospectus, the Registration Statement and other materials permitted by the
Act.
(q) The Company has not at any time during the last five years (i)
made any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any Federal or state governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares. The Company has not effected any
sales of securities required to be disclosed in Item 26 of Form SB-2 under the
Act, other than as disclosed in the Registration Statement.
(s) Each officer and director of the Company, each beneficial owner
of at least 5% of the outstanding shares of Common Stock and options and
warrants to purchase Common Stock outstanding prior to the effective date of the
Registration Statement and ▇▇▇▇ ▇. ▇▇▇▇ have agreed in writing that such
persons will not, for a period expiring 24 months after the effective date of
the Registration Statement, offer to sell, contract to sell, sell short, or
otherwise sell or dispose of any shares of Common Stock of the Company, any
options or warrants to purchase any shares of Common Stock of the Company, or
any securities convertible into or exchangeable for shares of the Common Stock
owned directly by such person or with respect to which such person has the power
of disposition otherwise than (i) as a gift or gifts, provided the donee or
donees thereof agree to be bound by this restriction or (ii) with the prior
written consent of Capital West.
(t) Except as described in the Registration Statement, (i) neither
the Company nor its Subsidiary is in violation of any Federal, state, local or
foreign laws or regulations relating to pollution or protection of human health,
the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened release
of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Environmental
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Environmental Materials
(collectively, the "Environmental Laws"), except such violations as would not,
singly or in the aggregate, have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs or business prospects
of the Company and its Subsidiary considered as one enterprise, and (ii) to the
best of the Company's knowledge, there are no events or circumstances that could
form the basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against or
affecting the Company or its Subsidiary relating to any Environmental Materials
or the violation of any Environmental Laws, which, singly or in the aggregate,
could reasonably be expected to have a material adverse effect on the condition,
financial
8
or otherwise, or the earnings, business affairs or business prospects of the
Company and its Subsidiary considered as one enterprise.
(u) The Company and its Subsidiary maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles as in effect in the United States and to maintain asset
accountability; (iii) access to bank accounts is permitted only in accordance
with management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(v) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus. Neither
the Company nor any employee or agent of the Company has made any payment or
transfer of any funds or assets of the Company or conferred any personal benefit
by use of the Company's assets, or received any funds, assets or personal
benefit in violation of any law, rule or regulation.
(w) On the Closing Date and upon delivery of the Option Shares, as
applicable, all transfer and other taxes (other than income taxes) that are
required to be paid in connection with the sale and transfer of the Shares to
the Underwriters will have been paid.
(x) The Company does not currently have and has never had any pension
plan subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability, the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(y) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 517.075, Florida Statutes (Chapter
92-198, Laws of Florida) AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH
CUBA (the "Cuba Act"), and the Company further agrees that if it commences
engaging in business with the government of Cuba or with any person or affiliate
located in Cuba after the date the Registration Statement becomes or has become
effective with the Commission or the Florida Department of Banking and Finance
(the "Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any,
9
concerning the Company's business in Cuba or with any person or affiliate
located in Cuba changes in any material way, the Company will provide the
Department notice of such business or change, as appropriate, in a form
acceptable to the Department.
(z) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to counsel for the Underwriters shall be deemed
a representation and warranty by the Company to each Underwriter as to the
matters covered thereby.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter,
severally, and not jointly, and each Underwriter, severally and not jointly,
agrees to purchase from the Company, respectively, at a purchase price per share
of $______ per Share, the number of Shares set forth in SCHEDULE A hereto
(subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check in next day funds, payable to the order of the Company at
the offices of Capital West Securities, Inc., ▇▇▇ ▇. ▇▇▇▇▇▇▇▇, 16th Floor, ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other place as
shall be agreed upon by the Underwriters and the Company, at 9:30 a.m. on the
fourth business day following the first day that Shares are traded (or at such
time and date to which payments and delivery shall have been postponed pursuant
to Section 10 hereof), such time and date of payment and delivery being herein
called the "Closing Date." The certificates for the Firm Shares to be so
delivered will be made available to you at such office or at such other location
as you may reasonably request for checking at least one business day prior to
the Closing Date and will be in such names and denominations as you may request,
such request to be made at least two business days prior to the Closing Date.
If the Underwriters so elect, delivery of the Shares may be made by credit
through full fast transfer to the accounts at Depository Trust Company
designated by the Underwriters.
It is understood that Capital West, individually and not as
representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by Capital West prior to the
Closing Date for the Firm Shares to be purchased by such Underwriter or
Underwriters. Any such payment by Capital West shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to offer the Firm Shares to the public as set forth in the
Prospectus.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters) and under
"Underwriting" in any Preliminary Prospectus and in the final form of Prospectus
filed pursuant to Rule 424(b) constitutes the only information
10
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf
of the respective Underwriters, represent and warrant to the Company that the
statements made therein do not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make such statements, in the light of the circumstances in which they were
made, not misleading.
4. FURTHER COVENANTS OF THE COMPANY. The Company covenants with the
several Underwriters as follows:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify you, promptly
after it shall receive notice thereof, of the time when the Registration
Statement or any subsequent amendment to the Registration Statement has
become effective or any supplement to the Prospectus has been filed; if the
Company omitted information from the Registration Statement at the time it
was originally declared effective in reliance upon Rule 430A(a) of the
Rules and Regulations, the Company will provide evidence satisfactory to
you that the Prospectus contains such information and has been filed,
within the time period prescribed, with the Commission pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as
part of a post-effective amendment to such Registration Statement as
originally declared effective which is declared effective by the
Commission; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information
and has been filed with the Commission within the time period prescribed;
it will notify you promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or Prospectus or
for additional information; promptly upon your request, it will prepare and
file with the Commission any amendments or supplements to the Registration
Statement or Prospectus which, in the opinion of counsel for the several
Underwriters, may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare
and file with the Commission, and promptly notify you of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which
may be necessary to correct any statements or omissions, if, at any time
when a prospectus relating to the Shares is required to be delivered under
the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would
include any untrue statement of a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare
promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus
or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement or Prospectus which shall not
11
previously have been submitted to you a reasonable time prior to the
proposed filing thereof or to which you shall reasonably object in writing,
subject, however, to compliance with the Act, the Rules and Regulations
thereunder and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal at the earliest possible moment if such stop order
should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you
may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that
the Company shall not be required in connection therewith or as a condition
thereof to qualify as a foreign corporation or to execute a general consent
to service of process in any jurisdiction or to make any undertaking with
respect to the conduct of its business. In each jurisdiction in which the
Shares shall have been qualified as above provided, the Company will make
and file such statements and reports in each year as are or may be
reasonably required by the laws of such jurisdiction.
(d) The Company will furnish you, as soon as available, copies of the
Registration Statement (three of which will be signed and which will
include all exhibits), each Preliminary Prospectus, the Prospectus and any
amendments or supplements to such documents, including any prospectus
prepared to permit compliance with Section 10(a)(3) of the Act, all in such
quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its stockholders as
soon as practicable, but in any event not later than the 45th day following
the end of the fiscal quarter first occurring after the first anniversary
of the effective date of the Registration Statement, an earnings statement
(which will be in reasonable detail but need not be audited) complying with
the provisions of Section 11(a) of the Act and covering a twelve-month
period beginning after the effective date of the Registration Statement.
(f) As long as the Company is a reporting company under the Exchange
Act, the Company will furnish to its stockholders, as soon as practicable
after the end of each respective period, annual reports (including
financial statements audited by independent certified public accountants)
and unaudited quarterly reports of operations for each of the first three
quarters of the fiscal year, and for a period of five years after the
effective date of the Registration Statement, the Company will furnish to
the several Underwriters hereunder, upon request (i) concurrently with
furnishing such reports to its stockholders, statements of operations of
the Company for each of the first three quarters in the form furnished to
the Company's stockholders; (ii) concurrently with furnishing to its
stockholders, a balance sheet
12
of the Company as of the end of such fiscal year, together with
statements of operations, of stockholders' equity, and of cash flows of
the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent accountants; (iii) as soon
as they are available, copies of all reports and financial statements
furnished to or filed with the Commission, any securities exchange or
the National Association of Securities Dealers, Inc. ("NASD"); (v)
every material press release and every material news item or article in
respect of the Company or its affairs which was released or prepared by
the Company (excluding, in each case customary product-related press
releases and articles); and (vi) any additional information of a public
nature concerning the Company, or its business which you may reasonably
request. During such five-year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and
its Subsidiary are consolidated, and shall be accompanied by similar
financial statements for any significant subsidiary which is not so
consolidated. For a period of five years from the date of the
Registration Statement, the Company will furnish to you and, upon
request, to each of the other Underwriters, as soon as available, a copy
of each report of the Company mailed to holders of the Common Stock or
publicly filed with the Commission or any automated quotation system or
national securities exchange on which any class of securities of the
Company is listed.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which
may be the same entity as the transfer agent) for its Common Stock.
(i) The Company will file Form SR in conformity with the requirements
of the Act and the Rules and Regulations.
(j) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill
any condition of the Underwriters' obligations hereunder, or if the Company
shall terminate this Agreement under Section 11(a), the Company will
reimburse the several Underwriters for all out-of-pocket accountable
expenses (including fees and disbursements of counsel for the several
Underwriters) actually incurred by the Underwriters in investigating,
preparing to market or marketing the Shares, up to an aggregate of $50,000,
which amount has already been paid and which shall be reimbursed to the
Company to the extent not actually incurred.
(k) 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 your opinion the
market price of the Common Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event
13
necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from you advising the Company to the effect set
forth above, forthwith prepare, consult with you concerning the substance
of, and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication
or event.
(l) During a period of 90 days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering shares under any employee benefit plan.
(m) On the Closing Date the Company will sell to you, for $.001 per
share of Common Stock covered by each warrant, the Underwriters' Warrants
to purchase one share of Common Stock of the Company for each ten shares of
the Company's Common Stock which have been sold (or purchased by the
Underwriters), excluding any over-allotment shares, as set forth in the
Prospectus. The Underwriters' Warrants shall have the terms and be in the
form filed as an exhibit to the Registration Statement. At any time during
the period commencing 12 months and ending five years after the effective
date of the offering and at the written request of the then holders of 51%
of the Underwriters' Warrants and the Common Stock of the Company issued
upon the exercise of the Underwriters' Warrants, and on one occasion, the
Company will file with the Commission and process to effectiveness a
registration statement covering not less than 51% of the shares of the
Common Stock of the Company issuable and/or issued upon the exercise of the
Underwriters' Warrants. The Company must file a registration statement
only if the shares of Common Stock issuable under the Underwriters'
Warrants cannot be sold without registration under Rule 144 promulgated
under the Act. The Company agrees to use its commercially reasonable best
efforts to cause the filing to become effective. The costs of the filing
of such registration statement including but not limited to, legal
(including legal fees relating to clearance in the various states, limited
however to such states as may be reasonably requested), accounting and
printing fees, shall be borne by the Company but the Company shall not be
responsible for the cost of any separate counsel to review the registration
statement on behalf of or to advise the selling stockholders and shall not
be responsible for the payment of any underwriting discount or commissions
with respect to such sale. Such registration statement shall comply with
any undertaking applicable to such shares. If the Company otherwise than
upon the request of the owners of the Underwriters' Warrants or the shares
of Common Stock issuable upon the exercise thereof files a registration
statement under the Act with respect to any of its securities at any time
(other than on Form ▇-▇, ▇-▇, or any other form that does not provide for
resales by selling security holders), the Company will give such persons 30
days' notice of its intention to do so, and at their written request given
within 10 days of the receipt of such notice, will include in such
registration statement such number of such Shares as they may specify, all
at no cost to them (except for underwriting discounts and the fees and
expenses of counsel to such holders). In connection with any such
registration statement covering all or a part of such shares, the Company
agrees that it will covenant with the owners of such shares with respect to
such shares and the offering thereof, in customary form
14
substantially to the effect contained in this Section 4. If the
offering pursuant to any registration statement provided for herein is
made through underwriters, the Company agrees to enter into an
underwriting agreement in customary form with such underwriters in which
the Company and the underwriters and each person who controls such
underwriters within the meaning of the Act grant to each other customary
reciprocal indemnities against liabilities under the Act.
(n) As long as the Company is a reporting company under the Exchange
Act, the Company will comply with the Act, the Exchange Act, the rules and
regulations of the NASD and applicable state securities or Blue Sky laws so
as to permit the continuance of sales and dealings in the Common Stock
under the Act, the Exchange Act, the rules and regulations of the NASD, and
applicable state securities or Blue Sky laws, including the filing with the
NASD and the Commission of all reports required to be filed pursuant to the
applicable provisions of the rules and regulations of the NASD, the Act,
and the Exchange Act, and will deliver to the holders of the Common Stock
all reports required to be provided to such holders pursuant to the
applicable provisions of the rules and regulations of the NASD, the Act,
the Exchange Act, and applicable state securities or Blue Sky laws.
(o) Immediately following the later to occur of: (i) the Option
Closing Date, as defined in Section 6(h)(3), below, or (ii) 30 days
following the Closing Date, the Company shall take and complete all
necessary corporate and stockholder action that will allow Capital West
to designate one person of its choosing to serve as a member of the
Board of Directors of the Company.
5. EXPENSES.
(a) The Company agrees with each Underwriter that the Company will
pay and bear all costs and expenses in connection with the preparation,
printing and filing of the Registration Statement (including financial
statements, schedules and exhibits), Preliminary Prospectuses and the
Prospectus and any amendments or supplements thereto; the printing of this
Agreement, the Preliminary Blue Sky Survey and any Supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if
any, and the cost of all certificates representing the Shares and transfer
agents' and registrars' fees; the fees and disbursements of counsel for the
Company; all fees and other charges of the Company's independent public
accountants (inclusive of the fees of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇); the cost of
furnishing to the several Underwriters copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectus and the Prospectus,
and any amendments or supplements to any of the foregoing; and all postage
costs incurred in connection with the qualification of the Shares under the
laws of such jurisdictions as you may designate; and all other expenses
directly incurred by the Company in connection with the performance of its
obligations hereunder.
15
(b) Capital West shall be entitled to receive from the Company, for
itself and not as representative of the Underwriters, a nonaccountable expense
allowance equal to three percent of the aggregate public offering price of
Shares sold to the Underwriters in connection with the Offering (out of which
the Capital West shall pay all filing fees, expenses and disbursements, except
for postage costs, incurred in connection with the qualification of the Shares
under the laws of such jurisdictions as you may designate including fees and
expenses of Underwriters' counsel), reduced by any amounts advanced by the
Company to Capital West pursuant to the terms of the Letter of Intent. Capital
West shall be entitled to withhold this allowance on the Closing Date.
(c) In addition to its other obligations under Section 8(c), the
Underwriters agree that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding described in Section 8(c),
they will reimburse the Company on a monthly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within 30 days of a
request for reimbursement shall bear interest at the Prime Rate from the date of
such request.
(d) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5(a)(ii) and 5(c)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the National Association of Securities Dealers, Inc.
Any such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein electing the
arbitration tribunal. In the event the party demanding arbitration does not
make such designation of an arbitration tribunal in such demand or notice, then
the party responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 5(a)(ii) and 5(c) hereof and will not resolve
the ultimate propriety or enforceability of the obligation to indemnify for
expenses which is created by the provisions of Sections 8(a), 8(b) and 8(c).
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase and pay for Shares as provided herein shall be subject
to the accuracy, as of the date hereof and the Closing Date and any later date
on which Option Shares are to be purchased (the "Option Closing Date"), as the
case may be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder, and to the following
additional conditions:
16
(a) The Registration Statement shall have become effective not later
than 5:30 p.m. on the date hereof, or with the consent of the Underwriters, at a
later time and date, not later, however, than 5:30 p.m. on the first business
day following the date hereof, or at such later time and date as may be approved
by a majority in interest of the Underwriters; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
Act or proceedings therefor initiated or threatened by the Commission and any
request on the part of the Commission for additional information (to be included
in the Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of counsel to the Underwriters. If
the Company has elected to rely upon Rule 430A of the Rules and Regulations, the
price of the Shares and any price-related information previously omitted from
the effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period, and prior to the Closing Date
the Company shall have provided evidence satisfactory to the Underwriters of
such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations. Qualification under the
securities laws of such states as you may deem necessary to the success of the
underwriting of the issue and sale of the Shares upon the terms and conditions
set forth in this Agreement or contemplated by this Agreement and containing no
provisions unacceptable to you will have been secured, and no stop order (or the
equivalent thereof) will be in effect denying or suspending effectiveness of
such qualification, nor will any stop order proceedings (or the equivalent
thereof) with respect thereto be instituted or pending or threatened under such
laws.
(b) At the Closing Date and the Option Closing Date, if any, counsel
for the Underwriters shall have been furnished with such documents and opinions
as they may require for the purpose of enabling them to pass upon the issuance
and sale of the Shares as contemplated herein and related proceedings or in
order to evidence the accuracy of any of the representations and warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Shares as
herein contemplated shall be satisfactory in form and substance to the
Underwriters and counsel for the Underwriters.
(c) There shall not have been, since the date hereof or since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, any change in the condition (financial or otherwise),
earnings, operations, business affairs or business prospects of the Company and
its Subsidiary considered as one enterprise, whether or not arising in the
ordinary course of business which, in your sole judgment, is material and
adverse and that makes it, in your sole judgment, impracticable or inadvisable
to proceed with the public offering of the Shares as contemplated by the
Prospectus, and the Underwriters shall have received a certificate of the
President or Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of the Closing Date, to the effect
that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 2 hereof are true and correct with the
same force and effect as though expressly made at and as of the Closing Date,
(iii) the Company has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied
17
at or prior to the Closing Date, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been initiated or threatened by the Commission or any
Blue Sky jurisdiction.
(d) At the Closing Date the Underwriters shall have received:
(1) The opinion, dated as of the Closing Date of Day ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ Propester & ▇▇▇▇▇▇▇▇▇▇▇ P.C., counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.
(ii) The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus and to enter into and perform its
obligations under this Agreement and to issue, sell and deliver to the
Underwriters the Firm Shares or the Option Shares, as the case may be, to be
issued and sold by it hereunder.
(iii) The Company is duly qualified to do business as a
foreign corporation and is in good standing in the States of Oklahoma and Texas,
and to the best of its knowledge is not required to be qualified to do business
as a foreign corporation in any other jurisdiction.
(iv) At the Closing Date, after giving effect to the sale of the
Firm Shares, the authorized capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" as of the dates stated therein;
the issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable and have not been issued in
violation of any preemptive right contained in the Certificate of Incorporation
or Bylaws of the Company or, to such counsel's knowledge, any co-sale right,
registration right, right of first refusal or other similar right (other than
such preemptive rights or other rights to subscribe for or purchase securities
as were fully complied with or expressly waived or with respect to the violation
of which the right to make a claim is barred by the applicable statute of
limitation).
(v) The Firm Shares and the Option Shares, as the case may be,
to be purchased from the Company hereunder have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement against payment
therefor in accordance with the terms hereof, will be validly issued and fully
paid and nonassessable, and will not be issued in violation of any preemptive
right under the Certificate of Incorporation or Bylaws of the Company or, to
such counsel's knowledge, any co-sale right, right of first refusal or other
similar right and the stockholders of the Company have no preemptive right under
the Certificate of Incorporation or Bylaws of the Company or, to such counsel's
knowledge, other rights to purchase any of the Shares; the shares of Common
Stock reserved for issuance upon the exercise of the Underwriters' Warrants have
been duly and validly
18
authorized and are sufficient in number to meet the exercise requirements
thereof, and such shares of Common Stock, when issued upon exercise, will be
duly and validly issued, fully paid (assuming exercise in accordance with the
Warrant Agreement and receipt by the Company of the exercise price thereof)
and nonassessable; the stockholders of the Company have no preemptive right
under the Certificate of Incorporation or Bylaws of the Company or, to such
counsel's knowledge, other rights to purchase any of the Shares; and the
shares of Common Stock reserved for issuance upon the exercise of the
Company's outstanding options have been duly and validly authorized and are
sufficient in number to meet the exercise requirements of such options, and
such shares of Common Stock, when issued upon exercise, will be duly and
validly issued, fully paid (assuming exercise in accordance with the governing
instruments therefor and receipt by the Company of the exercise price thereof)
and nonassessable.
(vi) The issuance of the Shares to be purchased hereunder is not
subject to preemptive or other similar rights arising by operation of law or, to
the best of their knowledge and information, otherwise.
(vii) The Subsidiary has been duly incorporated and is validly
existing as a corporation and is in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and authority to
own, lease and operate its properties and to conduct it business as described
in the Registration Statement, and is duly qualified as a foreign corporation
to transact business and is in good standing in the States of Arkansas,
Colorado, Florida, Kansas, Louisiana, Missouri, Nebraska, Oklahoma,
Tennessee, Texas, Utah and Virginia, and to the best of its knowledge the
Subsidiary is not required to be qualified to do business as a foreign
corporation in any other jurisdiction; all of the issued and outstanding
capital stock of such Subsidiary have been duly authorized and validly
issued, is fully paid and nonassessable and, to the best of their knowledge
and information, is owned by the Company directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity.
(viii) This Agreement and the Warrant Agreement have been duly
authorized by all necessary corporate action on the part of the Company and have
been duly executed and delivered by the Company and assuming due authorization,
execution and delivery by the Underwriters, are valid and binding agreements of
the Company, except insofar as indemnification and contribution provisions may
be limited by applicable law or equitable principles, and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or any general
equitable principles;
(ix) The Registration Statement has been declared 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, to
the best of their knowledge and information, no stop order suspending the
effectiveness of the Registration Statement has been issued under the Act or
proceedings therefor have been initiated or are pending or threatened by the
Commission.
19
(x) The Registration Statement, Prospectus and each amendment or
supplement to the Registration Statement and Prospectus, as of their respective
effective or issue dates (other than the financial statements and supporting
schedules included therein, as to which no opinion need be rendered) complied as
to form in all material respects with the requirements of the Act and the
applicable Rules and Regulations.
(xi) The terms and provisions of the capital stock of the Company
conform in all material respects to the description thereof contained in the
Prospectus under the caption "Description of Securities";
(xii) The information in the Prospectus under the caption
"Description of Securities" to the extent that they constitute matters of law or
legal conclusions, has been reviewed by such counsel and accurately and fairly
summarizes in such counsel's opinion the matters described therein and to the
knowledge of such counsel, there are no outstanding options, warrants,
convertible securities, or other rights to acquire from the Company any capital
stock, except as described in the Registration Statement; in addition, the forms
of certificates evidencing the Company stock comply with Delaware law;
(xiii) To the best of their knowledge and information, except
as set forth in the Prospectus, there is not pending or threatened any action,
suit, proceeding, inquiry or investigation, to which the Company or its
Subsidiary is a party, or to which the property of the Company or its Subsidiary
is subject, before or brought by any court or government agency or body, which
might reasonably be expected to result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its Subsidiary considered as one
enterprise, or which might reasonably be expected to materially and adversely
affect the properties or assets thereof or the consummation of this Agreement or
the performance by the Company of its obligations hereunder; and all pending
legal or governmental proceedings to which the Company or its Subsidiary is a
party or that affect any of their respective properties that are not described
in the Prospectus, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its Subsidiary considered as
one enterprise.
(xiv) The information in the Prospectus under the captions
"Business and Properties - Legal Proceedings", " - Governmental Regulation" and
"- Properties", "Certain Transactions" and "Description of Capital Stock" in the
Prospectus and Items 24 and 26 of Part II of the Registration Statement to the
extent that such items constitute matter of law, summaries of legal matters,
documents or proceedings, or legal conclusions, has been reviewed by them and is
correct in all material respects, and there are no legal or governmental
actions, suits or proceedings pending or threatened against the Company or its
Subsidiary that are required to be described in the Prospectus are not described
as required by the Act or the applicable Rules and Regulations.
20
(xv) All descriptions in the Prospectus of contracts and other
documents are accurate in all material respects; to the best of their
knowledge and information, there are no agreements, no contracts, indentures,
mortgages, loan agreements, notes, leases or other instrument required to be
described or referred to in the Registration Statement or to be filed as
exhibits thereto other than those described or referred to therein or filed
as exhibits thereto, the descriptions thereof or references thereto are
correct in all material respects, and to the best of counsel's knowledge
and information, the Company is not in default in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease
or other instrument so described, referred to or filed as exhibits thereto.
(xvi) No authorization, approval, consent or order of any
court or governmental authority or agency (other than under the Act or the Rules
and Regulations, which have been obtained, or as may be required under the
securities or Blue Sky laws of the various states) is required in connection
with the due authorization, execution and delivery of this Agreement or for the
offering, issuance or sale of the Shares to the Underwriters; and the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein and compliance by the Company with its
obligations hereunder (other than performance of the Company's indemnification
and contribution obligations hereunder, concerning which no opinion need be
expressed) will not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach or violation of, or default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or its Subsidiary
pursuant to any material contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Company or its Subsidiary is a party or
by which it or any of them may be bound, or to which any of the property or
assets of the Company or its Subsidiary is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or Bylaws
of the Company, or any applicable law, administrative regulation or court
decree, provided, however, no opinion need be rendered concerning state
securities or Blue Sky laws.
(xvii) To the best of such counsel's knowledge and information,
with the exception of the Underwriters' Warrants, no holder of any security of
the Company has any right to require registration of any shares of Common
Stock or any other security of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of the
Company having rights to registration of such shares of Common Stock, or other
securities, because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement, or have included
securities in the Registration Statement pursuant to the exercise of such
rights.
(xviii) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the 1940
Act.
21
(xix) To the best of such counsel's knowledge and
information, neither the Company nor its Subsidiary are in violation of their
charter or by-laws.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including with limitation, the Legal Opinion Accord of the ABA
Section of Business Law (1991).
In giving their opinion required by subsection (d)(1) of this Section,
Day ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Propester & ▇▇▇▇▇▇▇▇▇▇▇, P.C. shall additionally state that
nothing has come to their attention that would lead them to believe that the
Registration Statement, at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, at the effective date of the Registration Statement (unless
the term "Prospectus" refers to a prospectus which has been provided to the
Underwriters by the Company for use in connection with the offering of the
Shares which differs from the Prospectus declared effective by the Commission,
in which case at the time it is first provided to the Underwriters for such use)
or at the Closing Date, included an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Such opinion may state that such counsel does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus except as otherwise
expressly provided in such opinion, and such counsel need express no opinion or
belief as to the financial statements, schedules, and other financial or
statistical data included in the Registration Statement or Prospectus.
(2) The opinion, dated as of Closing Date, of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇, P.C., counsel for the Underwriters, in form and
substance satisfactory to you, with respect to the sufficiency of all such
corporate proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such papers, opinions and information as
they request to enable them to pass upon such matters.
(e) At the time of the execution of this Agreement, the Underwriters
shall have received from Ernst & Young LLP a letter dated such date, in form and
substance satisfactory to the Underwriters, to the effect that:
(1) they are independent public accountants with respect to the
Company and its Subsidiary within the meaning of the Act and the Rules and
Regulations;
22
(2) it is their opinion that the consolidated balance sheet
included in the Registration Statement and covered by their opinion therein
complies as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations;
(3) based upon limited procedures set forth in detail in such
letter, nothing has come to their attention which causes them to believe that,
at a specified date not more than three days prior to the date of this
Agreement, (A) the unaudited consolidated balance sheet of the Company and its
Subsidiary included in the Registration Statement does not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Rules and Regulations or is not presented 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,
or (B) at a specified date not more than three days prior to the date of this
Agreement, there has been any change in the capital stock of the Company or any
increase in the combined long term debt of the Company and its Subsidiary or any
decrease in combined net current assets or net assets as compared with the
amounts shown in the October 15, 1996 balance sheet included in the Registration
Statement or, during the period from October 15, 1996 to a specified date not
more than three days prior to the date of this Agreement, there were any
decreases, as compared with the corresponding period in the preceding year, in
combined revenues, net income or net income per share of the Company and its
Subsidiary, except in all instances for changes, increases or decreases which
the Registration Statement and the Prospectus disclose have occurred or may
occur;
(4) in addition to the examination referred to in their opinion
and the limited procedures referred to in clause (3) above, they have carried
out certain specified procedures, not constituting an audit, with respect to
certain amounts, percentages and financial information which are included in the
Registration Statement and Prospectus and which are specified by the
Underwriters, and have found such amounts, percentages and financial information
to be in agreement with the relevant accounting, financial and other records of
the Company and its Subsidiary identified in such letter; and
(5) they have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-B and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to believe
that this information does not conform in all material respects with the
disclosure requirements of Item 402 of Regulation S-B.
(f) At the time of the execution of this Agreement, the Underwriters
shall have received from ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, a letter dated such date, in form
and substance satisfactory to the Underwriters, to the effect that:
(1) they are independent public accountants with respect to
Compact Discs International, Ltd. and its Subsidiary ("CDIL") for the years
ended December 31, 1994 and 1995
23
and with respect to CD Acquisitions ("CDA") for the years ended December 31,
1994 and 1995 within the meaning of the Act and the Rules and Regulations;
(2) it is their opinion that the financial statements and
supporting schedules included in the Registration Statement and covered by their
opinion therein comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations;
(3) based upon limited procedures set forth in detail in such
letter, nothing has come to their attention which causes them to believe that,
at a specified date not more than three days prior to the date of this
Agreement, (A) the unaudited combined or consolidated financial statements and
supporting schedules of CDIL and CDA included in the Registration Statement do
not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not presented 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, (B) the unaudited combined or consolidated
financial statements and supporting schedules of CDIL and CDA included in the
Registration Statement were not determined on a basis substantially consistent
with that used in determining the corresponding amounts in the audited combined
financial statement included in the Registration Statement, or (C) at a
specified date not more than three days prior to the date of this Agreement,
there has been any change in partners' capital, other than the net increase due
to income and distributions made for the one month period, increase in long-term
debt, or decrease in consolidated net current assets or partners' capital of the
consolidated companies as compared with the amounts shown in the September 30,
1996 unaudited consolidated financial statements included in the Registration
Statement or, during the period from October 1, 1996 to a specified date not
more than three days prior to the date of this Agreement, there were any
decreases, as compared with the corresponding period in the preceding year, in
consolidated net sales or in the total amount of net income, except in all
instances for changes, increases or decreases which the Registration Statement
and the Prospectus disclose have occurred or may occur;
(4) in addition to the examination referred to in their opinions
and the limited procedures referred to in clause (3) above, they have carried
out certain specified procedures, not constituting an audit, with respect to
certain amounts, percentages and financial information which are included in the
Registration Statement and Prospectus and which are specified by the
Underwriters, and have found such amounts, percentages and financial information
to be in agreement with the relevant accounting, financial and other records of
the Company and its Subsidiary identified in such letter; and
(5) they have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-B and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to believe
that this information does not conform in all material respects with the
disclosure requirements of Item 402 of Regulation S-B.
24
(g) At the Closing Date, the Underwriters shall have received from
each of Ernst & Young LLP and ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C., a letter, dated as of the
Closing Date, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsections (e) and (f), respectively, of this Section 6,
except that the specified date referred to shall be a date not more than three
days prior to the Closing Date and, if the Company has elected to rely on Rule
430A of the 1933 Act Regulations, to the further effect that they have carried
out procedures as specified in clause (4) of subsections (e) and (f) of this
Section 6 with respect to certain amounts, percentages and financial information
specified by the Underwriters and deemed to be a part of the Registration
Statement pursuant to Rule 430(A)(b) and have found such amounts, percentages
and financial information to be in agreement with the records specified in such
clause (4).
(h) At the Closing Date, the Common Stock shall have been approved
for listing on the Nasdaq SmallCap Market.
(i) In the event that the Underwriters exercise their option provided
in Section 7 hereof to purchase all or any portion of the Option Shares, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company hereunder shall be true
and correct as of the Option Closing Date and, at the Option Closing Date, the
Underwriters shall have received:
(1) A certificate, dated the Option Closing Date, of the
President or a Vice President of the Company and of the Chief Financial
or Chief Accounting Officer of the Company confirming that the
certificate delivered at the Closing Date pursuant to Section 5(c) hereof
remains true and correct as of the Option Closing Date (except that all
references in such Section to "Closing Date" shall be deemed to refer to
the "Option Closing Date").
(2) The opinions of Day ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Propester &
▇▇▇▇▇▇▇▇▇▇▇, P.C., counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, dated the Option Closing
Date, relating to the Option Shares and otherwise to the same effect as
the opinion required by Section 5(b)(1) hereof (except that all
references in such Section to "Closing Date" shall be deemed to refer to
the "Option Closing Date").
(3) The opinion of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇,
P.C., counsel for the Underwriters, dated the Option Closing Date,
relating to the Option Shares to be purchased on the Option Closing Date
and otherwise to the same effect as the opinion required by Section
5(b)(2) hereof (except that all references in such Section to "Closing
Date" shall be deemed to refer to the "Option Closing Date").
(4) A letter from each of Ernst & Young LLP and ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, P.C., in form and substance satisfactory to the Underwriters and
dated the Option Closing Date, substantially the same in form and
substance as the letter furnished to the Underwriters pursuant to Section
5(e) hereof, except that the "specified date" in the letter furnished
25
pursuant to this Section 5(h)(4) shall be a date not more than three days
prior to the Option Closing Date.
(j) All conditions for closing required under the terms of that
certain Asset Purchase Agreement (the "CDIL Agreement"), dated October 1, 1996,
by and among the Company, CDIL and ▇▇▇▇ ▇. ▇▇▇▇, shall have been satisfied by
all parties thereto on or before the Closing Date and the Underwriters shall
have received a certificate, dated the Closing Date, of the President or a Vice
President of the Company, ▇▇▇▇ ▇. ▇▇▇▇, and of the general partner of CDIL,
confirming the foregoing and that the CDIL Agreement will close on the Closing
Date if there is a closing under this Agreement.
(k) All conditions for closing required under the terms of that
certain Asset Purchase Agreement (the "MacDonald Agreement"), dated October 10,
1996, by and between ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and the Company, shall have been
satisfied by all parties thereto on or before the Closing Date and the
Underwriters shall have received a certificate, dated the Closing Date, of the
President or a Vice President of the Company and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, confirming
the foregoing and that the MacDonald Agreement will close on the Closing Date if
there is a closing under this Agreement.
(l) The Company and the Underwriters shall have entered into the
Warrant Agreement and the Company shall have sold to the Underwriters the
Underwriters' Warrants, which shall be in the form attached as an exhibit to the
Warrant Agreement.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Representative by notice to the Company at any time at or prior to
Closing Date, and such termination shall be without liability of any party to
any other party except as provided in Section 4 and except that Sections 4(j)
and 8 shall survive any such termination and remain in full force and effect.
7. OPTION SHARES.
(a) On the basis of the representations and warranties herein contained,
but subject to the terms and conditions herein set forth, the Company hereby
grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm
Shares only, a non-transferable option to purchase up to an aggregate 150,000
Option Shares at the purchase price per share for the Firm Shares set forth
in Section 3 hereof. Such option may be exercised by Capital West on behalf
of the several Underwriters on one occasion in whole or in part during the
period of 30 days from and after the date on which the Firm Shares are
initially offered to the public, by giving notice to the Company. The number
of Option Shares to be purchased by each Underwriter upon the exercise of
such option shall be the same proportion of the total number of Option Shares
to be purchased by the several Underwriters pursuant to the exercise of such
option as the number of Firm Shares purchased by such Underwriter (set forth
in SCHEDULE
26
A hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in SCHEDULE A hereto), adjusted by the Underwriters
in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in same day funds, payable to the order of the Company. Such
delivery and payment shall take place at the offices of Capital West Securities,
Inc., ▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or at such
other place as may be agreed upon between the Underwriters and the Company on
the Closing Date, if written notice of the exercise of such option is received
by the Company not later than three full business days prior to the Closing
Date.
The certificates for the Options Shares so to be delivered will be
made available to you at such office or other location including, without
limitation, in Oklahoma City, as you may reasonably request for checking at
least two full business days prior to the date of payment and delivery and will
be in such names and denominations as you may request, such request to be made
at least three full days prior to such date of payment and delivery. If the
Underwriters so elects, delivery of the Shares may be made by credit through
full fast transfer to the accounts at Depository Trust Company by the
Underwriters.
It is understood that Capital West, individually, and not as the
representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price on behalf of any Underwriter or Underwriters whose
check or checks shall not have been received by you prior to the date of payment
and delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by Capital West shall not relieve any
Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof the
obligations of the Underwriters to purchase such Option Shares will be subject
(as of the date hereof and as of the date of payment for such Option Shares) to
the accuracy of and compliance with the representations and warranties of the
Company herein, to the accuracy of the statements of the Company and officers of
the Company made pursuant to the provisions hereof, to the performance by the
Company of their respective obligations hereunder, and to the condition that all
proceedings taken at or prior to the payment date in connection with the sale
and transfer of such Option Shares shall be satisfactory in form and substance
to you and to Underwriters' counsel, and you shall have been furnished with all
such documents, certificates and opinions as you may reasonably request in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements, the performance of any of the covenants of the Company
or the compliance with any of the conditions herein contained.
27
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, as incurred, to which such Underwriter may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of the Company herein
contained, or (ii) any untrue statement or alleged untrue statement made by
the Company in Section 2 hereof, or (iii) any untrue statement or alleged
untrue statement of a material fact contained (A) in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or (B) in any blue sky application or other document
executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction
in order to qualify any or all of the Shares under the securities laws
thereof (any such application, documents or information being hereinafter
called a "Blue Sky Application"), or (iii) the omission or alleged omission
to state in the Registration Statement or any amendment thereto a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or the omission or alleged omission to state in any
Preliminary Prospectus, the Prospectus or any supplement thereto or in any
Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and shall reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action, notwithstanding the possibility that payments
for such expenses might later be held to be improper, in which case the
person receiving them shall promptly refund them; except that the Company
shall not be liable in any such case to the extent, but only to the extent,
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, such Preliminary Prospectus or
the Prospectus, or any amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or on behalf
of any Underwriter specifically for use in the preparation thereof and,
provided further, that the indemnity agreement provided in this Section 8(a)
with respect to any Preliminary Prospectus shall not inure to the benefit of
any Underwriter from whom the person asserting any losses, claims, charges,
liabilities or litigation based upon any untrue statement or alleged untrue
statement of material fact or omission or alleged omission to state therein a
material fact purchased Shares, if a copy of the Prospectus in which such
untrue statement or alleged untrue statement or omission or alleged omission
was corrected has not been sent or given to such person within the time
required by the Act and the Rules and Regulations thereunder, unless such
failure is the result of noncompliance by the Company with Section 4(c)
hereof.
(b) Each Underwriter severally, but not jointly, shall indemnify and
hold harmless the Company against any losses, claims, damages or liabilities,
joint or several, as incurred, to which the Company may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
28
statement or alleged untrue statement of a material fact contained (A) in the
Registration Statement, Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, or (B) in any Blue Sky Application, or (ii) the omission
or alleged omission to state in the Registration Statement or any amendment
thereto a material fact required to be stated therein or necessary to make the
statements therein not misleading, or the omission or alleged omission to state
in any Preliminary Prospectus, the Prospectus or any supplement thereto or in
any Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; except that such indemnification
shall be available in each such 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 through the Underwriters by or on behalf of such
Underwriter specifically for use in the preparation thereof; and shall reimburse
any legal or other expenses reasonably incurred by the Company in connection
with investigation or defending against any such loss, claim, damage, liability
or action.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the claim or the commencement of that action; the failure to notify
the indemnifying party shall not relieve it from any liability which it may have
to an indemnified party otherwise than under such subsection. If any such claim
or action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party; provided, however, if
the defendants in any such action include both the indemnified parties and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to the indemnified party of
its election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under such subsection for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof unless (i) the indemnified party shall have
employed separate counsel in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel (together with
appropriate local counsel) approved by the indemnifying party, representing all
the indemnified parties under Section 8(a) and 8(b) hereof who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have
29
approved the terms of such settlement; provided, however, that such consent
shall not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
for which it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company is responsible for the remaining portion; provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter,
and (ii) no person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to a contribution from any person
who is not guilty of such fraudulent misrepresentation. This subsection (d)
shall not be operative as to any Underwriter to the extent that the Company has
received indemnity under this Section 8.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have, and shall
extend, upon the same terms and conditions, to each officer and director of each
Underwriter and to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 8
shall be in addition to any liability that the respective Underwriters may
otherwise have, and shall extend, upon the same terms and conditions, to each
director of the Company (including any person who, with his consent, is named in
the Registration Statement as about to become a director of the Company), to
each officer of the Company who has signed the Registration Statement and to
each person, if any, who controls the Company within the meaning of the
Securities Act, in either case, whether or not such person is a party to any
action or proceeding.
(f) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including without limitation the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act. The parties are advised that Federal or state public policy, as
interpreted by the courts in certain jurisdictions, may be contrary to certain
of the provisions of this Section 8, and the parties hereto hereby expressly
waive and relinquish any right or ability to assert such public policy as a
defense to a claim under this Section 8 and further agree not to attempt to
assert any such defense.
30
9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants and agreements of the Company contained
in this Agreement (including, without limitation, the agreements of the Company
set forth in Sections 4(i)-(l)), or contained in certificates of officers of the
Company submitted pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or controlling person, or by or on behalf of the Company, or any of its
officers, controlling persons or directors and shall survive delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number of
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four hours to allow the several Underwriters the privilege of substituting
within twenty-four hours (including non-business hours) another underwriter or
underwriters (which may include any nondefaulting Underwriter) satisfactory to
the Company. If no such underwriter or underwriters shall have been substituted
as aforesaid by such postponed Closing Date, the Closing Date may, at the option
of the Company, be postponed for a further twenty-four hours, if necessary to
allow the Company the privilege of finding another underwriter or underwriters,
satisfactory to you, to purchase the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted underwriters to take up
the Firm Shares of the defaulting Underwriter or Underwriters as provided in
this Section, (i) the Company shall have the right to postpone the time of
delivery for a period of not more than seven full business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substitute underwriters shall be taken as the basis of their underwriting
obligation. If the remaining Underwriters shall not take up and pay for all
such Firm Shares so agreed to be purchased by the defaulting Underwriter or
Underwriters or substitute another underwriter or underwriters as aforesaid and
the Company shall not find or shall not elect
31
to seek another underwriter or underwriters for such Firm Shares as aforesaid,
then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the preceding
paragraph of this Section, neither the Company shall be liable to any
Underwriter (except as provided in Sections 5 and 8 hereof nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the later of (i)
execution of this Agreement, or (ii) when notification of the effectiveness of
the Registration Statement has been released by the Commission.
(b) You shall have the right to terminate this Agreement by giving
notice as hereinafter specified at any time at or prior to the Closing Date (i)
if the Company shall have failed, refused or been unable, to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled by the Company is
not fulfilled including, without limitation, any change in the financial
condition, earnings, operations, business, management, technical staff, or
business prospects of the Company from that set forth in the Registration
Statement or Prospectus which, in your sole judgment, is material and adverse,
or (ii) if trading on the New York Stock Exchange or the Nasdaq Stock Market
shall have been suspended, or minimum or maximum prices for trading shall have
been fixed, or maximum ranges for prices for securities shall have been required
on the New York Stock Exchange or the Nasdaq Stock Market, by the New York Stock
Exchange, the Nasdaq Stock Market or by order of the Commission or any other
governmental authority having jurisdiction, or if a banking moratorium shall
have been declared by Federal, New York, Oklahoma, Delaware or Texas
authorities, or (iii) if on or prior to the Closing Date, or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, the
Company shall have sustained a loss by strike, fire, flood, earthquake, accident
or other calamity of such character as to interfere materially and adversely
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured, or (iv) if there shall have
been a material adverse change in the general political or economic conditions
or financial markets in the United States as in your reasonable judgment makes
it inadvisable or impracticable to proceed with the offering, sale and delivery
of the Shares, or (v) if on or prior to the Closing Date, or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, there
shall have been an outbreak or escalation of hostilities or other international
or domestic calamity, crises or material adverse change in political,
32
financial or economic conditions, the effect of which on the financial markets
of the United States is such as to make it in your reasonable judgment,
inadvisable to proceed with the marketing of the Shares. In the event of
termination pursuant to this Section 11(b), the Company shall remain obligated
to pay costs and expenses pursuant to Section 4(j), 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone or telecopy, in each case confirmed by letter.
If the Company shall elect to prevent this Agreement from becoming effective,
the Company shall promptly notify you by telephone or telecopy, in each case,
confirmed by letter.
12. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if mailed or transmitted by any
standard form of telecommunication. Notices to the Underwriters shall be
directed to the Underwriters in care of Capital West Securities, Inc., ▇▇▇ ▇.
▇▇▇▇▇▇▇▇, 16th Floor, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
attention of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇; notices to the Company shall be directed to it
at ▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, attention of Chief Executive
Officer.
13. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective executors,
administrators, successors, and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or corporation,
other than the parties hereto and their respective executors, administrators,
successors, and assigns and the controlling persons and officers and directors
referred to in Section 8 hereof 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 are intended to be for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors, and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or corporation.
No purchaser of the Shares from any Underwriter shall be construed to be a
successor by reason merely of such purchase.
14. GOVERNING LAW. This Agreement and the Pricing Agreement shall be
governed by and construed in accordance with the laws of the State of Oklahoma
applicable to agreements made and to be performed in said State. Specified times
of day refer to Central time.
15. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
33
lf the foregoing correctly sets forth your understanding of our agreement,
please sign in the space provided below for that purpose, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the several Underwriters and the Company in accordance with its terms.
CD WAREHOUSE, INC.
By:
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
CONFIRMED AND ACCEPTED, as of the date first above written:
CAPITAL WEST SECURITIES, INC.
By:
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chairman
WESTPORT RESOURCES
INVESTMENT SERVICES, INC.
By:
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Attorney in Fact
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & COMPANY
FINANCIAL SERVICES, INC.
By:
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Attorney in Fact
34
SCHEDULE A
UNDERWRITER SHARES PURCHASED
----------- ----------------
Capital West Securities, Inc.
Westport Resources Investment Services, Inc.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company Financial Services, Inc.
