1
400,000 Shares of Series A Cumulative Convertible Redeemable Preferred Stock
and
1,000,000 Redeemable Series A Warrants for Common Stock
of
WESTERN COUNTRY CLUBS, INC.
UNDERWRITING AGREEMENT
Atlanta, Georgia
February ___, 1997
ARGENT SECURITIES, INC.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇.
Suite 450
Atlanta, Georgia 30326
Gentlemen:
Western Country Clubs, Inc., a Colorado corporation (the "Company"),
confirms its agreement with Argent Securities, Inc. ("Argent"), and each of the
other underwriters named in Schedule I hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom Argent is acting as
representative (in such capacity, Argent shall hereinafter be referred to as
the "Representative"), with respect to the sale by the Company listed on
Schedule III, and the purchase by the Underwriters, acting severally and not
jointly, of Four Hundred Thousand (400,000) shares (the "Shares") of the
Company's Series A Cumulative Convertible Redeemable Preferred Stock, par value
$.10 per share (the "Preferred Stock"), and One Million (1,000,000) Redeemable
Series A Warrants for Common Stock (the "Redeemable Warrants") ("Firm
Securities"). The Company grants to the Underwriters, acting severally and not
jointly, the option described in Section 2(b) hereof to purchase all or any
part of 60,000 additional Shares and 150,000 Redeemable Warrants (the
"Additional Securities") for the purpose of covering over-allotments, if any.)
The Preferred Stock is convertible commencing on the earlier of (i) twelve (12)
months after the Effective Date of the Registration Statement, or (ii) such
earlier date as is chosen by the Underwriter, into the Company's Common Stock
at a rate of three to five (3-5) shares for every share of Preferred Stock,
subject to adjustment in certain events. The Preferred Stock will be
automatically converted into common stock at a rate of _______ (__) shares of
Common Stock for each share
DRAFT V.03 February 4, 1997
Page 1
2
of Preferred Stock, subject to adjustment, either (1) on ____________,1998 or
(2) during the first twelve (12) months after the Effective Date of the
Registration Statement if the closing price of the Common Stock exceeds 200% of
the closing bid price of the Common Stock on the Effective Date. The aforesaid
Firm Securities together with all or any part of the Additional Securities are
hereinafter collectively referred to as the "Securities." The Company also
proposes to issue and sell to the Underwriters, an option (the "Underwriters'
Purchase Option") pursuant to the Underwriters' Preferred Stock and Warrant
Purchase Option Agreement (the "Underwriters' Purchase Option Agreement") for
the purchase of an aggregate of 60,000 Shares (the "Underwriters' Shares") and
150,000 Redeemable Common Stock Purchase Warrants (the "Underwriters'
Warrants"). The shares of Common Stock issuable upon exercise of the Redeemable
Warrants and the Underwriters' Warrants are hereinafter sometimes referred to
as the "Warrant Shares." The Shares, the Redeemable Warrants, the Preferred
Stock and Underwriters' Purchase Option Agreement, Underwriters' Shares,
Underwriters' Warrants, and the Warrant Shares are more fully described in the
Registration Statement (as defined in Subsection 1(a) hereof) and the
Prospectus (as defined in Subsection 1(a) hereof) referred to below. Unless
the context otherwise requires, all references to the "Company" shall include
all subsidiaries and entities to be acquired by the Company on or prior to the
Closing Date (as defined in Subsection 2(c) hereof) referred to below and
identified in the Prospectus, as if separately stated herein. All
representations, warranties and opinions of counsel shall cover such
subsidiaries and entities.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters as of the
date hereof, and as of the Closing Date and any Option Closing Date, (as
defined in Subsection 2 (c) hereof), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Act"), a registration statement, and
an amendment or amendments thereto, on Form SB-2 (File No. 333-______) under
the Act (the "Registration Statement"), including a prospectus subject to
completion relating to the Shares which registration statement and any
amendment or amendments have been prepared by the Company in material
compliance with the requirements of the Act and the rules and regulations of
the Commission under the Act. The term "Registration Statement" as used in
this Agreement means the registration statement (including all financial
schedules and exhibits), as amended at the time it becomes effective, or, if
the registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a post-
effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If an abbreviated
registration statement is prepared and filed with the Commission
DRAFT V.03 February 4, 1997
Page 2
3
in accordance with Rule 462(b) under the Act (an "Abbreviated Registration
Statement"), the term "Registration Statement" as used in this Agreement
includes the Abbreviated Registration Statement. The term "Prospectus" as used
in this Agreement means the prospectus in the form included in the Registration
Statement, or, if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Act and such information is
included in a prospectus filed with the Commission pursuant to Rule 424(b)
under the Act, the term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement as supplemented
by the addition of the Rule 430A information contained in the prospectus filed
with the Commission pursuant to Rule 424(b). The term "Preliminary Prospectus"
as used in this Agreement means the prospectus subject to completion in the
form included in the registration statement at the time of the initial filing
of the registration statement with the Commission, and as such prospectus shall
have been amended from time to time prior to the date of the Prospectus.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or Prospectus or any part thereof and no
proceedings for a stop order have been instituted or are pending or, to the
best knowledge of the Company, threatened. Each of the Preliminary Prospectus,
the Registration Statement and Prospectus at the time of filing thereof
conformed in all material respects with the requirements of the Act and the
Rules and Regulations, and neither the Preliminary Prospectus, the Registration
Statement or Prospectus at the time of filing thereof contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein and necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished
to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all material statements
which are required to be stated therein in material compliance with 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; neither the Registration
Statement, nor any amendment thereto, at the time the Registration Statement or
such amendment is declared effective under the Act, will contain 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 not misleading, and
the Prospectus at the time the Registration Statement becomes effective, at the
Closing Date and at any Option Closing Date, will not contain an untrue
statement of a material fact or omit to state a material fact
DRAFT V.03 February 4, 1997
Page 3
4
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with information supplied
to the Company in writing by or on behalf of the Underwriters expressly for use
in the Registration Statement or Prospectus or any amendment thereof or
supplement thereto.
(d) The Company has been duly organized and is now, and at the
Closing Date and any Option Closing Date will be, validly existing as a
corporation in good standing under the laws of the State of Colorado. Other
than the Company's Subsidiaries (as defined in Section (e)), the Company does
not own, directly or indirectly, an interest in any corporation, partnership,
trust, joint venture or other business entity; provided, that the foregoing
shall not be applicable to the investment of the net proceeds from the sale of
the Securities in short-term, low-risk investments as set forth under "Use of
Proceeds" in the Prospectus. The Company is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of its properties or the character of its operations
require such qualification or licensing, except where the failure to so
register or qualify does not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of the Company and the subsidiaries taken as a whole (a "Material Adverse
Effect"). The Company has all requisite power and authority (corporate and
other), and has obtained any and all necessary material applications,
approvals, orders, licenses, certificates, franchises and permits of and from
all governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental, liquor licenses or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all material federal, state, local and
foreign laws, rules and regulations; and the Company has not received any
notice of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, would have a Material Adverse Effect. The
disclosures in the Registration Statement concerning the effects of federal,
state, local, and foreign laws, rules and regulations on the Company's business
as currently conducted and as contemplated are correct in all material respects
and do not omit to state a material fact necessary to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
(e) The Company's subsidiaries (collectively, the
"Subsidiaries") include ___________________________, a ___________ corporation,
and _________________________, a _______________ corporation. Each Subsidiary
is a corporation duly organized, validly existing and in good standing in the
jurisdiction of its incorporation, with full corporate power and authority to
own, lease and operate its properties and to conduct its business, and is duly
registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its
DRAFT V.03 February 4, 1997
Page 4
5
business requires such registration or qualification, except where the failure
so to register or qualify does not, singly or in the aggregate, have a Material
Adverse Effect; all of the outstanding shares of capital stock of each of the
Subsidiaries, have been duly authorized and validly issued, are fully paid and
nonassessable, and are owned by the Company directly, or indirectly through one
of the other Subsidiaries, free and clear of any lien, adverse claim, security
interest, equity or other encumbrance.
(f) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and will
have the adjusted capitalization set forth therein on the Closing Date and the
Option Closing Date, if any, based upon the assumptions set forth therein, and
the Company is not a party to or bound by any instrument, agreement or other
arrangement providing for the Company to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement and as
otherwise described in the Prospectus. The Securities, the Additional
Securities, Underwriters Shares, the Underwriter's Warrants, and the Warrant
Shares and all other securities issued or issuable by the Company conform or,
when issued and paid for, will conform in all material respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company has been duly
authorized and validly issued and are fully paid and non-assessable; the
holders thereof have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company, or similar contractual rights granted by the
Company. The Securities, the Additional Securities, the Underwriters' Shares,
and the Underwriter's Warrants to be issued and sold by the Company, and the
Warrant Shares issuable upon exercise of the Redeemable Warrants and the
Underwriter's Warrants and payment therefor, are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the
terms hereof and thereof, will be validly issued, fully paid and non-assessable
and will conform in all material respects to the descriptions thereof contained
in the Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities, the Additional Securities, the
Underwriters' Shares, and the Underwriter's Warrants, and the Warrant Shares
has been duly and validly taken; and the certificates representing the
Securities, the Underwriter's Warrants, and the Warrant Shares will be in due
and proper form. Upon the issuance and delivery pursuant to the terms hereof
of the Securities to be sold by the Company hereunder, the Underwriters will
acquire good and marketable title to such Securities free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever.
(g) The financial statements of the Company, together with the
related notes and schedules thereto, included in the Registration Statement,
the Preliminary Prospectus and the Prospectus fairly present the financial
position and the results of operations of the Company at the
DRAFT V.03 February 4, 1997
Page 5
6
respective dates and for the respective periods to which they apply; and such
financial statements have been prepared in conformity with generally accepted
accounting principles, consistently applied throughout the periods involved.
There has been no material adverse change or development involving a
prospective change in the condition, financial or otherwise, or in the
earnings, business affairs, position, prospects, value, operation, properties,
business, or results of operation of the Company, whether or not arising in the
ordinary course of business, since the dates of the financial statements
included in the Registration Statement and the Prospectus and the outstanding
debt, the property, both tangible and intangible, and the business of the
Company, conforms in all material respects to the descriptions thereof
contained in the Registration Statement and in the Prospectus.
(h) ▇▇▇▇▇, ▇▇▇▇▇▇▇ + ▇▇▇▇▇, whose report is filed with the
Commission as a part of the Registration Statement, is an independent certified
public accountant as required by the Act.
(i) The Company (i) has paid all federal, state, local, and
foreign taxes for which it is liable, including, but not limited to,
withholding taxes and taxes payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986 (the "Code"), (ii) has furnished all tax and
information returns it is required to furnish pursuant to the Code, and has
established adequate reserves for such taxes which are not due and payable, and
(iii) does not have knowledge of any tax deficiency or claims outstanding,
proposed or assessed against it (other than certain state or local tax returns,
as to which the failure to file, singly or in the aggregate, would not have a
Material Adverse Effect.)
(j) The Company maintains insurance, which is in full force
and effect, of the types and in the amounts which it reasonably believes to be
necessary for its business, including, but not limited to, personal and product
liability insurance covering all personal and real property owned or leased by
the Company against fire, theft, damage and all risks customarily insured
against.
(k) There is no action, suit, proceeding, inquiry,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending (to the knowledge of the Company) or threatened
against (or circumstances known to the Company that may give rise to the same),
or involving the properties or business of the Company which: (i) is required
to be disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects); or (ii) singly or in the aggregate
would have a Material Adverse Effect.
(l) The Company has full legal right, power and authority to
enter into this Agreement, the Underwriters' Purchase Option Agreement and the
Warrant Agreement and to consummate the transactions provided for in such
agreements; and this Agreement, the
DRAFT V.03 February 4, 1997
Page 6
7
Underwriters' Purchase Option Agreement and the Warrant Agreement have each
been duly and properly authorized, executed and delivered by the Company. Each
of this Agreement, the Underwriters' Purchase Option Agreement and the Warrant
Agreement, constitutes a legal, valid and binding agreement of the Company,
subject to due authorization, execution and delivery by the Representative
and/or the Underwriters, enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application
of equitable principles in any action, legal or equitable, and except as rights
to indemnity or contribution may be limited by applicable law). Neither the
Company's execution or delivery of this Agreement, the Underwriters' Purchase
Option Agreement, and the Warrant Agreement, its performance hereunder and
thereunder, its consummation of the transactions contemplated herein and
therein, nor the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest defect or other restriction or
equity of any kind whatsoever upon any property or assets (tangible or
intangible) of the Company pursuant to the terms of: (i) the Articles of
Incorporation or By-Laws of the Company; (ii) any material license, contract,
indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or instrument
to which the Company is a party or by which the Company is bound or to which
any of its properties or assets (tangible or intangible) is or may be subject,
other than conflicts that, singly or in the aggregate, will not have a Material
Adverse Effect; or (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties.
(m) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the performance of this
Agreement and the transactions contemplated hereby, except such as have been or
may be obtained under the Act or may be required under state securities or Blue
Sky laws in connection with (i) the Underwriters' purchase and distribution of
the Securities to be sold by the Company hereunder; or (ii) the issuance and
delivery of the Underwriters' Purchase Option, the Underwriters' Shares, the
Underwriter's Warrants, the Redeemable Warrants or the Warrant Shares.
(n) All executed agreements or copies of executed agreements
filed as exhibits to the Registration Statement to which the Company is a party
or by which the Company may be bound or to which any of its assets, properties
or businesses may be subject have been duly and
DRAFT V.03 February 4, 1997
Page 7
8
validly authorized, executed and delivered by the Company, and constitute the
legal, valid and binding agreements of the Company, enforceable against it in
accordance with its respective terms. The descriptions contained in the
Registration Statement of contracts and other documents are accurate in all
material respects and fairly present the information required to be shown with
respect thereto by the Act and the Rules and Regulations and there are no
material contracts or other documents which are required by the Act or the
Rules and Regulations to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies.
(o) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not:
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money in any material amount; (ii) entered into any
transaction other than in the ordinary course of business; (iii) declared or
paid any dividend or made any other distribution on or in respect of its
capital stock; or (iv) made any changes in capital stock, material changes in
debt (long or short term) or liabilities other than in the ordinary course of
business, material changes in or affecting the general affairs, management,
financial operations, stockholders equity or results of operations of the
Company.
(p) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, no default exists in
the due performance and observance of any material term, covenant or condition
of any license, contract, indenture, mortgage, installment sales agreement,
lease, deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which
the Company is a party or by which the Company may be bound or to which any of
the property or assets (tangible or intangible) of the Company is subject or
affected.
(q) To the best knowledge of the Company, the Company has
generally enjoyed a satisfactory employer-employee relationship with its
employees and is in compliance in all material respects with all federal,
state, local, and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours.
(r) To the best knowledge of the Company, since its inception,
the Company has not incurred any liability arising under or as a result of the
application of the provisions of the Act.
DRAFT V.03 February 4, 1997
Page 8
9
(s) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company does not
presently maintain, sponsor or contribute to, and never has maintained,
sponsored or contributed to, any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan" or a "multi-employer
plan" as such terms are defined in Sections 3(2), 3(l) and 3(37) respectively
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"). The Company does not maintain or contribute, now or at any
time previously, to a defined benefit plan, as defined in Section 3(35) of
ERISA.
(t) The Company is not in violation in any material respect of
any domestic or foreign laws, ordinances or governmental rules or regulations
to which it is subject, except to the extent that any such violation would not,
singly or in the aggregate, have a Material Adverse Effect.
(u) No holders of any securities of the Company or of any
options, warrants or other convertible or exchangeable securities of the
Company exercisable for or convertible or exchangeable for securities of the
Company have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
within twelve (12) months of the date hereof or to require the Company to file
a registration statement under the Act during such twelve (12) month period,
except such registration rights as have been waived or disclosed in the
Prospectus.
(v) Neither the Company, nor, to the Company's best knowledge,
any of its employees, directors, stockholders or affiliates (within the meaning
of the Rules and Regulations) has taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected to
cause or result in, under the Exchange Act, or otherwise, stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities or otherwise.
(w) Except as described in the Prospectus, to the best of the
Company's knowledge, none of the patents, patent applications, trademarks,
service marks, trade names and copyrights, or licenses and rights to the
foregoing presently owned or held by the Company is in dispute or are in any
conflict with the right of any other person or entity within the Company's
current area of operations nor has the Company received notice of any of the
foregoing. To the best of the Company's knowledge, the Company: (i) owns or
has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other
DRAFT V.03 February 4, 1997
Page 9
10
entity under or with respect to any of the foregoing; and (ii) except as set
forth in the Prospectus, is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to any owner or
licensee of, or other claimant to, any patent, trademark, service mark, trade
name, copyright, know-how, technology or other intangible asset, with respect
to the use thereof or in connection with the conduct of its business or
otherwise.
(x) Except as described in the Prospectus, to the best of the
Company's knowledge, the Company owns and has the unrestricted right to use all
material trade secrets, trademarks, trade names, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "Intellectual
Property") required for or incident to the development, manufacture, operation
and sale of all products and services sold or proposed to be sold by the
Company, free and clear of and without violating any right, lien, or claim of
others, including without limitation, former employers of its employees;
provided, however, that the possibility exists that other persons or entities,
completely independently of the Company, or employees or agents, could have
developed trade secrets or items of technical information similar or identical
to those of the Company.
(y) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property owned
or leased by it free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects, or other restrictions or equities of any
kind whatsoever, other than those referred to in the Prospectus and liens for
taxes or assessments not yet due and payable.
(z) The Company has obtained such duly executed legally
binding and enforceable agreements as required by the Representative pursuant
to which the Company's President and _______________________, have agreed not
to, directly or indirectly, offer to sell, sell, grant any option for the sale
of, assign, transfer, pledge, hypothecate or otherwise encumber any of their
shares of Preferred Stock or other securities of the Company (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein for certain periods of up to 60 months subject to
earlier release upon the Company's achievement of certain performance
thresholds, following the effective date of the Registration Statement without
the prior written consent of the Representative. The Company will cause the
Transfer Agent, as defined below, to mark an appropriate legend on the face of
stock certificates representing all of such shares of Preferred Stock and other
securities of the Company.
(aa) Except as disclosed in the Prospectus, the Company has not
incurred any liability and there are no arrangements or understandings for
services in the nature of a finder's or origination fee with respect to the
sale of the Securities or any other arrangements, agreements, understandings,
payments or issuances with respect to the Company or any of its officers,
DRAFT V.03 February 4, 1997
Page 10
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directors, employees or affiliates that may adversely affect the Underwriters'
compensation, as determined by the NASD.
(bb) The Securities have been approved for quotation on the
Nasdaq SmallCap Market of the Nasdaq Stock Market, Inc., subject to official
notice of issuance.
(cc) Neither the Company nor any of its respective officers,
employees, agents or any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which: (a) might subject the Company, or any other such person to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign); (b) if not given in the past, might have had
a materially adverse effect on the assets, business or operations of the
Company; or (c) if not continued in the future, might adversely affect the
assets, business, operations or prospects of the Company. The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act 1977, as amended.
(dd) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and
Regulations) of any such person or entity or the Company, has or has had,
either directly or indirectly, (i) an interest in any person or entity which
(A) furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, except with respect to the
beneficial ownership of not more than 1% of the outstanding shares of capital
stock of any publicly-held entity; or (ii) a beneficial interest in any
contract or agreement to which the Company is a party or by which it may be
bound or affected. Except as set forth in the Prospectus under "Certain
Transactions," there are no existing agreements, arrangements, understandings
or transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company, and any officer, director, or
principal stockholder of the Company, or any affiliate or associate of any such
person or entity.
(ee) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to the Underwriters' Counsel shall be deemed a
representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
DRAFT V.03 February 4, 1997
Page 11
12
(ff) The Company has entered into an employment agreement with
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ as described in the Prospectus. Unless waived by the
Representative, the Company shall use its reasonable efforts at reasonable cost
to maintain a key-man life insurance policy in the amount of not less than
$1,000,000 on the life of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, which policy shall be owned by
the Company and shall name the Company as the sole beneficiary thereunder.
(gg) No securities of the Company have been sold by the Company
within the three years prior to the date hereof, except as disclosed in Part II
of the Registration Statement.
(hh) The minute books of the Company have been made available
to Underwriter's Counsel and contain a complete summary of all meetings and
actions of the Board of Directors and Shareholders of the Company since the
date of its incorporation.
2. Purchase, Sale and Delivery of the Securities and Agreement to
Issue Underwriters' Preferred Stock and Warrant Purchase Option.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, and each
Underwriter, severally and not jointly, agree to purchase from the Company at
the price per share and the price per warrant set forth below, that proportion
of the number of Preferred Stock and Redeemable Warrants set forth in Schedule
I opposite the name of such Underwriter that such number of Preferred Stock and
Redeemable Warrants bears to the total number of shares of Preferred Stock and
Redeemable Warrants, respectively, subject to such adjustment as the
Underwriters in their discretion shall make to eliminate any sales or purchases
of fractional Securities, plus any additional numbers of Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the
terms and conditions herein set forth, the Company hereby grants an option to
the Underwriters, severally and not jointly, to purchase up to an additional
60,000 Shares from the Company and 150,000 Redeemable Warrants at the prices
set forth below. The option granted hereby will expire 45 days after the date
of this Agreement, and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Additional Securities upon
notice by the Representative to the Company setting forth the number of
Additional Securities as to which the Underwriters are then exercising the
option and the time and date of payment and delivery for such Additional
Securities. Any such time and date of delivery shall be determined by the
Underwriters, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Date, as defined
in paragraph (c) below, unless otherwise agreed to between the Representative
and the Company. In the event such option is exercised, each of the
Underwriters, acting severally and not jointly,
DRAFT V.03 February 4, 1997
Page 12
13
shall purchase such number of Option Securities then being purchased which
shall have been allocated to such Underwriter by the Representative, and which
such Underwriter shall have agreed to purchase, subject in each case to such
adjustments as the Underwriters in their discretion shall make to eliminate any
sales or purchases of fractional Securities. Nothing herein contained shall
obligate the Underwriters to make any over-allotments. No Additional
Securities shall be delivered unless the Firm Securities shall be
simultaneously delivered or shall theretofore have been delivered as herein
provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of counsel
to the Representative in Atlanta, Georgia, or at such other place as shall be
agreed upon by the Underwriters and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York City time) on ______________, 1997 or at
such other time and date as shall be designated by the Representative but not
less than three (3) nor more than five (5) business days after the effective
date of the Registration Statement (such time and date of payment and delivery
being hereafter called "Closing Date"). In addition, in the event that any or
all of the Additional Securities are purchased by the Underwriters, payment of
the purchase price for, and delivery of certificates for such Additional
Securities shall be made at the above-mentioned office or at such other place
and at such time (such time and date of payment and delivery being hereinafter
called "Option Closing Date") as shall be agreed upon by the Representative and
the Company on each Option Closing Date as specified in the notice from the
Representative to the Company. Delivery of the certificates for the Additional
Securities and the Additional Securities, if any, shall be made to the
Underwriters against payment by the Underwriters of the purchase price for the
Securities and the Option Securities, if any, to the order of the Company as
the case may be by certified check in New York Clearing House funds or, at the
election of the Representative, all or a portion of the funds may be paid by
Bank wire transfer of funds or by Representative's commercial check.
Certificates for the Firm Securities and the Additional Securities, if any,
shall be in definitive, fully registered form, shall bear no restrictive
legends and shall be in such denominations and registered in such names as the
Underwriters may request in writing at least two (2) business days prior to
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates or the Depository Trust Corporation electronic notifications, as
the case may be, for the Securities and the Additional Securities, if any,
shall be made available to the Underwriters at the above-mentioned office or
such other place as the Underwriters may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to Closing
Date or the relevant Option Closing Date, as the case may be.
The purchase price of the Preferred Stock and Redeemable
Warrants to be paid by each of the Underwriters, severally and not jointly, to
the Company for the Securities purchased under Clauses (a) and (b) above will
be $______ per Share and $______ per Redeemable Warrant (which price is net of
the Underwriters' discount and commissions). The Company shall not be
obligated to sell any Securities hereunder unless all Securities to be sold by
DRAFT V.03 February 4, 1997
Page 13
14
the Company are purchased hereunder. The Company agrees to issue and sell
60,000 shares of the Preferred Stock and the Company agrees to issue and sell
150,000 Redeemable Warrants to the Underwriters in accordance herewith.
(d) On the Closing Date, the Company shall issue and sell to
the Underwriters the Underwriters' Purchase Option at a purchase price of $100,
which purchase option shall entitle the holders thereof to purchase an
aggregate of 40,000 Shares and 100,000 Warrants. The Underwriters' Purchase
Option shall be exercisable for a period of four (4) years commencing one (1)
year from the closing date of the Registration Statement at an initial exercise
price equal to one hundred twenty percent (120%) of the initial public offering
price of the Shares and Redeemable Warrants. The Underwriter's Purchase Option
Agreement and form of Purchase Option Certificate shall be substantially in the
form filed as an Exhibit to the Registration Statement. Payment for the
Underwriters' Purchase Option shall be made on Closing Date. The Company has
reserved and shall continue to reserve a sufficient number of Shares for
issuance upon exercise of the Underwriters' Purchase Option.
3. Public Offering of the Securities. As soon after the
Registration Statement becomes effective and as the Representative deems
advisable, but in no event more than three (3) business days after such
effective date, the Underwriters shall make a public offering of the securities
(other than to residents of or in any jurisdiction in which qualification of
the Securities is required and has not become effective) at the price and upon
the other terms set forth in the Prospectus. The Underwriters may allow such
concessions and discounts upon sales to other dealers as set forth in the
Prospectus.
4. Covenants of the Company. The Company covenants and agrees with
each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Exchange Act (i) before termination of the offering of the Securities
by the Underwriters, which the Underwriters shall not previously have been
advised and furnished with a copy, or (ii) to which the Underwriters shall have
objected or (iii) which is not in compliance with the Act, the Exchange Act or
the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriters and confirm by notice in
writing: (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of
DRAFT V.03 February 4, 1997
Page 14
15
the issuance by the commission of any stop order or of the initiation, or the
threatening of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution or proceeding for that purpose; (iii) of the issuance by any state
securities commission of any proceedings for the suspension of the
qualification of the Securities for offering or sale in any jurisdiction or of
the initiation, or the threatening, of any proceeding for that purpose; (iv) of
the receipt of any comments from the Commission; and (v) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information. If the Commission
or any state securities commission or regulatory authority shall enter a stop
order or suspend such qualification at any time, the Company will make every
effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriters) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b)(1) (or, if applicable and if consented to by the Underwriters
pursuant to Rule 424(b)(4)) not later than the Commission's close of business
on the earlier of (i) the second business day following the execution and
delivery of this Agreement and (ii) the fifth business day after the effective
date of the Registration Statement.
(d) The Company will give the Underwriters notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), will furnish the Underwriters with copies of any such amendment
or supplement a reasonable amount of time prior to such proposed filing or use,
as the case may be, and will not file any such prospectus to which the
Underwriters or ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇ ("Underwriters' Counsel") shall reasonably
object.
(e) The Company shall cooperate in good faith with the
Underwriters, and Underwriters' Counsel, at or prior to the time the
Registration Statement becomes effective, in endeavoring to qualify the
Securities for offering and sale under the securities laws of such
jurisdictions as the Underwriters may reasonably designate, and shall cooperate
with the Underwriters and Underwriters' Counsel in the making of such
applications, and filing such documents and shall furnish such information as
may be required for such purpose; provided, however, the Company shall not be
required to: (i) qualify as a foreign corporation or file a general consent to
service of process in any such jurisdiction; or (ii) qualify or "blue sky" in
any state which requires a lock-up of inside securities for a period greater
than five (5) years. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriters
DRAFT V.03 February 4, 1997
Page 15
16
agree that such action is not at the time necessary or advisable, use all
reasonable efforts to file and make such statements or reports at such times as
are or may reasonably be required by the laws of such jurisdiction to continue
such qualification.
(f) During the time when the Prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act and the Exchange Act, as now
and hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when the Prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits 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, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriters promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
reasonably satisfactory to Underwriters' Counsel, and the Company will furnish
to the Underwriters a reasonable number of copies of such amendment or
supplement.
(g) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period commencing on the day after the end
of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriters, an earnings
statement which will be in such form and detail required by, and will otherwise
comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, which statement need not be audited unless required by
the Act, covering a period of at least 12 consecutive months after the
effective date of the Registration Statement.
(h) During a period of five (5) years after the date hereof
and provided that the Company is required to file reports with the Commission
under Section 12 of the Exchange Act, the Company will provide the
Representative's director Designee or Attendee, as defined herein, copies of
the below described documents prior to release where applicable and will
furnish to its stockholders and to the Underwriter as soon as practicable,
annual reports (including financial statements audited by independent public
accountants):
(i) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
DRAFT V.03 February 4, 1997
Page 16
17
(ii) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
(iii) every press release and every material news item
or article of interest to the financial community in respect of the Company and
any future subsidiaries or their affairs which was released or prepared by the
Company;
(iv) any additional information of a public nature
concerning the Company and any future subsidiaries or their respective
businesses which the Underwriters may reasonably request;
(v) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or
13E-4 received or filed by the Company from time to time.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) For as long as the Company is required to file reports
with the Commission under Section 12 of the Exchange Act, the Company will
maintain a Transfer Agent and a Warrant Agent, which may be the same entity,
and, if necessary under the jurisdiction of incorporation of the Company, a
Registrar (which may be the same entity as the Transfer and Warrant Agent) for
its Preferred Stock and Redeemable Warrants.
(j) The Company will furnish to the Underwriters or pursuant
to the Underwriters' direction, without charge, at such place as the
Underwriters may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be signed and will include all financial
statements and exhibits), the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such
quantities as the Underwriters may reasonably request.
(k) Neither the Company, nor its officers or directors, nor
affiliates of any of them (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(1) The Company shall apply the net proceeds from the sale of
the Securities in substantially the manner, and subject to the provisions, set
forth under "Use of Proceeds" in
DRAFT V.03 February 4, 1997
Page 17
18
the Prospectus. No portion of the net proceeds will be used directly or
indirectly to acquire any securities issued by the Company.
(m) The Company shall timely file all such reports, forms or
other documents as may be required (including but not limited to a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under
the Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(n) The Company shall furnish to the Underwriters as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than forty-five
(45) days prior to the date of the Registration Statement) which have been read
by the Company's independent public accountants, as stated in their letters to
be furnished pursuant to Section 6(k) hereof.
(o) For a period of five (5) years from the Closing Date (or
such earlier date if the Representative has exercised the Underwriters'
Purchase Option Agreement), the Company shall furnish to the Underwriters at
the Company's sole expense, (i) daily consolidated transfer sheets relating to
the Securities upon the Representative's reasonable request; (ii) a list of
holders of Securities upon the Representative's reasonable request; (iii) a
list of, if any, the securities positions of participants in the Depository
Trust Company upon the Representative's reasonable request.
(p) For a period of five (5) years after the effective date of
the Registration Statement (or such earlier date if the Representative has
exercised the Underwriting Purchase Option Agreement), the Company shall use
its best efforts to cause two (2) individuals (the "Designees") selected by the
Representative to be elected to the Board of Directors of the Company (the
"Board"), if requested by the Representative. Alternatively, the
Representative shall be entitled to appoint an individual who shall be
permitted to attend all meetings of the Board (the "Attendee") and to receive
all notices and other correspondence and communications sent by the Company to
members of the Board. Upon election to the Board, the Designees shall be
entitled to call special meetings of the Board and to serve on the Audit and
Compensation Committees. The Designees may be removed by the Board only for
"justifiable cause" as that term is defined in the Employment Contract between
the Company and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇. The number of Board members may be
increased from time to time up to five (5) members. Any Nominee for
directorship (including re-election to another term) shall be approved by the
Representative prior to his or her election, which approval shall not be
unreasonably withheld. The Company shall reimburse the Representative's
Designees or Attendee for his or her out-of-pocket expenses reasonably incurred
and authorized in advance by the Company in connection
DRAFT V.03 February 4, 1997
Page 18
19
with his or her attendance of the Board meetings and a fee of $1,000 month.
The Designees or Attendee shall also be entitled to participate in any Stock
Option Plans of the Company for non-employees. To the extent permitted by law,
the Company agrees to indemnify and hold the Designees (as a director or
Attendee) and the Representative harmless against any and all claims, actions,
awards and judgements arising out of his or her service as a director or
Attendee and in the event the Company maintains a liability insurance policy
affording coverage for the action of its officer and directors, to include such
Designees and the Representative as an insured under such policy.
(q) For a period equal to the lesser of (i) five (5) years
from the date hereof, or (ii) the sale to the public of the Warrant Shares, the
Company will use its best efforts not to take any action or actions which may
prevent or disqualify the Company's use of Forms S-1 or, if applicable, S-2 and
S-3 (or other appropriate form) for the registration under the Act of the
Warrant Shares.
(r) For a period of five (5) years from the date hereof, the
Company shall use its best efforts at its cost and expense to maintain the
listing of the Securities on the Nasdaq SmallCap Market or NASDAQ National
Market System if the Company meets all of the necessary qualifications,
including, but not limited to, complying with any present or future NASD or
NASDAQ rules regarding initial listing requirements and continued maintenance
requirements.
(s) On or before the effective date of the Registration
Statement, the Company shall retain or make arrangements to retain a financial
public relations firm reasonably satisfactory to the Representative which shall
be continuously engaged from such engagement date to a date 24 months from the
effective date of the Registration Statement. Upon the expiration of such two
(2) year period, such engagement shall continue until the expiration of any
lock-up period provided for in the Lock-Up Agreement of _______________ subject
to the Company's right to terminate any such firm with the consent of the
Underwriter's director Designees or Attendee. Further, the Company shall
engage for a period of two years at least three firms (one of which shall be
the Representative and one of which shall be Standard & Poor's Stock Reports
Professional Edition) which are reasonably acceptable to the Representative to
provide industry research and advice to the Company. Upon the expiration of
such two-year period, such engagement shall continue until the expiration of
any lock-up period provided hereunder, subject to the Company's right to
terminate any such firm with the consent of the Underwriters' director
Designees.
(t) The Company shall (i) file a Form 8-A with the Commission
providing for the registration under the Exchange Act of the Securities and
(ii) promptly take all necessary and appropriate actions to be included in
Standard and Poor's Corporation Descriptions and/or ▇▇▇▇▇'▇ OTC Manual and to
continue such inclusion for a period of not less than five (5) years,
DRAFT V.03 February 4, 1997
Page 19
20
as soon as practicable, but in no event more than five (5) business days' after
the effective date of the Registration Statement.
(u) Following the Effective Date of the Registration Statement
and for a period of five (5) years thereafter (or such earlier date if the
Representative has exercised the Underwriters' Purchase Option Agreement), the
Company shall, at its sole cost and expense, prepare and file such blue sky
trading applications with such jurisdictions as the Representative may
reasonably request after consultation with the Company, and on the
Representative's request, furnish the Underwriters with a secondary trading
survey prepared by securities counsel to the Company.
(v) The Company shall not amend or alter any term of any
written employment agreement nor Lock-Up Agreement between the Company and any
executive officer, during the term thereof, in a manner more favorable to such
employee, without the express written consent of the Representative until such
time as the Underwriter's Purchase Option has been exercised in full.
(w) Until the completion of the distribution of the
Securities, the Company shall not, without the prior written consent of the
Representative and Underwriters' Counsel, which consent shall not be
unreasonably withheld, issue, directly or indirectly, any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering contemplated hereby, other than trade releases
issued in the ordinary course of the Company's business consistent with past
practices with respect to the Company's operations.
(x) Commencing one (1) year from the date hereof, upon the
exercise of any Warrant, the exercise of which was solicited by the
Underwriters in accordance with the applicable rules and regulations of the
NASD prevailing at the time of such solicitation, the Company shall pay to the
soliciting Underwriter a fee of 5% of the aggregate exercise price of such
Warrant (the "Warrant Solicitation Fee") within five (5) business days of such
exercise, so long as the Underwriters provided bona fide services in exchange
for the Warrant Solicitation Fee and the Underwriters have been specifically
designated in writing by the holders of the Warrants as the broker. The
Company further agrees that it will not solicit the exercise of any Warrant
other than through the Underwriters, unless either: (i) the Underwriters cannot
legally solicit the exercise of the Warrants at the time of such solicitation;
(ii) the Representative declines, in writing, to solicit the exercise of the
Warrants within five (5) business days of such a written request by the
Company; or (iii) the Representative consents to the solicitation of the
exercise of the Warrants by the Company or another entity.
(y) The Company will use its best efforts to maintain its
registration under the Exchange Act in effect for a period of five (5) years
from the Closing Date.
DRAFT V.03 February 4, 1997
Page 20
21
(z) For a period of twenty-four (24) months commencing on the
Effective Date (or such earlier date if the Representative has exercised the
Underwriters' Purchase Option Agreement), except with the written consent of
the Underwriters, which consent shall not be unreasonably withheld, the Company
will not issue or sell, directly or indirectly, any shares of its capital
stock, or sell or grant options, or warrants or rights to purchase any shares
of its capital stock, except pursuant to (i) this Agreement, (ii) the Purchase
Option and the Underwriters' Warrants, (iii) warrants and options of the
Company heretofore issued and described in the Prospectus, and (iv) the grant
of options and the issuance of shares issued upon exercise of options issued or
to be issued under the Company's stock option plan which is described in the
Prospectus; except that, during such period, the Company may (i) issue
securities to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ pursuant to his employment agreement, (ii)
issue up to ___________ shares pursuant to certain employee stock options as is
described in the Prospectus, and (iii) issue securities in connection with an
acquisition, merger or similar transaction, provided that such securities are
not publicly registered or issued pursuant to Regulation S of the Act, and the
acquirer of the securities is not granted registration rights with respect
thereto which are effective prior to 24 months after the Effective Date and
until the Underwriter's Purchase Option is exercised, the Underwriter grants
its consent. Notwithstanding anything to the contrary set forth in the prior
sentence, the Company may not issue any class or series of Preferred Stock for
a period of 24 months from the Effective Date without the unanimous vote or
consent of all members of the Board of Directors of the Company. Prior to the
Effective Date, the Company will not issue any options or warrants without the
prior written consent of the Underwriters.
(aa) The Company will not file any registration statement
relating to the offer or sale of any of the Company's securities, including any
registration statement on Form S-8, during the 12 months following the Closing
Date without the Underwriters' prior written consent.
(bb) Subsequent to the dates as of which information is given
in the Registration Statement and Prospectus and prior to the Closing Dates,
except as disclosed in or contemplated by the Registration Statement and
Prospectus, (i) the Company will not have incurred any liabilities or
obligations, direct or contingent, or entered into any material transactions
other than in the ordinary course of business; (ii) there shall not have been
any change in the capital stock, funded debt (other than regular repayments of
principal and interest on existing indebtedness) or other securities of the
Company, any adverse change in the condition (financial or other), business,
operations, income, net worth or properties, including any loss or damage to
the properties of the Company (whether or not such loss is insured against),
which could adversely affect the condition (financial or other), business,
operations, income, net worth or properties of the Company; and (iii) the
Company shall not pay or declare any dividend or other distribution on its
Preferred Stock or its other securities or redeem or repurchase any of its
Preferred Stock or other securities.
DRAFT V.03 February 4, 1997
Page 21
22
(cc) The Company, for a period of twenty-four (24) months
following the Effective Date (or such earlier date if the Representative has
exercised the Underwriters' Purchase Option Agreement), shall not redeem any of
its securities, and shall not pay any dividends or make any other cash
distribution in respect of its securities in excess of the amount of the
Company's current or retained earnings derived after the Effective Date without
obtaining the Underwriters' prior written consent, which consent shall not be
unreasonably withheld. The Underwriters shall either approve or disapprove
such contemplated redemption of securities or dividend payment or distribution
within five (5) business days from the date the Underwriters receive written
notice of the Company's proposal with respect thereto; a failure of the
Underwriters to respond within the five (5) business day period shall be deemed
approval of the transaction.
(dd) The Company maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences, and
(v) all quarterly reports filed on Form 10Q shall be reviewed by the Company's
accountant in accordance with SAS 71.
(ee) The Company, for a period of twenty-four (24) months
following the Effective Date (or such earlier date if the Representative has
exercised the Underwriters' Purchase Option Agreement), shall implement the
following procedures:
(i) Sixty days prior to fiscal year end, the President
will present to the Board of Directors a business plan to be adopted by the
Board of Directors at fiscal year end. The business plan will include the
following:
a) monthly projections - including balance
sheet, profit/loss statement and cash flow statements with
underlying assumptions
b) upon board approval, this document becomes
the annual budget
(ii) No later than the 20th day of each month, the
Company will provide the Board with comparative financial statements for the
previous month showing actual balance sheet, profit/loss and cash flow vs.
budget with written explanations for deviation in excess of $50,000 or 10% of
line item presented.
DRAFT V.03 February 4, 1997
Page 22
23
(iii) Monthly Board meetings (which may be by telephone)
by the 25th of each month to include discussion of the Monthly Report and
approval of any changes to the business plan based on change of circumstances.
(iv) Implementation of a compensation committee, which
will be headed by an outside director, to make recommendations to the Board for
compensation for all outside consultants, officers and outside directors.
(v) Implementation of an audit committee which will be
headed by an outside director.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing
Date and the Option Closing Date (to the extent not paid at the Closing Date)
all expenses and fees (other than fees of Underwriters' Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement, including, without limitation: (i) the fees and
expenses of accountants and counsel for the Company; (ii) all costs and
expenses incurred in connection with the preparation, duplication, printing,
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments
and supplements thereto and the printing, mailing and delivery of this
Agreement, the Selected Dealer Agreements, the Agreement Among Underwriters,
Underwriters Questionnaires, Powers of Attorney and related documents,
including the cost of all copies thereof and of the Preliminary Prospectuses
and of the Prospectus and any amendments thereof or supplements thereto
supplied to the Underwriters in quantities as hereinabove stated; (iii) the
printing, engraving, issuance and delivery of the Securities including any
transfer or other taxes payable thereon; (iv) disbursements and fees of
Underwriters' Counsel in connection with the qualification of the Securities
under state or foreign securities or "Blue Sky" laws and determination of the
status of such securities under legal investment laws, including the costs of
printing and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental
Blue Sky Memorandum" and "Legal Investments Survey," if any, which
Underwriters' Counsel blue sky fees (exclusive of filing fees and
disbursements) shall not exceed $25,000 without the consent of the Company; (v)
advertising costs and expenses, including but not limited to costs and expenses
in connection with the "road show," information meetings and presentations, and
prospectus memorabilia all of which costs and expenses shall be approved in
advance by the Company; (vi) fees and expenses of the transfer agent; (vii) the
fees payable to the NASD; (viii) the fees and expenses incurred in connection
with the listing of the Securities on the Nasdaq SmallCap Market and any other
fees for application and admission to a registered Stock Exchange for which the
Underwriter requires the Company to register its Securities; and (ix) fees and
expenses for any tombstone advertisements reasonably requested by the
Representative and Closing Binders. All
DRAFT V.03 February 4, 1997
Page 23
24
fees and expenses payable to the Underwriters shall be payable at the Closing
Date or Option Closing Date, as applicable.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6, Section 10(a) or Section 12, the
Company shall reimburse and indemnify the Underwriters for all of their
out-of-pocket expenses reasonably incurred in connection with the transactions
contemplated hereby.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, they will pay to
the Underwriters a non-accountable expense allowance equal to three percent
(3%) of the gross proceeds received by the Company from the sale of the
Securities, $5,000 of which has been paid to date to the Underwriters. The
Company will pay the remainder of the non-accountable expense allowance on the
Closing Date by direct payment to third parties for fees and expenses
including, but not limited to, fees and expenses of Underwriter's Counsel and
the balance by deduction from the proceeds of the offering contemplated herein.
In the event the Underwriters elect to exercise the over-allotment option
described in Section 2(b) hereof, the Company further agrees to pay to the
Underwriters on the Option Closing Date (by deduction from the proceeds of the
offering) a non-accountable expense allowance equal to three percent (3%) of
the gross proceeds received by the Company from the sale of the Option
Securities.
(d) The Company further agrees to pay to the Underwriters any
costs or expenses, including attorneys' fees, incurred or resulting from any
demands or causes of actions brought by the Underwriters or by third parties
against the Underwriters for the Company's failure to comply with any
provisions of this Underwriting Agreement.
6. Conditions of the Underwriters' Obligations. The obligations of
the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the Closing Date and
each Option Closing Date, if any, as if they had been made on and as of the
Closing Date or each Option Closing Date, as the case may be; the accuracy on
and as of the Closing Date or Option Closing Date, if any, of the statements of
officers of the Company made pursuant to the provisions hereof; and the
performance by the Company on and as of the Closing Date and each Option
Closing Date, if any, of each of its covenants and obligations hereunder and to
the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M., New York City time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Underwriters,
and, at Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional
DRAFT V.03 February 4, 1997
Page 24
25
information shall have been complied with to the reasonable satisfaction of
Underwriter and Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Securities 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.
(b) The Underwriters shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriters' opinion, is material or omits to
state a fact which, in the Underwriters' opinion, is material and is required
to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Underwriters' reasonable opinion, is
material, or omits to state a fact which, in the Underwriters' reasonable
opinion, is material and is required to be stated therein or is necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(c) On or prior to the Closing Date and each Option Closing
Date, as the case may be, the Underwriters shall have received from
Underwriters' Counsel, such opinion or opinions with respect to the
organization of the Company the validity of the Securities, the Registration
Statement, the Prospectus and other related matters as the Underwriters
reasonably may request and such counsel shall have received such papers and
information as they request to enable them to pass upon such matters.
(d) At the Closing Date and the Option Closing Date the
Underwriters shall have received an opinion of ▇▇▇▇▇▇▇ Key & ▇▇▇▇▇▇▇▇, counsel
to the Company, dated the Closing Date, or Option Closing Date, as the case may
be, addressed to the Underwriter and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) The Company: (A) has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Colorado with full corporate power and authority to own and operate its
properties and to carry on its business as set forth in the Registration
Statement and Prospectus; (B) to the best knowledge of such counsel, the
Company is duly registered or qualified as a foreign corporation in all
jurisdictions in which by reason of maintaining an office in such jurisdiction
or by owning or leasing real property in such jurisdiction it is required to be
so registered or qualified except where failure to register or qualify does not
have, singly or in the aggregate, a Material Adverse Effect; and (C) to the
best
DRAFT V.03 February 4, 1997
Page 25
26
knowledge of such counsel, the Company has not received any notice of
proceedings relating to the revocation or modification of any such registration
or qualification.
(ii) The Registration Statement, each Preliminary
Prospectus that has been circulated and the Prospectus and any post-effective
amendments or supplements thereto (other than the financial statements,
schedules and other financial and statistical data included therein, as to
which no opinion need be rendered) comply as to form in all material respects
with the requirements of the Act and Regulations and the conditions for use of
a registration statement on Form SB-2 have been satisfied by the Company. Such
counsel shall state that such counsel has participated in conferences with
officers and other representatives of the Company, representatives of the
independent public accountants for the Company and representatives of the
Underwriters at which the contents of the Registration Statement, the
Prospectus and related matters were discussed and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and Prospectus, on the basis of the foregoing, no facts have come to
the attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto at the time such Registration
Statement or amendment became effective or the Prospectus as of the date
thereof contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or to make the statements therein
in light of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no opinion with respect to the
financial statements and schedules and other financial and statistical data
included in the Registration Statement or Prospectus or with respect to
statements or omissions made therein in reliance upon information furnished in
writing to the Company on behalf of any Underwriter expressly for use in the
Registration Statement or the Prospectus).
(iii) To the best of such counsel's knowledge, the
Company has a duly authorized, issued and outstanding capitalization as set
forth in the Prospectus as of the date indicated therein, under
"Capitalization." The Shares, Redeemable Warrants, the Purchase Option, the
Underwriters' Warrants, and the Warrant Shares conform in all material respects
to all statements with respect thereto contained in the Registration Statement
and the Prospectus. All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
the holders thereof, to counsel's best knowledge, are not subject to personal
liability by reason of being such holders, and none of such securities were
issued in violation of the preemptive rights of any holder of any security of
the Company.
(iv) The issuance of the Shares, Redeemable Warrants and
the Warrant Shares have been duly authorized and when issued and paid for in
accordance with this Agreement and the Warrant Agreement, respectively, will be
validly issued, fully paid and non-assessable securities of the Company. The
holders of the Securities when issued and paid for, will not be subject to
personal liability by reason of being such holders. To the best of such
counsel's
DRAFT V.03 February 4, 1997
Page 26
27
knowledge, the Securities are not and will not be subject to the preemptive or
similar contractual rights of any shareholder of the Company. All corporate
action required to be taken for the authorization, issuance and sale of the
Securities has been duly and validly taken. The certificates representing the
Shares and Redeemable Warrants are in due and proper form.
(v) Based solely on telephonic, verbal confirmation
provided to such counsel by the staff of the Commission, the Registration
Statement and all post-effective amendments, if any, have become effective
under the Act, and, if applicable, filing of all pricing information has been
timely made in the appropriate form under Rule 430A, and, to the best of such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and to the best of such counsel's
knowledge, no proceedings for that purpose have been instituted or are pending
or threatened or contemplated under the Act; and any required filing of the
Prospectus pursuant to Rule 424(b) has been made.
(vi) To the best of such counsel's knowledge, (A) there
are no material contracts or other documents required to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and (B) the descriptions in
the Registration Statement and the Prospectus and any supplement or amendment
thereto regarding such material contracts or other documents to which the
Company is a party or by which it is bound, are accurate in all material
respects and fairly represent the information required to be shown by Form SB-2
and the Rules and Regulations.
(vii) This Agreement, the Underwriters Purchase Option
Agreement, the Warrant Agreement, and the Financial Consulting Agreement have
each been duly and validly authorized, executed and delivered by the Company,
and assuming that it is a valid and binding agreement of the Underwriters, so
as the case may be, constitutes a legal, valid and binding agreement of the
Company enforceable as against the Company in accordance with its respective
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law or pursuant to
public policy).
(viii) Neither the execution or delivery by the Company of
this Agreement, the Underwriter's Purchase Option Agreement, and the Warrant
Agreement, nor its performance hereunder or thereunder, nor its consummation of
the transactions contemplated herein or therein, nor the conduct of its
business as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, nor the issuance of the securities conflicts
with or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
material default under, or result in the creation or imposition
DRAFT V.03 February 4, 1997
Page 27
28
of any material lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon any property
or assets (tangible or intangible) of the Company pursuant to the terms of (A)
the Articles of Incorporation of the Company, or (B) to the best knowledge of
such counsel, and except to the extent it would not have a Material Adverse
Effect on the Company, any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body, having jurisdiction
over the Company or any of its respective activities or properties.
(ix) No consent, approval, authorization or order, and
no filing with, any court, regulatory body, government agency or other body,
(other than such as may be required under state securities laws, as to which no
opinion need be rendered) is required in connection with the issuance by the
Company of the Securities pursuant to the Prospectus and the Registration
Statement, the performance of this Agreement, the Underwriters' Purchase Option
Agreement, the Financial Consulting Agreement and the Warrant Agreement by the
Company, and the taking of any action by the Company contemplated hereby or
thereby, which has not been obtained.
(x) To the best of such counsel's knowledge, except as
described in the Prospectus, no person, corporation, trust, partnership,
association or other entity holding securities of the Company has the
contractual right to include and/or register any securities of the Company in
the Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration statement
for twelve months from the date hereof.
(xi) After the public offering, the Securities will be
eligible for listing on the Nasdaq SmallCap Market.
In rendering such opinion such counsel may rely, (A) as to
matters involving the application of laws other than the laws of the United
States, the corporate laws of Colorado and jurisdictions in which they are
admitted, to the extent such counsel deems proper and to the extent specified
in such opinion, if at all, upon an opinion or opinions (in form and in
substance reasonably satisfactory to Underwriters' Counsel) of other counsel
reasonably acceptable to Underwriters' Counsel, familiar with the applicable
laws, and (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company; provided, that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel and, in their
opinion, the Underwriters and they are justified in relying thereon.
DRAFT V.03 February 4, 1997
Page 28
29
(e) At each Option Closing Date, if any, the Underwriters
shall have received the an opinion of counsel to the Company, each dated the
Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of Option Closing Date the
statements made by such firm, in their opinion, delivered on the Closing Date.
(f) On or prior to each of the Closing Date and the Option
Closing Date, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions herein
contained.
(g) Prior to the Closing Date and each Option Closing Date, if
any: (i) there shall have been no material adverse change nor development
involving a prospective change in the condition, financial or otherwise,
prospects or the business activities of the Company, whether or not in the
ordinary course of business, from the latest dates as of which such condition
is set forth in the Registration Statement and Prospectus; (ii) there shall
have been no transaction, not in the ordinary course of business, entered into
by the Company, from the latest date as of which the financial condition of the
Company is set forth in the Registration Statement and Prospectus which is
materially adverse to the Company; (iii) the Company shall not be in material
default under any provision of any instrument relating to any outstanding
indebtedness; (iv) no material amount of the assets of the Company shall have
been pledged or mortgaged, except as set forth in the Registration Statement
and Prospectus; (v) no action, suit or proceeding, at law or in equity, shall
have been pending or to its knowledge threatened against the Company, or
affecting any of its properties or businesses before or by any court or
federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may materially adversely
affect the business, operations, prospects or financial condition or income of
the Company, except as set forth in the Registration Statement and Prospectus;
and (vi) no stop order shall have been issued under the Act and no proceedings
therefor shall have been initiated, threatened or contemplated by the
Commission.
(h) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the Closing
Date or the Option Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at or
prior to such Closing Date or Option Closing Date, as the case may be;
DRAFT V.03 February 4, 1997
Page 29
30
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose
have been instituted or are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and
neither the Preliminary Prospectus nor any supplement thereto includes any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and
except as otherwise contemplated therein: (A) the Company has not incurred up
to and including the Closing Date or the Option Closing Date as the case may
be, other than in the ordinary course of its business, any material liabilities
or obligations, direct or contingent; (B) the Company has not paid or declared
any dividends or other distributions on its capital stock; (C) the Company has
not entered into any transactions not in the ordinary course of business; (D)
there has not been any change in the capital stock or any increase in long-term
debt or any increase in the short-term borrowings (other than any increase in
the short term borrowings in the ordinary course of business) of the Company;
(E) the Company has not sustained any material loss or damage to its property
or assets, whether or not insured; (F) there is no litigation which is pending
or threatened against the Company which is required to be set forth in an
amended or supplemented Prospectus which has not been set forth;
(v) Neither the Company nor any of its officers or
affiliates shall have taken, and the Company, its officers and affiliates will
not take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in the stabilization or manipulation
of the price of the Company's securities to facilitate the sale or resale of
the Shares.
References to the Registration Statement and the Prospectus in
this subsection (i) are to such documents as amended and supplemented at the
date of such certificate.
(i) By the Effective Date, the Underwriters shall have
received clearance from NASD as to the amount of compensation allowable or
payable to the Underwriters, as described in the Registration Statement.
DRAFT V.03 February 4, 1997
Page 30
31
(j) At the time this Agreement is executed, the Representative
shall have received a letter, dated such date, addressed to the Representative
in form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriters, from Gross, ▇▇▇▇▇▇▇ + ▇▇▇▇▇:
(i) confirming that they are independent public
accountants with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) stating that it is their opinion that the condensed
financial statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations
thereunder and that the Underwriters may rely upon the opinion of ▇▇▇▇▇,
▇▇▇▇▇▇▇ + ▇▇▇▇▇ with respect to the financial statements and supporting
schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited interim condensed
financial statements of the Company (with an indication of the date of the
latest available unaudited interim condensed financial statements), a reading
of the latest available minutes of the stockholders and board of directors and
the various committees of the boards of directors of the Company, consultations
with officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention which would lead them to believe that (A) the unaudited
condensed financial statements of the Company 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
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited condensed
financial statements of the Company included in the Registration Statement, or
(B) at a specified date not more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in the capital stock,
or any increase in total borrowings of the Company, or any decrease in the
stockholders' equity or working capital of the Company as compared with amounts
shown in the financial statements included in the Registration Statement, other
than as set forth in or contemplated by the Registration Statement, or, if
there was any change or decrease, setting forth the amount of such change or
decrease, and (C) during the period from ______________ to a specified date not
more than five (5) days prior to the effective date of the Registration
Statement, there was any decrease in revenue, net earnings or increase in net
income or earnings per common share of the Company, in each case as compared
with the corresponding period of the prior year other than as set forth in or
contemplated by the Registration Statement, or, if there was any such decrease,
setting forth the amount of such decrease;
DRAFT V.03 February 4, 1997
Page 31
32
(iv) stating that they have compared specific dollar
amounts, numbers of Securities, percentages of revenue and earnings, statements
and other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures did not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and
(v) statements as to such other matters incident to
the transaction contemplated hereby as the Underwriters may reasonably request.
(k) At the Closing Date and each Option Closing Date, the
Underwriters shall have received from Gross, ▇▇▇▇▇▇▇ + ▇▇▇▇▇, a letter, dated
as of the Closing Date, or Option Closing Date, as the case may be, to the
effect that they reaffirm that statements made in the letter furnished pursuant
to Subsection (j) of this Section, except that the specified date referred to
shall be a date not more than five days prior to the Closing Date and, if the
Company has elected to rely on Rule 430A of the Rules and Regulations, to the
further effect that they have carried out procedures as specified in clause
(iii) of subsection (j) of this Section with respect to certain amounts,
percentages and financial information as specified by the Underwriters and
deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and
have found such amounts, percentages and financial information to be in
agreement with the records specified in such clause (iii).
(l) On each of the Closing Date and the Option Closing Date,
if any, there shall have been duly tendered to the Underwriters for the several
Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriters pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose shall have
been instituted or to its knowledge or that of the Company shall be
contemplated.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Underwriters may terminate this
Agreement or, if the Underwriters so elect, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
DRAFT V.03 February 4, 1997
Page 32
33
(a) The Company (but such indemnity shall be limited to the
proceeds received from the sale of his shares, if any, as a portion of the
Additional Securities) agrees to indemnify and hold harmless each of the
Underwriters, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof and each person, if any, who
controls any Underwriter ("controlling person") within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which such Underwriter or such controlling person may become
subject under the Act, the Exchange Act or any other federal or state statutory
laws or regulations at common law or otherwise or under the laws of foreign
countries arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in any Preliminary Prospectus
(except that the indemnification contained in this paragraph with respect to
any preliminary prospectus shall not inure to the benefit of the Underwriter or
to the benefit of any person controlling the Underwriter on account of any
loss, claim, damage, liability or expense arising from the sale of the
Securities by the Underwriter to any person if a copy of the Prospectus, as
amended or supplemented, shall not have been delivered or sent to such person
within the time required by the Act, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus, as amended and
supplemented, and such correction would have eliminated the loss, claim,
damage, liability or expense), the Registration Statement or the Prospectus (as
from time to time amended and supplemented); (ii) in any post-effective
amendment or amendments or any new registration statement and prospectus in
which is included securities of the Company issued or issuable upon exercise of
the Underwriters' Purchase Option; or (iii) in any application or other
document or written communication (in this Section 8 collectively called
"application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, Nasdaq Stock Market, Inc. or any other
securities exchange; or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto, in any
post-effective amendment, new registration statement or prospectus or in any
application, as the case may be, or (iv) any failure of the Company to comply
with any provision of this Underwriting Agreement resulting in a claim or loss
to the Underwriters.
The indemnity agreement in this subsection (a) shall be in
addition to any liability which the Company may have at common law or
otherwise.
DRAFT V.03 February 4, 1997
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34
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company within the meaning of Section 20 of
the Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to the Underwriters but only with respect to
statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto in any post-effective amendment, new registration statement or
prospectus, or in any blue sky application or any other such application made
in reliance upon, and in strict conformity with, written information furnished
to the Company with respect to any Underwriter by such Underwriter expressly
for use in such Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto or in any
post-effective amendment, new registration statement or prospectus, or in any
such application, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto, in any
post-effective amendment, new registration statement or prospectus or in any
such application, provided, further, that the liability of each Underwriter to
the Company shall be limited to the amount of the net proceeds of the Offering
received by the Company. The Company acknowledges that the statements with
respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend and the last paragraph of the cover
page in the Prospectus have been furnished by the Underwriters expressly for
use therein and any information furnished by or on behalf of the Underwriter
filed in any jurisdiction in order to qualify the Securities under State
Securities laws or filed with the Commission, the NASD or any securities
exchange constitute the only information furnished in writing by or on behalf
of the Underwriters for inclusion in the Prospectus and the Underwriters hereby
confirm that such statements and information are true and correct.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against
one or more indemnifying parties under this Section 7, notify each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party shall not relieve
it from any liability which it may have under this Section 7 except to the
extent that it has been prejudiced in any material respect by such failure or
from any liability which it may have otherwise avoided). In case any such
action is brought against any indemnified party, and it notifies an
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties will be entitled to participate therein, and to the extent it
may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing the indemnified party or parties shall have the
right to employ its or their own
DRAFT V.03 February 4, 1997
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35
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the
indemnifying party, (ii) the indemnifying parties shall not have employed
counsel reasonably satisfactory to such indemnified party to have charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnifying party or parties shall have reasonably
concluded that there may be defenses available to it or them which are
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement
of any claim or action effected without its written consent; provided however,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 7 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of
any indemnified party, then each indemnifying party in lieu of indemnifying
such indemnified party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand from the offering of the Securities or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (A) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriters are the indemnified party the relative benefits
received by the Company on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Securities (before deducting expenses) bear to the total
underwriting discounts and commissions received by the Underwriters hereunder,
in each case as set forth in the table on the Cover Page of the Prospectus.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged
DRAFT V.03 February 4, 1997
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36
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subdivision (d), the Underwriters shall not be required to
contribute any amount in excess of the amount of the net proceeds of the
Offering received by the Company. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in each case
to this subparagraph (d). Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect to which a claim for contribution may be made
against another party or parties under this subparagraph (d), notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the Underwriters.
9. Effective Date.
This Agreement shall become effective: (i) upon the execution and
delivery hereof by the parties hereto; or (ii) if, at any time this Agreement
is executed and delivered, it is necessary for the Registration Statement or a
post-effective amendment thereto to be declared effective before the offering
of the Shares may commence, when notification of the effectiveness of the
Registration Statement or such post-effective amendment has been released by
the Commission. Until such time
DRAFT V.03 February 4, 1997
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37
as this Agreement shall have become effective, it may be terminated by the
Company, by notifying you, or by you, as Representatives of the several
Underwriters, by notifying the Company.
10. Termination.
(a) The Underwriters shall have the right to terminate this
Agreement (i) if any calamitous domestic or international event or act or
occurrence has materially disrupted, or in the Underwriters' opinion will in
the immediate future materially disrupt general securities markets in the
United States; or (ii) if trading on the New York Stock Exchange, the American
Stock Exchange, the Nasdaq National Market, or in the over-the-counter 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 over-the-counter market by the NASD or by order of the
Commission or any other government authority having jurisdiction; or (iii) if
the United States shall have become involved in a war or major hostilities; or
(iv) if a banking moratorium has been declared by a New York State or federal
authority; or (v) if a moratorium in foreign exchange trading has been
declared; or (vi) if the Company shall have sustained a material adverse loss,
whether or not insured, by reason of fire, flood, accident or other calamity
that materially impairs the investment quality of the Units; or (vii) if there
shall have been such material adverse change in the conditions or prospects of
the Company, involving a change not contemplated by the Registration Statement.
(b) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 9 and 10 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities), the
Underwriters shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
Underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Underwriters shall not have completed such arrangements
within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective
DRAFT V.03 February 4, 1997
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underwriting obligations hereunder bear to the underwriting obligations of all
nondefaulting Underwriters; or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Underwriters shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may at the Underwriters option, by notice from the Underwriters to the Company,
terminate the Underwriters' several obligations to purchase Securities from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5 and Section 7 hereof. No action taken
pursuant to this Section shall relieve the Company from liability, if any, in
respect of such default.
13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Argent Securities, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, with a copy to ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇, One Buckhead Plaza,
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq. Notices to the Company shall be directed to the
Company, Western Country Clubs, Inc., at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇ ▇▇▇▇▇ Attention: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, with a copy to ▇▇▇▇▇▇▇ Key &
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Financial Center, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇, Attention: ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and their respective
heirs and legal representatives and no other person shall have or be construed
to have any legal or equitable right, remedy or claim under or in respect of or
by virtue of this Agreement
DRAFT V.03 February 4, 1997
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or any provisions herein contained. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such
purchase.
15. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Colorado without
giving effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
WESTERN COUNTRY CLUBS, INC.
By:
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN
ON BEHALF OF THEMSELVES AND THE OTHER SEVERAL UNDERWRITERS
NAMED IN SCHEDULE I HERETO:
Argent Securities, Inc., as
Representative of the Several Underwriters
By:
--------------------------------------------
Name: ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chairman
DRAFT V.03 February 4, 1997
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SCHEDULE I
Underwriter Number of Securities
----------- --------------------
Argent Securities, Inc. 400,000 Shares Series A Cumulative
Convertible Redeemable Preferred Stock
1,000,000 Redeemable Series A Warrants
for Common Stock
DRAFT V.03 February 4, 1997
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SCHEDULE II
Warrant Agent -
DRAFT V.03 February 4, 1997
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