EXHIBIT 1.1
1,900,000 SHARES/1/
CPS SYSTEMS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
____________, 1998
CRUTTENDEN ▇▇▇▇ INCORPORATED
JOSEPHTHAL & CO. INC.
As Representatives of the several Underwriters
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
CPS Systems, Inc., a Texas corporation (the "Company"), addresses you as
the Representatives of each of the persons, firms and corporations listed in
Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirms its agreement with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
1,900,000 shares of its authorized and unissued Common Stock, $.01 par value per
share (the "Firm Shares"), to the several Underwriters. In addition, certain
shareholders of the Company listed on Schedule B hereto (the "Selling
Shareholders") propose to grant to the Underwriters an option to purchase up to
285,000 additional shares of the Company's Common Stock (the "Option Shares"),
as provided in Section 5 hereof. The Company also proposes to sell to you,
individually and not in your capacity as Representatives, warrants (the
"Representatives' Warrants") to purchase up to 190,000 shares of Common Stock of
the Company (the "Representatives' Warrant Stock"), which sale will be
consummated in accordance with the terms and conditions of the Representatives'
Warrant Agreement (the "Representatives' Warrant Agreement"), the form of which
is filed as an exhibit to the Registration Statement described below. As used
in this Agreement, the term "Shares" shall include the Firm Shares and the
Option Shares. All shares of Common Stock of the Company to be outstanding
after giving effect to the sales contemplated hereby, including the sale of the
Shares, are hereinafter referred to as "Common Stock." Unless the context
otherwise requires, references herein to the "Company" include CPS Systems, Inc.
together with its subsidiaries described in the Prospectus (hereinafter
defined).
-------------------
/1/ Plus an option to purchase up to 285,000 additional shares from certain
selling shareholders to cover over-allotments, if any.
1
2. Representations, Warranties and Agreements of the Company.
The Company represents and warrants to and agrees with each
Underwriter and each Selling Shareholder that:
(a) A registration statement on Form SB-2 (File No. 333-39173)
with respect to the Shares, the Representatives' Warrants and the
Representatives' Warrant Stock, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Act and has
been filed with the Commission; such amendments to such registration
statement and such amended prospectuses subject to completion as may have
been required prior to the date hereof have been similarly prepared and
filed with the Commission; and the Company will file such additional
amendments to such registration statement and such amended prospectuses
subject to completion as may hereafter be required. Copies of such
registration statement and amendments and of each related prospectus
subject to completion (the "Preliminary Prospectuses") have been delivered
to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information previously
omitted from the registration statement pursuant to Rule 430A(a) of the
Rules and Regulations pursuant to subparagraph (1) or (4) of Rule 424(b) of
the Rules and Regulations or as part of a post-effective amendment to the
registration statement (including a final form of prospectus). If the
registration statement relating to the Shares has not been declared
effective under the Act by the Commission, the Company will prepare and
promptly file an amendment to the registration statement, including a final
form of prospectus. The term "Registration Statement" as used in this
Agreement shall mean such registration statement, including financial
statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule
430A(b) of the Rules and Regulations) and, in the event of any amendment
thereto after the effective date of such registration statement, shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended. The term "Prospectus" as used in this Agreement
shall mean the prospectus relating to the Shares as included in such
Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to
Rule 430A(a) of the Rules and Regulations, the information deemed to be a
part of the Registration Statement at the time it became effective pursuant
to Rule 430A(b) of the Rules and Regulations), except that if any revised
prospectus shall be provided to the Underwriters by the Company for use in
connection with the offering of the Shares that differs from the prospectus
on file with the Commission at the time the Registration Statement became
or becomes, as the case may be, effective (whether or not such revised
prospectus is required to be filed with the Commission pursuant to Rule
424(b)(3) of the Rules and Regulations), the term "Prospectus" shall
2
refer to such revised prospectus from and after the time it is first
provided to the Underwriters for such use.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings
for that purpose, and each such Preliminary Prospectus, at the time of
filing thereof, has conformed in all material respects to the requirements
of the Act and the Rules and Regulations and, as of its date, has not
included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective
and at all times subsequent thereto up to and on the Closing Date
(hereinafter defined) and on any later date on which Option Shares are to
be purchased, (i) the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained and will contain all material
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements
of the Act and the Rules and Regulations, (ii) the Registration Statement,
and any amendments or supplements thereto, did not and will not include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (iii) the Prospectus, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or
any amendment or supplement thereto, in reliance upon, and in conformity
with, written information relating to any Underwriter furnished to the
Company by such Underwriter specifically for use in the preparation
thereof.
(c) The Company does not own or control, directly or indirectly,
any corporation, association or other entity other than the subsidiaries
listed in Exhibit 21 of the Registration Statement. The Company and each of
its subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation with full power and authority (corporate and other) to own,
lease and operate its properties and conduct its business as described in
the Prospectus; the Company and each of its subsidiaries is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the
failure to be so qualified or be in good standing would not have a material
adverse effect on the condition (financial or otherwise), earnings,
operations or business of the Company taken as a whole; no proceeding has
been instituted in any such jurisdiction, revoking, limiting or curtailing,
or seeking to revoke, limit or curtail, such power and authority or
qualification; the Company is in possession of and operating in compliance
with all authorizations, licenses, certificates, consents, orders and
permits from state, federal and other regulatory authorities that are
material to the conduct of its business, all of which are valid and in full
force and effect; the Company is not in material violation of its charter
or bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition
3
contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or instrument to
which the Company is a party or by which it or its properties or assets may
be bound; and the Company is not in violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction
over the Company or over its properties or assets.
(d) The Company has full legal right, power and authority to
enter into this Agreement and the Representatives' Warrant Agreement and to
perform the transactions contemplated hereby and thereby. Each of this
Agreement and the Representatives' Warrant Agreement has been duly
authorized, executed and delivered by the Company and is a valid and
binding agreement on the part of the Company, enforceable in accordance
with its terms, except as rights to indemnification under this Agreement or
the Representatives' Warrant Agreement may be limited by applicable law and
except as the enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles;
the performance of this Agreement and the Representatives' Warrant
Agreement and the consummation of the transactions herein or therein
contemplated will not violate any provisions of the charter, bylaws or
other organizational document of the Company and will not result in a
breach or violation of any of the terms and provisions of, or constitute,
either by itself or upon notice or the passage of time or both, a default
under any bond, debenture, note or other evidence of indebtedness, or under
any lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company is a
party or by which its properties or assets may be bound, or any law, order,
rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its properties or assets. No consent,
approval, authorization or order of or qualification with any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its properties or assets is required
for the execution and delivery of this Agreement or the Representatives'
Warrant Agreement and the consummation by the Company of the transactions
herein and therein contemplated, except such as may be required under the
Act or under state or other securities or Blue Sky laws, all of which
requirements have been satisfied in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the
Company, or any of its officers or any of its properties, assets or rights
before any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its officers or
properties or otherwise that (i) is reasonably likely to result in any
material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company or
might materially and adversely affect its properties, assets or rights,
(ii) might prevent consummation of the transactions contemplated hereby or
(iii) is required to be disclosed in the Registration Statement or
Prospectus and is not so disclosed; and there are no agreements, contracts,
leases or documents of the Company of a character required to be described
or referred to in the Registration Statement or Prospectus or to be filed
as an exhibit to the Registration Statement
4
by the Act or the Rules and Regulations or by the Securities Exchange Act
of 1934 (the "Exchange Act") or the rules and regulations of the Commission
thereunder that have not been accurately described in all material respects
in the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(f) All outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities,
and the authorized and outstanding capital stock of the Company is as set
forth in the Prospectus under the caption "Capitalization" and conforms to
the statements relating thereto contained in the Registration Statement and
the Prospectus (and such statements correctly state the substance of the
instruments defining the capitalization of the Company); the Firm Shares
and the Option Shares have been duly authorized for issuance and sale to
the Underwriters pursuant to this Agreement and, when issued and delivered
by the Company against payment therefor in accordance with the terms of
this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first refusal
or other similar right of shareholders exists with respect to any of the
Firm Shares or Option Shares or the issuance and sale thereof other than
those that will automatically expire upon the consummation of the
transactions contemplated on the Closing Date. No further approval or
authorization of any shareholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares
except as may be required under the Act, the Rules and Regulations or under
state or other securities or Blue Sky laws. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company,
and the related notes thereto, included in the Prospectus, the Company has
no outstanding options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares
of its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights under the Act and the Rules and
Regulations.
(g) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, which has expressed its opinion with
respect to the financial statements of the Company filed with the
Commission as a part of the Registration Statement, which are included in
the Prospectus, are independent accountants within the meaning of the Act
and the Rules and Regulations. The audited financial statements of the
Company, together with the related schedules and notes, and the unaudited
financial information, included in the Registration Statement and
Prospectus, fairly present the financial position and the results of
operations of the Company at the respective dates and for the respective
periods to which they apply. Such financial statements of the Company,
together with the related schedules and notes, filed with the Commission as
part of the Registration Statement, have been prepared in accordance with
generally accepted accounting principles consistently applied throughout
the
5
periods as certified by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP. The selected and summary
financial and statistical data included in the Registration Statement
present fairly the information shown therein and have been compiled on a
basis consistent with the audited financial statements presented therein.
No other financial statements or schedules are required to be included in
the Registration Statement.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as
specifically disclosed or contemplated therein, there has not been (i) any
material adverse change in the condition (financial or otherwise),
earnings, operations or business of the Company, (ii) incurred by the
Company any transaction that is material to the Company, (iii) any
obligation, direct or contingent incurred by the Company that is material
to the Company, (iv) any change in the capital stock or outstanding
indebtedness of the Company that is material to the Company, (v) any
dividend or distribution of any kind declared, paid or made on the capital
stock of the Company, or (vi) any loss or damage (whether or not insured)
to the property of the Company which has a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties
and assets described in the Registration Statement and Prospectus as owned
by it, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest, other than such as would not have a material
adverse effect on the condition (financial or otherwise), earnings,
operations or business of the Company, (ii) the agreements to which the
Company is a party described in the Registration Statement are valid
agreements, enforceable by the Company, except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles and, to the best of the
Company's knowledge, the other contracting party or parties thereto are not
in material breach or material default under any of such agreements, and
(iii) the Company has valid and enforceable leases for all properties
described in the Registration Statement and Prospectus as leased by it,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
Except as set forth in the Registration Statement and Prospectus, the
Company owns or leases all such properties as are necessary to its
operations as now conducted and as described in the Registration Statement
and the Prospectus.
(j) The Company has timely filed all federal, state, local and
foreign tax returns required to be filed by it and has paid all taxes shown
thereon as due, and there is no tax deficiency that has been or, to the
best of the Company's knowledge, is reasonably likely to be asserted
against the Company, which might have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company, and all tax liabilities are adequately provided for on the books
of the Company.
(k) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts generally deemed
adequate for its business including, but not limited to, insurance covering
real and personal property owned or
6
leased by the Company against theft, damage, destruction, acts of vandalism
and all other risks customarily insured against, all of which insurance is
in full force and effect; the Company has not been refused any insurance
coverage sought or applied for; and the Company does not have any reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost
that would not materially and adversely affect the condition (financial or
otherwise), earnings, operations or business of the Company.
(l) To the best of Company's knowledge, no labor disturbance by
the employees of the Company exists or is imminent. No collective
bargaining agreement exists with any of the Company's employees and, to the
best of the Company's knowledge, no such agreement is imminent.
(m) Except as disclosed in or specifically contemplated by the
Prospectus, the Company owns or possesses adequate rights to use all patent
rights, trade secrets, mask works, know-how, trademarks, copyrights,
licenses, service marks and trade names that are necessary to conduct its
businesses as described in the Registration Statement and Prospectus; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others
with respect to any patent rights, trade secrets, mask works, know-how,
trademarks, copyrights, licenses, service marks or trade names; and the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to
any patent rights, trade secrets, mask works, know-how, trademarks,
copyrights, licenses, service marks or trade names which, singly or in the
aggregate, in the event of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company.
(n) The Common Stock is registered pursuant to Section 12(g) of
the Exchange Act and is approved for quotation on the American Stock
Exchange, and the Company has taken no action designed to, or likely to
have the effect of, terminating the registration of the Common Stock under
the Exchange Act or delisting the Common Stock from the American Stock
Exchange, nor has the Company received any notification that the Commission
or the National Association of Securities Dealers, Inc. ("NASD") is
contemplating terminating such registration or listing.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will
not become an "investment company" or a company "controlled" by an
"investment company" within the meaning of the 1940 Act and such rules and
regulations.
(p) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option
Shares are to be purchased, as the case may be, and (ii) completion of the
distribution of the Shares, any offering material in
7
connection with the offering and sale of the Shares other than any
Preliminary Prospectuses, the Prospectus, the Registration Statement and
other materials, if any, permitted by the Act
(q) The Company has not at any time during the last five (5)
years (i) made any unlawful contribution to any candidate for foreign
office or failed to disclose fully any contribution in violation of law, or
(ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization in violation of law or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
(s) Each officer, director and director-nominee of the Company
and each beneficial owner of the Company's Common Stock has agreed in
writing that such person will not without the prior written consent of
Cruttenden ▇▇▇▇ Incorporated, for a period of 365 days from the date that
the Registration Statement is declared effective by the Commission (the
"Lock-up Period"), (which consent may be withheld in its sole discretion),
directly or indirectly, sell, offer, contract or grant any option to sell
(including without limitation, any short sale), pledge, transfer, establish
an open "put equivalent position" within the meaning of Rule 16a-1(h) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or securities exchangeable or exercisable
for or convertible into shares of Common Stock currently or hereafter owned
either of record or beneficially (as defined in Rule 13d-3 under the
Exchange Act) by such person (collectively, "Securities") or publicly
announce the undersigned's intention to do any of the foregoing.
Furthermore, such person will also agree and consent to the entry of stop
transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with
this restriction. The Company has provided to counsel for the Underwriters
a complete and accurate list of all shareholders of the Company and the
number and type of securities held by each shareholder. The Company has
provided to counsel for the Underwriters true, accurate and complete copies
of all of the agreements pursuant to which its officers, directors,
director-nominees and shareholders have agreed to such restrictions (the
"Lock-up Agreements"). The Company hereby represents and warrants that it
will not release any of its officers, directors or director-nominees or
other shareholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of Cruttenden ▇▇▇▇
Incorporated.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in material compliance with all rules, laws
and regulations relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment
("Environmental Laws") that are applicable to its business, (ii) the
Company has received no notice from any governmental authority or third
party of an asserted claim under
8
Environmental Laws, which claim is required to be disclosed in the
Registration Statement and the Prospectus, (iii) to its best knowledge, the
Company is not likely to be required to make future material capital
expenditures to comply with Environmental Laws and (iv) no property which
is owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et seq.), or
otherwise designated as a contaminated site under applicable state or local
law.
(u) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, including
without limitation cash receipts, (iii) access to assets is permitted only
in accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of
the officers, directors or director-nominees of the Company or any of the
members of the families of any of them, except as disclosed in the
Registration Statement and the Prospectus.
(w) The Representatives' Warrants have been duly and validly
authorized by the Company and upon delivery to you in accordance with the
Representatives' Warrant Agreement will be duly issued and legal, valid and
binding obligations of the Company.
(x) The Representatives' Warrant Stock has been duly authorized
and reserved for issuance upon the exercise of the Representatives'
Warrants and when issued upon payment of the exercise price therefor will
be validly issued, fully paid and nonassessable shares of Common Stock of
the Company.
3. Representations, Warranties and Covenants of the Selling Shareholders.
Each of the Selling Shareholders severally, and not jointly,
represents and warrants to, and agrees with, the several Underwriters that:
(a) Such Selling Shareholder has, and on the Closing Date and on
any later date on which the Option Shares are to be purchased will have,
good and marketable title to the Shares proposed to be sold by such Selling
Shareholder hereunder on such closing date and full right, power and
authority to enter into this Agreement and to sell, assign, transfer and
deliver such Option Shares hereunder, free and clear of all voting trust
arrangements, liens, encumbrances, equities, security interests,
restrictions and claims whatsoever, other than pursuant to this Agreement
and the Shareholders' Agreement (as defined below); and upon delivery of
and payment for such Shares hereunder, the Underwriters will acquire good
and marketable title thereto, free and
9
clear of all liens, encumbrances, equities, claims, restrictions, security
interests, voting trusts or other defects of title whatsoever.
(b) Such Selling Shareholder has executed and delivered a Power
of Attorney and caused to be executed and delivered on his behalf a Custody
Agreement (hereinafter collectively referred to as the "Shareholders'
Agreement") and in connection herewith such Selling Shareholder further
represents, warrants and agrees that such Selling Shareholder has deposited
in custody, under the Shareholders' Agreement, with the agent named therein
(the "Agent") as custodian, certificates in negotiable form for the Shares
or warrants to purchase the Shares to be sold hereunder by such Selling
Shareholder, for the purpose of further delivery pursuant to this
Agreement. Such Selling Shareholder agrees that the Shares or warrants to
purchase the Shares to be sold by such Selling Shareholder on deposit with
the Agent are subject to the interests of the Company and the Underwriters,
that the arrangements made for such custody are to that extent irrevocable,
and that the obligations of such Selling Shareholder hereunder shall not be
terminated, except as provided in this Agreement or in the Shareholders'
Agreement, by any act of such Selling Shareholder, by operation of law, by
the death or incapacity of such Selling Shareholder or by the occurrence of
any other event. If the Selling Shareholder should die or become
incapacitated, or if any other event should occur, before the delivery of
the Shares hereunder, the documents evidencing Shares or warrants to
purchase the Shares then on deposit with the Agent shall be delivered by
the Agent in accordance with the terms and conditions of this Agreement and
the Shareholders' Agreement as if such death, incapacity or other event had
not occurred, regardless of whether or not the Agent shall have received
notice thereof. This Agreement and the Shareholders' Agreement have been
duly executed and delivered by or on behalf of such Selling Shareholder and
the form of such Shareholders' Agreement has been delivered to you.
(c) The performance of this Agreement and the Shareholders'
Agreement and the consummation of the transactions contemplated hereby and
thereby will not result in a breach or violation by such Selling
Shareholder of any of the terms or provisions of, or constitute a default
by such Selling Shareholder under, any indenture, mortgage, deed of trust,
trust (constructive or other), loan agreement, lease, franchise, license or
other agreement or instrument to which such Selling Shareholder is a party
or by which such Selling Shareholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to such Selling Shareholder or any
of its properties, other than breaches or violations which do not adversely
affect such Selling Shareholder's ability to perform under this Agreement
or the Shareholders' Agreement.
(d) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares, except usual and customary market maker and
brokerage transactions up to two business days prior to the offering
contemplated hereby in each case in accordance with applicable Commission
regulations.
10
(e) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, are made in reliance upon and in
conformity with written information furnished to the Company by such
Selling Shareholder specifically for use therein, such Preliminary
Prospectus and the Registration Statement did, and the Prospectus and any
further amendments or supplements to the Registration Statement and the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, not contain any untrue statement of
material fact or omit any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made.
(f) To the best of its knowledge, such Selling Shareholder is
not aware that any of the representations and warranties set forth in
Section 2 above is untrue or inaccurate in any material respect.
4. Representation, Warranties and Agreements of the Underwriters. The
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), in the first paragraph on page 2,
concerning stabilization and over-allotment by the Underwriters, and in third
and eighth paragraphs under the caption "Underwriting" in any Preliminary
Prospectus and in the final form of Prospectus filed pursuant to Rule 424(b)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company that the statements made therein do not include any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
5. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 11).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 5 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company (and the Company agrees not to deposit any such check in the bank
on which it is drawn until the day following the date of its delivery to the
Company) at the offices of the Representatives or such other place as may be
agreed upon among the Representatives and the Company, at 7:00 A.M., California
time, on the third (3rd) full business day following the first day that Shares
are traded (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 11 hereof), such time and date of payment and
delivery being herein called the "Closing Date." The certificates for the Firm
Shares to be so
11
delivered will be made available to you at such office or such other location as
you may reasonably request for checking at least one (1) full business day prior
to the Closing Date and will be in such names and denominations as you may
request, such request to be made at least two (2) full business days prior to
the Closing Date. If the Representatives so elect, delivery of the Firm Shares
may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, the Selling
Shareholders hereby grant to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase, in the respective
amounts set forth on the Schedule B, up to an aggregate of 285,000 Option Shares
at the purchase price per share for the Firm Shares set forth in this Section 5.
Such option may be exercised by the Representatives on behalf of the several
Underwriters on one or more occasions in whole or in part during the forty-five
(45) day period after the date on which the Firm Shares are initially offered to
the public, by giving written notice to the Company and the Agent. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased as the number of Firm Shares purchased by such Underwriter (set forth
in Schedule A hereto) bears to the total number of Firm Shares purchased by the
several Underwriters (set forth in Schedule A hereto), adjusted by the
Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 5 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Agent (and the Agent
agrees not to deposit any such check in the bank on which it is drawn until the
day following the date of its delivery). Such delivery and payment shall take
place at the offices of the Representatives, or at such other place as may be
agreed upon by the Representatives and the Agent (i) on the Closing Date, if
written notice of the exercise of such option is received by the Agent at least
three (3) full business days prior to the Closing Date, or (ii) on a date which
shall not be later than the fifth (5th) full business day following the date the
Agent receives written notice of the exercise of such option, if such notice is
received by the Agent less than three (3) full business days prior to the
Closing Date.
To the extent that the option is not exercised for the entire 285,000
Option Shares, the number of Option Shares to be sold by each Selling
Shareholder shall be that number
12
which bears the same relationship to the aggregate number of Option Shares being
purchased as the maximum number of Option Shares being sold by each Selling
Shareholder bears to 285,000.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location as you may reasonably
request for inspection at least two (2) full business days prior to the date of
payment and delivery and will be in such names and denominations as you may
request, such request to be made at least three (3) full business days prior to
such date of payment and delivery. If the Representatives so elect, delivery of
the Option Shares may be made by credit through full fast transfer to the
accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
Upon exercise of any option provided for in this Section 5, the
obligations of the several Underwriters to purchase such Option Shares will be
subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the condition that all proceedings taken at or prior to the
payment date in connection with the sale and transfer of such Option Shares
shall be reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may reasonably request in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements, the performance of any of the covenants or agreements of the
Company or the compliance with any of the conditions herein contained in each
case in all material respects.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 13 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
6. Further Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) The Company will use best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify you, promptly
after it shall receive notice thereof, of the time when the Registration
13
Statement or any subsequent amendment to the Registration Statement has
become effective or any supplement to the Prospectus has been filed; if the
Company omitted information from the Registration Statement at the time it
was originally declared effective in reliance upon Rule 430A(a) of the
Rules and Regulations, the Company will provide evidence satisfactory to
you that the Prospectus contains such information and has been filed,
within the time period prescribed, with the Commission pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as
part of a post-effective amendment to such Registration Statement as
originally declared effective which is declared effective by the
Commission; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information
and has been filed with the Commission within the time period prescribed;
it will notify you promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus
or for additional information; promptly upon your request, it will prepare
and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for
the several Underwriters ("Underwriters' Counsel"), may be necessary or
advisable in connection with the distribution of the Shares by the
Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have
occurred as a result of which the Prospectus or any other prospectus
relating to the Shares as then in effect would include any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus
or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to you a reasonable time prior to the
proposed filing thereof or to which you shall reasonably object in writing,
subject, however, to compliance with the Act and the Rules and Regulations
and the rules and regulations of the Commission thereunder and the
provisions of this Agreement.
(b) The Company will advise you promptly after it shall received
notice or obtained knowledge of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal at the earliest possible moment if such stop order
should be issued.
(c) The Company will use reasonable efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long
as may be required for purposes of the
14
distribution of the Shares, except that the Company shall not be required
in connection therewith or as a condition thereof to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction in which it is not otherwise required to be so qualified or to
so execute a general consent to service of process. In each jurisdiction in
which the Shares shall have been qualified as above provided, the Company
will make and file such statements and reports in each year as are or may
be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available,
copies of the Registration Statement (three of which will be signed and
which will include all exhibits), each Preliminary Prospectus, the
Prospectus and any amendments or supplements to such documents, including
any prospectus prepared to permit compliance with Section 10(a)(3) of the
Act (three of which will include all exhibits) all in such quantities as
you may from time to time reasonably request.
(e) The Company will make generally available to its
shareholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first
occurring after the first anniversary of the effective date of the
Registration Statement, an earnings statement (which will be in reasonable
detail but need not be audited) complying with the provisions of Section
11(a) of the Act and covering a twelve (12) month period beginning after
the effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof and
for so long as the Company is subject to Section 13 or 15 of the Exchange
Act, the Company will furnish to its shareholders as soon as practicable
after the end of each respective period, annual reports (including
financial statements audited by independent certified public accountants)
and unaudited quarterly reports of operations for each of the first three
quarters of the fiscal year, and will furnish to you and the other several
Underwriters hereunder, upon request (i) concurrently with furnishing such
reports to its shareholders, statements of operations of the Company for
each of the first three (3) quarters in the form furnished to the Company's
shareholders, (ii) concurrently with furnishing to its shareholders, a
balance sheet of the Company as of the end of such fiscal year, together
with statements of operations, of shareholders' equity, and of cash flows
of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants,
(iii) as soon as they are available, copies of all reports (financial or
other) mailed to shareholders, (iv) as soon as they are available, copies
of all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the NASD, (v) every material press
release and every material news item or article in respect of the Company
or its affairs which was generally released to shareholders or prepared by
the Company, and (vi) any additional information of a public nature
concerning the Company or its business which you may reasonably request.
During such five (5) year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries
are consolidated, and shall be accompanied by similar financial statements
for any significant subsidiary that is not so consolidated.
15
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and a registrar
(which may be the same entity) for its Common Stock.
(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) [reserved]
(k) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely to
be materially affected (regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the Prospectus), the
Company will, if reasonably requested by you, forthwith prepare, and, if
permitted by law, disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(l) During the Lock-up Period, the Company will not, without the
prior written consent of the Representatives, effect the Disposition of,
directly or indirectly, any Securities other than (i) the sale of the Firm
Shares and the Option Shares hereunder and, (ii) the Company's issuance of
options or Common Stock under the Company's presently authorized stock
option plans or restricted stock plans (collectively, the "Option Plans").
7. Expenses.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any
amendments or supplements thereto; the printing of this Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreement, the
Preliminary Blue Sky Survey and any supplemental Blue Sky Survey, the
Underwriters' Questionnaire and Power of Attorney, and any instruments
related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer
taxes, if any, the cost of all certificates representing the Shares
and transfer agents' and registrars' fees; the fees and disbursements
of counsel and accountants for the Company; all fees and other charges
of the Company's independent certified public accountants; the cost of
furnishing to the several Underwriters copies of the Registration
Statement (including appropriate exhibits), Preliminary Prospectus and
the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of
16
qualifying the Shares under the laws of such jurisdictions as you may
designate (including filing fees and fees and disbursements of counsel
for the Underwriters related to such qualification); the Company's
road show costs and expenses, the cost of preparing bound volumes of
the documents relating to the public offering of Common Stock
contemplated hereby; and all other expenses directly incurred by the
Company in connection with the performance of its obligations
hereunder.
(ii) [reserved].
(iii) In addition to its other obligations under Section
7(a)(i) hereof, if the Shares are sold pursuant to this Agreement, the
Company will pay to the Representatives a nonaccountable expense
allowance equal to 3.0% of the aggregate sales price of the Shares to
the public. This nonaccountable expense allowance with respect to the
Firm Shares shall be paid to you on the Closing Date and the
nonaccountable expense allowance with respect to the Option Shares
shall be paid to you on the closing of the sale to you of such Option
Shares. The $20,000 previously paid to the Representatives by the
Company shall be credited against this nonaccountable expense
allowance.
(iv) In addition to its other obligations under Section 9
hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 9(a) hereof, it will reimburse the
Underwriters and Selling Shareholders, as the case may be, on a
monthly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing)
listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of
the nation's five (5) largest banks (the "Prime Rate"). Any such
interim reimbursement payments which are not made to the Underwriters
within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 9(b)
hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 9(b) hereof, they will
reimburse the Company and Selling Shareholders, as the case may be, on a
monthly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of
a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
17
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within
thirty (30) days of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
7(a)(iv) and 7(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the
basis on which such amounts shall be apportioned among the reimbursing
parties, shall be settled by arbitration conducted pursuant to the Code of
Arbitration Procedure of the NASD in Orange County, California (or as close
geographically to Orange County, California as is reasonably practical).
Any such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event the party demanding arbitration does
not make such designation of an arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized to
do so. Any such arbitration will be limited to the operation of the interim
reimbursement provisions contained in Sections 7(a)(iv) and 7(b) hereof and
will not resolve the ultimate propriety or enforceability of the obligation
to indemnify for expenses which is created by the provisions of Sections
9(a) and 9(b) hereof or the obligation to contribute to expenses which is
created by the provisions of Section 9(d) hereof.
8. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., California time, on the date of this Agreement, or
such later date as shall be consented to in writing by you; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge
of the Company or any Underwriter, threatened by the Commission, and any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issuance, sale and
delivery of the Shares, shall have been reasonably satisfactory to
Underwriters' Counsel, and such counsel shall have been furnished with such
documents and information as they may reasonably have requested to enable
them to pass upon the matters referred to in this Section.
18
(c) You shall be satisfied that since the respective dates as of
which information is given in the Registration Statement and Prospectus,
(i) there shall not have been any change in the capital stock of the
Company other than pursuant to the exercise of outstanding options and
warrants disclosed in the Prospectus or any material change in the
indebtedness of the Company, (ii) except as set forth or contemplated by
the Registration Statement or the Prospectus, no material verbal or written
agreement or other transaction shall have been entered into by the Company,
which is not in the ordinary course of business, (iii) no loss or damage
(whether or not insured) to the property of the Company shall have been
sustained which materially and adversely affects the condition (financial
or otherwise), business, results of operations or prospects of the Company,
(iv) no legal or governmental action, suit or proceeding affecting the
Company which is material to the Company or which affects or may affect the
transactions contemplated by this Agreement shall have been instituted or
threatened and (v) there shall not have been any material change in the
condition (financial or otherwise), business, management, results of
operations or prospects of the Company which makes it impractical or
inadvisable in the judgment of the Representatives to proceed with public
offering or purchase the Common Shares as contemplated hereby.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, an opinion
of Schreeder, Wheeler, Flint, counsel for the Company, dated the Closing
Date or such later date on which Option Shares are purchased, addressed to
the Underwriters (and stating that it may be relied upon by Underwriters'
Counsel in rendering its opinion pursuant to Section 8 (d) of this
Agreement) and with reproduced copies or signed counterparts thereof for
each of the Underwriters, to the effect that:
(i) The Company and each of its subsidiaries has been duly
incorporated and is validly existing and in good standing under the
laws of the jurisdiction of its incorporation;
(ii) The Company and each of its subsidiaries has full
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration
Statement;
(iii) The Company and each of its subsidiaries is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in
good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business
of the Company taken as a whole. To such counsel's knowledge, Company
has no subsidiaries or other than as listed in Exhibit 21 to the
Registration Statement;
(iv) The authorized, issued and outstanding capital stock
of the Company is as set forth in the Prospectus under the caption
"Capitalization";
19
all outstanding shares of capital stock of the Company have been duly
and validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, have not been issued in violation of or subject
to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right; without limiting the foregoing,
to such counsel's knowledge, there are no preemptive or other rights
to subscribe for or purchase any of the Shares;
(v) The certificates evidencing the Shares to be delivered
hereunder are in due and proper form under Texas law and when duly
countersigned by the Company's transfer agent and registrar and
delivered to you against payment of the agreed compensation in
accordance with this Agreement, the Firm Shares and the Option Shares,
represented thereby will be duly and validly issued and fully paid and
nonassessable, and will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right of shareholders and will
conform in all respects to the description thereof in the Registration
Statement;
(vi) the Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;
(vii) The Company has the corporate power and authority to
enter into the Representatives' Warrant Agreement and to issue, sell
and deliver to the Representatives the Representatives' Warrants to be
issued and sold by it thereunder;
(viii) Each of this Agreement, the Representatives' Warrant
Agreement and the Representatives' Warrants has been duly authorized
by all necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification provisions may be limited by
applicable law and to which counsel need not express any opinion and
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles;
(ix) The Registration Statement has become effective under
the Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
and
20
schedules included in the Registration Statement as to which such
counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects
with the requirements of the Act and the applicable Rules and
Regulations;
(xi) The statements in the Registration Statement and
Prospectus under the captions "Management," "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible For Future Sale,"
and in the Registration Statement in Items 24 and 26 insofar as they
constitute matters of law or legal conclusions or are descriptions of
contracts, agreements or other documents are accurate and complete in
all material respects and fairly present the information contained
herein;
(xii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes
are accurate and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations and the
Company is not in violation of its charter or bylaws, or other
organizational documents;
(xiii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is a
party of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to
the Registration Statement that are not described or referred to
therein or filed as required;
(xiv) The execution and delivery of this Agreement and the
Representatives' Warrant Agreement and the performance by the Company
of its obligations hereunder and thereunder will not (a) result in any
violation of the Company's charter, bylaws or other organizational
documents, or (b) result in a material breach or violation of any of
the terms and provisions of, or constitute a material default under,
any material bond, debenture, note or other evidence of indebtedness,
or under any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument
to which the Company is a party or by which its properties are bound,
or any applicable statute, rule or regulation known to such counsel
or, to such counsel's knowledge, any order, writ or decree of any
court, government or governmental agency or body having jurisdiction
over the Company or over any of its properties or operations;
(xv) To counsel's best knowledge, no consent, approval,
authorization or order of or qualification with any court, government
or governmental agency or body having jurisdiction over the Company or
over any of its properties or operations is necessary in connection
with the consummation by the Company of the transactions contemplated
in this Agreement and the Representatives' Warrant Agreement, except
such as have been obtained under the
21
Act or such as may be required under state or other securities or Blue
Sky laws in connection with the purchase and the distribution of the
Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company of
a character required to be disclosed in the Registration Statement or
the Prospectus by the Act or the Rules and Regulations or by the
Exchange Act or the applicable rules and regulations of the Commission
thereunder, other than those described therein;
(xvii) The Representatives' Warrants have been duly and
validly authorized by the Company and upon delivery to you in
accordance with the Representatives' Warrant Agreement will be duly
issued and legal, valid and binding obligations of the Company;
(xviii) The Representatives' Warrant Stock to be issued by
the Company pursuant to the terms of the Representatives' Warrant has
been duly authorized and, upon issuance and delivery against payment
therefor in accordance with the terms of the Representatives' Warrant
Agreement, will be duly and validly issued and fully paid and
nonassessable, and to such counsel's knowledge, will not have been
issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar
right of shareholders;
(xix) To such counsel's knowledge, no holders of Common
Stock or other securities of the Company have registration rights with
respect to securities of the Company that have not been waived; and
(xx) The offer and sale of all securities of the Company
made within the last three years as set forth in Item 15 of the
Registration Statement were exempt from the registration requirements
of the Securities Act, pursuant to the provisions set forth in such
Item, and from the registration or qualification requirements of all
relevant state securities laws.
(xxi) The Company has satisfied the conditions for use of
Form SB-2 as set forth in the General Instructions thereto.
(xxii) No transfer taxes are required to be paid in
connection with the sale and delivery of the Shares to the
Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel that
22
leads them to believe that, at the time the Registration Statement became
effective and at all times subsequent thereto up to and on the Closing Date and
on any later date on which Option Shares are purchased, the Registration
Statement and any amendment or supplement thereto, when such documents became
effective or were filed with the Commission (other than the financial statements
and supporting schedules included in the Registration Statement as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the Closing Date
or any later date on which the Option Shares are purchased, as the case may be,
the Registration Statement, the Prospectus and any amendment or supplement
thereto contained any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States upon opinions of local counsel,
and as to questions of fact upon representations or certificates of officers of
the Company, and of government officials, in which case its opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.
(e) You shall have received on the date on which any Option
Shares are purchased an opinion or opinions of counsel for the Selling
Shareholders, addressed to the Underwriters and stating that it may be
relied upon by Underwriters' Counsel in rendering its opinion pursuant to
Section 8(f) and dated the date on which any Option Shares are purchased,
to the effect that:
(1) To the best of such counsel's knowledge, this Agreement
and the Shareholders' Agreement have been duly authorized, executed
and delivered by or on behalf of each of the Selling Shareholders; the
Agent has been duly and validly authorized to act as the custodian of
the Shares and, where applicable, warrants to purchase the Shares, to
be sold by each such Selling Shareholder; and the performance of this
Agreement and the Shareholders' Agreement and the consummation of the
transactions herein contemplated by the Selling Shareholders will not
result in a breach of, or constitute a default under, any indenture,
mortgage, deed of trust, trust (constructive or other), loan
agreement, lease, franchise, license or other agreement or instrument
to which any of the Selling Shareholders is a party or by which any of
the Selling Shareholders or any of their properties may be bound, or
violate any statute, judgment, decree, order, rule or regulation known
to such counsel of any court or governmental body having jurisdiction
over any of the Selling Shareholders or any of their properties; and
to the best of such counsel's knowledge, no approval, authorization,
order or consent of any court, regulatory body, administrative agency
or other governmental body is required for the execution and delivery
of this
23
Agreement or the Shareholders' Agreement or the consummation by the
Selling Shareholders of the transactions contemplated by this
Agreement, except such as have been obtained and are in full force and
effect under the Act and such as may be required under the rules of
the NASD and applicable Blue Sky laws;
(2) To the best of such counsel's knowledge, the Selling
Shareholders have full right, power and authority to enter into this
Agreement and the Shareholders' Agreement and to sell, transfer and
deliver the Shares to be sold on such closing date by such Selling
Shareholders and good and marketable title to such Shares so sold,
free and clear of all liens, encumbrances, equities, claims,
restrictions, security interests, voting trusts, or other defects of
title whatsoever, has been transferred to the Underwriters (whom
counsel may assume to be bona fide purchasers) who have purchased such
Shares hereunder;
(3) To the best of such counsel's knowledge, this Agreement
and the Shareholders' Agreement are valid and binding agreements of
each of the Selling Shareholders in accordance with their terms except
as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and except with respect to those
provisions relating to indemnities or contributions for liabilities
under the Act, as to which no opinion need be expressed; and
(4) No transfer taxes are required to be paid in connection
with the sale and delivery of the Shares to the Underwriters
hereunder.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, an opinion
of Summit Law Group PLLC in form and substance satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished
to such counsel such documents as they may have requested for the purpose
of enabling them to pass upon such matters.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
letter from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, addressed to the Company and the
Underwriters, dated the Closing Date or such later date on which Option
Shares are purchased, as the case may be, confirming that they are
independent certified public accountants with respect to the Company within
the meaning of the Act and the applicable published Rules and Regulations
and based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the
"Original
24
Letter"), but carried out to a date not more than three (3) business days
prior to the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be, (i) confirming, to the extent true, that
the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations or business of the Company
from that set forth in the Registration Statement or Prospectus, which, in
your sole judgment, is material and adverse and that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus. The Original Letter from
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP shall be addressed to or for the use of the Underwriters
in form and substance satisfactory to the Underwriters and shall (i)
represent, to the extent true, that they are independent certified public
accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations, (ii) set forth its opinion
with respect to its examination of the balance sheets of the Company as of
September 30, 1997, and December 31, 1996 and related statements of
operations, shareholders' equity, and cash flows for the years ended
December 31, 1995 and 1996, and (iii) address other matters agreed upon by
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP and you. In addition, you shall have received from ▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP a letter addressed to the Company and made available to you
for the use of the Underwriters stating that its review of the Company's
system of internal accounting controls, to the extent they deemed necessary
in establishing the scope of its examination of the Company's financial
statements as of September 30, 1997, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(h) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by the
President and Chief Financial Officer of the Company, to the effect that,
and you shall be satisfied that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied, in all
material aspects, with all the agreements and satisfied all the
conditions on its part to be performed or satisfied, in all material
respects, at or prior to the Closing Date or any later date on which
Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to their knowledge, are pending or
threatened under the Act;
25
(iii) When the Registration Statement became effective and
at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained all material information
required to be included therein by the Act and the Rules and
Regulations or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, and in
all material respects conformed to the requirements of the Act and the
Rules and Regulations or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, the
Registration Statement, and any amendment or supplement thereto, did
not and does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does
not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and,
since the effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or
supplemented Prospectus that has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been (a) any material adverse change in the condition
(financial or otherwise), earnings, operations or business of the
Company, (b) any transaction that is material to the Company, (c) any
obligation, direct or contingent incurred by the Company, that is
material to the Company, (d) any change in the capital stock or
outstanding indebtedness of the Company, (e) any dividend or
distribution of any kind declared, paid or made on the capital stock
of the Company, or (f) any loss or damage (whether or not insured) to
the property of the Company which has a material adverse effect on the
condition (financial or otherwise), earnings, operations or business
of the Company.
(i) The Company shall have obtained and delivered to you an
agreement from each officer, director and director-nominee of the Company,
and each beneficial owner of five percent or more of the Common Stock
immediately after the offering contemplated hereby, in writing prior to the
date hereof that such person will not, during the Lock-up Period, effect
the Disposition of any Securities now owned or hereafter acquired directly
by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift
or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to limited partners or
shareholders of such person, provided that the distributees thereof agree
in writing to be bound by the terms of this restriction, or (iii) with the
prior written consent of Cruttenden ▇▇▇▇ Incorporated. The foregoing
restriction is expressly agreed to preclude the holder of the Securities
from engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than the such
26
holder. Such prohibited hedging or other transactions would include,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Furthermore, such person will have also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with
this restriction.
(j) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request, including
certificates of officers of the Company as to the accuracy of the
representations and warranties of the Company, as to the performance by the
Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
(k) The Representatives' Warrant Agreement shall have been
entered into by the Company and you, and the Representatives' Warrants
shall have been issued and sold to you pursuant thereto.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
9. Indemnification and Contribution.
(a) The Company and each of the Selling Shareholders severally
agrees to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter
may become subject (including, without limitation, in its capacity as an
Underwriter or as a "qualified independent underwriter" within the meaning
of Schedule E of the Bylaws of the NASD), under the Act, the Exchange Act
or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
(i) with respect to the Company, any breach of any representation,
warranty, agreement or covenant of the Company herein contained, or any
failure of the Company to perform its obligations hereunder or under law,
(ii) with respect to each of the Selling Shareholders, arise out of or are
based in whole or in part on any inaccuracy in the representations and
warranties of such Selling Shareholder contained herein or any failure of
such Selling Shareholder to perform its obligations hereunder or under law,
(iii) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (but, with respect
to each of the Selling Shareholder only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
by such Selling
27
Shareholder, in its capacity as such, to the Company or the Underwriters,
directly or through such Selling Shareholders' representatives,
specifically for inclusion therein) and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that neither the Company nor any
Selling Shareholder shall be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, such Preliminary Prospectus or
the Prospectus, or any such amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any
Underwriter furnished to the Company as described in Section 4 hereof, and,
provided further, that the indemnity agreement provided in this Section
9(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission
to state therein a material fact purchased Shares, if a copy of the
Prospectus in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected had not been sent or given to
such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the
Company with Section 6(d) hereof.
The indemnity agreement in this Section 9(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and the Selling Shareholders
against any losses, claims, damages or liabilities, joint or several, to
which the Company may become subject under the Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to the Company as described in Section 4 hereof, and
agrees to reimburse the Company and the Selling Shareholders for any legal
or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or
action.
The indemnity agreement in this Section 9(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company and each person, if any, who controls the Company or any of the Selling
Shareholders within the meaning of the Act or the Exchange Act.
28
This indemnity agreement shall be in addition to any liabilities which each
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 9, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 9. In case any
such action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it shall elect
by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which are different from
or additional to those available to the indemnifying party which pose a
conflict of interest for such counsel, the indemnified party or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from
the indemnifying party to such indemnified party of the indemnifying
party's election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable
to such indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party shall
not be liable for the expenses of more than one separate counsel (together
with appropriate local counsel) approved by the indemnifying party
representing all the indemnified parties under Section 9(a) or 9(b) hereof
who are parties to such action), (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of
the action or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party.
In no event shall any indemnifying party be liable in respect of any
amounts paid in settlement of any action unless the indemnifying party
shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could
have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such
indemnification.
(d) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this
Section 9 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the
29
expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding
the fact that this Section 9 provides for indemnification in such case, all
the parties hereto shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Underwriters severally and not
jointly are responsible pro rata for the portion represented by the
percentage that the underwriting discount bears to the initial public
offering price, and the Company is responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute
any amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section
9(d) shall extend upon the same terms and conditions to, and shall inure to
the benefit of, each person, if any, who controls the Underwriters or the
Company within the meaning of the Act or the Exchange Act and each officer
of the Company who signed the Registration Statement and each director of
the Company.
(e) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof including, without
limitation, the provisions of this Section 9, and are fully informed
regarding said provisions. They further acknowledge that the provisions of
this Section 9 fairly allocate the risks in light of the ability of the
parties to investigate the Company and its business in order to assure that
adequate disclosure is made in the Registration Statement and Prospectus as
required by the Act and the Exchange Act. The parties are advised that
federal or state public policy, as interpreted by the courts in certain
jurisdictions, may be contrary to certain of the provisions of this Section
9, and the parties hereto hereby expressly waive and relinquish any right
or ability to assert such public policy as a defense to a claim under this
Section 9 and further agree not to attempt to assert any such defense.
10. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Sections 7
and 9 and hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any Underwriter or any controlling
person within the meaning of the Act or the Exchange Act, or by or on behalf of
the Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
11. Substitution of Underwriters. If any Underwriter or Underwriters shall
fail to take up and pay for the number of Firm Shares agreed by such Underwriter
or Underwriters to be purchased hereunder upon tender of such Firm Shares in
accordance with the terms hereof, and if the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be
30
obligated, severally in proportion to their respective commitments hereunder, to
take up and pay for the Firm Shares of such defaulting Underwriter or
Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another underwriter
or underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24) hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 11, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective number of Firm Shares to
be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm Shares so
agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 11, the Company shall not be liable to any
Underwriter (except as provided in Sections 7 and 9 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 7 and 9 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 11.
31
12. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i)
6:30 A.M., California time, on the second full business day following the
effective date of the Registration Statement, or (ii) the time of the
initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which
the Shares are first generally offered by the Underwriters to the public by
letter, telephone, telegram or telecopy, whichever shall first occur. By
giving notice as set forth in Section 13 before the time this Agreement
becomes effective, you, as Representatives of the several Underwriters, or
the Company, may prevent this Agreement from becoming effective without
liability of any party to any other party, except as provided in Sections 7
and 9 hereof.
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time at or prior to the Closing Date or on or prior to any
later date on which Option Shares are purchased, as the case may be, (i) if
the Company shall have failed, refused or been unable to perform any
agreement on its part to be performed, or (ii) because any other condition
of the Underwriters' obligations hereunder required to be fulfilled is not
fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse, or
(iii) if additional material governmental restrictions, not in force and
effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock
Exchange or in the over the counter market by the NASD, or trading in
securities generally shall have been suspended on either such exchange or
in the over the counter market by the NASD, or if a banking moratorium
shall have been declared by federal, New York or California authorities, or
(iv) if the Company shall have sustained a loss by strike, fire, flood,
earthquake, accident or other calamity of such character as to interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured, or (v) if
there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment
makes it inadvisable or impracticable to proceed with the offering, sale
and delivery of the Shares, or (vi) if there shall have been an outbreak or
escalation of hostilities or of any other insurrection or armed conflict or
the declaration by the United States of a national emergency which, in the
reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus. Any termination pursuant to any of
subparagraphs (ii) through (vi) above shall be without liability of any
party to any other party except as provided in Sections 7 and 9 hereof. In
the event of termination pursuant to subparagraph (i) above, the Company
shall also remain obligated to pay costs and expenses pursuant to Sections
7 and 9 hereof.
32
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 12, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
13. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Cruttenden ▇▇▇▇ Incorporated, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, telecopier number (▇▇▇) ▇▇▇-▇▇▇▇,
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇; if sent to the Company, such notice shall be mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇, telecopier number (214) 855-
5277, Attention: ▇▇▇ ▇▇▇▇▇▇▇.
14. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or corporation,
other than the parties hereto and their respective executors, administrators,
successors and assigns, and their controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in Section 9 hereof,
any legal or equitable right, remedy or claim in respect of this Agreement or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective executors, administrators,
successors and assigns and said controlling persons and said officers and
directors, and for the benefit of no other person or corporation. No purchaser
of any of the Shares from any Underwriter shall be construed a successor or
assign by reason merely of such purchase. The Agreement constitutes the entire
agreement and understanding of the parties with respect to the subject matter
hereof.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Underwriters, and the Company shall be entitled
to act and rely upon any statement, request, notice or agreement made or given
by you on behalf of each of the several Underwriters.
15. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
16. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and the several Underwriters.
Very truly yours,
33
CPS SYSTEMS, INC.
By:_______________________________________
Name:__________________________________
Title:_________________________________
SELLING SHAREHOLDERS
By:_______________________________________
Attorney-in-fact
34
Accepted as of the date first above written:
CRUTTENDEN ▇▇▇▇ INCORPORATED
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By: CRUTTENDEN ▇▇▇▇ INCORPORATED
By:_______________________________________
Name:__________________________________
Title:_________________________________
JOSEPHTHAL & CO. INC.
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By: JOSEPHTHAL & CO. INC..
By:_______________________________________
Name:__________________________________
Title:_________________________________
35
SCHEDULE A
Number of
Firm Shares
To Be
Underwriters Purchased
--------------------------------------- -----------
Cruttenden ▇▇▇▇ Incorporated...........
Josephthal & Co. Inc.
-------------
Total...............................
=============
36
SCHEDULE B
Number of
Selling Shareholders Option Shares
-------------------- -------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇........................... 85,660
▇▇▇▇▇ ▇. ▇▇▇▇▇▇............................. 85,660
G. ▇▇▇▇ ▇▇▇▇▇............................... 18,288
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Mezzanine Fund, L.P.......... 63,472
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇............................ 21,280
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇........................... 10,640
37