Exhibit 1.1
HAT WORLD CORPORATION
UNDERWRITING AGREEMENT
August ____, 1999
EBI Securities Corporation
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Gentlemen:
HAT WORLD CORPORATION, a Minnesota corporation, hereby confirms its
agreement with you, as Representative, and with the other members of the
Underwriting Group as set forth below. For purposes of this Agreement, all
references throughout this Agreement to the "Company" shall include Hat World
Corporation and its wholly owned subsidiary, Hat World, Inc., a Minnesota
corporation, as shall be appropriate in the context used.
SECTION 1
Description of Offering and Shares
The Underwriting Group proposes to purchase from the Company in an
initial public offering ("Public Offering") a total of 1,150,000 shares of the
Company's $.01 par value common stock ("Firm Shares"). The Representative,
either on its own behalf or on behalf of the members of the Underwriting Group,
will have an overallotment option ("Overallotment Option") to purchase up to an
additional 172,500 Shares ("Overallotment Shares") exercisable for a period of
sixty (60) days after the Effective Date (hereinafter defined) to cover
overallotments, which may occur during the Offering. The Firm Shares and the
Overallotment Shares as used throughout this Agreement shall be referred to
herein as the "Shares." The Company's $.01 par value common stock when not
referring specifically to the "Shares" shall be referred to herein as the
"Company's Common Stock." The Company agrees to sell to the Underwriting Group
all of the Firm Shares and the Company agrees to sell to the Representative all
or such portion of the Overallotment Shares under the Overallotment Option to
the extent exercised by the Representative from time to time during the sixty
(60) day period following the Effective Date. The Shares will initially be
offered and sold to the public at a price of $ ___________ for each Share. Such
price is referred to herein as the "Public Offering Price." The Company's
authorized and outstanding capitalization when the Public Offering of the Shares
is permitted to commence and at the Closing Date (hereinafter defined) and at
the Option Closing Date (hereinafter defined) will be as set forth in the
Registration Statement (hereinafter defined) and the Prospectus (hereinafter
defined) included therein.
On the Effective Date, the Shares will be listed for quotation on the
NASDAQ National Market System under the symbol "HATS." Such listing is subject
to the Company's ability to meet the NASDAQ National Market System maintenance
requirements on the Effective Date. In connection with the application for such
listing, the Company will furnish the Representative or legal counsel for the
Representative five (5) complete copies of the Registration Statement
(hereinafter defined) and all amendments thereto for filing with the National
Association of Securities Dealers, Inc. ("NASD").
SECTION 2
Representations and Warranties of the Company
In order to induce the members of the Underwriting Group to enter into
this Agreement, the Company hereby represents and warrants to and agrees with
the Representative and the members of the Underwriting Group as follows:
2.1 Registration Statement and Prospectus. A registration statement on
Form SB-2 (File No. 333-80761) ("Registration Statement") with respect to the
Shares, and the Representative's Warrants (hereinafter
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defined), including the related Prospectus, copies of which have heretofore been
delivered by the Company to the Representative, has been prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as amended
("Act"), and the rules and regulations ("Rules and Regulations") of the
Commission thereunder, and said Registration Statement has been filed with the
Commission under the Act; one or more amendments to said Registration Statement,
copies of which have heretofore been delivered to the Representative, has or
have heretofore been filed with the Commission; and the Company may file with
the Commission on or prior to the Effective Date additional amendments to said
Registration Statement, including the final Prospectus. The Company shall use
its best efforts to cause the Registration Statement to be declared effective by
the Commission. As used in this Agreement, the term "Registration Statement"
refers to and means said Registration Statement and all amendments thereto,
including the Prospectus, all exhibits and all financial statements, as it
becomes effective; the term "Prospectus" refers to and means the Prospectus
included in the Registration Statement when it becomes effective which shall
include such changes and amendments as are required by Rule 430A under the Act
or permitted by Rule 424(b) under the Act, and as have been provided to and
approved by the Representative prior to the Effective Date; and the term
"Preliminary Prospectus" refers to and means any Prospectus included in said
Registration Statement before it becomes effective. The terms "Effective Date"
and "effective" refer to the date the Commission declares the Registration
Statement effective, pursuant to Section 8 of the Act. Prior to the later of (i)
the Closing Date or the Option Closing Date or (ii) the completion of the
distribution of the Shares, neither the Company nor its Subsidiary will have
distributed any written offering material in connection with the offering and
sale of the Shares other than the Registration Statement and any amendment
thereto or the Prospectus and any amendment or supplement thereto, or other
materials, if any, permitted by the Act.
2.2 Accuracy of Registration Statement and Prospectus. The Commission
has not issued any order preventing or suspending the use of any Preliminary
Prospectus with respect to the Shares and each Preliminary Prospectus has
conformed in all material respects with the requirements of the Act and the
applicable Rules and Regulations of the Commission thereunder and to the best of
the Company's knowledge has not included at the time of filing any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein not misleading. When the Registration Statement
becomes effective and on the Closing Date and on the Option Closing Date, (i)
the Registration Statement and Prospectus and any further amendments or
supplements thereto will contain all statements which are required to be stated
therein in accordance with the Act and the Rules and Regulations thereunder for
the purposes of the proposed Public Offering of the Shares, (ii) all statements
of material fact contained in the Registration Statement and Prospectus will be
true and correct, and (iii) neither the Registration Statement nor the
Prospectus will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, the Company does not make
any representations or warranties as to information contained in or omitted from
the Registration Statement or the Prospectus in reliance upon written
information furnished on behalf of the members of the Underwriting Group
specifically for use therein.
2.3 Financial Statements and Definition of Subsidiary. The consolidated
financial statements of the Company and the pro forma (i.e., as adjusted)
financial or other information together with related schedules and notes as set
forth in the Registration Statement and Prospectus present fairly the financial
position of the Company and Hat World, Inc., a Minnesota corporation which is
its wholly owned subsidiary, on a combined basis and the results of their
operations and cash flows and the changes in their financial position at the
respective dates and for the respective periods for which they apply. The term
"Subsidiary" or "Subsidiaries" as used throughout this Agreement refers to each
corporation, limited liability company, partnership or other entity in which the
Company currently owns, or directly or indirectly may hereafter acquire, a fifty
percent (50%) or greater interest ("Controlling Interest"). Unless otherwise
indicated, the term "Company" as used in this Agreement, where appropriate in
the context used, shall include the Company and its Subsidiary as of the date
being referenced in this Agreement. Such financial statements have been prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods concerned, except as otherwise stated therein, and fairly
present the financial condition of the Company and its Subsidiary as of the date
of, or period covered by, such financial statements. The pro forma information,
including related notes and schedules, has been prepared on a basis consistent
with the historical financial statements and other historical information, as
applicable, to the extent included in the Registration Statement and the
Prospectus, except for the pro forma adjustments specified therein and give
effect to the assumptions made on a reasonable basis to give effect to
historical and, if applicable, proposed transactions described in the
Registration Statement and the Prospectus. The selected financial data set forth
in the Prospectus under the captions "Summary Financial Data," "Capitalization,"
"Selected Financial Data" fairly present, in accordance with generally accepted
principles, on the basis stated in the Prospectus, the
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information included therein. No other financial statements or schedules are
required to be included in the Registration Statement.
2.4 Independent Public Accountants. ▇▇▇▇ ▇▇▇▇▇▇, LLP, the accountants
which have audited the financial statements of the Company or its Subsidiary
filed or to be filed with the Commission as part of the Registration Statement
and Prospectus which are designated as audited financial statements, are
independent certified public accountants with respect to the Company within the
meaning of the Act and the Rules and Regulations thereunder.
2.5 Authorization. The Company has full power and authority (both
corporate and otherwise) to enter into and execute this Agreement and to execute
and deliver the Representative's Warrants (as provided in Section 3.4 of this
Agreement) and to carry out the terms and provisions of this Agreement and the
Representative's Warrants required to be carried out by it under such
agreements.
2.6 No Contingent Liabilities and No Material Adverse Change. Except as
disclosed in the Registration Statement and Prospectus, neither the Company nor
its Subsidiary has any contingent liabilities, obligations or claims nor have
either of them received threats of claims or regulatory action. Except as may be
reflected in or contemplated by the Registration Statement or the Prospectus,
subsequent to the dates as of which information is given in the Registration
Statement and Prospectus and prior to the Closing Date and the Option Closing
Date, (i) there shall not have been any material adverse change in the
condition, financial or otherwise, of the Company or its Subsidiary or in their
respective businesses; (ii) there shall not have been any material adverse
transaction entered into by the Company or its Subsidiary; (iii) neither the
Company nor its Subsidiary shall have incurred any material obligations,
contingent or otherwise, which are not disclosed in the Prospectus; (iv) there
shall not have been any change in the outstanding securities or long term debt
(except current payments) of the Company or its Subsidiary; (v) neither the
Company nor its Subsidiary has or will have paid or declared any dividends or
other distributions on its Common Stock or other securities; and (vi) there
shall not have been any change in the officers or directors of the Company or
its Subsidiary except to the extent disclosed in the Registration Statement and
Prospectus.
2.7 No Defaults. Neither the Company nor its Subsidiary is in default
under any of the contracts, leases, subleases, licenses, sublicenses or any
other agreements, arrangements or understandings to which they are a party. The
Company is in compliance with all of the provisions of each and every lease
agreement entered into by the Company with various owners of the shopping
centers, malls or other properties in or upon which its retail stores and kiosks
are located. The Company has not located any stores within the area restricted
or prohibited by any lease agreement which would entitle the lessor of such
lease to include the gross or net sales of the store in violation of such
restriction with the gross sales of any existing store in computing percentage
rent with respect to any such agreement. No lease agreement for any store or
kiosk has terminated or is subject to termination by any lessor or its
designated agent or representative. As of the date of this Agreement, the
Company is not obligated to pay any percentage rent except as disclosed in the
Prospectus. Except as disclosed in the Prospectus, neither the Company nor its
Subsidiary is in default, which default has not been waived, in the performance
of any obligation, agreement or condition contained in any debenture, promissory
note or other evidence of indebtedness or any indenture or loan agreement. The
execution and delivery of this Agreement, the consummation of the transactions
herein contemplated and the compliance with the terms of this Agreement will not
conflict with or result in a breach of any of the terms, conditions or
provisions of, or constitute a default under, the charter, articles of
association, articles of incorporation, as amended, articles of organization,
operating agreement or bylaws as amended, of the Company or its Subsidiary as of
the date of such Prospectus, or any promissory note, indenture, mortgage, deed
of trust or other agreement or instrument to which the Company or its Subsidiary
is a party or by which it, its Subsidiary or any of their properties are bound,
or any existing law, order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality, agency or body, arbitration tribunal
or court, domestic or foreign, having jurisdiction over the Company, its
Subsidiary, or their properties. The consent, approval, authorization or order
of any court or governmental instrumentality, agency or body is not required for
the consummation of the transactions herein contemplated except such as may be
required under the Act or under the blue sky or securities laws of any state or
jurisdiction.
2.8 Incorporation and Standing. The Company and its Subsidiary are and
at the Closing Date and at the Option Closing Date have been duly incorporated
and are validly existing as corporations, in good standing
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under the state law of the Company's or such Subsidiary's state of
incorporation. The Company has the authorized and outstanding capital stock as
set forth in the Registration Statement and the Prospectus. The Company and its
Subsidiary have full power and authority (corporate and other) to own their
properties and conduct their business, present and proposed, as described in the
Registration Statement and Prospectus; the Company has full power and authority
to enter into this Agreement; and the Company and each of its Subsidiaries are
duly qualified and in good standing as foreign corporations in each jurisdiction
in which they own or lease real property or transact business requiring such
qualification, except where the failure to so qualify would not be materially
adverse to the Company's or such Subsidiary's business.
2.9 Legality of Outstanding Shares. The outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued, are fully
paid and nonassessable and conform to all statements with regard thereto
contained in the Registration Statement and Prospectus. No sales of securities
have been made by the Company in violation of the registration provisions of the
Act or in violation of any other federal or state laws. Except as disclosed in
the Registration Statement and Prospectus, no existing shareholder of the
Company's Common Stock is or as of the Closing Date or the Option Closing Date
will be entitled to any preemptive or other rights to subscribe for any of the
Shares and no shareholder of the Company has any right which has not been fully
exercised or waived to require the Company to register the offer or sale of such
Common Stock or any other securities owned by such shareholders under the Act in
the Public Offering contemplated under this Agreement.
2.10 Legality of Shares. The Shares and the Representative's Warrants to
purchase shares of the Company's Common Stock (described in Section 3.4 of this
Agreement) have been duly and validly authorized and, when issued and delivered
against payment as provided in this Agreement and the Representative's Warrants,
will be validly issued, fully paid and nonassessable. The Shares and the
Representative's Warrants, upon issuance, will not be subject to the preemptive
rights of any of the shareholders of the Company. The Shares and the
Representative's Warrants, when sold and delivered, will constitute valid and
binding obligations of the Company enforceable in accordance with their terms. A
sufficient number of shares of Common Stock have been reserved for issuance upon
exercise of the stock options and warrants, if any, in existence and outstanding
as of the Effective Date of the Registration Statement and upon exercise of the
Representative's Warrants. The holders of the Common Stock issuable pursuant to
the Representative's Warrants will not be subject to personal liability solely
by reason of being such holders. The Shares and the Representative's Warrants
will conform to all statements in the Registration Statement and Prospectus made
with respect thereto. Upon delivery of and payment for the Shares and the
Representative's Warrants to be sold by the Company, as set forth in this
Agreement, the persons paying therefor will receive good and marketable title
thereto, free and clear of all liens, encumbrances, charges and claims. The
Company will have on the Effective Date of the Registration Statement and at the
time of delivery of the Shares and the Representative's Warrants full legal
right and power and all authorizations and approvals required by law to sell and
deliver the Shares and Representative's Warrants in the manner provided
hereunder.
2.11 Noncontravention. Neither (i) the issuance, offering and sale of
the Shares to the Underwriters by the Company pursuant to this Agreement and of
the Representative's Warrants to the Representative by the Company pursuant to
the terms thereof, nor (ii) the execution and delivery of this Agreement and the
Representative's Warrants by the Company'; nor the compliance by the Company
with the provisions of this Agreement and the Representative's Warrants by the
Company; nor the consummation of all transactions contemplated by this Agreement
and the Representative's Warrants will (a) require the consent, approval,
authorization, registration or qualification of or with any court, government or
governmental authority, domestic or foreign, except as have been obtained by the
Company or to the extent the Registration Statement is not effective as of the
date this Agreement is executed as are required under the Act, or as are
required under state securities laws or by the NASD, or (b) conflict with or
result in a breach of violation of any terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other agreement
to which the Company or its Subsidiary is a party or by which the Company or its
Subsidiary is bound, or the Articles of Incorporation or Bylaws of the Company
or its Subsidiary, or any statute or judgment, decree, order, rule or regulation
of any court or other governmental authority or any arbitrator applicable to the
Company or its Subsidiary which would be materially adverse to the business of
the Company or its Subsidiary.
2.12 Outstanding Shares and Long Term Debt on Effective Date.
Immediately prior to the Effective Date, the only shares of capital stock,
warrants, options, or other convertible securities which have been issued by the
Company and its Subsidiary and which will be outstanding on the Effective Date
will be as described in the
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Prospectus, and neither the Company nor its Subsidiary will be obligated on any
long term debt, whether or not recorded on the books, records, or accounts of
the Company and its Subsidiary and will not be obligated to issue any capital
stock, warrants, options, or other convertible securities, except as described
in the Prospectus. Unless the Representative has approved in writing a different
maximum number of fully diluted shares, immediately prior to the Effective Date
of the Registration Statement, the number of shares of Common Stock of the
Company outstanding on a fully diluted basis will not exceed the 3,143,446
Shares currently issued and outstanding plus stock options granted to store
managers, junior executives and officers of the Company in the total amount of
433,500 Shares, of which options to purchase up to 131,625 Shares have vested
and excluding the number of shares underlying the warrants granted to Bluestem
Capital Partners I, LLC not to exceed 40,000 Shares as well as any Shares
underlying the options which will be granted after the Effective Date under the
Company's 1995 Stock Option Plan ("Plan") in the amount and to the employees
disclosed in the Prospectus. For purposes of this Underwriting Agreement, the
term "fully diluted basis" shall mean the number of shares of Common Stock
actually issued and outstanding plus the number of shares of Common Stock
underlying all issued and outstanding convertible or excisable securities.
2.13 CUSIP Number. The Company has obtained a CUSIP number for its
Common Stock.
2.14 Options and Treasury Shares. There are no outstanding options,
warrants or other rights to purchase securities of the Company and other similar
derivatives ("cheap stock"), however characterized, except as described in the
Registration Statement. Except as described in the Registration Statement, there
are no securities of the Company, however characterized, held in its treasury.
Except as described in the Registration Statement, the Company has not offered
or agreed to purchase or issue any shares of Common Stock or any convertible
securities or other cheap stock in the future. To the extent any such cheap
stock is issued, the Company shall adjust the valuation of the Company and its
Subsidiary in accordance with all applicable accounting rules (including but not
limited to F.A.S.B. 123) so as to eliminate any material impact on corporate
earnings arising from cheap stock.
2.15 Subsidiary. The Company's only Subsidiary is Hat World, Inc., in
which the Company owns one hundred percent (100%) of the issued and outstanding
capital stock, consisting of the $_____ par value common stock of Hat World,
Inc. The Company is not currently carrying on, and will not as of the Closing
Date or the Option Closing Date carry on, any discussions or negotiations with
any third party or parties except as expressly identified and set forth in the
Prospectus regarding any proposed merger, stock or asset acquisition of any
other entity and does not currently intend to acquire any additional Subsidiary
or engage in mergers with or the acquisition of a Controlling Interest in or
substantially all of the assets of any entity, except as shall otherwise
indicated in the Registration Statement. To the extent that the Company acquires
a Controlling Interest in one or more Subsidiaries in addition to its Subsidiary
mentioned above in this Section 2.15 on or prior to the Closing Date or Option
Closing Date, all references in this Agreement to the "Company and its
Subsidiary" shall include all of such additional "Subsidiaries" as shall be
appropriate in the context used and the acquisition of each such additional
Subsidiary, the terms and provisions of each agreement or arrangement relating
to such acquisition and the pro forma financial information concerning each such
Subsidiary by the Company as required by the Act and the Rules and Regulations
thereunder shall be prepared in accordance with generally accepted accounting
principles and shall be fully disclosed in the Registration Statement and the
Prospectus as of the Effective Date.
2.16 Joint Ventures. Except as described in the Prospectus, the Company
has not entered into any joint venture, partnership, limited liability company,
strategic alliance or similar arrangement in which the Company has a
participating interest in the profits, losses, assets and liabilities as a joint
venturer, partner, member or shareholder of any such entity or under any such
arrangement.
2.17 Prior Sales. No securities of the Company, or of a predecessor of
the Company, have been sold except as described in the Registration Statement or
as disclosed in writing to the Representative.
2.18 Litigation. Except as set forth in the Registration Statement or
except for nonmaterial actions, suits, or proceedings disclosed in writing to
the Representative, there is, and at the Closing Date and at the Option Closing
Date there will be, no action, suit or proceeding before any court or
governmental agency, authority or body pending or to the knowledge of the
Company threatened against the Company, its Subsidiary or any joint venture,
limited liability company, partnership or similar entity or arrangement in which
the Company has an interest or with respect to any of their respective
properties.
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2.19 Finder. Except as set forth in the Registration Statement or as the
Company has advised the Representative, neither the Company nor its Subsidiary
has any agreement with any finder, financial consultant or advisor, has not paid
any finder's fee, financial consulting or advisory fees or other compensation
and knows of no outstanding claims against it for compensation for services in
the nature of a finder's fee, origination fee, financial consulting or advisory
fee, commission or any other form of compensation which would accrue to, be
earned by or be required to be paid to any person or to which any person would
be entitled, directly or indirectly, with respect to the offer and sale of the
Shares hereunder and any other transaction contemplated under this Agreement.
2.20 Exhibits and Contracts. There are no contracts or other documents
which are required to be filed as exhibits to the Registration Statement by the
Act or by the Rules and Regulations thereunder, which have not been so filed and
each contract to which the Company or its Subsidiary is a party and to which
reference is made in the Prospectus has been duly and validly executed, is in
full force and effect in all material respects in accordance with its terms, and
none of such contracts has been assigned and the Company knows of no present
situation or condition or fact which would prevent compliance with the terms of
such contracts. Except for amendments or modifications of such contracts in the
ordinary course of business, the Company has not been advised that any party to
any such contract intends to exercise any right which it may have to cancel any
of its obligations under any of such contracts and has no knowledge that any
other party to any such contracts has any intention not to render full
performance under such contracts.
2.21 Tax Returns. The Company and its Subsidiary have filed all foreign,
federal, state and local tax returns which are required to be filed by them and
have paid all taxes shown on such returns and on all assessments, including
interest and penalties, incurred by them to the extent such taxes have become
due and payable, except for any such assessment, fine, or penalty that is
currently being contested in good faith by the Company or its Subsidiary as
disclosed in the Prospectus. All such tax returns so filed were correct and
complete in all material respects. All foreign, federal, state and local taxes
with respect to which the Company and its Subsidiary are obligated have been
paid or adequate accruals have been set up to cover any such unpaid taxes,
including any interest and penalties accrued with respect to any such unpaid
taxes. Except as set forth in the Registration Statement, there is no material
dispute or claim concerning the liability of the Company or its Subsidiary for
any tax.
2.22 No Preemptive Rights and Anti-Dilution Provisions. Except as set
forth in the Prospectus, the Company's securities, however characterized, are
not subject to preemptive rights or to any contractual provision which will
protect existing shareholders of the Company from having their percentage
ownership interest in the Company from being diluted upon the issuance of
additional Shares by the Company.
2.23 Use of Form SB-2. The Company is eligible to use Form SB-2 for the
offering of the Shares and the Representative's Warrants.
2.24 No Other Securities Being Offered; No Other Stock Ownership. Except
as described in the Registration Statement, the Company is not currently
offering any securities of which it is the issuer. Neither the Company nor its
Subsidiary owns any shares of stock or other securities, whether equity or debt,
in any other corporation, partnership, limited liability company or other
entity.
2.25 No Market Stabilization or Manipulation. Except for the sale of the
Shares as contemplated under this Agreement, neither the Company nor its
Subsidiary has, directly or indirectly, taken any action which would cause,
result in or constitute or could reasonably constitute or be designed to cause,
result in or constitute the stabilization or manipulation of the price of any
security of the Company in order to facilitate the sale or resale of the Shares.
Except for the transactions contemplated by this Agreement, neither the Company
nor its Subsidiary or any other person affiliated with the Company since the
filing of the Registration Statement has (i) directly or indirectly sold, bid
for, purchased, or attempted to induce any person to bid for or purchase any of
the Shares or (ii) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
2.26 Certificates, Permits, Licenses, Approvals, Patents and Trademarks.
The Company and its Subsidiary possess adequate certificates, permits, licenses,
sublicenses, authorizations, consents or approvals, issued
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by the appropriate foreign, federal, state and local regulatory authorities
necessary to conduct their respective businesses and to retain possession of
their assets and properties. Except as set forth in the Prospectus, neither the
Company nor its Subsidiary has received any notice of any proceeding relating to
the revocation or modification of any of these certificates, permits, licenses,
sublicenses, authorizations, consents or approvals. The Company and its
Subsidiary, as is appropriate, has sufficient trademark, patent, patent right,
service ▇▇▇▇, logo, trade dress, mask work, copyright and trade secret
protection necessary to the conduct of its business as now being conducted or
otherwise has sufficient licenses or sublicenses granting the Company and such
Subsidiary the exclusive use of the trademarks, patents, patent rights, service
▇▇▇▇, logo, trade dress, mask work, or copyrights to enable the Company or such
Subsidiary to carry on and conduct its business activities and operations as
currently conducted or as contemplated in the Prospectus; and except as
described in the Prospectus, the Company has no knowledge of any use by it or
its Subsidiary of the trade secrets of others, of any interference,
misappropriation, infringement or violation by it or its Subsidiary of any
trademark, patent, patent right, service ▇▇▇▇, logo, trade dress, mask work, or
copyright of others, or of any claim being made against the Company or any of
its Subsidiary regarding trademark, patent, service ▇▇▇▇, logo, trade dress,
mask work, or copyright infringement or use or misappropriation of trade secrets
of others. Neither the Company nor its Subsidiary has received any charge,
complaint, claim, demand or notice alleging any interference, infringement,
misappropriation or violation of any trademark, patent, patent right, service
▇▇▇▇, logo, trade dress, mask work, copyright or use of trade secrets of others.
2.27 Title to Properties. The Company and its Subsidiary have marketable
title to all real and personal properties, leasehold interests, leasehold
improvements, facilities, equipment, and machinery used in the retail sale,
marketing and promotion of its sports related headwear, jerseys and related
products currently being sold to the consuming public, as well as to all
furniture, trade fixtures and other fixtures, vehicles and any other property
whether real, personal, tangible or intangible, including without limitation,
patents, patent applications, patent rights, trademarks, trademark applications,
service marks, service ▇▇▇▇ applications, logos, trade dress, mask works,
copyrights, equipment, know-how, technology, and trade secrets, described in the
Registration Statement as owned by it. All such properties are free and clear of
all liens, charges, encumbrances, restrictions, equities claims and other
defects, however characterized, except as described in the Registration
Statement. The Company and its Subsidiary own or lease all such properties as
are necessary to the operations of their respective businesses as presently
being conducted and as described in the Registration Statement and the
Prospectus as of the Effective Date. All of the contracts, leases, subleases,
patents, patent applications, patent rights, if any, trademarks, trademark
applications, service marks, service ▇▇▇▇ applications, logos, trade dress, mask
works, copyrights, licenses and agreements, however characterized, under which
the Company and its Subsidiary hold their properties, as described in the
Registration Statement, are in full force and effect.
2.28 Inventory. As of the Effective Date, substantially all of the
inventory of sports and related headwear products, jerseys and other products
sold at retail by the Company and its Subsidiary is no more than 180 days old
and no more than one percent (1%) of the inventory of the Company and its
Subsidiary is obsolete and either unable to be sold in the ordinary course of
business of the Company and its Subsidiary or only saleable at a discounted
price below the Company's or such Subsidiary's actual cost. The combined average
profit margin of the retail sales of the Company and its Subsidiary in
accordance with generally accepted accounting principles consistently applied
and fairly reflecting the inventory of the Company and its Subsidiary for the
fiscal year ended December 31, 1998 and the six (6) month period ended June 30,
1999 was consistently fifty-five percent (55%) or more. The inventory management
systems utilized by the Company as described in the Prospectus are being
employed to monitor the inventory of headwear products and related items for
each of the Company's Subsidiary as of the date of this Prospectus. Such
inventory controls enable the Company and its Subsidiary to know within a margin
of error of no more than ____%, the restocking requirements and stock-out points
to maintain optimal inventory levels of products and to identify products which
are subject to increased or decreased levels of popularity based on sales within
the time periods set forth in the Prospectus as well as track and account for
product shrinkage as described in the Prospectus within a margin of error of no
more than one percent (1%) of the Company's gross sales in any twelve (12) month
period.
7
2.29 Books, Records and Information Systems. The books and records of
the Company and its Subsidiary accurately and fairly reflect the acquisitions
of, transactions in, and dispositions of the assets of the Company and its
Subsidiary, respectively. The Company and its Subsidiary maintain a system of
internal accounting controls sufficient to provide reliable and accurate
information to the extent described in the Prospectus with respect to the daily,
monthly and annual inventory and sales of the headwear products and other
products sold through each of the retail stores and kiosks operated by the
Company and its Subsidiary and to enable the Company and its Subsidiary to
ascertain at any time with reasonable accuracy that (i) all transactions by each
such retail store and kiosk operated by the Company and its Subsidiary have been
effected in accordance with the policies and general or specific authorizations
of management; (ii) the point of sale, inventory and stock-out points
information with respect to each retail store and kiosk can be and in fact is
available to the Company and its Subsidiary on a daily basis to allow the
Company and its Subsidiary to maintain accurate and precise inventory controls
and order products in a manner to minimize inventory obsolescence; (iii)
transactions are recorded as necessary to permit preparation of financial
statements in accordance generally accepted accounting principles and maintain
asset accountability in addition to inventory control management; (iv) access to
assets is permitted only in accordance with management's general or specific
authorization; and (v) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2.30 No Directed Sales. The Company has not made any representation,
whether oral or in writing, to any person, whether an existing shareholder or
not, that any of the Shares will be reserved or directed to such person during
the proposed Public Offering of the Company's securities.
2.31 Restricted Shares. The Company has caused each of its current
shareholders who holds "restricted securities" as such term is defined in Rule
144 under the Act to acknowledge that they hold "restricted securities" as
defined in Rule 144.
2.32 Negotiations. During the period from the Effective Date to the
Closing Date or the Option Closing Date, the Company will notify the
Representative in writing from time to time of the status of any negotiations
involving the Company and its Subsidiary relating to any transaction which
would, if consummated, have a material effect upon the Company and its
Subsidiary on a consolidated basis. Also, the Company will consult with its
legal counsel concerning the need to disclose any such negotiations.
2.33 Authority. The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary corporate action. This
Agreement is the valid, binding and legally enforceable obligation of the
Company.
2.34 Registration Under 1934 Act and NASDAQ Listing. The Company will
register the Common Stock in accordance with Section 12 of the Securities
Exchange Act of 1934 (the "1934 Act") as of the Effective Date. The Company
shall obtain a listing of the Shares for trading on the NASDAQ National Market
System on the Effective Date in accordance with a confirmation providing for
such trading received or to be received from all NASDAQ Stock Market, Inc.
2.35 ▇▇▇▇ ▇▇▇. The Company has been advised of the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
2.36 Campaign Contributions and Corrupt Practices Act. The Company has
not at any time since the date of its incorporation made any unlawful
contribution to any candidate for U.S. domestic or foreign office, or failed to
disclose fully any contribution in violation of law, or made any payment to any
federal, state or foreign government, governmental officer or official, employee
or agent, or other person charged with similar public or quasipublic duties,
other than payments required or permitted by the laws of the United States or
any foreign nation or country or any jurisdiction thereof. Further, neither the
Company, its Subsidiary nor their respective officers, directors, employees,
shareholders, agents, representatives, or any other person acting for or on
behalf of the Company or its Subsidiary disbursed or received funds from the
Company or its Subsidiary, entered into any transaction intended to transfer,
directly or indirectly, assets or made improper entries or inaccurate recordings
of
8
payments or receipts on the Company's or such Subsidiary's books to cover up any
transaction in violation of the Foreign Corrupt Practices Act or any other laws
of the United States, or any foreign country or nation or jurisdiction thereof.
2.37 Corporate Alliances. The description of any corporate alliances
with third parties and of the suppliers of the Company and its Subsidiary as
described in the Registration Statement and Prospectus are true and complete in
all material respects. All such corporate alliances and supplier relationships
are in effect and neither the Company nor its Subsidiary has received any notice
seeking to terminate or modify such corporate alliances or supplier
relationships.
2.38 Environmental. Except as specifically described in the Prospectus,
the Company and its Subsidiary is in compliance with all foreign, federal,
state, and local laws, statutes, treaties, ordinances, rules, regulations, and
policies relating to the use, treatment, storage, transportation, discharge,
emission, or disposal of, or exposure of others to, toxic substances and
protection of health, safety or the environment ("Environmental Laws") which are
applicable to their respective businesses; there is no pending or asserted
claim, liability, or investigation by any third party or governmental authority
against the Company or its Subsidiary; under Environmental Laws; no substances
which are prohibited or regulated by any Environmental Law or designated to be
radioactive, toxic, hazardous or otherwise a danger to health or the environment
by any foreign, federal, state or local governmental agency ("Hazardous
Material") are present or likely to become present on any property which is
owned, leased, or occupied by the Company or its Subsidiary and no such property
has been designated as a SuperFund site, pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended, or otherwise designated as
a contaminated site under applicable foreign, federal, state or local law; and
the Company and its Subsidiary has received all permits, licenses,
authorizations, consents, waivers or approvals required of them under
Environmental Laws to conduct their respective businesses as presently conducted
by them and are in compliance with all terms and conditions of such permits,
licenses, authorizations, consents, waivers or approvals.
2.39 Year 2000 Considerations. Except as set forth in the Prospectus and
to the Company's best knowledge after reasonable investigation, the Company and
its Subsidiary have taken all action and precautions necessary and appropriate
to assure that the computers and related hardware, firmware and software and all
accessories and support systems (collectively "Systems") owned, leased, operated
and used in connection with any and every aspect of the Company's and such
Subsidiary's business operations have been retrofitted, tested, updated, refined
and all necessary adjustments made to cause the Systems to be adequately
prepared and compliant with the change over of their systems to the year 2000
("year 2000 compliant"), such that as of January 1, 2000 and thereafter, all
such Systems shall recognize, record, conform, and register such date as to
every task, procedure, protocol, function, technique, task, design, methodology
or process and such Systems will as of and after such date continue to function
on a continuous and uninterrupted basis without material error to the same
extent such Systems functioned prior to such date. Neither the Company, nor its
Subsidiary will incur any additional costs in order for its Systems to be year
2000 compliant and be able to (i) completely and accurately function on or after
January 1, 2000 as represented in this Section 2.39 without producing abnormally
ending or incorrect results involving such dates as used in any forward or
regression dated based functions and (ii) provide that date related
functionalities and data fields include the indication of century and millennium
and will perform calculations that involve a four-digit year.
2.40 Condition of Assets. The equipment and other tangible assets of the
Company and its Subsidiary are to the best of the Company's knowledge, free of
any defects, have been maintained in accordance with sound and acceptable
industry practice, and are in good operating condition and repair, subject to
normal wear and tear.
2.41 Undisclosed Liabilities and No Related Party Debt. Except as
disclosed in the Registration Statement, neither the Company nor its Subsidiary
have any material liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due, including,
without limiting the generality thereof, any liability for taxes). Except as set
forth in the Registration Statement and the Prospectus, neither the Company nor
its Subsidiary has made any loans, advances or guarantees of indebtedness to or
for the benefit of any of its affiliates (as defined in Rule 405 of the Act) or
any members of the families of any such affiliates.
9
2.42 Headwear Products. The headwear products sold by the are suitable
and fit for the purpose for which they are advertised, displayed and sold and,
to the best of the knowledge of the Company and its Subsidiary, conform with all
express and implied warranties relating to such products. Neither the Company
nor its Subsidiary has any material liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due)
for replacement or repair thereof or other damages in connection therewith which
would materially, adversely affect the financial condition and business
operations of the Company and its Subsidiary.
2.43 Product Liability. Neither the Company nor its Subsidiary has any
material liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product sold, by the Company or its Subsidiary.
2.44 Insurance. The Company and its Subsidiary have in effect, and as of
the Closing Date and the Option Closing Date will have in effect, adequate
insurance policies, including policies providing property, casualty, liability
(whether providing for general, product liability, fire and extended coverage or
other liability coverage) and workers' compensation coverage and bond and surety
arrangements and other losses and risks as are prudent and customary in the
industry in which the Company and its Subsidiary are engaged, to provide
adequate coverage and protection against the risks covered thereunder. The
insurance carriers with respect to such policies are recognized as financially
responsible and reputable insurance companies. Each such insurance policy is (i)
legal, valid, binding, enforceable and in full force and effect in all material
respects; (ii) neither the Company nor its Subsidiary is in material breach or
default (including with respect to paying of premiums or the giving of notices)
and no event has occurred which, with notice or lapse of time, would constitute
such a material breach or default, or permit termination, modification, or
acceleration, under the policy; and (iii) no party to the policy has repudiated
any material provision thereof.
2.45 Employees. To the best knowledge of the Company, no executive, key
employee, or significant group of employees employed by the Company or its
Subsidiary has given notice to the Company or its Subsidiary or intends, to
terminate his or her employment with the Company or its Subsidiary, within the
next twelve (12) months and such employees intent to remain in such capacities
with respect to the Company or its Subsidiary for a reasonable period of time
but in no event less than the next twelve (12) months following the Effective
Date of the Registration Statement. Except as described in the Registration
Statement, neither the Company nor its Subsidiary is a party to or bound by any
collective bargaining agreement, nor has the Company or its Subsidiary
experienced any labor dispute, strike or material grievance, claim of unfair
labor practice or other collective bargaining dispute within the past three (3)
years. Neither the Company nor its Subsidiary has committed any material unfair
labor practice. Except as described in or contemplated by the Prospectus,
neither the Company nor its Subsidiary, to the best of their knowledge, is aware
of any organizational effort, labor disputes presently being made or threatened
by or on behalf of any labor union with respect to the employees of the Company.
2.46 Certain Business Relationships. Except as disclosed in the
Registration Statement, no principal shareholder of the Company nor any of their
affiliates have been involved in any material business arrangement or
relationship with the Company within the past twenty-four (24) months, and no
such shareholder or affiliate owns any material asset, tangible or intangible,
which is used in the business of the Company.
2.47 No Adverse Events. Except as disclosed in the Registration
Statement, neither the Company nor its Subsidiary knows of any facts,
circumstances, developments or events which may adversely affect the
consolidated earnings of the Company and its Subsidiary the business or the
prospects of the Company and its Subsidiary, including without limitation any
loss or interference with their respective businesses or properties resulting
from fire, flood, hurricane, tornado, accident or other calamity or legal or
governmental proceeding.
All of the above representations and warranties set forth in Sections
2.1 through 2.47 hereof shall survive the performance or termination of this
Agreement.
SECTION 3
10
Purchase and Sale of the Shares
3.1 Purchase of Shares. The Company hereby agrees to sell to the members
of the Underwriting Group named in Schedule I hereto (for all of whom the
Representative is acting), severally and not jointly, and each member of the
Underwriting Group, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees to purchase
from the Company, severally and not jointly, the number of Shares set forth
opposite the name of each member of the Underwriting Group as set forth in
Schedule I hereto at a purchase price of $_________ for each Share which such
member has so agreed to purchase. One or more certificates in definitive form
for the Firm Shares representing the Firm Shares that the several members of the
Underwriting Group have agreed to purchase from the Company under this Agreement
as set forth in Schedule I shall be delivered against payment on the Closing
Date as provided in Section 3.2.1 of this Agreement in such denominations and
registered as provided in Section 3.2.1 below. The Company hereby grants to the
Representative an option for a period of sixty (60) days after the Effective
Date ("Overallotment Exercise Period") to purchase up to 172,500 Overallotment
Shares in order to cover overallotments. If the sixtieth (60th) day shall fall
on a Saturday, Sunday or holiday, then the Overallotment Option may be exercised
by the Representative on the next business day thereafter when the NASDAQ
National Market System or applicable exchange is open. The purchase price of
each Overallotment Share shall be $________. The Overallotment Option granted
hereunder shall be exercisable by the Representative, in whole or in part, from
time to time during the Overallotment Exercise Period. The Representative shall
exercise the Overallotment Option by giving notice in writing (confirmed within
24 hours in writing) to the Company setting forth the aggregate number of
Overallotment Shares as to which the Representative is exercising such option
and the date and time for delivery of and payment for such Overallotment Shares.
Any Overallotment Shares purchased upon exercise of the Overallotment Option
shall be purchased for the account of the Representative. Delivery of the
Overallotment Shares shall be determined by the Representative but shall not be
less than two (2) business days nor more than five (5) business days after the
exercise of the Overallotment Option and in any event shall not be earlier than
the Closing Date. The date so selected by the Representative shall be the
"Option Closing Date." Payment by the Representative for, and delivery by the
Company, of the Overallotment Shares to shall be made in the manner provided in
Section 3.2.1.
3.1.1 Default by Member of Underwriting Group. If for any reason
one or more of the Underwriters shall fail or refuse (otherwise than for
a reason sufficient to justify the termination of this Agreement under
the provisions of Section 9 hereof) to purchase and pay for the number
of Shares agreed to be purchased by such Underwriter, the Company shall
immediately give notice thereof to the Representative, and the
nondefaulting Underwriters shall have the right within twenty-four (24)
hours after the receipt by the Representative of such notice, to
purchase or request one or more other Underwriters to purchase, in such
proportions as may be agreed upon among the Representative and such
purchasing Underwriter or Underwriters and upon the terms herein set
forth, the Shares which such defaulting Underwriter or Underwriters
agreed to purchase. If the nondefaulting Underwriters fail so to make
such arrangements with respect to all such Shares, the number of Shares
which each nondefaulting Underwriter is otherwise obligated to purchase
under this Agreement shall be automatically increased pro rata to absorb
the remaining Shares which the defaulting Underwriter or Underwriters
agreed to purchase; provided, however, that the nondefaulting
Underwriters shall not be obligated to purchase any of the Shares if the
aggregate Public Offering Price of the Shares which the defaulting
Underwriter or Underwriters agreed to purchase exceeds nine percent (9%)
of the Public Offering Price of the total Shares which all Underwriters
agreed to purchase hereunder. If the total number of Shares which the
defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with this Section 3.1.1, then the
Company shall have the right, within twenty-four (24) hours next
succeeding the twenty-four (24) hour period above referred to, to make
arrangements with other underwriters or purchasers satisfactory to the
Representative for the purchase of all of the Shares which the
defaulting Underwriter or Underwriters agreed to purchase hereunder on
the terms herein set forth. In any such case, either the Representative
or the Company shall have the right to postpone the Closing Date
determined as provided in Section 3.2.2. hereof for not more than seven
(7) business days after the date originally fixed as the Closing Date
pursuant to said Section 3.2.2. in order that any necessary changes in
the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the nondefaulting Underwriters nor
the Company shall make arrangements within the twenty-four (24) hour
periods stated above for the purchase of all the Shares which the
defaulting Underwriter or Underwriters agreed to purchase hereunder,
this Agreement shall be terminated without further act or deed and
without any liability on the part of the Company to any nondefaulting
Underwriter and
11
without any liability on the part of any nondefaulting Underwriter to
the Company.
3.1.2 Liability of Defaulting Members of the Underwriting Group.
Nothing contained in this Section 3.1 shall relieve any defaulting
member of the Underwriting Group of its liability, if any, to the
Company or to the remaining members of the Underwriting Group for
damages occasioned by its default hereunder.
3.2 Public Offering Price. After the Commission notifies the Company
that the Registration Statement has become effective and after this Agreement
becomes effective, the members of the Underwriting Group propose to offer
initially the Shares to the public at the Public Offering Price. The members of
the Underwriting Group may allow such concessions and discounts upon sales to
selected dealers as may be determined from time to time by the Representative.
3.2.1 Payment for Shares. Payment for the Shares shall be made
to the Company by regular check or checks at the offices of the
Representative set forth above in Englewood, Colorado, or through the
facilities of the Depository Trust Company, upon delivery to the
Representative of certificates for the Shares in definitive form in such
numbers and registered in such names as the Representative requests in
writing at least two (2) full business days prior to such delivery. The
Company agrees not to seek to obtain (i) certification of the
Representative's closing check or checks from the Representative's bank
or banks or (ii) a cashier's check or checks from the Representative's
bank or banks in substitution for the Representative's closing check or
checks. The Company agrees to deposit the Representative's closing check
or checks into the Company's bank account and to allow such check or
checks to clear through the banking system on a "regular way" basis.
Nothing contained in this Section 3.2.1 shall be construed to relieve
the Representative from its obligations created as a result of the
issuance of the Representative's regular check or checks at the Closing.
In lieu of a check or checks, payment against receipt of the certificate
for the Shares may be made, at the Representative's option, by wire
transfer in same day funds to the Company's account. Such payment,
whether by check or wire transfer of funds, shall not constitute closing
of the purchase and sale of Shares, which shall only occur upon the
execution and delivery of a receipt (facsimile or otherwise) for the
Shares or Overallotment Shares, as the case may be, by the Underwriters,
thereby indicating completion of such closing; and until the
Underwriters execute and deliver a receipt for the Shares, the Company
shall not be entitled to such check or wired funds and will return any
such check or wired funds, upon demand, by wire transfer of same-day
funds or return of check in the absence of execution and delivery of any
such receipt. If such closing is not completed and such funds are not
returned, the Company shall pay the Underwriters' interest at the Prime
Rate with respect to each day the funds are not returned.
3.2.2 Closing. The time and date of delivery and payment
hereunder for the Shares is herein called the "Closing Date" and shall
take place at the office of the Representative at the address set forth
above in Englewood, Colorado, at 8:00 A.M. on the third (3rd) business
day following the Effective Date of this Agreement; provided, however,
the Company and the Representative may agree, on the date that this
Agreement becomes legally effective, to an alternative Closing Date and
such alternative Closing Date shall become the "Closing Date" under this
Agreement. Should the Representative elect to exercise any part of the
Overallotment Option pursuant to Section 3.1 hereof, the time, date of
delivery and payment for the Overallotment Shares being purchased shall
be as mutually agreed between the Company and the Representative, but
not later than the sixtieth (60th) calendar day after the Effective
Date. Said date is hereinafter referred to as the "Option Closing Date."
3.2.3 Inspection of Certificates. For the purpose of expediting
the checking and packaging of the certificates for the Shares, the
Company agrees to make the certificates available for inspection by the
Representative at the place designated by the Representative at least
one full business day prior to the proposed delivery date.
3.3 Representative's Nonaccountable Expense Allowance. It is understood
that the Company shall pay the Representative a nonaccountable expense allowance
in the amount of two and one half percent (2 1/2%) of the aggregate Public
Offering Price of the Shares and Overallotment Shares sold in the Public
Offering. The Representative acknowledges that it has received $40,000 of the
nonaccountable expense allowance, which
12
amount will be credited against the unpaid balance of such nonaccountable
expense allowance. On the Closing Date and the Option Closing Date, the Company
shall pay to the Representative the unpaid balance of such nonaccountable
expense allowance then due.
3.4 Representative's Warrants. On the Closing Date, the Company will
sell warrants to the Representative and its designees ("Representative's
Warrants") entitling the Representative to purchase a total of 115,000 shares of
Common Stock at an exercise price of $____________ per Share. The
Representative's Warrants will be in the form of the Representative's Warrants
to Purchase Shares filed as an exhibit to the Registration Statement. The
Representative's Warrants shall be exercisable during the four (4) year period
commencing one (1) year after the Effective Date. The total amount that the
Representative shall pay the Company for the Representative's Warrants is One
Hundred Fifteen Dollars ($115.00). The Company and the Representative agree that
the Representative's Warrants may not be sold, transferred, assigned, pledged,
or hypothecated for a period of one (1) year after the Effective Date of the
Registration Statement, except to officers of the Representative, to members of
the Underwriting Group, and to officers or partners of members of the
Underwriting Group and selected dealers participating in the Public Offering and
except by will or by the laws of descent and distribution. After such one (1)
year period, the Representative's Warrants may be sold, transferred, assigned,
pledged, or hypothecated provided that any such transaction is in accordance
with the registration or exemption from registration provisions of the Act and
any applicable state securities laws. If the Representative's Warrants are
exercised during the first year after the Effective Date of the Registration
Statement, then any shares of Common Stock of the Company acquired as a result
of any such exercise may not be sold, transferred, assigned, pledged, or
hypothecated until after expiration of such one (1) year period.
3.5 Representations of the Parties. The parties hereto respectively
represent that as of the Closing Date and as of the Option Closing Date the
representations herein contained and the statements contained in all the
certificates theretofore or simultaneously delivered by any party to another,
pursuant to this Agreement, shall in all material respects be true and correct.
3.6 Postclosing Information. The Representative covenants that
reasonably promptly after the Closing Date and after the Option Closing Date,
the Representative will supply the Company with all information that the Company
may reasonably request which must be supplied to the Commission or securities
authorities of states in which the Shares have been qualified for sale.
3.7 Reoffers by Selected Dealers. On each sale by the members of the
Underwriting Group of any of the Shares to selected dealers, the members of the
Underwriting Group shall require the selected dealers purchasing any such Shares
to agree to reoffer such Shares on the terms and conditions of the offering set
forth in the Registration Statement and Prospectus.
SECTION 4
Registration Statement and Prospectus
4.1 Delivery of Registration Statement. The Company has delivered to the
Representative without charge two (2) signed printed copies of the Registration
Statement, including all financial statements and exhibits filed therewith and
any amendments or supplements thereto, and shall deliver without charge to the
Representative such number of conformed printed copies of the Registration
Statement as the Representative shall request, including all financial
statements and exhibits filed therewith and any amendments or supplements
thereto. The signed copies of the Registration Statement furnished to the
Representative include signed copies of any and all opinions and consents of the
independent public accountants certifying to the financial statements included
in the Registration Statement and Prospectus and signed copies of any and all
opinions, consents and certificates of any other persons whose profession gives
authority to statements made by them and who are named in the Registration
Statement or Prospectus as having prepared, certified or reviewed any part
thereof.
4.2 Delivery of Preliminary Prospectus and Agreements. The Company will
have caused to be delivered, at its expense, to the members of the Underwriting
Group and to other broker dealers specified by the Representative prior to the
Effective Date of the Registration Statement as many printed copies of (i) each
Preliminary Prospectus filed with the Commission bearing the statements required
by Item 501(a)(10) of Regulation S-B, and (ii) each Agreement Among
Underwriters, Underwriting Agreement, and Selected Dealer
13
Agreement, all as may have been requested by the Representative. The Company
consents to the use of such documents by the members of the Underwriting Group
and by prospective selected dealers prior to the Effective Date of the
Registration Statement, so long as such use is in accordance with the applicable
provisions of the Act, the applicable Rules and Regulations thereunder and the
applicable state blue sky or securities laws.
4.3 Delivery of Prospectus. The Company will deliver, at its expense, to
the members of the Underwriting Group and to other broker dealers specified by
the Representative, as many printed copies of the Prospectus as the
Representative may request and will deliver said printed copies of the
Prospectus to the members of the Underwriting Group and such other persons on
the Effective Date and for such period of time thereafter as the Prospectus is
required by law to be delivered in connection with offers and sales of the
Shares.
4.4 Further Amendments and Supplements. If during the period of time
that the Company's Prospectus is required to be delivered under the Act, any
event occurs or any event known to the Company relating to or affecting the
Company shall occur, as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact, or omit to
state any material fact necessary to make the statements made therein, in light
of the circumstances under which they were made, not misleading or if it is
necessary at any time after the Effective Date to amend or supplement the
Prospectus to comply with the Act, the Company agrees to notify immediately the
Representative thereof and prepare and file with the Commission such further
amendment to the Registration Statement or supplemental or amended Prospectus as
may be required and furnish and deliver to the Representative and to others
designated by the Representative, all at the Company's expense, a reasonable
number of copies of the amended or supplemented Prospectus which as so amended
or supplemented will not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading when it is
delivered to a purchaser or prospective purchaser, and which will comply in all
respects with the Act; and in the event the Representative is required to
deliver a Prospectus after the date specified in Rule 174 of the Rules and
Regulations, the Company upon request will prepare promptly such Prospectus or
Prospectuses as may be necessary to permit compliance with the requirements of
Section 10 of the Act.
4.5 Use of Prospectus. The Company authorizes the members of the
Underwriting Group in connection with the distribution of the Shares and all
dealers who may distribute any of the Shares to use the Prospectus, as from time
to time amended or supplemented, in connection with the offering and sale of the
Shares so long as such use is in accordance with the applicable provisions of
the Act, the applicable Rules and Regulations thereunder and applicable state
blue sky or securities laws.
SECTION 5
Covenants of the Company
The Company covenants and agrees with the members of the Underwriting
Group that:
5.1 Objection of Representative to Amendments or Supplements. After the
date hereof, the Company will not at any time, whether before or after the
Effective Date of the Registration Statement, file any amendment or supplement
to the Registration Statement or Prospectus (i) unless and until a copy of such
amendment or supplement has been previously furnished to the Representative
within a reasonable time period (but in no event less than three (3) business
days before the Company proposes to file such amendments and to the extent of
any changes are made to such amendment not less than two (2) business days)
prior to the filing thereof or (ii) to which the Representative or legal counsel
to the Representative has reasonably objected, in writing, on the ground that
such amendment or supplement is not in compliance with the Act or the Rules and
Regulations.
14
5.2 Company's Best Efforts to Cause Registration Statement to Become
Effective. The Company agrees to use its best efforts to cause the Registration
Statement and any amendment thereto to become effective as promptly as
reasonably practicable and will promptly advise the Representative and will
confirm such advice in writing (i) when the Registration Statement shall have
become effective and when any amendment thereto shall have become effective and
when any amendment of or supplement to the Prospectus shall be filed with the
Commission, (ii) when the Commission shall make, either orally or in writing, a
request or suggestion for any amendment to the Registration Statement or the
Prospectus or for any additional information and the nature and substance
thereof, (iii) of the issuance by the Commission of an order suspending the
effectiveness of the Registration Statement pursuant to Section 8 of the Act or
of the initiation of any proceedings for that purpose, (iv) of the happening of
any event which in the judgment of the Company makes any material statement in
the Registration Statement or Prospectus untrue or which requires the making of
any changes in the Registration Statement or Prospectus in order to make the
statements therein not misleading, and (v) of the refusal to qualify or the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction or of the institution of any proceedings for any such purposes. The
Company will use every reasonable effort to prevent the issuance of any such
order or of any order preventing or suspending such use, to prevent any such
refusal to qualify or any such suspension, and to obtain as soon as possible a
lifting of any such order, the reversal of any such refusal and the termination
of any such suspension.
5.3 Preparation and Filing of Amendments and Supplements. The Company
agrees to prepare and file promptly with the Commission, upon request of the
Representative, such amendments or supplements to the Registration Statement or
Prospectus, in form satisfactory to legal counsel for the Representative, as in
the opinion of the Representative and of legal counsel for the Representative,
may be necessary in connection with the offering or distribution of the Shares
and will use its best efforts to cause the same to become effective as promptly
as possible.
5.4 Blue Sky Qualifications. To the extent required, the Company agrees
to use its best efforts to register or qualify the Shares or such part thereof
as the Representative may determine for sale under the blue sky laws of such
states as are requested by the Representative. The Company will be assisted by
Clanahan, Tanner, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇, P.C., legal counsel for the
Representative, in registering or qualifying the Shares for sale under such blue
sky laws. However, if the Company receives confirmation from Nasdaq that the
Company qualifies for inclusion and listing of the Shares on the Nasdaq National
Market System under one of the three Standards set forth in Rule 4420 of the
NASD Manual, under Section 18(b)(1) of the Act, the shares shall be treated as
"covered securities" and as such shall be exempt from any requirement by any of
the states to register or qualify such Shares under any such blue sky laws. Only
to the extent that the Shares are not covered securities under the Act, the
Company will pay all of the filing fees and legal fees, costs and expenses
incurred by such legal counsel in so registering or qualifying such Shares. If
the Company is required to register or qualify the Shares for sale under the
blue sky laws, it shall advance a retainer of Seven Thousand Five Hundred
Dollars ($7,500) against which the legal fees of legal counsel for the
Representative may be billed. Such filing fees, legal fees, costs and expenses
associated with registering or qualifying the Public Offering in the various
states, if required, shall not exceed Thirty Thousand Dollars ($30,000). The
Representative's legal counsel will forward to legal counsel for the Company
copies of all correspondence, comments, orders or other documents
("correspondence and documents") sent to or received from such states in
connection with such registrations and qualifications at the time such
correspondence and documents are sent or received by legal counsel for the
Representative. Immediately prior to the distribution of the preliminary
Prospectus to potential investors and prior to the Effective Date of the
Registration Statement, legal counsel for the Representative will issue to the
Company and the Underwriting Group a written blue sky memorandum of all states
in which the preliminary Prospectus may be distributed and in which the proposed
initial Public Offering (the "Public Offering") of the Shares has been
registered or qualified for sale, canceled, withdrawn, denied or exempt, the
date of such event(s) and the number of Shares registered or qualified for sale
in each such state. The Company understands that one of the factors considered
by the Representative and the Underwriting Group in deciding to execute this
Underwriting Agreement was the states in which the Shares have been registered
or qualified for resale. The Representative, immediately following the Effective
Date, shall be provided an opinion of legal counsel for the Representative as to
which states offers and sales may be made in the trading aftermarket. The
Company shall pay all legal fees and costs and expenses, including filing fees,
incurred in connection with such opinion.
15
5.5 Financial Statements. The Company, at its own expense, agrees to
prepare and give and will continue to give such financial statements and other
information and reports to and as may be required by the Commission or the
proper public bodies of the states in which the Shares may be registered or
qualified.
5.6 Reports, Financial Statements and Projections to the Representative.
The Registration Statement will include audited financial statements of the
Company and its Subsidiary (including the fiscal years of the Subsidiary before
it became the wholly owned Subsidiary of the Company) for the two (2) fiscal
years then ended preceding the Effective Date of the Registration Statement
which shall have been reported by ▇▇▇▇ Bailly LLP, independent public accounts.
The Company has prepared and delivered to the Representative a copy of its most
recent quarterly financial statement for the six (6) month period ended June 30,
1999. The Company has previously prepared and delivered and shall prepare and
deliver its projections constituting its best estimates of revenues, earnings
and cash flow for the current fiscal year and each fiscal year thereafter
through December 31, 2003. The Company shall continue to furnish to the
Representative on a monthly basis after June 30, 1999 with updated estimates
relating to such projections through the Effective Date of the Registration
Statement and thereafter as shall be requested from time to time by the
Representative during the period of five (5) years following the Closing Date.
From and after June 30, 1999, the date of the most recent quarterly financial
statement filed with the Commission and continuing through the Closing Date, the
Company shall furnish to the Representative and to legal counsel for the
Representative, the Company's unaudited monthly financial statements. For a
period of five (5) years from the Closing Date, the Company agrees to deliver to
the Representative copies of each annual report of the Company and copies of all
reports it is required to file or make available pursuant to the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and will deliver to the
Representative: (i) within ninety (90) days (plus any extensions of time that
the Commission grants to the Company to file its annual report on the
appropriate Form) after the close of each fiscal year of the Company, a
financial report of the Company which shall include a balance sheet as of the
end of the preceding fiscal year, a statement of operations, a statement of
stockholders' equity and statement of cash flows covering such fiscal year, and
shall be in reasonable detail and certified by the independent public
accountants for the Company; (ii) within forty-five (45) days (plus any
extensions of time that the Commission grants to the Company to file its
quarterly report on the appropriate Form) after the end of each quarterly fiscal
period of the Company other than the last quarterly fiscal period in any fiscal
year, copies of the Company's statements of operations, stockholders' equity and
cash flows for the quarterly fiscal period and the fiscal year then ended prior
to the end of such quarterly fiscal period, and the balance sheet as of the end
of that period of the Company subject to year end adjustment and certified by
the principal financial or accounting officer of the Company; (iii) copies of
all other statements, documents or other information which the Company mails or
otherwise makes available to any class of its security holders or files with the
Commission; (iv) copies of all news, press or public information releases when
made; (v) copies of all letters to the Company from its independent certified
public accountants concerning actual or potential deficiencies in the Company's
accounting procedures or internal control of funds; and (vi) upon request in
writing from the Representative, such other information as may reasonably be
requested and which may be properly disclosed to the Representative with
reference to the property, business and affairs of the Company. If the Company
fails to furnish the Representative with financial statements as herein
provided, within the times specified herein, the Representative shall have the
right to have such financial statements prepared by independent public
accountants of the Representative's own choosing and the Company agrees to
furnish such independent public accountants such data and assistance and access
to such records as they may reasonably require to enable them to prepare such
statements and to pay their reasonable fees and expenses in preparing the same;
provided, however, the Company shall have the right to furnish the financial
statements to the Representative at any time after the Representative retains
independent public accountants to prepare the financial statements, in which
event the amount of fees that the Company shall be obligated to pay to the
independent public accountants selected by the Representative will be limited to
those fees (including any retainer paid) actually incurred to the point in time
that the Company furnishes the required financial statements. All such financial
statement shall have been or shall be prepared in accordance with generally
accepted accounting principles consistently applied and present or shall present
fairly the financial condition of the Company and its Subsidiary and the results
of operation at the time and for the periods covered by such financial
statements.
5.7 Expenses Paid by the Company. The Company shall be responsible for,
and agrees to pay, whether or not the transactions contemplated hereunder are
consummated or this Agreement is prevented from becoming effective or is
terminated, all costs and expenses incident to the performance of its
obligations under this Agreement, including all expenses incident to the
authorization, issuance, and delivery of the Shares and Representative's
Warrants, any original issue taxes in connection therewith, all transfer taxes,
if any, incident to the
16
initial sale of the Shares to the public, the fees and expenses of the Company's
personnel in connection with the proposed Public Offering, the costs, fees, and
expenses incident to the preparation, printing and filing under the Act and with
the NASD of the Registration Statement, or amendments or supplements thereto,
the cost of printing, reproducing and filing all exhibits to the Registration
Statement, the Agreement Among Underwriters, this Agreement, the Selected Dealer
Agreement and any other underwriting documents, and the cost of printing and
delivering to the Representative, the members of the Underwriting Group, and
selected dealers copies of the Registration Statement and copies of the
Agreement Among Underwriters, this Agreement and the Selected Dealer Agreement,
and any other underwriting documents, and as many Preliminary Prospectuses and
the Final Prospectuses (which Final Prospectuses shall be delivered no later
than the day following the Effective Date) as the Representative may deem
reasonably necessary as herein provided, the costs and legal counsel fees of
qualifying the Shares under the state securities or blue sky laws as provided in
Section 5.4 hereof, including fees of the Representative's counsel to render an
opinion for blue sky states as provided in Section 5.4 hereof, the fees and
disbursements of legal counsel and accountants for the Company, DTC Tracking
Service, the cost of providing the Representative with two (2) bound volumes of
the Registration Statement, as amended, all exhibits thereto, all state filings
and all correspondence relating to the Registration Statement and all state
filings, the cost for undertaking a background search of the Company's officers,
directors, key employees and five percent (5%) or greater shareholders, all
expenses incurred in connection with the holding of "due diligence" and
"road-show" meetings (which shall include without limitation the cost of the
meeting room, food and beverage, and expenses incurred by representatives of the
Company in attending a reasonable number of such meetings and which shall
include all expenses of presentations as reasonably requested by the
Representative) with the Representative's representatives, prospective dealers
and their representatives and others, including all expenses incurred in
connection with "road-show" meetings, held in Europe or other overseas
countries, and the cost of advertising one (1) or more suitable tombstone
notices in the national edition of the Wall Street Journal relating to the
proposed Public Offering, including graphic slide costs, and such other expenses
for advertising undertaken by the Representative at the Company's request,
including without limiting the generality thereof graphic slide costs, and any
other expenses customarily paid by an issuer. Except as otherwise specified
above, the Representative agrees to pay all fees and expenses of any legal
counsel which it may employ to represent it separately in connection with or on
account of the Public Offering and agrees to pay any advertising not paid by the
Company, mailing, telephone, travel and clerical costs and all other office
costs incurred or to be incurred by the Representative or by its representatives
in connection with the Public Offering.
5.8 Reports to Shareholders. For so long as the Company's Common Stock
is registered under the Exchange Act, the Company agrees to hold an annual
meeting of shareholders for the election of directors within one hundred eighty
(180) days after the end of each of the Company's fiscal years and, within one
hundred eighty (180) days after the end of each of the Company's fiscal years,
to send to each of the Company's shareholders the audited financial statements
of the Company as of the end of the fiscal year just completed prior thereto.
Such financial statements shall be those required by Rule 14c-3 under the
Exchange Act and shall be included in an annual report meeting the requirements
of such Rule. Further, the Company agrees, so long as such Common Stock is so
registered:
(i) to provide the Company's shareholders with quarterly summary
operating financial statements;
(ii) to send, within thirty (30) days after the Closing Date, a
letter to shareholders of the Company which welcomes them as
shareholders and discusses the business conducted by the Company since
the Effective Date;
(iii) to send, as least every ninety (90) days for a period of
three (3) years after the Effective Date, a letter or report to
shareholders of the Company and to broker dealers which are then market
markers of Shares of the Company on NASDAQ ("market markers"), which
contains a narrative discussion of the Company's financial status and
results of operations and a narrative discussion of the business
conducted by the Company since the last report or letter to shareholders
and market markers;
(iv) during the period after three (3) years from the Effective
Date, to send to each of the Company's shareholders and market markers
in printed form within ninety (90) days after the end of each fiscal
quarter just ended a narrative discussion of such financial statements
and the business conducted by the Company during such quarter.
17
If the Company breaches any of its agreements set forth in this Section
5.8, the parties agree that any such breach will result in irreparable harm to
the Representative for which an adequate remedy for damages will not exist and
therefore the Representative shall be entitled to seek and obtain a court
injunction in equity which orders the Company to comply with its agreements set
forth in this Section 5.8 and which requires the Company to reimburse the
Representative for its costs, including reasonable attorney fees, incurred in
obtaining such injunctive order.
5.9 Section 11(a) Financial. The Company agrees to send to each of its
security holders and agrees to deliver to the Representative, as soon as
practicable, but in no event later than the first day of the sixteenth (16th)
full calendar month following the Effective Date, an earnings statement (as to
which no opinion need be rendered but which will satisfy the provisions of
Section 11(a) of the Act) covering a period of at least twelve (12) months
beginning after the Effective Date. Compliance with Rule 158(b) under the Act
shall be deemed compliance with Section 11(a) of the Act.
5.10 Posteffective Availability of Prospectus. Within the time during
which the Prospectus is required to be delivered under the Act, the Company
agrees to comply, at its own expense, with all requirements imposed upon it by
the Act, as now or hereafter amended, by the Rules and Regulations, as from time
to time may be in force, and by any order of the Commission, so far as necessary
to permit the continuance of sales of the Shares.
5.11 Application of Proceeds. The Company intends to apply the net
proceeds from the sale of the Shares substantially in the manner set forth in
the Registration Statement. Except for cumulative changes of less than ten
percent (10%) in each specific item set forth in the "Use of Proceeds" section
of the definitive Prospectus, the Company will not deviate from such use without
giving written notice of such proposed deviation to the Representative at least
ten (10) business days prior to any such deviation. Pending utilization of the
net proceeds by the Company for business purposes, all of the unused net
proceeds from the sale of the Shares will be invested in short term United
States government securities purchased through a bank or in a nondiscretionary
account of the Company with the Representative.
5.12 Delivery of Documents. Prior to the Closing Date, the Company
agrees to deliver to the Representative true and correct copies of the charter,
articles of incorporation and certificate of incorporation of the Company and
all amendments thereto, all such copies to be certified by the secretary of
state of the state of incorporation of the Company; true and correct, fully
executed copies of the bylaws of the Company and of the minutes of all meetings
of the directors and shareholders of the Company held prior to the Closing Date;
and true and correct, fully executed copies of all material contracts to which
the Company is a party.
5.13 Cooperation with Representative's Due Diligence. At all times prior
to the Closing Date, the Company agrees to cooperate with the Representative,
legal counsel for the Representative, and the Representative's consultants in
such investigation as the Representative may make or cause to be made of the
Company and its affiliates regarding the Company's past and present business as
the Representative and legal counsel for the Representative shall desire. At all
times prior to the Closing Date, the Company shall supply and deliver to both
the Representative and legal counsel for the Representative, at their respective
offices, all documents and other information required to enable them to make
such investigation of the Company and its past and present business as the
Representative or legal counsel for the Representative shall deem reasonably
necessary or appropriate in order to verify or substantiate any document or
other information regarding the Company and the preparation and filing of the
Registration Statement. The Company acknowledges that the Representative and
legal counsel for the Representative will be undertaking a thorough review of
the Company's past and present business activities, including contractual
commitments and operational practices, and background verifications of persons
affiliated with the Company. In the event that the results of such review do not
meet with the approval of the Representative, the Representative may elect not
to proceed with the Public Offering. The Representative shall promptly bring
matters to the attention of counsel for the Company that might prevent the
Public Offering from proceeding and permit such counsel to provide explanations
and mitigations. Further, the Representative shall retain, and the Company may
retain, professional services to conduct any background investigations required
for the Public Offering. All information relating to such investigation shall be
shared by the Company and the Representative. The Company shall be obligated and
responsible for the payment of all costs and expenses
18
associated with any such background investigation and shall reimburse the
Representative for any such costs and expense within five (5) days after
receiving a written request from the Representative for such reimbursement.
5.14 Limitations on Company. Except with the Representative's prior
written consent, the Company agrees that the Company will not do the following
until (a) the termination of this Agreement or (b) the number of days after the
Effective Date for which the Prospectus is required to be used pursuant to Rule
174 of the Rules and Regulations, whichever occurs first:
(i) Undertake or authorize any change in its capital structure;
(ii) Borrow any funds other than in the ordinary course of
business and as contemplated by the Prospectus;
(iii) Consolidate or merge with or into any other corporation;
(iv) Purchase all or substantially all of the assets of another
corporation or any other entity or person or sell all or substantially
all of the Company's assets to another corporation, entity or person;
(v) Purchase fifty percent (50%) or more of the securities of
another corporation or other entity or sell or enter into an exchange
transaction pursuant to which the Company or the Company's shareholders
sell or exchange or otherwise dispose of fifty percent (50%) of the
issued and outstanding shares of the Company's Common Stock in a taxable
or tax free transaction; or
(vi) Create any mortgage or any lien upon any of its properties
or assets other than in the ordinary course of business and as
contemplated by the Prospectus.
5.15 Appointment of Transfer Agent. Prior to the Effective Date, the
Company will have appointed American Securities Transfer & Trust, Inc., ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, as transfer agent for the
Company's Shares and Common Stock. The Company shall not change its transfer
agent for a period of two (2) years after the Effective Date without the
Representative's prior written consent.
5.16 Daily Transfer Sheets. For the two (2) year period following the
Effective Date, the Company, at its expense, shall provide the Representative,
when requested by the Representative in writing, with copies of the Company's
daily Common Stock transfer sheets and the Depository Trust Company ("DTC")
special security position listing reports.
5.17 Certificates. The Company agrees to make arrangements to have
available at the office of the transfer agent sufficient quantities of the
Company's certificates as may be needed for the quick and efficient transfer of
the Shares and Common Stock.
5.18 Compliance with Conditions Precedent. The Company agrees to use all
reasonable efforts to comply or cause to be complied with the conditions
precedent to the obligations of the members of the Underwriting Group in Section
8 hereof.
5.19 Reports Relating to Use of Proceeds and State Reports. The Company
agrees to report on its first periodic report filed pursuant to Sections 13(a)
and 15(d) of the Exchange Act after the Effective Date, and thereafter on each
of its subsequent periodic reports filed pursuant to Sections 13(a) and 15(d) of
the Exchange Act through the later to occur of the complete disclosure by the
Company of the application of all the proceeds from the Public Offering or
disclosure by the Company of the termination of the Public Offering, the use of
proceeds received by the Company from the Public Offering in accordance with the
provisions of Rule 463 of the Rules and Regulations under the Act. The Company
will file with the appropriate state securities authorities any sales and other
reports required by the rules and regulations of such agencies and will provide
copies of such reports to the Representative and to the legal counsel for the
members of the Underwriting Group.
5.20 Registration Under the Exchange Act. Prior to the Effective Date of
the Registration Statement, the Company will have made a filing under Section
12(g) of the Exchange Act with respect to the Company's
19
Common Stock. The Company agrees to deliver a copy of such filing to the
Representative and to legal counsel for the Representative when filed. On the
Effective Date of the Registration Statement, the Company will cause the
Company's filing under Section 12(g) of the Exchange Act to become effective
with the Commission.
5.21 Listing in Manuals. To the extent that the shares do not qualify as
covered securities under Section 18(b)(1) of the Act, the Company will use its
commercially reasonable efforts to qualify (if not already qualified) the
Company's Shares and Common Stock for trading in all states as soon as legally
possible. In addition, if it has not done so, prior to and after the Effective
Date, the Company will apply to have the Company listed in Standard & Poor's
Standard Corporation Records, ▇▇▇▇▇'▇ Over-The-Counter Manual or such other
comparable recognized security manuals as are reasonably requested by the
Representative.
5.22 NASDAQ/NMS. The Company agrees that it shall cause the Shares to be
on the NASDAQ National Market System, or listing on a national securities
exchange satisfactory to the Representative, on the Effective Date of the
Registration Statement. Subject to the Company's ability to meet the maintenance
requirements of the NASDAQ National Market System, the Company agrees to
maintain the listing of its Common Stock such that such Shares will continue to
be available for quotation on the NASDAQ National Market System. The trading
symbol "Hat" is acceptable to both the Company and the Representative. As soon
as the Company meets the qualifications required with respect thereto, the
Company will designate its eligible securities for inclusion on such national
stock exchange as requested and designated by the Representative.
5.23 Secondary Trading Qualifications. The Company agrees to qualify its
securities for secondary trading, as soon as legally possible, in such states as
are reasonably requested by the Representative from time to time.
5.24 Legends on Stock Certificates. The Company agrees to cause the
stock certificates of its current shareholders that represent "restricted
securities," and the stock and warrant certificates held by officers, directors,
or controlling persons of the Company to be clearly legended as being restricted
against transfer without compliance with the Act and to cause the Company's
transfer agent and warrant agent to put stop transfer instructions against such
certificates.
5.25 Stockholders and Warrantholders Lists and Transfer Summaries.
Within ten (10) business days after the Closing Date and within ten (10)
business days after the Option Closing Date, the Company will deliver to the
Representative complete lists of all holders of the Shares and Common Stock of
the Company as of the Closing Date and as of the Option Closing Date,
respectively. Each such list shall include the name and address of each such
holder and the number of Shares and shares of Common Stock owned by each such
person as of such date. Within ten (10) business days after the end of each of
the first twenty-four (24) calendar months after the Closing Date, the Company
will provide the Representative with a new list containing the information
described above with respect to the Shares and Common Stock as of the end of
each such month and a list which shows each transaction involving a transfer of
a Share or Common Stock certificate during such month. This transfer list shall
include the name and address of the transferor and the transferee and the number
of Shares and shares of Common Stock transferred.
5.26 Directors, Officers and Committees. By no later than the Closing
Date, the Company will, if it has not already done so, have at least two (2)
outside independent directors serving on the Board of Directors. The Company
shall continue to maintain at least two (2) independent outside directors for at
least the next two (2) fiscal years beyond the Effective Date or as otherwise
required by the NASDAQ System for the continued listing of the Company's Shares
on the NASDAQ National Market System. The Company agrees that for a period of
forty-eight (48) months after the Closing Date, the Representative shall have
the right to designate one (1) nominee for election to the Company's Board of
Directors. If the Company is unable to obtain Directors and Officers liability
insurance as provided in Section 5.27 of this Agreement, the Representative
during such forty-eight (48) month period shall have the right to designate a
consultant to the Company's Board of Directors. Such consultant, as designated
by the Representative shall be entitled to receive from the Company notice of,
and to attend all meetings of, the Company's Board of Directors and any of the
Committees of the Board of Directors. The Representative shall be provided with
the same notice of each meeting of the Board of Directors as is provided to
members of the Board of Directors. Such consultant shall be compensated by the
Company and entitled to receive compensation in an amount not less the
compensation paid by the Company to the outside independent
20
members of the Company's Board of Directors. In addition, the Company will
reimburse out of pocket expenses incurred by such consultant to attend meetings
to the extent such expenses are reimbursed by the Company with respect to the
outside independent directors. Such consultant shall have no voting rights at
such meetings; and, such consultant shall be required, prior to attending any
such meeting, to represent in writing to the Company that such consultant is
familiar with and will comply with all requirements of the federal securities
laws applicable to a person who comes into possession of material nonpublic
information concerning the Company. Such consultant shall be indemnified by the
Company against all claims arising out of his participation at the meetings of
the Board of Directors, except for gross negligence or knowing and willful
violation of an applicable law by the consultant. The Board of Directors of the
Company will establish an audit and a management compensation committee and will
maintain such committees so long as the Common Stock of the Company is
registered under the Exchange Act. For a period of not less than two (2) years
beyond the Effective Date, at least two (2) outside independent director's will
serve on the Company's audit and compensation committees and as such shall
comprise a majority of the members of such committees. The Board of Directors
will manage and oversee the application of the proceeds received by the Company
from the Public Offering. Any material modification in the application of such
proceeds which varies from the specific use described in the final Prospectus
shall require the prior review and approval of all of the members of the Board
of Directors.
5.27 Officers and Directors Liability Insurance. Prior to the Effective
Date of the Registration Statement, the Company shall acquire a reasonable
amount of Officers and Directors liability insurance from a responsible and
reputable insurance carrier satisfactory to and approved by the Representative
prior to such date. However, the Company shall not be required to obtain such
insurance if such insurance cannot be obtained at a reasonable cost as
determined by the Company and the Representative.
5.28 Right of Inspection. The Company agrees that for a period of three
(3) years following the date of the final Prospectus, the Representative, at the
Representative's expense, will have the right to have a person or persons
selected by the Representative review the books, records and operations of the
Company, upon seven (7) days written notice. Any person designated by the
Representative to conduct such review shall be required to execute a
confidentiality agreement which will, in part, prohibit disclosure of
information to any person other than the Representative. Unless the Company
specifically agrees otherwise, any such information shall be held in confidence.
5.29 Public Relations Firm. At least thirty (30) days prior to the
Effective Date, the Company will engage the services of a public relations
advisory firm which is acceptable to the Representative. The Company shall
retain the services of such public relations advisory firm for at least one (1)
year following the Effective Date. The Company shall have sole authority to
determine the compensation and the utilization of such public relations firm.
The Company shall provide reasonable and frequent notices to the public
concerning material developments in the Company's business operations,
activities, acquisitions and any other material developments in the Company's
business. Such public relations firm shall not be a member of the Underwriting
Group or a "related person" of any such member of the Underwriting Group. The
term "related person" is described in Section 5.32 of this Agreement.
5.30 Management and Dissemination of Information. All necessary and
appropriate measures will be taken by the Company to ensure continuity of its
management. Further, in order to avoid any appearance of the early commencement
of the Public Offering, or the use of improper prospectuses, the Company shall
consult with its counsel and the Representative prior to distribution to third
parties of any financial information, news releases and/or other publicity
regarding the Company, its business or any terms of the proposed Public
Offering, unless such dissemination is required by law or by prior Company
practices. Prior to the distribution thereof, the Company shall furnish to the
Representative for its review copies of all documents, including, without
limitation, financial information, news releases and other documents regarding
the Company, its business, its properties or any of the terms of the proposed
Public Offering, which the Company or its public relations advisors intend to
distribute prior to the Closing Date.
21
5.31 Management Referrals. Persons whom management of the Company
believe may be interested in purchasing Shares in the Public Offering will be
referred only to the Representative and management of the Company will purchase
Shares in the Public Offering only through the Representative. The
Representative will have complete control of the distribution of the Shares in
the Public Offering.
5.32 No NASD Member Payments or Affiliation. For purposes of Section
5.29 hereof and this Section 5.32, a "related person" of an NASD member is a
person who has any of the following relationships with any NASD member: legal
counsel, financial consultant or advisor, finder, associated person, or member
of the immediate family of any such person. The Company represents to the
Representative that, in connection with the Public Offering, the Company does
not have any agreement, has not paid and will not pay, except as described in
the Registration Statement or the next sentence, or agreed to pay or deliver any
item of value, including securities, to any member of the NASD or to any person
associated with a member of the NASD or to any related person of an NASD member
during the period beginning on the three hundred sixty-sixth (366th) day prior
to the filing of the Registration Statement with the Commission and ending on
the forty-fifth (45th) day after the Effective Date of the Registration
Statement. The representation contained in the foregoing sentence shall not
include cash discounts or commissions paid by the Company in connection with a
distribution of the Company's securities which occurs prior to the filing of the
Registration Statement with the Commission. If the NASD decides that any
securities issued by the Company or any affiliate or associated person or
related person to an NASD member or any other compensation paid to any such
person is or was "underwriter's compensation" for the Public Offering and such
determination is not reversed by the NASD within a reasonably prompt time after
it is decided, the Company shall make commercially reasonable efforts to arrange
for the recipient to return forthwith to the Company all such securities or
compensation. The Company shall supply to legal counsel for the Representative
no later than three (3) weeks before the expected filing date of the
Registration Statement, the written representation of the Company's president or
chief executive officer as to (i) the existence or non-existence of any NASD
affiliation or association of any officer, director, or five percent (5%) or
greater shareholder of the Company, and, if a shareholder of the Company is a
corporation, the existence or non-existence of such NASD affiliation or
association of any officer, director or five percent (5%) or greater shareholder
of such corporation, (ii) whether or not any unregistered securities of the
Company have been acquired by any NASD member or related persons during the
thirteen (13) month period prior to the anticipated filing date of the
Registration Statement, and (iii) whether or not key-man life insurance has been
or will be provided for any officer or director of the Company by any NASD
member or related person.
5.33 Future Sales.
5.33.1 Company Sales to Others and Repurchase of Its Stock.
During the period of twelve (12) months after the Closing Date, the
Company will not sell any securities not covered by the Registration
Statement without the Representative's prior written consent nor will
the Company purchase any shares of the capital stock or other securities
during such period without the Representative's prior written consent.
Excepted from this provision shall be sales of Excluded Shares. The term
"Excluded Shares" shall mean options and warrants which are issued and
outstanding on the Effective Date of the Registration Statement or which
are issued pursuant to a plan ("Plan") which may be adopted by the
Company prior to the Effective Date and which has been approved in
writing by the Board of Directors of the Company and the Representative
prior to the Effective Date of the Registration Statement and the grant
of options to the officers and employees of the Company and its
Subsidiary under any such Plan at an exercise price equal to the
purchase price of the Shares as set forth in Section 3.1 of this
Agreement.
5.33.2 Covered Persons. Prior to the Effective Date of the
Registration Statement, the Company will cause each of its officers,
directors, five percent (5%) or more shareholders, and their affiliates
and any other persons as shall be required by NASDAQ ("Covered Persons")
to agree with the Representative in a written agreement in form and
substance satisfactory to the Representative and legal counsel for the
Representative that, without the prior written consent of the
Representative, each such Covered Person will not sell or otherwise
dispose of any of the Company's shares of Common Stock for a period of
one (1) year after the Effective Date. Such agreement will also provide
that if a Covered Person who is an officer or director of the Company on
the Effective Date of the Registration Statement ceases to be an officer
or director of the Company at any time during the period of one (1) year
after the Closing Date, then such Covered Person and the affiliates of
such Covered Person will agree not to sell any of the
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Company's shares of Common Stock which are owned by such Covered Person
and such Covered Person's affiliates on the Effective Date of such
Registration Statement until the expiration of one (1) year after the
Effective Date; provided, however, that nothing contained in this
Section 5.33.2 shall prevent a transfer for purposes of estate planning
by a Covered Person to his spouse or lineal descendants or to a
revocable or irrevocable trust in which he is the grantor and in which
his spouse and/or lineal descendants are the beneficiaries or to an
entity ("controlled entity") in which the Covered Person, his spouse and
lineal descendants own an eighty percent (80%) or greater interest so
long as such spouse, lineal descendants or controlled entity agree to
the terms of this Section 5.33.2 For purposes of this Agreement, the
term "affiliate" shall have the meaning ascribed to it in Rule 405 of
the Act. Such agreements between the Representative and the Covered
Persons will also provide that any sales of shares of Common Stock of
the Company by such persons during the six (6) month period after the
Closing Date, whether under Rule 144 promulgated by the SEC under the
Act ("Rule 144 Sales") or otherwise, will be executed only through the
Representative acting as a broker or dealer. In such agreement the
Representative will agree to execute any such Rule 144 Sales on a
competitive basis. If any person required to execute an agreement under
this Section 5.33.2 has pledged, or during the applicable period
pledges, any of the Company's shares of Common Stock which are covered
by such agreement, such person shall cause his pledgee to also agree in
writing to comply with the pledgor's agreement with the Representative.
A copy of any such written agreement from the pledgee shall be promptly
delivered by the pledgor to the Representative after execution thereof
by the pledgee.
5.34 Exclusive Dealing. The Company at no time prior to the Closing
Date, as contemplated under this Agreement, shall enter into discussions,
negotiate or otherwise make any arrangements with any other underwriter or other
person which relate in any manner to the undertaking of a possible Public
Offering of the Company's securities by any such person other than the
Representative, so long as the Representative is discharging and performing its
duties and responsibilities under this Agreement and has not indicated in
writing its decision not to consummate the proposed Public Offering as
contemplated under this Agreement.
5.35 Financial Printer. The Representative has approved the Company's
selection and engagement of American Financial Printing, Inc., whose offices are
located in Minneapolis, Minnesota, as the financial printing company selected by
the Company to print the Preliminary and Final Prospectuses and for the
transmitting of all electronic filings to the Commission prior to the engagement
by the Company of the services of such financial printing company. In addition,
the Representative shall approve the form, size, style and quality of the
Preliminary and Final Prospectuses.
5.36 Standstill. Pending the completion of the Public Offering, the
Company and its Subsidiary shall not solicit or negotiate and shall refrain
during the period from March 26, 1999 until December 26, 1999 from negotiating
with any other underwriter or investment banker or other person regarding a
possible private or public offering of the securities (whether debt or equity)
of the Company or its Subsidiary.
SECTION 6
Indemnification
6.1 Indemnification by Company. The Company agrees to indemnify and hold
harmless the Representative and the other members of the Underwriting Group and
each officer, director, employee, representative, agent, surety, guarantor, and
each person who controls the Representative or any other member of the
Underwriting Group within the meaning of Section 15 of the Act against any and
all losses, claims, damages or liabilities, joint or several, or litigation,
arbitration or mediation proceedings (collectively referred to as "litigation"),
including any and all awards or judgments rendered in connection therewith, to
which they or any of them may become subject under the Act or any other statute
or at common law and to reimburse the persons indemnified for any legal or other
expenses (including the cost of any investigation and preparation) incurred by
them in connection with any litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, damages, liabilities and
litigation (including awards and/or judgments in connection therewith) arise out
of or are based upon any matter relating to the Public Offering, including
without limitation any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereto
and the Prospectus and related exhibits included in the Registration Statement
or any application or other document filed in order to qualify the Shares under
the blue sky or securities laws of the states where filings were made, or the
23
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, all
as of the date when the Registration Statement or such amendment, as the case
may be, becomes effective, or any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or supplemented if
the Company shall have filed with the Commission any amendments thereof or
supplements thereto), or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however
that the indemnity agreement contained in this Section 6.1 shall not apply to
the Representative or any of the other members of the Underwriting Group or any
person controlling the Representative or any other member of the Underwriting
Group in respect of any such losses, claims, damages, liabilities or litigation
arising out of or based upon information peculiarly within the knowledge of the
Representative or another member of the Underwriting Group and furnished in
writing to the Company by a member of the Underwriting Group specifically for
use in connection with the preparation of the Registration Statement and
Prospectus or any such amendment or supplement thereto and such person in making
any such statement, or any such omission or alleged omission, knowingly and
willfully violated applicable law or was guilty of gross negligence in
connection therewith. This indemnity agreement is in addition to any other
liability which the Company may otherwise have to the Representative and other
members of the Underwriting Group or to any person controlling the
Representative or a member of the Underwriting Group. Each member of the
Underwriting Group agrees within ten (10) days after the receipt by it of
written notice of the commencement of any action against it or against any
person controlling it as aforesaid, in respect of which indemnity may be sought
from the Company on account of the indemnity agreement contained in this Section
6.1 to notify the Company in writing of the commencement thereof. The failure of
such a member of the Underwriting Group so to notify the Company of any such
action shall relieve the person to whom such notice was not given from any
liability which it may have to that member of the Underwriting Group or any
person controlling it as aforesaid on account of the indemnity agreement
contained in this Section 6.1, but shall not relieve the Company from any other
liability which it may have to that member of the Underwriting Group or such
controlling person. In case any such action shall be brought against the
Representative or any other member of the Underwriting Group or any such
controlling person and the Representative or other member of the Underwriting
Group shall notify the Company of the commencement thereof, the Company shall be
entitled to participate in (and, to the extent that it shall wish, to direct)
the defense thereof at its own expense, but such defense shall be conducted by
legal counsel of recognized standing and reasonably satisfactory to such member
of the Underwriting Group or such controlling person or persons, which is a
defendant or which are defendants in such litigation. No settlement, compromise
or other disposition of any such litigation shall be made by the Company without
the prior written consent of the Representative and the other persons
indemnified hereunder. Conversely, any settlement, compromise or other
disposition shall require the Company's written consent and to the extent the
Company does not consent to any such settlement, compromise or other disposition
of any such litigation, the Company shall not be liable for amounts paid in
connection therewith. If the Company elects to direct such defense, the Company
agrees to furnish to each indemnified member of the Underwriting Group at its
request, copies of all pleadings therein and to apprise each indemnified member
of the Underwriting Group of all developments therein, all at the Company's
expense, and to permit the Representative and each indemnified member of the
Underwriting Group to be an consultant therein.
6.2 Indemnification by the Members of the Underwriting Group. The
members of the Underwriting Group agree, in the same manner as set forth in
Section 6.1. above, to indemnify and hold harmless the Company, the directors
and officers of the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the Act, with respect to any statement in or
omission from the Registration Statement or any amendment thereto, or the
Prospectus (as amended or as supplemented, if amended or supplemented as
aforesaid) or any application or other document filed in any state or
jurisdiction in order to qualify the Shares under the blue sky or securities
laws thereof, or any information furnished pursuant to Section 3.6 hereof, if
such statement or omission was made in reliance upon information peculiarly
within the knowledge of a member of the Underwriting Group and furnished in
writing to the Company by a member of the Underwriting Group or on its behalf
specifically for use in connection with the preparation thereof or supplement
thereto and such person in making any such statement, or any such omission or
alleged omission, knowingly or willfully, violated applicable law or was guilty
of gross negligence in connection therewith. No member of the Underwriting Group
shall be liable for amounts paid in settlement of any such litigation if such
settlement was effected without the written consent of the member of the
Underwriting Group. In case of commencement of any action in respect of which
indemnity may be sought from a member of the Underwriting Group on account of
the indemnity agreement contained in this Section 6.2, each person to be
indemnified by the indemnifying member
24
of the Underwriting Group shall have the same obligation to notify the member of
the Underwriting Group as the members of the Underwriting Group have toward the
Company as provided in Section 6.1. hereof, subject to the same loss of
indemnity in the event such notice is not given, and the indemnifying member of
the Underwriting Group shall have the same right to participate in (and, to the
extent that the indemnifying member of the Underwriting Group shall wish, to
direct) the defense of such action at the expense of the indemnifying member of
the Underwriting Group, but such defense shall be conducted by legal counsel of
recognized standing and reasonably satisfactory to the Company. If the
indemnifying member of the Underwriting Group elects to direct such defense, the
indemnifying member of the Underwriting Group agrees to furnish to the Company
at its request copies of all pleadings therein and apprise it of all the
developments therein, all at the expense of the indemnifying member of the
Underwriting Group, and permit the Company to be an observer therein.
6.3 Contribution. If the indemnification provided for in this Section 6
is unavailable to or insufficient to hold harmless an indemnified party under
Sections 6.1 and 6.2 hereof, in respect of any losses, claims, damages or
liabilities (or actions or litigation including awards and/or judgments in
respect thereof) referred to therein, then each indemnifying party shall in lieu
of indemnifying such indemnified party contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages, or
liabilities (or actions or litigation including awards and/or judgments in
respect thereof) in such proportion as is appropriate to reflect not only (i)
the relative benefits received by the Company on the one hand and each member of
the Underwriting Group on the other from the Public Offering of the Shares, but
also (ii) the relative fault of the Company and each member of the Underwriting
Group in connection with the statements or omissions which resulted in such
losses, claims, damages, or liabilities (or actions or litigation including
awards and/or judgments in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and each member of the Underwriting Group on the other shall be deemed
to be in the same proportion as the total net proceeds from the Public Offering
of the Shares (before deducting expenses) received by the Company bears to the
total underwriting discount received by each member of the Underwriting Group,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or one or more members of the Underwriting Group and the person's
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the members of the
Underwriting Group agree that it would not be just and equitable if contribution
pursuant to this Section 6.3. were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section. The amount paid or payable by
an indemnified party as a result of the losses, claims, damages or liabilities
(or actions or litigation including awards and/or judgments in respect thereof)
referred to above in this Section 6.3 shall be deemed to include any legal or
other expenses to which such indemnified party would be entitled if Sections 6.1
and 6.2 hereof were applied. Notwithstanding the provisions of this Section 6.3,
no member of the Underwriting Group shall be required to contribute any amount
in excess of the amount equal to the total price of the Shares underwritten and
distributed by it to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11 of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
6.4 Threat of Regulators' Action. The Company and the Representative
agree to advise each other immediately and confirm in writing the receipt of any
threat of or the initiation of any steps or procedures by the Commission or any
other regulatory authority which would impair or prevent the right to offer or
sell any of the Shares or the issuance of any "suspension orders" or other
prohibitions preventing or impairing the proposed Public Offering of the Shares.
In the case of the happening of any such event, neither the Company nor the
members of the Underwriting Group will acquiesce in such steps, procedures or
suspension orders, and each party agrees actively to defend any such actions or
orders unless all parties agree, in writing, to acquiesce in such actions or
orders.
SECTION 7
Effectiveness of Agreement
After this Agreement has been executed by the Company and the
Representative, this Agreement shall become effective (i) at 10:00 A.M., Denver,
Colorado Time, on the first full business day after the Effective Date of the
Registration Statement or (ii) upon release by the Representative of the Shares
for offering after the Effective Date, whichever shall first occur. The time of
the release by the Representative of the Shares for offering, for the
25
purposes of this Section 7, shall mean the time of release by the Representative
for publication of the first newspaper advertisement which is subsequently
published relating to the Shares or the time of the first mailing of copies of
the Prospectus relating to the Shares in connection with a confirmation of a
sale of Shares by an Underwriter or Dealer, whichever shall first occur.
SECTION 8
Conditions of the Obligations of the
Members of the Underwriting Group
After execution of this Agreement by the Company and the Representative,
the obligations of the members of the Underwriting Group to purchase the Shares
and to make payment therefor on the Closing Date and on the Option Closing Date
shall be subject to the accuracy, as of the Closing Date and as of the Option
Closing Date, of the representations and warranties on the part of the Company
herein contained, to the performance by the Company of all of its agreements and
obligations herein contained, to the fulfillment of or compliance by the Company
with all covenants and conditions hereof, and to the following additional
conditions, any of which may be waived or modified by the Representative:
8.1 Effectiveness of Registration Statement. The Registration Statement
shall have become effective and no order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission or be pending; any
request for additional information on the part of the Commission (to be included
in the Registration Statement or Prospectus or otherwise) shall have been
complied with to the satisfaction of the Commission; and neither the
Registration Statement nor the Prospectus nor any amendment thereto shall have
been filed to which legal counsel for the Representative shall have reasonably
objected in writing or shall have withheld giving its consent.
8.2 Accuracy of Registration Statement. The Representative shall not
have disclosed in writing to the Company that the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto contains an untrue
statement of a fact which, in the opinion of legal counsel for the
Representative is material, or omits to state a fact which, in the opinion of
such legal counsel, is material and is required to be stated therein, or is
necessary to make the statements therein not misleading.
8.3 No Material Adverse Changes. No material adverse changes shall have
occurred in or with respect to the officers or directors of the Company. No
material adverse changes shall have occurred in or with respect to the business,
properties, financial condition or credit of the Company or in or with respect
to any conditions affecting the prospects of its business.
8.4 Casualty and Other Calamity. The Company shall not have sustained
any loss on account of fire, explosion, flood, accident, calamity or any other
cause, of such character as materially adversely affects the business or
properties of the Company considered as an entire entity, whether or not such
loss is covered by insurance, and no officer or director of the Company shall
have suffered any injury, sickness or disability of a nature which would
materially adversely affect his or her ability to properly function as an
officer or director of the Company.
8.5 Litigation and Other Proceedings. Except as disclosed in the
Prospectus, there shall not have been any litigation instituted or threatened
against the Company and there shall not have been any proceeding instituted or
threatened against the Company before or by any federal or state commission,
regulatory body or administrative agency or other governmental body, domestic or
foreign.
8.6 Lack of Material Change. Except as contemplated herein or as set
forth in the Registration Statement and Prospectus, during the period subsequent
to the date of the last audited balance sheet included in the Registration
Statement, the Company (i) shall have conducted its business in the usual and
ordinary manner as the same was being conducted on the date of the last audited
balance sheet included in the Registration Statement, and (ii) except in the
ordinary course of its business, the Company shall not have incurred any
liabilities or obligations (direct or contingent) or disposed of any of its
assets, or entered into any material transaction or suffered or experienced any
materially adverse change in its condition, financial or otherwise. The capital
stock and surplus accounts of the Company shall be substantially the same as at
the date of the last balance sheet included in
26
the Registration Statement, without considering the proceeds from the sale of
the Shares, other than as may be set forth in the Prospectus.
8.7 Approval of Legal Counsel for the Representative. The authorization
of the Shares, the Representative's Warrants, the Registration Statement,
Prospectus and all corporate proceedings and other legal matters incident
thereto and to this Agreement shall be reasonably satisfactory in all respects
to legal counsel for the Representative.
8.8 Opinions of Legal Counsel.
8.8.1 Legal Opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq. The Company shall
have furnished to the members of the Underwriting Group and legal
counsel for the Representative, at least two (2) days in advance of the
Effective Date, and again two (2) days prior to the Closing Date, drafts
of an opinion and on the Closing Date, a duly executed opinion, dated
the Effective Date, the Closing Date, and the Option Closing Date,
addressed to the members of the Underwriting Group, from ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, Esq., legal counsel to the Company, and such other legal
counsel to the Company as is acceptable to the Representative to the
effect that based upon a review by them of the Registration Statement,
Prospectus, the certificate of incorporation, bylaws and relevant
corporate proceedings and contracts of the Company and its Subsidiary,
an examination of such statutes as he has deemed necessary and based
upon such other investigation by such legal counsel as he has deemed
necessary to express such opinion:
(i) The Company and its Subsidiary have been duly
incorporated or formed and are such validly existing
corporations in good standing under the laws of the state of
Minnesota, and that the Company and its Subsidiary have full
power and authority to own and operate their respective
properties and to carry on their businesses as set forth in the
Registration Statement and Prospectus and that the Company and
its Subsidiary are qualified and in good standing as foreign
corporations in each jurisdiction in which they own or lease
real property or transact business requiring such qualification.
(ii) The Company has authorized and outstanding
securities as set forth in the Registration Statement and
Prospectus; the outstanding securities of the Company and the
Shares conform to the statements concerning them in the
Registration Statement and Prospectus; the outstanding
securities of the Company has been duly and validly issued and
are fully paid and nonassessable, and contain no preemptive
rights; the Shares being sold by the Company to the Underwriting
Group and the Representative's Warrants have been duly and
validly authorized and, upon issuance thereof and payment
therefor in accordance with the terms of this Agreement and the
Representative's Warrants, will be duly and validly issued,
fully paid and nonassessable and will not be subject to the
preemptive rights of any shareholder of the Company.
(iii) To legal counsel's knowledge, no consents,
approvals, authorizations or orders of agencies, officers or
other regulatory authorities are known to such legal counsel
which are necessary for the valid authorization, issue or sale
of the Shares being sold by the Company to the Underwriting
Group hereunder, except as required under the Act or the
securities laws of the states in which the Shares are qualified
or except as required by the NASD.
(iv) To legal counsel's knowledge, the issuance and sale
of the Shares being sold by the Company to the Underwriting
Group and the consummation of the transactions herein
contemplated and compliance with the terms of this Agreement
will not conflict with or result in a breach of any of the
terms, conditions, or provisions of or constitute a default
under the certificate of incorporation or bylaws of the Company,
any leases, or any note, indenture, mortgage, deed of trust, or
other agreement or instrument known to such counsel to which the
Company is a party or by which the Company or any of its
properties is bound or any existing law (provided this Section
8.8 (iv) shall not relate to federal or state securities laws),
order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality, agency, body,
arbitration tribunal, or court, domestic or foreign, having
jurisdiction over the Company or its property which is known to
such counsel.
27
(v) No preemptive rights, including any existing
preemptive rights which have been waived by the holders of such
rights, exist with respect to the Company's securities.
(vi) The Company has authorized capitalization as
described in the Registration Statement.
(vii) Based upon written or oral communications from the
Commission, the Registration Statement has become effective
under the Act and, to the knowledge of such legal counsel, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has
been instituted or is pending or contemplated; legal counsel has
participated in the preparation of the Registration Statement
and Prospectus and each amendment and supplement thereto, and no
facts have come to the attention of legal counsel to lead
counsel to believe that either the Registration Statement or the
Prospectus or any amendment or supplement thereto contains any
untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances
under which made (except for the financial statements and other
financial data included therein, as to which legal counsel
expresses no opinion); and such counsel is familiar with all
contracts referred to in the Registration Statement or
Prospectus and such contracts are sufficiently summarized or
disclosed therein or filed as exhibits thereto as required, and
such legal counsel does not know of any other contracts that are
required to be summarized or disclosed or filed, and such legal
counsel does not know of any legal or governmental proceedings
pending or threatened to which the Company is subject of such a
character required to be disclosed in the Registration Statement
or the Prospectus which are not disclosed and properly described
therein.
(viii) This Agreement has been duly authorized by the
Company and is a valid and binding agreement of the Company
enforceable in accordance with its terms subject to equitable
principles and to applicable bankruptcy, insolvency and other
laws concerning the enforceability of creditors' rights
generally; provided that such counsel need not express any
opinion as to the enforceability of any indemnification or
contribution provisions contained in this Agreement. A
sufficient number of shares of the Company's Common Stock have
been duly reserved for issuance upon exercise of the
Representative's Warrants.
(ix) Except as disclosed in the Registration Statement
and Prospectus, to the knowledge of legal counsel, neither the
Company nor its Subsidiary is in default under any of the
contracts, licenses, leases or agreements to which any of them
is a party and which are described in the Registration Statement
or attached thereto as exhibits and the Public Offering of the
Shares being sold by the Company to the Underwriting Group will
not cause the Company or its Subsidiary to become in default of
any of such contracts, licenses, leases or agreements.
(x) Except as disclosed in the Registration Statement
and Prospectus and subject to equitable principles, to the
knowledge of legal counsel, the properties owned by the Company
and its Subsidiary described in the Registration Statement are
free and clear of all liens, charges, encumbrances or
restrictions; to the knowledge of legal counsel, all of the
leases, subleases and other agreements known to such counsel
under which the Company and its Subsidiary hold their respective
properties and conduct their respective businesses are in full
force and effect; to the knowledge of legal counsel, neither the
Company nor its Subsidiary is in default under any of the
material terms or provisions of any of such leases, subleases or
other agreements known to such counsel; and to the knowledge of
legal counsel, there are no claims against the Company or its
Subsidiary concerning the rights of the Company and its
Subsidiary under such leases, subleases and other agreements and
concerning the right of the Company and its Subsidiary to
continued possession of their respective properties.
(xi) Legal counsel is unaware of any affiliate, parent
or subsidiary of the Company except as are described in the
Registration Statement and Prospectus.
28
(xii) Except as disclosed in the Registration Statement,
either the Company or its Subsidiary exclusively owns,
possesses, or lawfully uses, pursuant to licenses, sublicenses
or other agreements, all U.S. or other foreign patents, patent
applications, trademarks, trademark applications, service marks,
trade names, logos, trade dress, ▇▇▇▇ works, and copyrights
(collectively, "Patents, Trademarks and Copyrights") necessary
to the purchase, sale, distribution, marketing and advertising
of sports related headwear and related accessories currently
being sold through the Company's retail stores; such patents,
Trademarks and Copyrights are legal, valid and enforceable; to
the best of legal counsel's knowledge, either the Company or its
Subsidiary owns, possesses and lawfully uses the Hat World
Corporation domain name on the internet exclusive of any third
party's rights or claims thereto; and to the best of legal
counsel's knowledge, the Company has taken all necessary and
appropriate action to maintain and protect the Patents,
Trademarks and Copyrights.
(xiii) Such counsel has not received and is not aware of
the Company or its Subsidiary having received any notice of any
claim from any third party which notice would cause such counsel
to conclude that the Company or its Subsidiary does not own or
possess adequate rights with respect to the Patents, Trademarks
and Copyrights.
(xiv) The licenses, sublicenses and other agreements
("Licenses") covering the use of any of the Patents, Trademarks
and Copyrights by the Company and its Subsidiary are legal,
binding, enforceable and in full force and effect and to the
best of legal counsel's knowledge, neither the Company nor its
Subsidiary is in breach or default of any such Licenses and no
event has occurred which with notice or lapse of time would
result in a breach or default or permit termination,
modification or acceleration under any such License.
(xv) To such counsel's knowledge, except as set forth in
the Registration Statement and Prospectus, no holders of Common
Stock or other securities of the Company have registration
rights with respect to securities of the Company and, except as
set forth in the Registration Statement and Prospectus, all
holders of securities of the Company having rights to
registration of such Common Stock, or other securities, because
of the filing of the Registration Statement by the Company have,
with respect to the Public Offering contemplated thereby, waived
such rights or such rights have expired by reason of lapse of
time following notification of the Company's intent to file the
Registration Statement, or have included securities in the
Registration Statement pursuant to the exercise of such rights.
In rendering such opinions, such legal counsel shall be entitled to rely
upon Public Authority Documents and upon information provided by client
officials in written Certificates provided that copies of such Public Authority
Documents and Certificates are attached as exhibits to the written opinion of
legal counsel. The term "Public Authority Documents" shall have the meaning
ascribed to it in the Legal Opinion Accord of the ABA Section of Business Law
(1991). Such opinions may be subject to such qualifications, exceptions,
definitions, limitations as are normally included in similar opinions.
8.9 Accountant's Letter. The Representative and legal counsel for the
Representative shall have received, at least ten (10) days prior to the
Effective Date and again two (2) days prior to the Closing Date, drafts of a
letter, and on the Closing Date, a duly executed letter addressed to the
Representative and dated the Closing Date from ▇▇▇▇ Bailly LLP, independent
public accountants for the Company and its Subsidiary, stating that with respect
to the Company and its Subsidiary they are independent public accountants within
the meaning of the Act and the applicable published Rules and Regulations
thereunder; in their opinion, the Company's financial statements audited by them
at all dates and for all periods referred to in their opinion and included in
the Registration Statement and Prospectus, comply in all material respects with
the applicable accounting requirements of the Act and the published Rules and
Regulations thereunder with respect to registration statements on Form SB-2; on
the basis of certain indicated procedures (but not an audit in accordance with
generally accepted accounting principles), including reading of the instruments
of the Company and its Subsidiary set forth in the Prospectus, a reading of the
latest available interim unaudited financial statements of the Company, whether
or not appearing in the Prospectus, inquiries of the officers of the Company or
other persons responsible for its financial and accounting matters regarding the
specific items for which representations are requested below and a reading of
the minute book of the Company and its Subsidiary, nothing has come to their
attention, except as disclosed in their
29
letter, which would cause them to believe that during the period from the last
audited balance sheet included in the Registration Statement to a specified date
not more than two (2) days prior to the date of such letter:
(i) there has been any material change in the financial position
of the Company and its Subsidiary other than as contemplated by
disclosures contained in the Prospectus;
(ii) there has been any material change in the capital stock or
surplus accounts of the Company and its Subsidiary or any payment or
declaration of any dividend or other distribution in respect thereof or
exchange therefor or in the debt of the Company and its Subsidiary from
that shown in the Company's last audited balance sheet included in the
Prospectus, other than as contemplated by disclosures contained in the
Prospectus;
(iii) there have been any material decreases in working capital
or net worth as compared with amounts shown in the Company's last
audited balance sheet included in the Prospectus other than as
contemplated by disclosures contained in the Prospectus;
(iv) there have been any material decreases, as compared with
amounts shown in the Company's last audited balance sheet included in
the Prospectus, in the cash balances other than as contemplated by
disclosures contained in the Prospectus;
(v) the financial statements and schedules set forth in the
Registration Statement and Prospectus do not present fairly the
financial position and results of operations of the Company and its
Subsidiary for the periods indicated in conformity with generally
accepted accounting principles applied on a consistent basis, and are
not in all material respects a fair presentation of the information
purported to be shown;
(vi) there is any material obligation or liability on the part
of the Company and its Subsidiary to fund any retirement plan maintained
by the Company or its Subsidiary which is currently in effect, which
obligation or liability is not otherwise reflected in Company's audited
financial statements as set forth in the Prospectus; and
(vii) the dollar amounts, percentages and other financial
information set forth in the Registration Statement and Prospectus under
the captions "Summary," "The Offering," "Summary Consolidated Financial
Data," "Risk Factors," "Use of Proceeds," "Capitalization," "Dilution,"
"Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business," "Summary
Compensation," and "Certain Transactions," are not in agreement with the
Company's general ledger, financial records or computations made by the
Company therefrom.
Such letter ("Accountant's Letter") shall also cover such other matters
incident to the transactions contemplated by this Agreement in form satisfactory
to the Representative as the Representative reasonably requests.
8.10 Conformed Copies of Accountant's Letter. The Representative shall
be furnished without charge, in addition to the original signed copies, such
number of signed or photostatic or conformed copies of the Accountant's Letter
as the Representative shall reasonably request.
8.11 Officer's Certificates. The Company shall have furnished to the
Representative and legal counsel for the Representative, at least ten (10) days
prior to the Effective Date and again two (2) days prior to the Closing, drafts
of a certificate and on the Closing Date, two (2) certificates each signed by
the president, chief operating officer and the chief financial officer of the
Company and its Subsidiary, one dated the date of this Agreement and one dated
as of the Closing Date, to the effect that:
(i) The representations and warranties of the Company, including
without limitations those relating to its Subsidiary, as set forth in
this Agreement are true and correct at and as of the date of the
certificate and the Company has complied with all the agreements and has
satisfied all the conditions on its part to be performed or satisfied at
or prior to the date of the certificate;
(ii) The Registration Statement has become effective and no
order suspending the effectiveness
30
of the Registration Statement has been issued and to the best of the
knowledge of the respective signers, after such respective signers have
made inquiry, no proceeding for that purpose has been initiated or is
threatened by the Commission;
(iii) The respective signers have each carefully examined the
Registration Statement and Prospectus and any amendments and supplements
thereto, and the Registration Statement and the Prospectus and any
amendments and supplements thereto contain all statements required to be
stated therein, and all statements contained therein are true and
correct, and neither the Registration Statement nor Prospectus nor any
amendment or supplement thereto includes any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein 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 a
supplemented Prospectus which has not been so set forth;
(iv) This Agreement has been, and, as of the Closing Date, the
Representative's Warrants will have been, duly authorized and executed
by the Company;
(v) The respective signers have each reviewed the questionnaires
provided to the Representative by each officer and director of the
Company and its Subsidiary, and five percent (5%) or more shareholder of
the Company and, to the best of their knowledge, the statements made in
such questionnaires are true and correct;
(vi) Except as set forth in the Registration Statement and
Prospectus, since the respective dates as of which information is given
in the Registration Statement and Prospectus and prior to the date of
such certificate, (i) there has not been any change in the officers or
directors of the Company and its Subsidiary, or any substantially
adverse change, financial or otherwise, in the affairs or condition of
the Company, and (ii) neither the Company and its Subsidiary has
incurred any liabilities, direct or contingent, or entered into any
transactions, otherwise than in the ordinary course of business; and
(vii) As of or subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, no
dividends or distributions whatever have been declared and/or paid on or
with respect to the securities of the Company or its Subsidiary.
8.12 Tender for Delivery. All of the Shares being offered by the Company
which are sold in the Public Offering shall be tendered for delivery in
accordance with the terms and provisions of this Agreement.
8.13 Blue Sky Qualification. The Shares shall be qualified in such
states as are reasonably designated by the Representative as set forth in
Section 5.4 hereof and each such qualification shall be in effect and not
subject to any stop order or other proceeding on the Closing Date or Option
Closing Date. On both the Effective Date of the Registration Statement and on
the Closing Date, the Company and the Representative shall receive from
Clanahan, Tanner, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇, P.C., a written opinion which contains
the following:
31
(i) The names of the states in which applications to register or
qualify the Shares have been filed;
(ii) The status of such registrations or qualifications in such
states as of the date thereof;
(iii) A list containing the name of each such state in which the
Shares may be legally offered and sold by a dealer licensed in such
state and the number of each which may be legally offered and sold in
each such state as of the date thereof;
(iv) With respect to the written opinion dated on the Effective
Date, a representation that such legal counsel will continuously update
such written information if any changes occur in the information
provided therein between the Effective Date and the Closing Date and
Option Closing Date; and
(v) A statement that the Company, the members of the
Underwriting Group and selected dealers in the Public Offering may rely
upon the opinions contained therein.
8.14 Approval of Legal Counsel to the Representative. All opinions,
letters, certificates and evidence mentioned above or elsewhere in this
Agreement shall be deemed to be in compliance with the provisions hereof only if
they are in form and substance satisfactory to legal counsel for the
Representative. The suggested form of such documents shall be provided to the
legal counsel for the Representative at least three (3) business days before the
Closing Date.
8.15 Officer's Certificate as a Company Representative. Any certificate
signed by an officer of the Company and delivered to the Representative or to
legal counsel for the Representative will be deemed a representation and
warranty by the Company or its Subsidiary to the members of the Underwriting
Group as to the statements made therein.
SECTION 9
Termination
9.1 Termination Because of Noncompliance. This Agreement may be
terminated by the members of the Underwriting Group by notice to the Company in
the event that the Company shall have failed or been unable to comply with any
of the terms, conditions or provisions of this Agreement on the part of the
Company to be performed, complied with or fulfilled within the respective times
herein provided for, unless compliance therewith or performance or satisfaction
thereof shall have been expressly waived by the Representative in writing, or
the results of the Representative's due diligence investigation of the Company
and its Subsidiary, as provided in Section 5.13 hereof do not meet with the
approval of the Representative after being provided with explanations and
mitigations by counsel for the Company as contemplated under Section 5.13. This
Agreement may be terminated by the Company by notice to the Representative in
the event the members of the Underwriting Group shall have failed or been unable
to comply with any of the terms, conditions or provisions of this Agreement on
the part of the members of the Underwriting Group to be performed, complied with
or fulfilled within the respective times herein provided for, unless compliance
therewith or performance or satisfaction thereof shall have been expressly
waived by the Company in writing.
9.2 Termination Because of Changes. This Agreement may be terminated by
the members of the Underwriting Group by notice to the Company if the
Representative believes in its sole judgment that any changes have occurred in
or with respect to the management of the Company and its Subsidiary, that
material adverse changes have occurred in or with respect to the business,
financial condition, results of operations, prospects or obligations of the
Company and its Subsidiary, or if the Company or its Subsidiary shall have
sustained a loss or anticipated loss as a result of a strike, governmental
action, fire, flood, accident, contract termination, or other calamity of such a
character as, in the sole judgment of the Representative, may interfere
materially with the conduct of the business and operations of the Company and
its Subsidiary regardless of whether or not such loss or anticipated loss shall
have been insured, or if during the course of the Representative's due diligence
investigation of the Company and its Subsidiary facts arise which vary
materially in an adverse manner from the representations which have previously
been made concerning the business and financial condition of the Company and its
Subsidiary.
32
9.3 Market Out Termination. This Agreement may be terminated by the
members of the Underwriting Group by notice to the Company at any time if, in
the judgment of the Representative, payment for and delivery of the Shares is
rendered impracticable or inadvisable because (i) additional material
governmental restrictions not in force and effect on the date hereof shall have
been imposed upon the trading in securities generally, or minimum or maximum
prices shall have been generally established on the New York or American Stock
Exchange, or trading in securities generally on either such Exchange shall have
been suspended, or a general moratorium shall have been established by federal
or state authorities, or (ii) a war or other national calamity or emergency
shall have occurred, or (iii) of any suspension of trading of the Common Stock
of the Company in the over-the-counter market, or (iv) substantial and material
adverse changes in the condition of the securities markets beyond normal
fluctuations have occurred which in the Underwriter's sole judgment would not
justify the Public Offering on the terms provided in this Agreement.
9.4 Effect of Termination Hereunder. If the members of the Underwriting
Group decide to terminate this Agreement pursuant to this Section 9 or the
Company decides to terminate this Agreement pursuant to Section 9.1 or 10.3
hereof, such party shall provide notice of such termination to the other party.
In such event, the Company shall reimburse the Representative on an accountable
basis for all reasonable and customary expenses incurred by the Representative
in connection with the proposed Public Offering as herein provided up to and
including the date of termination. The Representative shall provide the Company
with a statement of the Underwriting Group's actual accountable out of pocket
expenses, which shall include but are not limited to, fees of legal counsel for
the Representative and the fees of independent consultants and investigators who
are not directly or indirectly affiliated or associated with a member of the
NASD and who are retained by the Underwriting Group to provide a service in
connection with the due diligence investigation of the proposed Public Offering,
confirmation and other document preparation costs, entertainment expenses,
travel expenses, postage expenses, advertising costs, duplication expenses, long
distance telephone expenses, and any other documented third party expenses
(collectively "accountable expenses") incurred by the Underwriting Group in
connection with the Public Offering. The Representative shall not be required to
include in such accountable expenses any of the expenses to be paid by the
Company under Section 5.7 hereof, and, if the Underwriting Group has paid any of
such expenses on behalf of the Company, the Company shall separately reimburse
the Underwriting Group for such advances immediately upon receipt of a statement
therefor from the Representative. If such accountable expenses are less than the
amount of the nonaccountable expense payments the Company has made to the
Representative as provided in Section 3.3 hereof, the Underwriting Group will
refund the balance of such payments, net of the Representative's accountable
expenses, to the Company within ten (10) days after the delivery of such
statement by the Representative to the Company. If the amount of the accountable
expenses is more than the amount of the nonaccountable expense payments made by
the Company to the Representative, the balance shall be promptly paid by the
Company to the Representative. If the Company fails to pay the amount of
accountable expenses owed to the Representative or members of the Underwriting
Group, their successors or assigns, the Company shall be liable to the
Representative for attorneys' fees and costs incurred in the collection of such
amounts in addition to its liability for the unpaid amount of such accountable
expenses. The members of the Underwriting Group shall not have any liability to
each other if the Company or the members of the Underwriting Group decide not to
proceed with the proposed offering for any reason set forth in this Section 9 or
in Section 10 hereof, except that the Company shall remain obligated to pay the
costs and expenses required to be paid by it as specified in Section 5.7 hereof
and this Section 9.4, and the Company, and the members of the Underwriting Group
shall be obligated to pay, respectively, all losses, claims, damages or
liabilities, joint or several, under Section 6 hereof.
SECTION 10
Representations and Warranties of
the Members of the Underwriting Group
The members of the Underwriting Group represent and warrant to and agree
with the Company that:
10.1 Registration as Broker Dealer and Member of NASD. The members of
the Underwriting Group are registered as broker dealers with the Commission and
are members in good standing of the NASD and are licensed as dealers in all
states in which they will sell the Shares.
33
10.2 No Pending Proceedings. There is not now pending against the
Representative any action or proceeding of which it has been advised, either in
any court of competent jurisdiction, before the Commission or any state
securities commission, concerning its activities as a broker or dealer that, in
the opinion of the Representative, would prevent it from acting as such under
federal securities laws or under the laws of the states in which it intends to
offer the Shares.
10.3 Company's Right to Terminate. In the event any action or proceeding
of the type referred to in Section 10.2 hereof shall be instituted against the
Representative at any time prior to the Closing Date hereunder, or in the event
there shall be filed by or against the Representative in any court pursuant to
any federal, state, local or municipal statute, a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of assets of the Representative or if the Representative makes an assignment for
the benefit of creditors, the Company shall have the right on written notice to
the Representative to terminate this Agreement without any liability to the
members of the Underwriting Group of any kind except for the payment of expenses
as provided in Section 5.7 hereof.
10.4 Finder. The members of the Underwriting Group know of no
outstanding claims against them for compensation for services in the nature of a
finder's fee, origination fee, financial consulting fee or any other form of
compensation as a finder with respect to the offer and sale of the Shares
hereunder.
10.5 Compliance. The members of the Underwriting Group, severally and
not jointly, agree to offer and sell the Shares being purchased hereunder in
accordance with the requirements of federal and state securities laws and the
rules of the NASD.
SECTION 11
Fee Payable on Occurrence of Certain Events
11.1 Fee Payable to Representative If Company Elects Out of Public
Offering. If after March 26, 1999, and prior to the execution of this Agreement,
the Company elect not to proceed expeditiously with the Public Offering even
though the Representative is ready, willing and able to effectuate the Public
Offering within the range of the Public Offering Price as set forth in the
Registration Statement and the Prospectus, the Company agrees that (i) it will
not sell any of its capital stock to the public to another underwriter for a
period of at least five (5) months, or (ii) if it does so, then the Company
shall pay to the Representative One Hundred Fifty Thousand Dollars ($150,000) in
addition to the amounts paid pursuant to the provisions set forth under Section
9 of this Agreement, which amount the Company and the Representative agree
constitutes a fair compensation to the Representative for services performed
with respect to the proposed Public Offering as contemplated under this
Agreement.
11.2 A Reorganization of Company Prior to Public Offering. If prior to
the Closing of the Proposed Public Offering contemplated under this Agreement
and during the period from March 26, 1999 until September 26, 1999, the Company
and its Subsidiary or either such entity is acquired, merges, sells or
substantially all of its or their assets or otherwise effects a reorganization
with any other entity and, as a result, the Public Offering contemplated under
this Agreement is abandoned by the Company, the Company shall pay the
Representative a fee in the amount of Fifty Thousand Dollars ($50,000) per month
in cash commencing retroactively to March 26, 1999. The Company and the
Representative agree that such fee and the amount of such fee constitutes fair
compensation to the Representative for services performed with respect to the
proposed Public Offering. Such fees shall be in addition to the payment of the
expenses and the fees discussed in Section 9 of this Agreement. Upon request,
the Representative shall act as the Company's investment banker in connection
with any such acquisition and render such services as their customary connection
therewith, in consideration for such fee.
11.3 First Right of Refusal. For a period of five (5) years after the
Closing Date or until an offering occurs which the Representative declines the
Company shall notify the Representative in writing at least ten (10) days before
the proposed public offering of any debt or equity security (other than bank
debt or similar financing) by the Company or by any of its majority owned or
controlled Subsidiaries (collectively referred to in this Section 11.3 as the
"Company") or any of its stockholders owning at least five percent (5%) of the
Company's Common Stock ("Principle Shareholders") such that the Representative
or, at its option, a group of associated investment
34
bankers, shall have the right of first refusal to effect the offering on terms
as favorable as their before offered in writing by reputable investment banker.
If the Company receives an offer from a major bracket underwriter, such right of
first refusal shall be considered satisfied if the Representatives included in
the offering as a syndicate member and receives a reasonable retention fee. For
purposes of this Section 11.3, the term "major bracket underwriter" any
investment bank which consistently during the past five (5) years has
underwriter as lead underwriter in excess of $100 million in total debt and
equity financing each year during such period. The Representative shall notify
the Company if it intends to exercise the right of first refusal provided under
this Section 11.3 within ten (10) days after receipt by the Representative of
such notice from the Company. If the Representative fails to exercise the right
of first refusal within the ten (10) day period and the terms of the proposed
subsequent financing thereafter are altered in any material respect, the Company
shall be required to offer to the Representative the right of first refusal to
effect subsequent financing on such altered terms and the Representative shall
have ten (10) days from the date of receipt to notify the Company of its
acceptance.
SECTION 12
Notice
Except as otherwise expressly provided in this Agreement:
12.1 Notice to the Company. Whenever notice is required by the
provisions of this Agreement to be given to the Company, such notice shall be in
writing addressed as follows:
Hat World Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman of the Board
12.2 Notices. Whenever notice is required by the provisions of this
Agreement to be given to the members of the Underwriting Group, such notice
shall be given in writing addressed to the Representative at the address set
forth in the beginning of this Agreement.
SECTION 13
Miscellaneous
13.1 Benefit. This Agreement is made solely for the benefit of the
members of the Underwriting Group, the Company, their respective officers and
directors and any controlling person referred to in Section 15 of the Act, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successor" or the
term "successors and assigns" as used in this Agreement shall not include any
purchasers, as such, of any of the Shares. In addition, the indemnity, defense
and contribution obligations of the Company included in Section 6 of this
Agreement also inure to the benefit of the selected dealers and any person who
controls the selected dealers within the meaning of Section 15 of the Act.
13.2 Survival. The respective indemnities, agreements, representations,
warranties, covenants and other statements as set forth in or made pursuant to
this Agreement and the indemnity and contribution agreements contained in
Section 6 of this Agreement shall survive and remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company, or the
Representative or any of the other members of the Underwriting Group or any such
officer or director thereof or any controlling person of the Company or of the
Representative or any other member of the Underwriting Group, (ii) delivery of
or payment for the Shares, and (iii) the occurrence of Closing Date and the
Option Closing Date. Any successor of the Company, any member of the
Underwriting Group or any controlling person, officer or director thereof, shall
be entitled to the benefits hereof.
13.3 Governing Law and Forum. The validity, interpretation and
construction of this Agreement and of each part hereof will be governed by the
laws of the State of Colorado. The parties to the Agreement hereby agree to
submit to the jurisdiction of the courts of the State of Colorado located in
Denver, Colorado which shall be the sole tribunal in which any such parties may
institute and maintain a legal proceeding against the other party arising from
any dispute under this Agreement. If any party initiates a legal proceeding in a
jurisdiction other than in the courts of the State of Colorado, the other party
may assert as a complete defense and as a basis for dismissal
35
of such legal proceeding failure of the party initiating such proceeding to have
initiated and maintained such proceeding in the courts of the State of Colorado
in accordance with this Section 13.3. In the event of litigation or arbitration
concerning this Agreement, the prevailing party shall be awarded attorney's fees
and costs, subject to the provisions of Section 9.4 hereof.
13.4 The Information of the Members of the Underwriting Group.
Notwithstanding any participation by the legal counsel for the Representative in
the reorganization and/or revision of the Prospectus, the statements with
respect to the Public Offering of the Shares on the cover page of the Prospectus
and the Notes thereto and under the caption "Underwriting" in the Prospectus
constitute the only written information furnished by or on behalf of the members
of the Underwriting Group referred to in Sections 2.2, 6.1 and 6.2 hereof.
13.5 Severability. If any provision or portion of any provision of this
Agreement is determined to be invalid for any reason, such invalid provision or
portion of such invalid provision shall be deemed to be deleted and the validity
of the remaining provisions or portions thereof shall not be affected thereby
and shall remain in full force and effect.
13.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the Agreement
between the members of the Underwriting Group and the Company.
Very truly yours,
HAT WORLD CORPORATION
By: _____________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman of the Board
36
THE REPRESENTATIVE, ON BEHALF OF THE UNDERWRITING GROUP, HEREBY CONFIRMS AS OF
THE DATE HEREOF THAT THE ABOVE LETTER SETS FORTH THE AGREEMENT BETWEEN THE
COMPANY AND THE UNDERWRITING GROUP.
EBI SECURITIES CORPORATION
By: _____________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇,
Executive Vice President,
as Attorney in Fact for the several
Underwriters named in Schedule I to
the Underwriting Agreement
37
SCHEDULE I
TO
UNDERWRITING AGREEMENT
Underwriter Number of Shares
----------- ----------------
TOTAL