Exhibit 1.1
1,500,000 UNITS
IMAGEWARE SYSTEMS, INC.
UNDERWRITING AGREEMENT
__________, 2000
▇▇▇▇▇▇▇ Investment Company, Inc.
As Representative of the
Several Underwriters
▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Gentlemen:
ImageWare Systems, Inc., a California corporation (the "Company"),
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as Representative (the
"Representative") an aggregate of 1,500,000 Units (the "Firm Units"). Each Unit
will consist of one share of the Company's Common Stock ("Common Stock") and one
Redeemable Purchase Warrant substantially in the form filed as an exhibit to the
Registration Statement (as hereinafter defined) ("Warrants"). The respective
number of the Firm Units to be so purchased by the several Underwriters is set
forth opposite their names in Schedule I hereto. The Company also proposes to
grant to the Representative an option to purchase in the aggregate up to 225,000
additional Units, identical to the Firm Units (the "Option Units"), as set forth
below.
As the Representative, you have advised the Company (a) that you are
authorized to enter into this Agreement for yourself as Representative and on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the number of Firm Units
set forth opposite their respective names in Schedule I. The Firm Units and the
Option Units (to the extent the aforementioned option is exercised) are herein
collectively called the "Units."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
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1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as
follows:
(a) A registration statement on Form SB-2 (File No. 333-_____)
with respect to the Units has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means (i) the form of prospectus first
filed with the Commission pursuant to Rule 424(b) or (ii) the last preliminary
prospectus included in the Registration Statement filed prior to the time it
becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Units, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(b) Each of the Company and its subsidiary has been duly
organized and is validly existing as a corporation in good standing under the
laws of the State of California, with corporate power and corporate authority to
own or lease its properties and conduct its business as described in the
Registration Statement. The Company does not own and never has owned a
controlling interest in any other corporation or other business entity, except
as disclosed in the Registration Statement. Each of the Company and its
subsidiary is duly qualified to transact business and is in good standing in all
jurisdictions in which the conduct of its business requires such qualification.
(c) The Company owns all of the outstanding capital stock of
its subsidiary free and clear of all claims, liens, charges and encumbrances.
The outstanding shares of each class or series of capital stock of each of the
Company and its subsidiary have been duly authorized and validly issued and are
fully paid and non-assessable and, except as disclosed in the Registration
Statement, have been issued and sold by the Company in compliance in all
material respects with applicable securities laws; the issuance and sale of the
Units, and the common stock and warrants included within the Units, have been
duly authorized by all necessary corporate action and, when issued and paid for
as contemplated herein, will be validly issued, fully paid and non-assessable;
and no preemptive rights of shareholders exist with respect to any security of
the Company or the issue and sale thereof. Except as set forth in the
Registration Statement, neither the filing of the Registration Statement nor the
offering or sale of the Units as contemplated by this Agreement
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give rise to any rights, other than those which have been waived or satisfied,
for or relating to the registration of any shares of Common Stock or other
securities of the Company.
(d) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. The Common Stock
conforms and the Warrants and the Representative's Warrant will conform to the
description thereof contained in the Registration Statement. The forms of
certificates for the securities comprising the Units conform to the requirements
of the corporate law of California. Except as described in the Registration
Statement, there are no outstanding securities of the Company or its subsidiary
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company or its subsidiary to issue any shares of its capital
stock or any securities convertible or exchangeable into or evidencing the right
to purchase or subscribe for any shares of such stock.
(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Units nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform to, the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representative, specifically for use in
the preparation thereof.
(f) The financial statements of the Company and XImage
Corporation ("XImage"), the Company's wholly-owned subsidiary, together with
related notes and schedules as set forth in the Registration Statement, present
fairly the financial position, results of operations, cash flows and
shareholders equity of the Company and XImage at the indicated dates and for the
indicated periods. Such financial statements and related schedules have been
prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods involved, except as disclosed
therein, and all adjustments necessary for a fair presentation of results for
such periods have been made. The summary financial and statistical data of the
Company and XImage included in the Registration Statement presents fairly the
information shown therein and such data has been compiled on a basis consistent
with the financial statements presented therein and the books and records of the
Company and XImage. The pro forma financial information included in the
Registration Statement and the Prospectus presents fairly the information shown
therein, has been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, has been properly
compiled on the pro forma bases described
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therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(g) PricewaterhouseCoopers LLP, who have certified certain of
the financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
applicable published Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or,
to the knowledge of the Company, threatened against the Company or its
subsidiary before any court or administrative agency or otherwise which if
determined adversely to the Company or its subsidiary might result in any
material adverse change in the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company or its subsidiary or prevent the consummation of the transactions
contemplated hereby, except as set forth in the Registration Statement.
(i) Each of the Company and it subsidiary has good and
marketable title to all properties and assets, tangible and intangible,
reflected in the financial statements (or as described in the Registration
Statement) hereinabove described, subject to no lien, mortgage, pledge, charge
or encumbrance of any kind except those reflected in such financial statements
(or as described in the Registration Statement) or which are not material. Each
of the Company's and its subsidiary's ownership rights in its patents, patent
licenses and other material technology is consistent with (i) the description
thereof in the Registration Statement, and (ii) the business needs of the
Company and its subsidiary. The Company has sole and exclusive right, title and
interest to the all contracts and agreements acquired pursuant to the
acquisition of the subsidiary, and the Company has obtained all requisite
consents to the transfer of such contracts and agreements. All of the leases and
subleases under which each of the Company and its subsidiary holds properties,
tangible or intangible, are in full force and effect conforming in all respects
to the description thereof set forth in the Registration Statement. Neither the
Company nor its subsidiary have received notice of any claim that is materially
adverse to the rights of the Company or its subsidiary under any of such leases
or subleases.
(j) Other than past due payroll and sales taxes owing, in an
aggregate amount not to exceed $300,000, each of the Company and its subsidiary
has filed all federal, state, local and foreign income tax returns which have
been required to be filed and has paid all taxes indicated by said returns and
all assessments received by it to the extent that such taxes have become due and
are not being contested in good faith. All tax liabilities have been adequately
provided for in the financial statements of the Company, and each of the Company
and its subsidiary does not know of any actual or proposed additional material
tax assessments relating to any of its historical periods.
(k) Since the respective dates as of which information is
given in the Registration Statement, as it may have been amended or
supplemented, there has not been any material adverse change or any development
involving a prospective material adverse change in or affecting the earnings,
business, management, properties, assets, rights, operations, condition
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(financial or otherwise), or prospects of the Company or its subsidiary, whether
or not occurring in the ordinary course of business, and there has not been any
material transaction entered into or any material transaction that is probable
of being entered into by the Company or its subsidiary, other than transactions
in the ordinary course of business and changes and transactions described in the
Registration Statement, as it may be amended or supplemented. Neither the
Company nor its subsidiary has any material contingent obligations which are not
disclosed in the Company's financial statements or elsewhere in the Prospectus
which is included in the Registration Statement.
(l) Each of the Company and its subsidiary is not, nor, with
the giving of notice or lapse of time or both, will it be, in violation of or in
default under its Articles of Incorporation or Bylaws or under any agreement,
lease, contract, indenture or other instrument or obligation to which it is a
party or by which it, or any of its properties, is bound and which default is of
material significance in respect of the condition, financial or otherwise, of
the Company or its subsidiary or the business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company or its subsidiary. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated and the fulfillment of the
terms hereof will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, material contract or other agreement or instrument to which the Company
or its subsidiary is a party or by which its assets may be bound, or of the
Articles of Incorporation or Bylaws of the Company or its subsidiary or any
order, rule or regulation applicable to the Company or its subsidiary of any
court or of any regulatory body or administrative agency or other governmental
body having jurisdiction.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Units for public offering by
the Underwriters under state securities or Blue Sky laws) has been obtained or
made and is in full force and effect.
(n) Each of the Company and its subsidiary owns or possesses
adequate rights to use or can acquire on reasonable terms, all patents, patent
rights, trademarks, service marks, trade names, copyrights, trade secrets and
licenses of any of the foregoing (collectively, "Intellectual Property Rights")
that are described in the Prospectus or which are necessary to the conduct of
its business; there is no claim pending or, to the best knowledge of the
Company, threatened against the Company, its subsidiary, or any of its officers,
directors, employees or consultants, in their capacities as such, alleging any
infringement of Intellectual Property Rights, or any violation of the terms of
any license relating to Intellectual Property Rights, nor does the Company know
of any basis for any such claim. Except as disclosed in the Registration
Statement or in the letter from the Company to the Representative dated
________, the Company knows of no infringement by others of Intellectual
Property Rights owned by or licensed to the Company. Except as disclosed in the
Registration Statement, the expiration of any Intellectual Property Rights would
not have a material adverse effect on the condition, or on the earnings,
business or
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operations of the Company or its subsidiaries, taken as a whole. Each of the
Company and its subsidiary has obtained, is in compliance in all material
respect with and maintains in full force and effect all material licenses,
certificates, permits, orders or other, similar authorizations granted or issued
by any governmental agency (collectively "Government Permits") required to
conduct its business as it is presently conducted. No proceeding to revoke,
limit or otherwise materially change any Government Permit has been commenced
or, to the knowledge of the Company, is threatened against the Company or its
subsidiary, and neither the Company nor its subsidiary has reason to anticipate
that any such proceeding will be commenced against the Company or its
subsidiary. Except as disclosed or contemplated in the Prospectus, each of the
Company and its subsidiary has no reason to believe that any pending application
for a patent or Government Permit will be denied or limited in a manner
inconsistent with the Company's or its subsidiary's business plan as described
in the Prospectus.
(o) Each of the Company and its subsidiary is in all material
respects in compliance with all applicable Environmental Laws (as defined
below). Each of the Company and its subsidiary has no knowledge of any past,
present or, as anticipated by the Company or its subsidiary, future events,
conditions, activities, investigation, studies, plans or proposals that (i)
would interfere with or prevent compliance with any Environmental Law by the
Company or its subsidiary or (ii) could reasonably be expected to give rise to
any common law or other liability, or otherwise form the basis of a claim,
action, suit, proceeding, hearing or investigation, involving the Company or its
subsidiary and related to Hazardous Substances (as defined below) or
Environmental Laws. No Hazardous Substance is or has been used, treated, stored,
generated, manufactured or otherwise handled on or at any Facility (as defined
below) and to the knowledge of the Company, no Hazardous Substance has otherwise
come to be located in, on or under any Facility. No Hazardous Substances are
stored at any Facility except in quantities necessary to satisfy the reasonably
anticipated use or consumption by the Company or its subsidiary. No litigation,
claim, proceeding or governmental investigation is pending regarding any
environmental matter for which the Company or its subsidiary has been served or
otherwise notified or, to the knowledge of the Company, threatened or asserted
against the Company, its subsidiary, or the officers or directors of the Company
or its subsidiary in their capacities as such, or any Facility or the Company's
or its subsidiary's business. There are no orders, judgments or decrees of any
court or of any governmental agency or instrumentality under any Environmental
Law which specifically apply to the Company, its subsidiary, any Facility or any
of the Company's or its subsidiary's operations. Each of the Company and its
subsidiary has not received from a governmental authority or other person (i)
any notice that it is a potentially responsible person for any Contaminated site
(as defined below) or (ii) any request for information about a site alleged to
be Contaminated or regarding the disposal of Hazardous Substances. There is no
litigation or proceeding against any other person by the Company or its
subsidiary regarding any environmental matter. The Company has disclosed in the
Prospectus or made available to the Underwriters and their counsel true,
complete and correct copies of any reports, studies, investigations, audits,
analyses, tests or monitoring, in the possession of or initiated by the Company
or its subsidiary, pertaining to any environmental matter relating to the
Company, its subsidiary, and their past or present operations or any Facility.
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For the purposes of the foregoing paragraph, "Environmental Laws" means
any applicable federal, state or local statute, regulation, code, rule,
ordinance, order, judgment, decree, injunction or common law pertaining in any
way to the protection of human health or the environment, including without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Toxic Substances
Control Act, the Clean Air Act, the Federal Water Pollution Control Act and any
similar or comparable state or local law; "Hazardous Substance" means any
hazardous, toxic, radioactive or infectious substance, material or waste as
defined, listed or regulated under any Environmental Law; "Contaminated" means
the actual existence on or under any real property of Hazardous Substances, if
the existence of such Hazardous Substances triggers a requirement to perform any
investigatory, remedial, removal or other response action under any
Environmental Laws or if such response action legally could be required by any
governmental authority; "Facility" means any property owned, leased or occupied
by the Company or its subsidiary.
(p) Neither the Company, nor to the knowledge of the Company,
any of its affiliates, has taken or intends to take, directly or indirectly, any
action which is designed to cause or result in, or which constitutes or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Units.
(q) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
(r) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) Each of the Company and its subsidiary carries, or is
covered by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(t) Each of the Company and its subsidiary is in compliance in
all material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company or its subsidiary would have any liability; neither
the Company nor its subsidiary has incurred and does not expect to incur
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any
7
"pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of
1986, as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company or its
subsidiary would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause the loss
of such qualification.
(u) Each of the Company and its subsidiary is in material
compliance with all laws, rules, regulations, orders of any court or
administrative agency, operating licenses or other requirements imposed by any
governmental body applicable to it and otherwise as is applicable to its
business; and the conduct of the business of the Company and its subsidiary, as
described in the Prospectus, will not cause the Company or its subsidiary to be
in violation of any such requirements.
(v) Each of the Warrants and the Representative's Warrants (as
defined in Paragraph (d) of Section 2 hereof) have been authorized for issuance
to the purchasers thereof or to the Representative or its designees, as the case
may be, and will, when issued, entitle the holder thereof to the rights,
privileges, and characteristics as represented in the most recent form of
Warrants or Representative's Warrants, as the case may be, filed as an exhibit
to the Registration Statement; the securities to be issued upon exercise of the
Warrants and the Representative's Warrants, when issued and delivered against
payment therefor in accordance with the terms thereof, will be duly and validly
issued, fully paid, nonassessable and free of preemptive rights, and all
corporate action required to be taken for the authorization and issuance of the
Warrants and the Representative's Warrants, and the securities to be issued upon
their exercise, have been validly and sufficiently taken.
(w) Except as disclosed in the Prospectus, neither the Company
nor any of its officers, directors or affiliates have caused any person, other
than the Underwriters, to be entitled to reimbursement of any kind, including,
without limitation, any compensation that would be includable as underwriter
compensation under the NASD's Corporate Financing Rule with respect to the
offering of the Units, based on any activity of such person as a finder, agent,
broker, investment adviser or other financial service provider, and there are no
contracts, agreements or understandings between the Company and any person that
would give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with this
offering.
(x) Except as described in the Prospectus, neither the Company
nor its subsidiary directly or indirectly controls or has a material interest in
any other business entity.
(y) No labor dispute with the employees of the Company or its
subsidiary exists or, to the knowledge of the Company, is imminent, and neither
the Company nor its subsidiary is aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, customers or
vendors, which, in any case, may reasonably be expected to result in a material
adverse effect on the Company.
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(z) There are no contracts or other documents which are
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits thereto which have not been so described and filed as
required.
(aa) There are no affiliations or associations between any
member of the NASD and any of the Company's officers, directors or 5% or greater
security holders.
(bb) Other than as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company or its subsidiary
and any person granting such person the right (other than rights which have been
waived or satisfied) to require the Company to file a registration statement
under the Act with respect to any securities of the Company owned or to be owned
by such person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Act.
(cc) Each of the Company's and its subsidiary's products will
produce no material, logical or arithmetic inconsistencies when dealing with
leap years or dates beyond the year 1999. Without limiting the foregoing, each
of the Company's and its subsidiary's services and products will not materially
impede the accurate processing of data, or cause programming or processing
errors resulting from the rollover of two-digit year values to "00" on January
1, 2000. The foregoing does not constitute a warranty or representation that the
Company's or its subsidiary's software will be capable of recording, storing,
processing, calculating and displaying correct calendar dates based on software
supplied by any party other than the Company or its subsidiary, or that the
Company's or its subsidiary's software will properly interact with such third
party software.
(dd) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of the Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after the
date of the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Financing (the
"Department"), whichever date is later, of if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changed in
any material way, the Company will provide the Department notice of such
business or change, as appropriate, in a form acceptable to the Department.
2. PURCHASE, SALE AND DELIVERY OF THE UNITS.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth, the
Company agrees to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a price of $____ per Unit, the number
of Firm Units set forth opposite the name of each Underwriter in Schedule I
hereof, subject to adjustments in accordance with Section 9 hereof.
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(b) Payment for the Firm Units to be sold hereunder is to be
made in New York Clearing House funds and, at the option of the Representative,
by bank wire to an account specified by the Company, or certified or bank
cashier's checks drawn to the order of the Company, against either
uncertificated delivery of Firm Units or of certificates therefor (which
delivery, if certificated, shall take place in such location in New York, New
York as may be specified by the Representative) to the Representative for the
several accounts of the Underwriters. Such payment is to be made at the offices
of the Representative at the address set forth on the first page of this
Agreement, at 7:00 a.m., Pacific time, on the third business day after the date
of this Agreement or at such other time and date not later than five business
days thereafter as you and the Company shall agree upon, such time and date
being herein referred to as the "Closing Date." (As used herein, "business day"
means a day on which the New York Stock Exchange is open for trading and on
which banks in New York are open for business and not permitted by law or
executive order to be closed.) Except to the extent uncertificated Firm Units
are delivered at closing, certificates for the Firm Units and for the common
stock and warrants comprising such Firm Units will be delivered in such
denominations and in such registrations as the Representative requests in
writing not later than the second full business day prior to the Closing Date,
and will be made available for inspection by the Representative at least one
business day prior to the Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Representative to purchase the
Option Units at the price per Unit as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 45 days after the date of this Agreement, by the
Representative to the Company setting forth the number of Option Units as to
which the Representative is exercising the option, the names and denominations
in which the Option Units are to be registered and the time and date at which
certificates representing such Units are to be delivered. The time and date at
which certificates for Option Units are to be delivered shall be determined by
the Representative but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The option with respect to the Option Units granted hereunder may
be exercised only to cover over-allotments in the sale of the Firm Units by the
Underwriters. The Representative may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Company. To the
extent, if any, that the option is exercised, payment for the Option Units shall
be made on the Option Closing Date in New York Clearing House funds and, at the
option of the Representative, by bank wire to an account specified by the
Company, or certified or bank cashier's check drawn to the order of the Company
for the Option Units to be sold by the Company in consideration either of
uncertificated delivery of Option Units or delivery of certificates therefor
(which delivery, if certificated, shall take place in such location in New York,
New York as may be specified by the Representative) to the Representative.
Except to the extent uncertificated Option Units are delivered at closing, the
certificates for the Option Units and for the common stock and warrants
comprising such Option Units will be delivered in such
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denominations and in such registrations as the Representative requests in
writing not later than the second full business day prior to the Option Closing
Date, and will be made available for inspection by the Representative at least
one business day prior to the Option Closing Date.
(d) In addition to the sums payable to the Representative as
provided elsewhere herein, the Representative shall be entitled to receive at
the Closing, for itself alone and not as Representative of the Underwriters, as
additional compensation for its services, purchase warrants (the
"Representative's Warrants") for the purchase of up to 125,000 Units at a price
of $___ per Unit, upon the terms and subject to adjustment and conversion as
described in the form of Representative's Warrants filed as an exhibit to the
Registration Statement.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Units as soon as the Representative deems it
advisable to do so. The Firm Units are to be initially offered to the public at
the initial public offering price set forth in the Prospectus. The
Representative may from time to time thereafter change the public offering price
and other selling terms. To the extent, if at all, that any Option Units are
purchased pursuant to Section 2 hereof, the Representative will offer them to
the public on the foregoing terms.
It is further understood that you will act as the
Representative for the Underwriters in the offering and sale of the Units in
accordance with an Agreement Among Underwriters entered into by you and the
several other Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representative containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representative shall not
previously have been advised and furnished with a copy or to which the
Representative shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations, and (C) file on a timely basis all
reports and any definitive proxy or information statements required to be filed
by the Company with the Commission subsequent to the date of the Prospectus and
prior to the termination of the offering of the Units by the Underwriters.
(b) The Company will advise the Representative promptly (A)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any
11
additional information, (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose, and (E) of
the issuance of any order suspending trading of the Units, the Common Stock or
the Warrants. The Company will use its best efforts to prevent the issuance of
any such stop order preventing or suspending the use of the Prospectus or
suspending trading and to obtain as soon as possible the lifting thereof, if
issued.
(c) The Company will cooperate with the Representative in
endeavoring to qualify the Units for sale under the securities laws of such
jurisdictions as the Representative may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representative may reasonably request for distribution of the Units.
(d) The Company will deliver to, or upon the order of, the
Representative, from time to time, as many copies of any Preliminary Prospectus
as the Representative may reasonably request. The Company will deliver to, or
upon the order of, the Representative during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representative may
reasonably request. The Company will deliver to the Representative at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representative such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representative
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Units as contemplated in this
Agreement and the Prospectus, and make all required filings thereunder to
maintain compliance with such act with respect to the trading and issuance of
the Common Stock, the Warrants and the Common Stock underlying the Warrants. If
during the period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Representative, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus so that
the Prospectus as so amended or supplemented will not, in the light of the
circumstances existing at the time the Prospectus is so delivered, be
misleading, or so that the Prospectus will comply with the law.
12
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(g) The Company will, for a period of five years from the
Closing Date, deliver to the Representative copies of annual reports and copies
of all other documents, reports and information furnished by the Company to its
shareholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Exchange Act.
The Company will deliver to the Representative similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements. The Company
will, for a period of five years from the Closing Date, deliver to the
Representative notice of all meetings of its Board of Directors and any
executive or similar committee thereof.
(h) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivatives of Common
Stock (or agreement therefor) will be made for a period of one year after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder, or pursuant to contractual obligations existing on the date hereof or
pursuant to employee benefit plans in effect on the date hereof, or with the
prior written consent of the Representative, which consent will not be
unreasonably withheld.
(i) The Company will use its best efforts to qualify,
subject to notice of issuance, the Units, the Common Stock and Warrants for
membership in The Nasdaq SmallCap Market and for listing on the Pacific Stock
Exchange.
(j) The Company has caused each officer and director and
persons who own, in the aggregate, [__]% of the shares of the Common Stock
outstanding or issuable upon conversion of convertible securities outstanding
immediately prior to the date hereof to furnish to you, on or prior to the date
of this agreement, a letter or letters, in form and substance satisfactory to
the Underwriters ("Lock-up Agreements"), pursuant to which each such person
shall agree (A) not to offer, sell, contract to sell or grant any option to
purchaser or otherwise dispose of any shares of Common Stock or preferred stock
or other capital stock of the Company, or any options or other securities
convertible, exchangeable or exercisable for Common Stock or derivatives of
Common Stock owned by such person or request the registration for the offer or
sale of any of the foregoing (or as to which such person has the right to direct
the disposition) for a period of one year after the date of this Agreement,
directly or indirectly, except with the prior written consent of the
Representative; and (B) to give prior written notice to the Representative for a
period of one year from the effective date of the Registration Statement, with
respect to any sales of Common Stock of the Company pursuant to Rule 144 under
the Securities Act or any similar rule.
13
(k) The Company shall apply the net proceeds of its sale of
the Units as set forth in the Prospectus and shall properly disclose such
information with respect to the sale of the Units and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Units in such a manner as
would require the Company to register as an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act").
(m) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
for the Common Stock and a Warrant Agent for the Warrants.
(n) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
(o) Prior to the Closing Date, the Company will furnish to the
Representatives, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
(p) The Company agrees to use its best efforts to cause (i)
each of its directors, officers and shareholders and (ii) each person who
acquires Common Stock of the Company pursuant to the exercise of any option,
warrant or right granted under the Company's 1999 Stock Option Plan or 1994
Employee Stock Option Plan to sign an agreement that restricts such person from
selling, making any short sale of, grant any option for the purchase of, or
otherwise transfer or dispose of, any of such Common Stock, or any such
securities convertible into or exercisable or exchangeable for Common Stock, for
a period of one year days after the date of the Prospectus without the prior
written consent of the Representative; and the Company will (i) enforce the
terms of each such agreement and (ii) issue and impose a stop-transfer
instruction with the Company's transfer agent in order to enforce the foregoing
lock-up agreements.
(q) The Company will (i) enforce the terms of each Lock-up
Agreement, and (ii) issue stop-transfer instructions to the transfer agent for
the Common Stock with respect to any transaction or contemplated transaction
that would constitute a breach of or default under the applicable Lock-up
Agreement. In addition, except with the prior written consent of the
Representative, the Company agrees (i) not to amend or terminate, or waive any
right under, any Lock-up Agreement, or take any other action that would directly
or indirectly have the same effect as an amendment or termination, or waiver of
any right under any Lock-up Agreement, that would permit any holder of Common
Stock, or any securities convertible into, or exercisable or exchangeable for,
Common Stock, to make any short sale of, grant any option for the purchase of,
or otherwise transfer or dispose of, such Common Stock or other securities,
prior to the
14
expiration of one year after the date of the Prospectus and (ii) not to consent
to any sale, short sale, grant of an option for the purchase of, or other
disposition or transfer of shares of Common Stock, or securities convertible
into or exercisable or exchangeable for Common Stock, subject to a Lock-up
Agreement.
(r) The Company will, between the date hereof and the date
twenty-five days after the Closing Date, provide the Representative and its
legal counsel, prior to their release, copies of all press releases, proposed
communications with shareholders or other interested parties and other public
announcements and will permit the Representative and its legal counsel to
comment thereon prior to release.
5. COSTS AND EXPENSES.
(a) The Representative shall be entitled to reimbursement from
the Company, for itself alone and not as Representative of the Underwriters, to
a non-accountable expense allowance equal to 2% of the aggregate initial public
offering price of the Firm Units and any Option Units purchased by the
Underwriters. The Representative shall be entitled to withhold this allowance on
the Closing Date related to the purchase of the Firm Units or the Option Units,
as the case may be.
(b) In addition to the payment described in Paragraph (a) of
this Section 5, the Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Nasdaq listing application, the costs of the due
diligence investigation of the principals of the Company, the Blue Sky Survey
and any supplements or amendments thereto; the filing fees of the Commission;
the filing fees and expenses (including any fees and disbursements) incident to
securing the required review by the NASD of the terms and conditions of the
underwriting arrangements; the listing fee of The Nasdaq Stock Market; and the
expenses, including the fees and disbursements of counsel for the Underwriters,
incurred in connection with the qualification of the Units under state
securities or Blue Sky laws. Any transfer taxes imposed on the sale of the Units
to the several Underwriters will be paid by the Company. The Company shall not,
however, be required to pay for any of the Underwriters' expenses (other than
those related to qualification under NASD regulations and state securities or
Blue Sky laws) except that, if this Agreement shall not be consummated, then the
Company shall reimburse the several Underwriters for actual out-of-pocket
expenses, including fees and disbursements of counsel, reasonably incurred in
connection with investigating, marketing and proposing to market the Units or in
contemplation of performing their obligations hereunder; but the Company shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Units.
15
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the
Firm Units on the Closing Date and the Option Units, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties of the
Company contained herein, to the performance by the Company of its covenants and
obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representative and complied with to its reasonable satisfaction. No stop order
suspending the effectiveness of the Registration Statement, as amended from time
to time, shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, shall be contemplated by the
Commission and no injunction, restraining order, or order of any nature by a
Federal or state court of competent jurisdiction shall have been issued as of
the Closing Date which would prevent the issuance of the Units.
(b) The Representative shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of ▇▇▇▇, Forward,
▇▇▇▇▇▇▇▇ & Scripps LLP, counsel for the Company, dated the Closing Date or the
Option Closing Date, as the case may be, addressed to the Underwriters (and
stating that it may be relied upon by counsel to the Underwriters) to the effect
that:
(i) Each of the Company and its subsidiary has been
duly organized and is validly existing as a corporation in good
standing under the laws of the State of California, with corporate
power and corporate authority to own or lease its properties and to
conduct its business as described in the Registration Statement; each
of the Company and its subsidiary is duly qualified to transact
business and is in good standing in all jurisdictions in which the
conduct of its business requires such qualification, or in which the
failure to qualify would have a material adverse effect upon the
business of the Company.
(ii) The Company has authorized and outstanding
capital stock as set forth under the caption "Capitalization" in the
Prospectus; the outstanding shares of Common Stock have been duly
authorized and validly issued, are non-assessable and, to such
counsel's knowledge, fully paid, and have been issued and sold by the
Company in compliance in all material respects with applicable
securities laws; all of the securities of the Company conform to the
description thereof contained in the Prospectus; the certificates for
the Common Stock and Warrants are in due and proper form; the shares of
Common Stock to be sold by the Company pursuant to this Agreement,
including shares of Common Stock to be sold as a part of the Units,
have been duly authorized and, upon issuance and delivery thereof as
contemplated in this Agreement and the Registration Statement, will be
validly issued, fully paid and non-assessable; no preemptive rights of
16
shareholders exist with respect to any of the Common Stock or the
issuance or sale thereof pursuant to any applicable statute or the
provisions of the Company's Articles of Incorporation or Bylaws or, to
the knowledge of such counsel, pursuant to any contractual obligation.
The Warrants and the Representative's Warrants have been authorized for
issuance to the purchasers of Units or the Representative, as the case
may be, and will, when issued, possess rights, privileges, and
characteristics as represented in the most recent form of Warrants or
Representative's Warrants, as the case may be, filed as an exhibit to
the Registration Statement; the securities to be issued upon exercise
of the Warrants and the Representative's Warrants, as the case may be,
when issued and delivered against payment therefor in accordance with
the terms of the Representative's Warrants, will be duly and validly
issued, fully paid, nonassessable and free of preemptive rights, and
all corporate action required to be taken for the authorization and
issuance of the Warrants, the Representative's Warrants, and the
securities to be issued upon their exercise, has been validly and
sufficiently taken.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of capital
stock of the Company and there are no outstanding or authorized
options, warrants or rights of any character obligating the Company to
issue any shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or subscribe for
any shares of such stock; and except as described in the Prospectus, to
the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise,
which has not been satisfied or effectively waived, to cause the
Company to sell or otherwise issue to them, or to permit them to
underwrite the sale of, any of the Units or the right to have any
Common Stock or other securities of the Company included in the
Registration Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective
under the Act and, to the best of the knowledge of such counsel, no
stop order proceedings with respect thereto have been instituted or are
pending or threatened under the Act.
(v) The conditions for the use of Form SB-2 set forth
in the general instructions thereto have been satisfied, and the
Registration Statement, the Prospectus and each amendment or supplement
thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations
thereunder (except that such counsel need express no opinion as to the
financial statements and related schedules therein).
(vi) The statements under the captions "Management's
Discussion and Analysis of Financial Condition and Results of
Operations", "Business-intellectual property," "Management-Stock option
plans," "Management-Employment agreements," "Certain Relationships and
Related Transactions," "Description of Securities," and
17
"Shares Eligible for Future Sale" in the Prospectus, and Items 24 and
26 of Part II of the Registration Statement, insofar as such statements
constitute a summary of documents referred to therein or matters of
law, fairly summarize in all material respects the information called
for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration
Statement or described in the Registration Statement or the Prospectus
which are not so filed or described as required, and such contracts and
documents as are summarized in the Registration Statement or the
Prospectus are fairly summarized in all material respects.
(viii) Such counsel knows of no legal or governmental
proceedings pending or threatened against the Company.
(ix) The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated do not and
will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Articles of
Incorporation or Bylaws of the Company, or any agreement or instrument
known to such counsel to which the Company is a party or by which the
Company may be bound.
(x) Each of this Agreement and the Warrant Agreement
by and among the Company, the Warrantholders (defined therein) and
American Stock Transfer & Trust Company, as Warrant Agent, has been
duly authorized, executed and delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in connection
with the execution and delivery of this Agreement and the consummation
of the transactions herein contemplated (other than as may be required
by the NASD or as required by state securities and Blue Sky laws as to
which such counsel need express no opinion) except such as have been
obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated by this
Agreement, and application of the net proceeds therefrom as described
in the Prospectus, required to register as an investment company under
the 1940 Act.
In rendering such opinion, such counsel may rely as to matters
governed by the laws of states other than California or Federal laws on local
counsel in such jurisdictions, provided that in each case such counsel shall
state that they believe that they and the Underwriters are justified in relying
on such other counsel. In addition to the matters set forth above, the opinion
of ▇▇▇▇, Forward, ▇▇▇▇▇▇▇▇ & Scripps LLP shall also include a statement to the
effect that nothing has come to the attention of such counsel that has caused
them to believe that (i) the Registration Statement, at the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of
18
the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein).
(c) The Representative shall have received from ▇▇▇▇▇▇ ▇▇▇▇
LLP, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (i), (iv) and (v) of Paragraph (b) of this Section 6. In
rendering such opinion ▇▇▇▇▇▇ ▇▇▇▇ LLP may rely as to all matters governed other
than by the laws of the State of Oregon or Federal laws on the opinion of
counsel referred to in Paragraph (b) of this Section 6. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel that has caused
them to believe that (i) the Registration Statement, or any amendment thereto,
as of the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, ▇▇▇▇▇▇ ▇▇▇▇ LLP may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(d) The Representative shall have received at or prior to the
Closing Date from ▇▇▇▇▇▇ ▇▇▇▇ LLP a memorandum or summary, in form and substance
satisfactory to the Representative, with respect to the qualification for
offering and sale by the Underwriters of the Units under the state securities or
Blue Sky laws of such jurisdictions as the Representative may reasonably have
designated to the Company.
(e) The Representative, on behalf of the several Underwriters,
shall have received, on each of the dates hereof, the Closing Date and the
Option Closing Date, as the case may be, a letter dated the date hereof, the
Closing Date or the Option Closing Date, as the case may be, in form and
substance satisfactory to the Representative, of PricewaterhouseCoopers LLP
confirming that they are independent public accountants within the meaning of
the Act and the applicable published Rules and Regulations thereunder and
stating that in their opinion the financial statements and schedules examined by
them and included in the Registration Statement comply in form in all material
respects with the applicable accounting requirements of the Act and the related
published Rules and Regulations and containing such other statements and
19
information as is ordinarily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and certain financial and
statistical information contained in the Registration Statement and Prospectus.
(f) The Representative shall have received on the Closing Date
or the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purpose have been taken or are, to his knowledge, contemplated by the
Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof are true and correct as of the
Closing Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant
to Rules 424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration
Statement and the Prospectus and, in his opinion, as of the effective
date of the Registration Statement, the statements contained in the
Registration Statement were true and correct, and such Registration
Statement and Prospectus did not omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which
has not been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been any material adverse change or any development
involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company or the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company, whether or not
arising in the ordinary course of business.
(g) The Company shall have furnished to the Representative
such further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representative may reasonably have requested.
(h) The Common Stock and Warrants have been approved for
quotation upon notice of issuance on The Nasdaq SmallCap Market.
20
(i) The Lock-up Agreements described in Section 4(j) are in
full force and effect.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representative and to ▇▇▇▇▇▇ ▇▇▇▇
LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representative by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in Sections 5
and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion
of the Units required to be delivered as and when specified in this Agreement
are subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto; (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; (iii) caused by any untrue statement or
alleged untrue statement of a material fact contained in any material prepared
by or with the consent of the Company for distribution to Participants in
connection with the Directed Share Program or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (iv) caused by the
failure of any Participant to pay for and accept delivery of Directed Shares
that the Participant agreed to purchase; or (v) related to, arising out of, or
in connection with the Directed Share Program; and will reimburse each
Underwriter and each such controlling person upon demand for any legal or other
expenses reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending against any such loss, claim, damage
or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Units, whether or not such
Underwriter or controlling person is a party to any
21
action or proceeding; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement,
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representative specifically for use in the preparation
thereof. This indemnity agreement will be in addition to any liability which the
Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer or controlling person in connection with
investigating or defending against any such loss, claim, damage, liability,
action or proceeding; provided, however, that each Underwriter will be liable in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representative
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and, the indemnifying party shall
pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its
22
own expense. Notwithstanding the foregoing, the indemnifying party shall pay as
incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more than
one additional separate firm for all such indemnified parties. Such firm shall
be designated in writing by the Representative in the case of parties
indemnified pursuant to Section 8(a) and by the Company in the case of parties
indemnified pursuant to Section 8(b). The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Units. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bears to the total
underwriting discounts and commissions received by the Underwriters, 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
23
the Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Units purchased by such Underwriter, and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this Section 8
hereby consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Units and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Units which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the
24
part of the Company), you, as Representative of the Underwriters, shall use
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company such amounts as
may be agreed upon and upon the terms set forth herein, the Firm Units or Option
Units, as the case may be, which the defaulting Underwriter or Underwriters
failed to purchase. If during such 36 hours you, as such Representative, shall
not have procured such other Underwriters, or any others, to purchase the Firm
Units or Option Units, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
Units with respect to which such default shall occur does not exceed 10% of the
Firm Units or Option Units, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Units or Option Units, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Units or Option Units, as
the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of Firm Units or Option Units, as the
case may be, with respect to which such default shall occur exceeds 10% of the
Firm Units or Option Units, as the case may be, covered hereby, the Company or
you as the Representative of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representative, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered or telecopied and
confirmed as follows: if to the Underwriters, to ▇▇▇▇▇▇▇ Investment Company,
Inc., ▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇; with a copy to ▇▇▇▇▇▇ ▇▇▇▇ LLP, ▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.; if to the Company, to
ImageWare Systems, Inc., ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: S. ▇▇▇▇▇ ▇▇▇▇▇▇, Jr.; with a copy to ▇▇▇▇, Forward, ▇▇▇▇▇▇▇▇ &
Scripps LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
11. TERMINATION.
This Agreement may be terminated by the Representative by
notice to the Company as follows:
(a) at any time prior to the earlier of (i) the time the Firm
Units are released to the Representative for sale by notice to the Underwriters,
or (ii) 11:30 a.m. on the first business day following the date of this
Agreement;
25
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company, the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company, whether or not arising in
the ordinary course of business, (ii) any outbreak or escalation of hostilities
or declaration of war or national emergency or other national or international
calamity or crisis or change in economic or political conditions if the effect
on the financial markets of the United States of such outbreak, escalation,
declaration, emergency, calamity, crisis or change would, in the
Representative's reasonable judgment, make it impracticable to market the Units
or to enforce contracts for the sale of the Units, (iii) the Dow ▇▇▇▇▇
Industrial Average shall have fallen by 15 percent or more from its closing
price on the day immediately preceding the date that the Registration Statement
is declared effective by the Commission, (iv) suspension of trading in
securities generally on the New York Stock Exchange or the American Stock
Exchange or limitation on prices (other than limitations on hours or numbers of
days of trading) for securities on either such Exchange, (v) the enactment,
publication, decree or other promulgation of any statute, regulation, rule or
order of any court or other governmental authority which in the opinion of the
Representative materially and adversely affects or may materially and adversely
affect the business or operations of the Company, (vi) declaration of a banking
moratorium by United States or New York State authorities, (vii) any downgrading
in the rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g) under
the Exchange Act); (viii) the suspension or halt of trading of the Units, the
Common Stock or the Warrants on the Nasdaq Stock Market or (ix) the taking of
any action by any governmental body or agency in respect of its monetary or
fiscal affairs which in your reasonable opinion has a material adverse effect on
the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of
the Underwriters, the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Units from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that
the only information furnished or to be furnished by any Underwriter to the
Company for inclusion in the Prospectus or the Registration Statement consists
of the information set forth in the last paragraph on the front cover page of
the Prospectus (insofar as such information relates to the Underwriters), the
legends required by Item 502(d) of Regulation S-B under the Act, the
26
information under the caption "Underwriting" in the Prospectus, other than the
offering expenses disclosed thereunder, and the state blue sky legends.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Units under
this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Oregon. All disputes relating to this
Underwriting Agreement shall be adjudicated before a court located in Multnomah
County, Oregon to the exclusion of all other courts that might have
jurisdiction.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
ImageWare Systems, Inc.
By:_____________________________________
S. ▇▇▇▇▇ ▇▇▇▇▇▇, Jr., President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
▇▇▇▇▇▇▇ Investment Company, Inc.
As Representative of the several
Underwriters listed on Schedule I
By: ___________________________________
Authorized Officer
27
SCHEDULE I
SCHEDULE OF UNDERWRITERS
------------------------
Number of Firm Units
Underwriter to be Purchased
----------- ---------------
▇▇▇▇▇▇▇ Investment Company, Inc.
Total
28