Exhibit 1.1
1,875,000 UNITS
IMAGEWARE SYSTEMS, INC.
UNDERWRITING AGREEMENT
__________, 2000
▇▇▇▇▇▇▇ Investment Company, Inc.
I-Bankers Securities, Inc.
As Representatives 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 Representatives (the
"Representatives") an aggregate of 1,875,000 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 ▇▇▇▇▇▇▇ Investment Company, Inc. an option
to purchase in the aggregate up to 281,250 additional Units, identical to the
Firm Units (the "Option Units"), as set forth below.
As the Representatives, you have advised the Company (a) that you
are authorized to enter into this Agreement for yourself as Representatives
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 Representatives' Warrants 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
Representatives, 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 Representatives 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
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"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 Representatives' Warrants
(as defined in Paragraph (d) of Section 2 hereof) have been authorized for
issuance to the purchasers thereof or to the Representatives or their
designees, as the case may be, and will, when issued, entitle the holders
thereof to the rights, privileges, and characteristics as represented in the
most recent form of Warrants or Representatives' 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 Representatives' 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 Representatives' 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 ▇▇▇▇▇▇▇
Investment Company, Inc. 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 ▇▇▇▇▇▇▇ Investment Company,
Inc.) to ▇▇▇▇▇▇▇ Investment Company, Inc. for the several accounts of the
Underwriters. Such payment is to be made at the offices of ▇▇▇▇▇▇▇ Investment
Company, Inc. 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 ▇▇▇▇▇▇▇ Investment Company, Inc.
request in writing not later than the second full business day prior to the
Closing Date, and will be made available for inspection by ▇▇▇▇▇▇▇ Investment
Company, Inc. 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 ▇▇▇▇▇▇▇ Investment Company,
Inc. 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 ▇▇▇▇▇▇▇ Investment Company, Inc. to the Company setting
forth the number of Option Units as to which ▇▇▇▇▇▇▇ Investment Company, Inc.
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
▇▇▇▇▇▇▇ Investment Company, Inc. 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. ▇▇▇▇▇▇▇ Investment
Company, Inc. 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 ▇▇▇▇▇▇▇ Investment Company, Inc., 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 ▇▇▇▇▇▇▇
Investment Company, Inc.) to ▇▇▇▇▇▇▇ Investment Company, Inc. 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 ▇▇▇▇▇▇▇ Investment Company, Inc.
request in writing not later than the second full business day prior to the
Option Closing Date, and will be made available for inspection by ▇▇▇▇▇▇▇
Investment Company, Inc. at least one business day prior to the Option
Closing Date.
(d) In addition to the sums payable to the Representatives
as provided elsewhere herein, the Representatives shall be entitled to
receive at the Closing, for themselves alone and not as Representatives of
the Underwriters, as additional compensation for their services, purchase
warrants (the "Representatives' Warrants") for the purchase of up to 181,339
Units at a price of $___ per Unit, upon the terms and subject to adjustment
and conversion as described in the form of Representatives' 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 Representatives deem
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.
▇▇▇▇▇▇▇ Investment Company, Inc. 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
Representatives will offer them to the public on the foregoing terms.
It is further understood that you will act as the
Representatives 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 Representatives 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 Representatives shall not previously have been advised and
furnished with a copy or to which the Representatives 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 Representatives 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 Representatives in
endeavoring to qualify the Units for sale under the securities laws of such
jurisdictions as the Representatives 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 Representatives may reasonably request for distribution
of the Units.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives 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
Representatives may reasonably request. The Company will deliver to the
Representatives 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 Representatives 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 Representatives 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 Representatives, 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 Representatives 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 Representatives 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 Representatives 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 Representatives, 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
listing on The American 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 ▇▇▇▇▇▇▇ Investment Company, Inc.; and (B)
to give prior written notice to ▇▇▇▇▇▇▇ Investment Company, Inc. 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 Units and 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 ▇▇▇▇▇▇▇ Investment Company, Inc.; 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
▇▇▇▇▇▇▇ Investment Company, Inc., 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 Representatives and
their 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 Representatives and their
legal counsel to comment thereon prior to release.
5. COSTS AND EXPENSES.
(a) ▇▇▇▇▇▇▇ Investment Company, Inc. shall be entitled to
reimbursement from the Company, for itself alone and not as a 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. ▇▇▇▇▇▇▇ Investment Company, Inc. 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 American Stock Exchange 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 American Stock Exchange; 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 Representatives 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 Representatives 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 and Preferred
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
Preferred 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 Representatives'
Warrants have been authorized for issuance to the purchasers of
Units or the Representatives, as the case may be, and will, when
issued, possess rights, privileges, and characteristics as
represented in the most recent form of Warrants or Representatives'
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 Representatives' Warrants, as the case may be,
when issued and delivered against payment therefor in accordance
with the terms of the Representatives' 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 Representatives'
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 Representatives 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 Representatives
such further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(h) The Units, Common Stock and Warrants have been approved
for quotation upon notice of issuance on The American Stock Exchange.
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 Representatives and to
▇▇▇▇▇▇ ▇▇▇▇ LLP, counsel for ▇▇▇▇▇▇▇ Investment Company, Inc.
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 ▇▇▇▇▇▇▇ Investment Company, Inc. 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 Representatives 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 Representatives
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 ▇▇▇▇▇▇▇ Investment
Company, Inc. 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 Representatives 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
Representatives, 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 Representatives
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
Representatives, 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 the Representatives of
the Underwriters, c/▇ ▇▇▇▇▇▇▇ 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 Representatives 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 Representatives 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 Representatives' 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 Representatives 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 American Stock Exchange 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.
As Representatives of the several
Underwriters listed on Schedule I
▇▇▇▇▇▇▇ Investment Company, Inc.
By: ___________________________________
Authorized Officer
I-Bankers Securities, Inc.
By: ___________________________________
Authorized Officer
27
SCHEDULE I
SCHEDULE OF UNDERWRITERS
------------------------
Number of Firm Units
Underwriter to be Purchased
----------- ---------------
▇▇▇▇▇▇▇ Investment Company, Inc.
Total
28
