EXHIBIT 1.1
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COYOTE SPORTS, INC.
UNDERWRITING AGREEMENT
_____________, 1997
Cohig & Associates, Inc.
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▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Gentlemen:
COYOTE SPORTS, INC. ("Company"), a Colorado corporation, hereby
confirms its agreement with you, as Representative, and with the other members
of the Underwriting Group as follows:
SECTION 1
DESCRIPTION OF OFFERING AND SHARES
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The Underwriting Group proposes to purchase from the Company in an
initial public offering ("Public Offering") a total of 1,000,000 shares of the
Company's $.001 par value common stock ("Shares"). The Company's $.001 par
value common stock when not referring specifically to the "Shares" shall be
referred to herein as the "Company's Common Stock." The Representative, either
on its own behalf or on behalf of the members of the Underwriting Group, will
have an overallotment option ("Overallotment Option") to purchase up to an
additional 150,000 Shares ("Overallotment Shares") exercisable for a period of
forty-five (45) days after the Effective Date (hereinafter defined) to cover
overallotments, which may occur during the Offering. The Company agrees to sell
to the Underwriting Group all of the Shares and the Company agrees to sell to
the Representative all or such portion of the Overallotment Shares under the
Overallotment Option to the extent exercised by the Representative from time to
time during the forty-five (45) day period following the Effective Date. The
Shares will initially be offered and sold to the public at a price of
$___________ for each Share. Such price is referred to herein as the "Public
Offering Price." The Company's authorized and outstanding capitalization when
the Public Offering of the Shares is permitted to commence and at the Closing
Date (hereinafter defined) and at the Option Closing Date (hereinafter defined)
will be as set forth in the Registration Statement (hereinafter defined) and the
Prospectus (hereinafter defined) included therein.
On the Effective Date, the Shares will be listed for quotation on the
NASDAQ Small Cap Market. The foregoing agreement by the Company is subject to
the Company's ability to meet the NASDAQ Small Cap Market maintenance
requirements on the Effective Date. In connection with the application for such
listing, the Company will furnish the Representative or legal counsel for the
Representative five (5) complete copies of the Registration Statement
(hereinafter defined) and all amendments thereto for filing with the NASD.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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In order to induce the members of the Underwriting Group to enter into
this Agreement, the Company hereby represents and warrants to and agrees with
the members of the Underwriting Group as follows:
2.1 REGISTRATION STATEMENT AND PROSPECTUS. A registration statement
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on Form SB-2 (File No. 333-29077) ("Registration Statement") with respect to the
Shares and the Representative's Warrants (hereinafter defined), including the
related Prospectus, copies of which have heretofore been delivered by the
Company to the Representative, has been prepared by the Company in conformity
with the requirements of the Shares Act of 1933, as amended ("Act"), and the
rules and regulations ("Rules and Regulations") of the Commission thereunder,
and said Registration Statement has been filed with the Commission under the
Act; one or more amendments to said Registration Statement, copies of which have
heretofore been delivered to the Representative, has or have heretofore been
filed with the Commission; and the Company may file with the Commission on or
prior to the Effective Date additional amendments to said Registration
Statement, including the final Prospectus. As used in this Agreement, the term
"Registration Statement" refers to and means said Registration Statement and all
amendments thereto, including the Prospectus, all exhibits and all financial
statements, as it becomes effective; the term "Prospectus" refers to and means
the Prospectus included in the Registration Statement when it becomes effective;
and the term "Preliminary Prospectus" refers to and means any Prospectus
included in said Registration Statement before it becomes effective. The terms
"Effective Date" and "effective" refer to the date the Commission declares the
Registration Statement effective, pursuant to Section 8 of the Act.
2.2 ACCURACY OF REGISTRATION STATEMENT AND PROSPECTUS. The
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Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus with respect to the Shares and each Preliminary
Prospectus has conformed in all material respects with the requirements of the
Act and the applicable Rules and Regulations of the Commission thereunder and to
the best of the Company's knowledge has not included at the time of filing any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein not misleading. When the Registration
Statement becomes effective and on the Closing Date and on the Option Closing
Date, (i) the Registration Statement and Prospectus and any further amendments
or supplements thereto will contain all statements which are required to be
stated therein in accordance with the Act and the Rules and Regulations
thereunder for the purposes of the proposed Public Offering of the Shares, (ii)
all statements of material fact contained in the Registration Statement and
Prospectus will be true and correct and (iii) neither the Registration Statement
nor the Prospectus will include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, the Company does not
make any representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus in reliance upon written
information furnished on behalf of the members of the Underwriting Group
specifically for use therein.
2.3 FINANCIAL STATEMENTS AND DEFINITION OF SUBSIDIARIES. The
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consolidated financial statements of the Company and its Subsidiaries together
with related schedules and notes as set forth in the Registration Statement and
Prospectus present fairly the financial position of the Company and its
Subsidiaries and the results of its operations and the changes in its financial
position at the respective dates and for the respective periods for which they
apply. The term "Subsidiaries" as used throughout this Agreement refers to (i)
Apollo Sports Holding Limited ("ASHL") whose issued and outstanding capital
stock is 100% owned by the Company; (ii) Apollo Sports Technologies Limited
whose issued and outstanding capital stock is 100% owned by ASHL; (iii) ▇▇▇▇▇▇▇▇
Cycle Technology Limited ("▇▇▇▇▇▇▇▇"), whose issued and outstanding capital
stock is 100% owned by ASHL; (iv) Apollo Golf, Inc. whose issued and outstanding
capital stock is 100% owned by the Company; (v) ICE*USA, LLC in which the
Company owns of record and holds an 80% interest; Sierra Materials, LLC
("Sierra") in which the Company owns an 80% interest and its Subsidiary and its
100% owned Subsidiary Cape Composites, Inc.; (vii) Pentiumatics Sdn. Bhd., in
which the Company owns approximately 77% of the issued and outstanding capital
stock and, (viii) any other entity in which the Company shall have a controlling
interest requiring such entity to be reported as part of the Company's financial
statements on a consolidated or unconsolidated basis. Such financial statements
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods concerned except as otherwise stated
therein.
2.4 INDEPENDENT PUBLIC ACCOUNTANTS. The accountants which have
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audited the consolidated financial statements of the Company and its
Subsidiaries filed or to be filed with the Commission as part of the
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Registration Statement and Prospectus which are designated as audited financial
statements, are independent certified public accountants with respect to the
Company within the meaning of the Act and the Rules and Regulations thereunder.
2.5 NO CONTINGENT LIABILITIES AND NO MATERIAL ADVERSE CHANGE. Except
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as disclosed in the Registration Statement and Prospectus, neither the Company
nor any of its Subsidiaries have any contingent liabilities, obligations or
claims nor have they received threats of claims or regulatory action. Except as
may be reflected in or contemplated by the Registration Statement or the
Prospectus, subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Date and the
Option Closing Date, (i) there shall not have been any material adverse change
in the condition, financial or otherwise, of the Company or its Subsidiaries or
in the business of the Company or its Subsidiaries; (ii) there shall not have
been any material adverse transaction entered into by the Company or any of its
Subsidiaries; (iii) neither the Company nor any of its Subsidiaries shall have
incurred any material obligations, contingent or otherwise, which are not
disclosed in the Prospectus; (iv) there shall not have been any change in the
outstanding securities or long term debt (except current payments) of the
Company or any of its Subsidiaries; (v) the Company has not and will not have
paid or declared any dividends or other distributions on its Common Stock or
other securities; and (vi) there shall not have been any change in the officers
or directors of the Company.
2.6 NO DEFAULTS. Neither the Company nor any of its Subsidiaries is
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in default under any of the contracts, leases, subleases, licenses, sublicenses
or any other agreements to which they are a party. Except as disclosed in the
Prospectus, neither the Company nor any of its Subsidiaries is in default, which
has not been waived, in the performance of any obligation, agreement or
condition contained in any debenture, note or other evidence of indebtedness or
any indenture or loan agreement. The execution and delivery of this Agreement,
the consummation of the transactions herein contemplated and the compliance with
the terms of this Agreement will not conflict with or result in a breach of any
of the terms, conditions or provisions of, or constitute a default under, the
charter, articles of association, articles of incorporation, as amended,
articles of organization, operating agreement or bylaws as amended, of the
Company or any of its Subsidiaries any note, indenture, mortgage, deed of trust
or other agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which it, its Subsidiaries or any of their property is bound,
or any existing law, order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality, agency or body, arbitration tribunal
or court, domestic or foreign, having jurisdiction over the Company, its
Subsidiaries or their properties. The consent, approval, authorization or order
of any court or governmental instrumentality, agency or body is not required for
the consummation of the transactions herein contemplated except such as may be
required under the Act or under the blue sky or securities laws of any state or
jurisdiction.
2.7 INCORPORATION AND STANDING. The Company is and at the Closing
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Date and at the Option Closing Date will be duly incorporated and validly
existing in good standing as a corporation under the state law of the Company's
state of incorporation with authorized and outstanding capital stock as set
forth in the Registration Statement and the Prospectus and with full power and
authority (corporate and other) to own its properties and conduct its business,
present and proposed, as described in the Registration Statement and Prospectus;
the Company has full power and authority to enter into this Agreement; and the
Company is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which it owns or leases real property or transacts business
requiring such qualification. All of the Company's Subsidiaries are identified
and described in the Registration Statement. Each of the Company's Subsidiaries
is and at the Closing Date and at the Option Closing Date will be, duly
incorporated and validly existing in good standing as a corporation or limited
liability company under the state law of their respective state of
incorporation, formation or organization or, is validly existing as a
corporation under the foreign law in which such Subsidiary was chartered, or
otherwise formed or created, incorporated with authorized and outstanding
capital stock as set forth in the Registration Statement and the Prospectus and
with full power and authority (corporate and other) to own its property and
conduct its business, present and proposed, as described in the Registration
Statement and Prospectus, and is duly qualified and in good standing as a
foreign corporation or limited liability company in each jurisdiction in which
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it owns or leases real property or transacts business requiring such
qualification, except where the failure to so qualify would not be materially
adverse to the Company's business taken as a whole.
2.8 LEGALITY OF OUTSTANDING SHARES. The outstanding shares of
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Common Stock of the Company and the outstanding shares of capital stock or
limited liability company interests of each of its Subsidiaries have been duly
and validly authorized and issued, are fully paid and nonassessable and conform
to all statements with regard thereto contained in the Registration Statement
and Prospectus. No sales of securities have been made by the Company or any of
its Subsidiaries in violation of the registration provisions of the Act or in
violation of any other federal ar state laws.
2.9 LEGALITY OF SHARES. The Shares and the Representative's Warrants
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(described in Section 3.4 hereof) have been duly and validly authorized and,
when issued and delivered against payment as provided in this Agreement, will be
validly issued, fully paid and nonassessable. The Shares and the
Representative's Warrants, upon issuance, will not be subject to the preemptive
rights of any shareholders of the Company. The Shares and the Representative's
Warrants, when sold and delivered, will constitute valid and binding obligations
of the Company enforceable in accordance with their terms. A sufficient number
of shares of Common Stock have been reserved for issuance upon exercise of the
warrants in existence and outstanding as of the Effective Date of the
Registration Statement and the Representative's Warrants. The Shares and the
Representative's Warrants will conform to all statements in the Registration
Statement and Prospectus made with respect thereto. Upon delivery of and payment
for the Shares and the Representative's Warrants to be sold by the Company as
set forth in this Agreement, the persons paying therefor will receive good and
marketable title thereto, free and clear of all liens, encumbrances, charges and
claims. The Company will have on the Effective Date of the Registration
Statement and at the time of delivery of the Shares and the Representative's
Warrants full legal right and power and all authorizations and approvals
required by law to sell and deliver the Shares and Representative's Warrants in
the manner provided hereunder.
2.10 OUTSTANDING SHARES AND LONG TERM DEBT ON EFFECTIVE DATE.
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Immediately prior to the Effective Date, the only shares of capital stock,
warrants, options, or other convertible securities which have been issued by the
Company and which will be outstanding on the Effective Date will be as described
in the Prospectus, and the Company will not be obligated on any long term debt,
whether or not recorded on the books, records, or accounts of the Company and
will not be obligated to issue any capital stock, warrants, options, or other
convertible securities, except as described in the Prospectus. Unless the
Representative has approved in writing a different maximum number of fully
diluted shares, immediately prior to the Effective Date of the Registration
Statement the number of shares of Common Stock of the Company outstanding on a
fully diluted basis will not exceed 2,600,000 shares plus the number of shares
underlying the warrants granted to Deere Park Capital Management, Inc. and ▇▇▇▇▇
▇▇▇▇ pursuant to the terms of the Amended and Restated Secured Promissory Notes
dated May 4, 1997 between the Company and Deere Park Capital Management, Inc.
and ▇▇▇▇▇ ▇▇▇▇, respectively and the shares underlying the options which will be
granted after the Effective Date under the Company's 1997 Stock Option Plan
("Plan") in the amount and to the employees disclosed in the Prospectus. For
purposes of this Underwriting Agreement, the term "fully diluted basis" shall
mean the number of shares of Common Stock actually issued and outstanding plus
the number of shares of Common Stock underlying all issued and outstanding
convertible or excisable securities.
2.11 CUSIP NUMBER. The Company has obtained a CUSIP number for its
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Common Stock and the warrants to be registered for Deere Park Capital
Management, Inc. and ▇▇▇▇▇ ▇▇▇▇.
2.12 OPTIONS AND TREASURY SHARES. There are no outstanding options,
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warrants or other rights to purchase securities of the Company, however
characterized, except as described in the Registration Statement. Except as
described in the Registration Statement, there are no securities of the Company,
however characterized, held in its treasury. Except as described in the
Registration Statement, the Company has not offered or agreed to purchase or
issue any shares of Common Stock or any convertible securities in the future.
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2.13 SUBSIDIARIES. The Company's Subsidiaries as listed and
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described in the Prospectus constitute all of the Company's Subsidiaries as of
the Effective Date. Except as described herein and in the Registration
Statement, the Company has no Subsidiaries other than those described herein and
in the Registration Statement, is not carrying on any discussion or negotiation
with third parties regarding the merger or acquisition of any other entity and
does not currently intend to acquire any Subsidiaries or engage in mergers with
or the acquisition of any entity except as otherwise indicated in the
Registration Statement.
2.14 JOINT VENTURES. Except as described in the Prospectus, the
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Company has not entered into any joint venture, partnership, limited liability
company, strategic alliance or similar arrangement in which the Company has a
participating interest in the profits, losses, assets and liabilities as a joint
venturer, partner, member or shareholder of any such entity or under any such
arrangement.
2.15 PRIOR SALES. No securities of the Company, or of a predecessor
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of the Company, have been sold except as described in the Registration Statement
or as disclosed in writing to the Representative.
2.16 LITIGATION. Except as set forth in the Registration Statement
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or except for nonmaterial actions, suits, or proceedings disclosed in writing to
the Representative, there is, and at the Closing Date and at the Option Closing
Date there will be, no action, suit or proceeding before any court or
governmental agency, authority or body pending or to the knowledge of the
Company threatened against the Company or any of its Subsidiaries or any joint
venture, limited liability company, partnership or similar entity or arrangement
in which the Company has an interest.
2.17 ACQUISITION OF SUBSIDIARIES. In connection with the acquisition
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of all of the issued and outstanding capital stock of Apollo Sports
Technologies, Ltd., formerly TI Apollo, Ltd. ("Apollo"), a UK Company, ▇▇▇▇▇▇▇▇
531, Ltd., formerly TI ▇▇▇▇▇▇▇▇, Ltd., ("▇▇▇▇▇▇▇▇"), a UK Company, and Apollo
Golf, Inc., a New Jersey corporation ("Apollo US") and certain real property
from TI Group plc, a UK Company, and in connection with the acquisition of Cape
Composites, Incorporated ("Cape") through Sierra Materials, LLC ("Sierra
Materials") in which the Company owns an 80% interest, the formation of ICE*USA,
LLC and the acquisition of assets from Expedition Trading Company, LLC and the
acquisition of 5,000,000 shares of the issued and outstanding capital stock of
Pentiumatics, Sdn Bhd, a Malaysian company, the Company, through its officers,
directors, employees, legal counsel, accountants and other agents, have
conducted a thorough and complete independent investigation of the books,
records (including, without limiting the generality thereof, the tax records),
financial data, liabilities, obligations, assets, properties, agreements and all
other instruments and documents in the possession of each such Subsidiary or the
sellers ("Sellers") of each such corporation and pertaining to each such
Subsidiary and as a result of such investigation on or prior to the closing date
when the acquisition of each such corporation was consummated, and based on the
current operations and conditions of each such Subsidiary under the Company's
control and supervision, the Company does not know of any fact, condition or
circumstance existing as of the date hereof and will not know or be aware of any
fact, condition or circumstance as of the closing date, or the Option Closing
Date, which could result in a breach of any of the representations, warranties
or covenants contained in the agreements governing the purchase of the capital
stock or assets and properties of such Subsidiaries made by the Sellers of such
Subsidiaries to the Company which shall have survived the Closing Date or which
would result in a claim for indemnification against such Sellers under the terms
of any such agreements or which would materially adversely affect the Company,
its assets or financial condition which are not otherwise disclosed in the
Registration Statement.
2.18 FINDER. Except as set forth in the Registration Statement, the
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Company knows of no outstanding claims against it for compensation for services
in the nature of a finder's fee, origination fee, financial consulting fee,
commission or any other form of compensation which would accrue to, be earned by
or be required to be paid to any person with respect to the offer and sale of
the Shares hereunder.
2.19 EXHIBITS. There are no contracts or other documents which are
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required to be filed as exhibits to the Registration Statement by the Act or by
the Rules and Regulations thereunder, which have not been so filed
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and each contract to which the Company or any of its Subsidiaries is a party and
to which reference is made in the Prospectus has been duly and validly executed,
is in full force and effect in all material respects in accordance with its
terms, and none of such contracts has been assigned and the Company knows of no
present situation or condition or fact which would prevent compliance with the
terms of such contracts. Except for amendments or modifications of such
contracts in the ordinary course of business, the Company has not been advised
that any party to any such contract intends to exercise any right which it may
have to cancel any of its obligations under any of such contracts and has no
knowledge that any other party to any such contracts has any intention not to
render full performance under such contracts.
2.20 TAX RETURNS. The Company has (and to the extent required under
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applicable law each of the Subsidiaries have) filed all foreign, state and local
tax returns which are required to be filed by it (them) and has (have) paid all
taxes shown on such returns and on all assessments, including interest and
penalties, received by it (them) to the extent such taxes have become due. All
such tax returns so filed were correct and complete in all material respects.
All foreign, state and local taxes with respect to which the Company (and its
Subsidiaries to the extent required under applicable law) is obligated have been
paid or adequate accruals have been set up to cover any such unpaid taxes,
including any interest and penalties accrued with respect to any such unpaid
taxes. Except as set forth in the Registration Statement, there is no material
dispute or claim concerning the liability of the Company or any of its
Subsidiaries for any tax.
2.21 NO PREEMPTIVE RIGHTS. The Company's securities, however
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characterized, are not subject to preemptive rights.
2.22 USE OF FORM SB-2. The Company is eligible to use Form SB-2 for
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the offering of the Shares and the Representative's Warrants.
2.23 NO SHARES BEING OFFERED. Except as described in the
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Registration Statement, neither the Company nor any of its Subsidiaries is
currently offering any securities of which it is the issuer.
2.24 CERTIFICATES, PERMITS, LICENSES, APPROVALS, PATENTS AND
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TRADEMARKS. The Company and each of its Subsidiaries possess adequate
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certificates, permits, licenses, sublicenses, authorizations, consents or
approvals, issued by the appropriate federal, state and local regulatory
authorities necessary to conduct its business and to retain possession of its
assets and properties. The Company and its Subsidiaries have not received any
notice of any proceeding relating to the revocation or modification of any of
these certificates, permits, licenses, sublicenses, authorizations, consents or
approvals. The Company and each of its Subsidiaries has had issued to it or
them, owns or has applied for, U.S. domestic, United Kingdom, real properties,
plants, equipment, _____________ machinery, furniture, fixtures, vehicles and
any other property whether real, personal, tangible or intangible, including
without limitation, other foreign (as shall be necessary or appropriate)
trademark, patent, patent right, service ▇▇▇▇, logo, trade dress, mask work,
copyright and trade secret protection necessary to the conduct of its and their
respective businesses as now being conducted or otherwise has sufficient
licenses or sublicenses granting the Company and/or one or more of its
Subsidiaries the exclusive use of the trademarks, patents, patent rights,
service ▇▇▇▇, logo, trade dress, mask work, or copyrights in connection with the
conduct of its or their business activities; and except as described in the
Prospectus, the Company has no knowledge of any use by it or any of its
Subsidiaries of the trade secrets of others, of any interference,
misappropriation, infringement or violation by it or them of trademarks,
patents, patent rights, service ▇▇▇▇, logo, trade dress, mask work, or
copyrights of others, or of any claim being made against the Company or any of
its Subsidiaries regarding trademark, patent, service ▇▇▇▇, logo, trade dress,
mask work, or copyright infringement or use or misappropriation of trade secrets
of others. Neither the Company nor any of its Subsidiaries has received any
charge, complaint, claim, demand or notice alleging any interference,
infringement, misappropriation or violation of any trademark, patent, patent
rights, service ▇▇▇▇, logo, trade dress, mask work, copyright or use of trade
secrets of others.
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2.25 TITLE TO PROPERTIES. The Company and each of its Subsidiaries
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has marketable title to all real properties, plants, equipment, _____________
machinery, furniture, fixtures, vehicles and any other property whether real,
personal, tangible or intangible, including without limitation, patents, patent
applications, patent rights, trademarks, trademark applications, service marks,
service ▇▇▇▇ applications, logos, trade dress, mask works, copyrights,
equipment, know-how, technology, and trade secrets, described in the
Registration Statement as owned by it or them. All such properties are free and
clear of all liens, charges, encumbrances or restrictions, however
characterized, except as described in the Registration Statement. All of the
contracts, leases, subleases, patents, patent applications, patent rights,
trademarks, trademark applications, service marks, service ▇▇▇▇ applications,
logos, trade dress, mask works, copyrights, licenses and agreements, however
characterized, under which the Company and each of its Subsidiaries holds its
properties, as described in the Registration Statement, are in full force and
effect.
2.26 NO DIRECTED SALES. The Company has not made any representation,
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whether oral or in writing, to any person, whether an existing shareholder or
not, that any of the Shares will be reserved or directed to such person during
the proposed Public Offering of the Company's securities.
2.27 RESTRICTED SHARES. The Company has caused each of its current
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shareholders who holds "restricted securities" as such term is defined in Rule
144 under the Act to acknowledge that they hold "restricted securities" as
defined in Rule 144.
2.28 NEGOTIATIONS. During the period from the Effective Date to the
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Closing Date or the Option Closing Date, the Company will notify the
Representative in writing from time to time of the status of any negotiations
involving the Company or any of its Subsidiaries relating to any transaction
which would, if consummated, have a material effect upon the Company or any of
its Subsidiaries. Also, the Company will consult with its legal counsel
concerning the need to disclose any such negotiations.
2.29 AUTHORITY. The execution and delivery by the Company of this
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Agreement has been duly authorized by all necessary corporate action and this
Agreement is the valid, binding and legally enforceable obligation of the
Company.
2.30 1940 ACT. The Company has been advised of the Investment
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Company Act of 1940, as amended (the " 1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
2.31 CAMPAIGN CONTRIBUTIONS AND CORRUPT PRACTICES ACT. The Company
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has not at any time since the date of its incorporation, nor have any of the
Subsidiaries at any time during the period that such Subsidiaries have been
owned by the Company, made any unlawful contribution to any candidate for U.S.
domestic or foreign office, or failed to disclose fully any contribution in
violation of law, or made any payment to any federal, state or foreign
government, governmental officer or official, employee or agent, or other person
charged with similar public or quasipublic duties, other than payments required
or permitted by the laws of the United States, the United Kingdom or Malaysia or
any other foreign nation or country or any jurisdiction thereof. Further,
neither the Company, its Subsidiaries, nor its officers, directors, employees,
shareholders, agents, representatives, or any other person acting for or on
behalf of the Company disbursed or received Company funds, entered into any
transaction intended to transfer, directly or indirectly, assets or made
improper entries or inaccurate recordings of payments or receipts on the
Company's books to cover up any transaction in violation of the Foreign Corrupt
Practices Act or any other laws of the United States, the United Kingdom,
Malaysia or any other foreign country or nation or jurisdiction thereof.
2.32 SHARES ACTIVITIES. The Company has not taken and will not take,
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directly or indirectly, any action designed to, or that might be reasonably
expected to, cause or result in the stabilization or manipulation of the price
of any security to facilitate the sale or resale of the Shares.
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2.33 ENVIRONMENTAL. Except as specifically described in the
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Prospectus, the Company and each of its Subsidiaries is in compliance with all
foreign, federal, state, and local laws, statutes, treaties, ordinances, rules,
regulations, and policies relating to the use, treatment, storage,
transportation, discharge, emission, or disposal of, or exposure of others to,
toxic substances and protection of health, safety or the environment
("Environmental Laws") which are applicable to its or their business; there is
no pending or asserted claim, liability, or investigation by any third party or
governmental authority against the Company or any of its Subsidiaries under
Environmental Laws; no substances which are prohibited or regulated by any
Environmental Law or designated to be radioactive, toxic, hazardous or otherwise
a danger to health or the environment by any foreign, federal, state or local
governmental agency ("Hazardous Material") are present or likely to become
present on any property which is owned, leased, or occupied by the Company and
no such property has been designated as a SuperFund site, pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended, or
otherwise designated as a contaminated site under applicable foreign, federal,
state or local law; and the Company has received all permits, licenses,
authorizations, consents, waivers or approvals required of it under
Environmental Laws to conduct its business as presently conducted and is in
compliance with all terms and conditions of such permits, licenses,
authorizations, consents, waivers or approvals.
2.34 CONDITION OF ASSETS. The buildings, machinery, equipment and
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other tangible assets of the Company and its Subsidiaries are to the best of the
Company's knowledge, free of any defects, have been maintained in accordance
with industry practice, and are in good operating condition and repair, subject
to normal wear and tear.
2.35 UNDISCLOSED LIABILITIES. Except as disclosed in the
-----------------------
Registration Statement, neither the Company nor its Subsidiaries have any
material liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due, including, without limiting
the generality thereof, any liability for taxes).
2.36 PRODUCT WARRANT. All of the products manufactured, sold, leased
---------------
and delivered by the Company and its Subsidiaries have conformed in all material
respects with all applicable contractual commitments and all express and implied
warranties, and neither the Company nor any of its Subsidiaries has any material
liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due) for replacement or repair
thereof or other damages in connection therewith which would materially,
adversely affect the financial condition and business operations of the Company
and its Subsidiaries.
2.37 PRODUCT LIABILITY. Neither the Company nor its Subsidiaries has
-----------------
any material liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due) arising
out of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased or delivered by the
Company or any of its Subsidiaries.
2.38 INSURANCE. The Company and its Subsidiaries have in effect, and
---------
as of the Closing Date and the Option Closing Date will have in effect, adequate
insurance policies, including policies providing property, casualty, liability
(whether providing for general, product liability, fire and extended coverage or
other liability coverage) and workers' compensation coverage and bond and surety
arrangements, to provide adequate coverage and protection against the risks
covered thereunder. Each such insurance policy is (i) legal, valid, binding,
enforceable and in full force and effect in all material respects; (ii) neither
the Company nor any of its Subsidiaries is in material breach or default
(including with respect to paying of premiums or the giving of notices) and no
event has occurred which, with notice or lapse of time, would constitute such a
material breach or default, or permit termination, modification, or
acceleration, under the policy; and (iii) no party to the policy has repudiated
any material provision thereof.
8
2.39 EMPLOYEES. To the best knowledge of the Company, no executive,
---------
key employee, or significant group of employees employed by the Company or any
of its Subsidiaries have given notice to the Company or any of its Subsidiaries
or intends to terminate his or her employment with the Company or any of its
Subsidiaries within the next twelve (12) months. Except as described in the
Registration Statement, neither the Company nor any of its Subsidiaries is a
party to or bound by any collective bargaining agreement, nor has the Company or
any of its Subsidiaries experienced any strike or material grievance, claim of
unfair labor practice or other collective bargaining dispute within the past
three (3) years. Neither the Company nor any of its Subsidiaries has committed
any material unfair labor practice. The Company, to the best of its knowledge,
is not aware of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to the employees of the Company or
any of its Subsidiaries.
2.40 CERTAIN BUSINESS RELATIONSHIPS. Except as disclosed in the
------------------------------
Registration Statement, no principal shareholder of the Company nor any of their
affiliates have been involved in any material business arrangement or
relationship with the Company and its Subsidiaries within the past twenty-four
(24) months, and no such shareholder or affiliate owns any material asset,
tangible or intangible, which is used in the business of the Company or any of
its Subsidiaries.
All of the above representations and warranties set forth in Sections
2.1 through 2.40 hereof shall survive the performance or termination of this
Agreement.
SECTION 3
PURCHASE AND SALE OF THE SHARES
-------------------------------
3.1 PURCHASE OF SHARES. The Company hereby agrees to sell to the
------------------
members of the Underwriting Group named in Schedule I hereto (for all of whom
the Representative is acting), severally and not jointly, and each member of the
Underwriting Group, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees to purchase
from the Company, severally and not jointly, the number of Shares set forth
opposite the name of each member of the Underwriting Group as set forth in
Schedule I hereto at a purchase price of $________ for each Share which such
member has so agreed to purchase. The Company hereby grants to the
Representative and the members of the Underwriting Group an option for a period
of forty-five (45) days after the Effective Date ("Overallotment Exercise
Period") to purchase up to $150,000 Overallotment Shares in order to cover
overallotments. The purchase price of each Overallotment Share shall be
$____________. The Overallotment Option granted hereunder shall be exercisable
by the Representative, in whole or in part, from time to time during the
Overallotment Exercise Period. Any Overallotment Shares purchased upon exercise
of the Overallotment Option shall be purchased for the account of the
Representative and/or for the accounts of the members of the Underwriting Group
as determined by the Representative.
3.1.1 DEFAULT BY MEMBER OF UNDERWRITING GROUP. If for any reason one
---------------------------------------
or more of the Underwriters shall fail or refuse (otherwise than for a
reason sufficient to justify the termination of this Agreement under the
provisions of Section 9 hereof) to purchase and pay for the number of
Shares agreed to be purchased by such Underwriter, the Company shall
immediately give notice thereof to the Representative, and the
nondefaulting Underwriters shall have the right within twenty-four (24)
hours after the receipt by the Representative of such notice, to purchase
or request one or more other Underwriters to purchase, in such proportions
as may be agreed upon among the Representative and such purchasing
Underwriter or Underwriters and upon the terms herein set forth, the Shares
which such defaulting Underwriter or Underwriters agreed to purchase. If
the nondefaulting Underwriters fail so to make such arrangements with
respect to all such Shares, the number of Shares which each nondefaulting
Underwriter is otherwise obligated to purchase under this Agreement shall
be automatically increased pro rata to absorb the remaining Shares which
the defaulting Underwriter or Underwriters agreed to purchase; provided,
however, that the nondefaulting Underwriters shall not be obligated to
purchase any of the Shares if the aggregate Public Offering Price of the
Shares which the defaulting Underwriter or Underwriters agreed to purchase
exceeds ten percent (10%) of the Public Offering Price of the total
9
Shares which all Underwriters agreed to purchase hereunder. If the total
number of Shares which the defaulting Underwriter or Underwriters agreed to
purchase shall not be purchased or absorbed in accordance with this
subsection 3.1.1, then the Company shall have the right, within twenty-four
(24) hours next succeeding the twenty-four (24) hour period above referred
to, to make arrangements with other underwriters or purchasers satisfactory
to the Representative for the purchase of all of the Shares which the
defaulting Underwriter or Underwriters agreed to purchase hereunder on the
terms herein set forth. In any such case, either the Representative or the
Company shall have the right to postpone the Closing Date determined as
provided in subsection 3.2.2. hereof for not more than seven (7) business
days after the date originally fixed as the Closing Date pursuant to said
subsection 3.2.2. in order that any necessary changes in the Registration
Statement, the Prospectus or any other documents or arrangements may be
made. If neither the nondefaulting Underwriters nor the Company shall make
arrangements within the twenty-four (24) hour periods stated above for the
purchase of all the Shares which the defaulting Underwriter or Underwriters
agreed to purchase hereunder, this Agreement shall be terminated without
further act or deed and without any liability on the part of the Company to
any nondefaulting Underwriter and without any liability on the part of any
nondefaulting Underwriter to the Company.
3.1.2 LIABILITY OF DEFAULTING MEMBERS OF THE UNDERWRITING GROUP.
---------------------------------------------------------
Nothing contained in this Section 3.1 shall relieve any defaulting member
of the Underwriting Group of its liability, if any, to the Company or to
the remaining members of the Underwriting Group for damages occasioned by
its default hereunder.
3.2 PUBLIC OFFERING PRICE. After the Commission notifies the Company that
---------------------
the Registration Statement has become effective and after this Agreement becomes
effective, the members of the Underwriting Group propose to offer initially the
Shares to the public at the Public Offering Price. The members of the
Underwriting Group may allow such concessions and discounts upon sales to
selected dealers as may be determined from time to time by the Representative.
3.2.1 PAYMENT FOR SHARES. Payment for the Shares shall be made to
------------------
the Company by regular check or checks at the offices of the Representative
set forth above in Englewood, Colorado, upon delivery to the Representative
of certificates for the Shares in definitive form in such numbers and
registered in such names as the Representative requests in writing at least
two (2) full business days prior to such delivery. The Company agrees not
to seek to obtain (i) certification of the Representative's closing check
or checks from the Representative's bank or banks or (ii) a cashier's check
or checks from the Representative's bank or banks in substitution for the
Representative's closing check or checks. The Company agrees to deposit
the Representative's closing check or checks into the Company's bank
account and to allow such check or checks to clear through the banking
system on a "regular way" basis. Nothing contained in this Section 3.2.1
shall be construed to relieve the Representative from its obligations
created as a result of the issuance of the Representative's regular check
or checks at the Closing.
3.2.2 CLOSING. The time and date of delivery and payment hereunder
-------
for the Shares is herein called the "Closing Date" and shall take place at
the office of the Representative at the address set forth above in
Englewood, Colorado, at 10:00 A.M. on the third (3rd) business day
following the Effective Date of this Agreement; provided, however, the
Company and the Representative may agree, on the date that this Agreement
becomes legally effective, to an alternative Closing Date and such
alternative Closing Date shall become the "Closing Date" under this
Agreement. Should the Representative elect to exercise any part of the
Overallotment Option pursuant to Section 3.1 hereof, the time, date of
delivery and payment for the Overallotment Shares being purchased shall be
as mutually agreed between the Company and the Representative, but not
later than the forty-fifth (45th) calendar day after the Effective Date.
Said date is hereinafter referred to as the "Option Closing Date."
10
3.2.3 INSPECTION OF CERTIFICATES. For the purpose of expediting the
--------------------------
checking and packaging of the certificates for the Shares, the Company
agrees to make the certificates available for inspection by the
Representative at the place designated by the Representative at least one
full business day prior to the proposed delivery date.
3.3 REPRESENTATIVE'S NONACCOUNTABLE EXPENSE ALLOWANCE. It is understood
-------------------------------------------------
that the Company shall reimburse the Representative for its expenses on a
nonaccountable basis in the amount of three percent (3%) of the of the Shares
and Overallotment Shares purchased at the Public Offering Price by the
Underwriters. The Representative acknowledges that it has received $40,000 of
the nonaccountable expense allowance, which amount will be credited against the
unpaid balance of such nonaccountable expense allowance. On the Closing Date and
the Option Closing Date, the Company shall pay to the Representative the unpaid
balance of such nonaccountable expense allowance then due.
3.4 REPRESENTATIVE'S WARRANTS. On the Closing Date, the Company will sell
-------------------------
warrants to the Representative and its designees ("Representative's Warrants")
entitling the Representative to purchase a total of 100,000 shares of Common
Stock (115,000 shares of Common Stock if the Overallotment Option is exercised).
The Representative's Warrants will be in the form of the Representative's
Warrants to Purchase Shares filed as an exhibit to the Registration Statement.
The Representative's Warrants shall be exercisable during the four (4) year
period commencing one (1) year after the Effective Date. The total amount that
the Representative shall pay the Company for the Representative's Warrants is
One Hundred Dollars ($100). The Company and the Representative agree that the
Representative's Warrants may not be sold, transferred, assigned, pledged, or
hypothecated for a period of one year after the Effective Date of the
Registration Statement except to officers of the Representative, to members of
the Underwriting Group, and to officers or partners of selected dealers and
except by will or operation of law. After such one (1) year period, the
Representative's Warrants may be sold, transferred, assigned, pledged, or
hypothecated provided that any such transaction is in accordance with the
registration or exemption from registration provisions of the Act and any
applicable state securities laws. If the Representative's Warrants are
exercised during the first year after the Effective Date of the Registration
Statement, then any shares of Common Stock of the Company acquired as a result
of any such exercise may not be sold, transferred, assigned, pledged, or
hypothecated until after expiration of such one (1) year period.
3.5 REPRESENTATIONS OF THE PARTIES. The parties hereto respectively
------------------------------
represent that as of the Closing Date and as of the Option Closing Date the
representations herein contained and the statements contained in all the
certificates theretofore or simultaneously delivered by any party to another,
pursuant to this Agreement, shall in all material respects be true and correct.
3.6 POSTCLOSING INFORMATION. The Representative covenants that reasonably
-----------------------
promptly after the Closing Date and after the Option Closing Date, the
Representative will supply the Company with all information that the Company may
reasonably request which must be supplied to the Commission or securities
authorities of states in which the Shares have been qualified for sale.
3.7 REOFFERS BY SELECTED DEALERS. On each sale by the members of the
----------------------------
Underwriting Group of any of the Shares to selected dealers, the members of the
Underwriting Group shall require the selected dealers purchasing any such Shares
to agree to reoffer such Shares on the terms and conditions of the offering set
forth in the Registration Statement and Prospectus.
SECTION 4
REGISTRATION STATEMENT AND PROSPECTUS
-------------------------------------
4.1 DELIVERY OF REGISTRATION STATEMENT. The Company has delivered to the
----------------------------------
Representative without charge two (2) signed printed copies of the Registration
Statement, including all financial statements and exhibits filed therewith and
any amendments or supplements thereto, and shall deliver without charge to the
Representative such number of conformed printed copies of the Registration
Statement as the Representative shall request,
11
including all financial statements and exhibits filed therewith and any
amendments or supplements thereto. The signed copies of the Registration
Statement furnished to the Representative include signed copies of any and all
opinions and consents of the independent public accountants certifying to the
financial statements included in the Registration Statement and Prospectus and
signed copies of any and all opinions, consents and certificates of any other
persons whose profession gives authority to statements made by them and who are
named in the Registration Statement or Prospectus as having prepared, certified
or reviewed any part thereof.
4.2 DELIVERY OF PRELIMINARY PROSPECTUS AND AGREEMENTS. The Company will
-------------------------------------------------
have caused to be delivered, at its expense, to the members of the Underwriting
Group and to other broker dealers specified by the Representative prior to the
Effective Date of the Registration Statement as many printed copies of (i) each
Preliminary Prospectus filed with the Commission bearing in red ink the
statements required by Item 501 of Regulation S-B, and (ii) each Agreement Among
Underwriters, Underwriting Agreement, and Selected Dealer Agreement, all as may
have been requested by the Representative. The Company consents to the use of
such documents by the members of the Underwriting Group and by prospective
selected dealers prior to the Effective Date of the Registration Statement, so
long as such use is in accordance with the applicable provisions of the Act, the
applicable Rules and Regulations thereunder and the applicable state blue sky or
securities laws.
4.3 DELIVERY OF PROSPECTUS. The Company will deliver, at its expense, to
----------------------
the members of the Underwriting Group and to other broker dealers specified by
the Representative, as many printed copies of the Prospectus as the
Representative may request and will deliver said printed copies of the
Prospectus to the members of the Underwriting Group and such other persons on
the Effective Date and for such period of time thereafter as the Prospectus is
required by law to be delivered in connection with offers and sales of the
Shares.
4.4 FURTHER AMENDMENTS AND SUPPLEMENTS. If during the period of time that
----------------------------------
the Company's Prospectus is required to be delivered under the Act, any event
occurs or any event known to the Company relating to or affecting the Company
shall occur, as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact, or omit to state any
material fact necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading or if it is necessary
at any time after the Effective Date to amend or supplement the Prospectus to
comply with the Act, the Company agrees to notify immediately the Representative
thereof and prepare and file with the Commission such further amendment to the
Registration Statement or supplemental or amended Prospectus as may be required
and furnish and deliver to the Representative and to others designated by the
Representative, all at the Company's expense, a reasonable number of copies of
the amended or supplemented Prospectus which as so amended or supplemented will
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading when it is delivered to
a purchaser or prospective purchaser, and which will comply in all respects with
the Act; and in the event the Representative is required to deliver a Prospectus
after the date specified in Rule 174 of the Rules and Regulations, the Company
upon request will prepare promptly such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of Section 10 of the Act.
4.5 USE OF PROSPECTUS. The Company authorizes the members of the
-----------------
Underwriting Group in connection with the distribution of the Shares and all
dealers who may distribute any of the Shares to use the Prospectus, as from time
to time amended or supplemented, in connection with the offering and sale of the
Shares so long as such use is in accordance with the applicable provisions of
the Act, the applicable Rules and Regulations thereunder and applicable state
blue sky or securities laws.
SECTION 5
COVENANTS OF THE COMPANY
------------------------
The Company covenants and agrees with the members of the Underwriting Group
that:
12
5.1 OBJECTION OF REPRESENTATIVE TO AMENDMENTS OR SUPPLEMENTS. After the
--------------------------------------------------------
date hereof, the Company will not at any time, whether before or after the
Effective Date of the Registration Statement, file any amendment or supplement
to the Registration Statement or Prospectus (i) unless and until a copy of such
amendment or supplement has been previously furnished to the Representative
within a reasonable time period (but in no event less than three (3) business
days before the Company proposes to file such amendments and to the extent of
any changes are made to such amendment not less than two (2) business days)
prior to the filing thereof or (ii) to which the Representative or legal counsel
to the Representative has reasonably objected, in writing, on the ground that
such amendment or supplement is not in compliance with the Act or the Rules and
Regulations.
5.2 COMPANY'S BEST EFFORTS TO CAUSE REGISTRATION STATEMENT TO BECOME
----------------------------------------------------------------
EFFECTIVE. The Company agrees to use its best efforts to cause the Registration
---------
Statement and any amendment thereto to become effective as promptly as
reasonably practicable and will promptly advise the Representative and will
confirm such advice in writing (i) when the Registration Statement shall have
become effective and when any amendment thereto shall have become effective and
when any amendment of or supplement to the Prospectus shall be filed with the
Commission, (ii) when the Commission shall make, either orally or in writing, a
request or suggestion for any amendment to the Registration Statement or the
Prospectus or for any additional information and the nature and substance
thereof, (iii) of the issuance by the Commission of an order suspending the
effectiveness of the Registration Statement pursuant to Section 8 of the Act or
of the initiation of any proceedings for that purpose, (iv) of the happening of
any event which in the judgment of the Company makes any material statement in
the Registration Statement or Prospectus untrue or which requires the making of
any changes in the Registration Statement or Prospectus in order to make the
statements therein not misleading, and (v) of the refusal to qualify or the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction or of the institution of any proceedings for any of such purposes.
The Company will use every reasonable effort to prevent the issuance of any such
order or of any order preventing or suspending such use, to prevent any such
refusal to qualify or any such suspension, and to obtain as soon as possible a
lifting of any such order, the reversal of any such refusal and the termination
of any such suspension.
5.3 PREPARATION AND FILING OF AMENDMENTS AND SUPPLEMENTS. The Company
----------------------------------------------------
agrees to prepare and file promptly with the Commission, upon request of the
Representative, such amendments or supplements to the Registration Statement or
Prospectus, in form satisfactory to legal counsel for the Representative, as in
the opinion of the Representative and of legal counsel to the Company, may be
necessary in connection with the offering or distribution of the Shares and will
use its best efforts to cause the same to become effective as promptly as
possible.
5.4 BLUE SKY QUALIFICATIONS. The Company agrees to use its best efforts
-----------------------
to register or qualify the Shares or such part thereof as the Representative may
determine for sale under the blue sky laws of such states as are requested by
the Representative. The Company will be assisted by legal counsel for the
Representative in registering or qualifying the Shares for sale under such blue
sky laws. The Company will pay all of the filing fees and legal fees, costs and
expenses incurred by such legal counsel in so registering or qualifying such
Shares. The Representative acknowledges that the Company has paid five thousand
dollars ($5,000) against which the legal fees of legal counsel for the
Representative may be billed. The Representative's legal counsel will forward
to legal counsel for the Company copies of all correspondence, comments, orders
or other documents ("correspondence and documents") sent to or received from
such states in connection with such registrations and qualifications at the time
such correspondence and documents are sent or received by legal counsel for the
Representative. Immediately prior to the distribution of the preliminary
Prospectus to potential investors and prior to the Effective Date of the
Registration Statement, legal counsel for the Representative will issue to the
Company and the Underwriting Group a written blue sky memorandum of all states
in which the preliminary Prospectus may be distributed and in which the proposed
initial Public Offering (the "Public Offering") of the Shares has been
registered or qualified for sale, canceled, withdrawn, denied or exempt, the
date of such event(s) and the number of Shares registered or qualified for sale
in each such state. The Company understands that one of the
13
factors considered by the Representative and the Underwriting Group in deciding
to execute this Underwriting Agreement was the states in which the Shares have
been registered or qualified for resale.
5.5 FINANCIAL STATEMENTS. The Company, at its own expense, agrees to
--------------------
prepare and give and will continue to give such financial statements and other
information and reports to and as may be required by the Commission or the
proper public bodies of the states in which the Shares may be registered or
qualified.
5.6 REPORTS AND FINANCIAL STATEMENTS TO THE REPRESENTATIVE. From and
------------------------------------------------------
after June 30, 1997, the date of the most recent quarterly financial statement
filed with the Commission and continuing through the Closing Date, the Company
shall furnish to the Representative and to legal counsel for the Representative,
the Company's unaudited monthly financial statements. For a period of five (5)
years from the Closing Date, the Company agrees to deliver to the Representative
copies of each annual report of the Company and copies of all reports it is
required to file or make available pursuant to the Shares Exchange Act of 1934,
as amended ("Exchange Act"), and will deliver to the Representative: (i) within
ninety (90) days (plus any extensions of time that the Commission grants to the
Company to file its annual report on the appropriate Form) after the close of
each fiscal year of the Company, a financial report of the Company and its
Subsidiaries on a consolidated basis, and a similar financial report of all of
the Company's unconsolidated Subsidiaries, all such reports to include a balance
sheet as of the end of the preceding fiscal year, a statement of operations, a
statement of stockholders' equity and statement of cash flows covering such
fiscal year, and all to be in reasonable detail and certified by independent
public accountants for the Company; (ii) within forty-five (45) days (plus any
extensions of time that the Commission grants to the Company to file its
quarterly report on the appropriate Form) after the end of each quarterly fiscal
period of the Company other than the last quarterly fiscal period in any fiscal
year, copies of the consolidated statements of operations, stockholders' equity
and cash flows for the quarterly fiscal period and the fiscal year to the end of
such quarterly fiscal period, and the balance sheet as of the end of that period
of the Company and its Subsidiaries and the equivalent financial statements of
all of the Company's unconsolidated Subsidiaries, for that period, all subject
to year end adjustment, certified by the principal financial or accounting
officer of the Company; (iii) copies of all other statements, documents or other
information which the Company mails or otherwise makes available to any class of
its security holders or files with the Commission; (vi) copies of all news,
press or public information releases when made; (v) copies of all letters to the
Company from its independent certified public accountants concerning actual or
potential deficiencies in the Company's accounting procedures or internal
control of funds; and (vi) upon request in writing from the Representative, such
other information as may reasonably be requested and which may be properly
disclosed to the Representative with reference to the property, business and
affairs of the Company and its Subsidiaries. If the Company fails to furnish
the Representative with financial statements as herein provided, within the
times specified herein, the Representative shall have the right to have such
financial statements prepared by independent public accountants of such
Representative's own choosing and the Company agrees to furnish such independent
public accountants such data and assistance and access to such records as they
may reasonably require to enable them to prepare such statements and to pay
their reasonable fees and expenses in preparing the same; provided, however, the
Company shall have the right to furnish the financial statements to the
Representative at any time after the Representative retains independent public
accountants to prepare the financial statements in which event the amount of
fees that the Company shall be obligated to pay to the independent public
accountants selected by the Representative will be limited to those fees
(including any retainer paid) actually incurred to the point in time that the
Company furnishes the required financial statements.
5.7 EXPENSES PAID BY THE COMPANY. The Company agrees to pay, whether or
----------------------------
not the transactions contemplated hereunder are consummated or this Agreement is
prevented from becoming effective or is terminated, all costs and expenses
incident to the performance of its obligations under this Agreement, including
all expenses incident to the authorization, issuance, and delivery of the Shares
and Representative's Warrants, any original issue taxes in connection therewith,
all transfer taxes, if any, incident to the initial sale of the Shares to the
public, the fees and expenses of the Company's personnel in connection with the
proposed Public Offering, the costs, fees, and expenses incident to the
preparation, printing and filing under the Act and with the NASD of the
Registration Statement, or supplements thereto, the cost of printing,
reproducing and filing all exhibits to
14
the Registration Statement, the Agreement Among Underwriters, this Agreement,
the Selected Dealer Agreement and any other underwriting documents, the cost of
printing and delivering to the Representative, the members of the Underwriting
Group, and selected dealers copies of the Registration Statement and copies of
the Agreement Among Underwriters, this Agreement and the Selected Dealer
Agreement, and any other underwriting documents, as many Preliminary
Prospectuses and the final Prospectuses as the Representative may deem
reasonably necessary as herein provided, the costs and legal counsel fees of
qualifying the Shares under the state securities or blue sky laws as provided in
Section 5.4 hereof, the fees and disbursements of legal counsel and accountants
for the Company, the cost of providing the Representative with two (2) bound
volumes of the Registration Statement, as amended, all exhibits thereto, all
state filings and all correspondence relating to the Registration Statement and
all state filings, all expenses incurred in connection with the holding of "due
diligence" meetings (which shall include all presentations specified by the
Representative) held by the Representative, and the cost of one (1) suitable
tombstone notice in the Wall Street Journal relating to the proposed Public
Offering, and any other expenses customarily paid by an issuer. Except as
specified above, the Company shall not be required to pay any fees or charges
for attending or any travel or lodging expenses incurred in attending due
diligence meetings by members of the Underwriting Group or dealers. Except as
otherwise specified above, the Representative agrees to pay all fees and
expenses of any legal counsel which it may employ to represent it separately in
connection with or on account of the proposed Public Offering and agrees to pay
any advertising not paid by the Company, mailing, telephone, travel and clerical
costs and all other office costs incurred or to be incurred by the
Representative or by its representatives in connection with the proposed Public
Offering.
5.8 REPORTS TO SHAREHOLDERS. For so long as the Company's Common Stock is
-----------------------
registered under the Exchange Act, the Company agrees to hold an annual meeting
of shareholders for the election of directors within one hundred eighty (180)
days after the end of each of the Company's fiscal years and, within one hundred
eighty (180) days after the end of each of the Company's fiscal years, to send
to each of the Company's shareholders the audited financial statements of the
Company as of the end of the fiscal year just completed prior thereto. Such
financial statements shall be those required by Rule 14c-3 under the Exchange
Act and shall be included in an annual report meeting the requirements of such
Rule. Further, the Company agrees, so long as such Common Stock is so
registered:
(i) to provide the Company's shareholders with quarterly summary
operating financial statements;
(ii) to send, within thirty (30) days after the Closing Date, a letter
to shareholders of the Company which welcomes them as shareholders and
discusses the business conducted by the Company since the Effective Date.
(iii) to send, as least every ninety (90) days for a period of three
(3) years after the Effective Date, a letter or report to shareholders of
the Company and to broker dealers which are then market markers of Shares
of the Company on NASDAQ ("market makers"), which contains a narrative
discussion of the Company's financial status and results of operations and
a narrative discussion of the business conducted by the Company since the
last report or letter to shareholders and market markers.
(iv) during the period after three (3) years from the Effective Date,
to send to each of the Company's shareholders and market markers in printed
form within ninety (90) days after the end of each fiscal quarter just
ended a narrative discussion of such financial statements and the business
conducted by the Company during such quarter.
If the Company breaches any of its agreements set forth in this Section
5.8, the parties agree that any such breach will result in irreparable harm to
the Representative for which an adequate remedy for damages will not exist and
therefore the Representative shall be entitled to seek and obtain a court
injunction in equity which orders the Company to comply with its agreements set
forth in this Section 5.8 and which requires the Company
15
to reimburse the Representative for its costs, including reasonable attorney
fees, incurred in obtaining such injunctive order.
5.9 SECTION 11(A) FINANCIAL. The Company agrees to send to each of its
-----------------------
security holders and agrees to deliver to the Representative, as soon as
practicable, but in no event later than the first day of the sixteenth (16th)
full calendar month following the Effective Date, an earnings statement (as to
which no opinion need be rendered but which will satisfy the provisions of
Section 11 (a) of the Act) covering a period of at least twelve (12) months
beginning after the Effective Date.
5.10 POSTEFFECTIVE AVAILABILITY OF PROSPECTUS. Within the time during
----------------------------------------
which the Prospectus is required to be delivered under the Act, the Company
agrees to comply, at its own expense, with all requirements imposed upon it by
the Act, as now or hereafter amended, by the Rules and Regulations, as from time
to time may be in force, and by any order of the Commission, so far as necessary
to permit the continuance of sales of the Shares.
5.11 APPLICATION OF PROCEEDS. The Company intends to apply the net
-----------------------
proceeds from the sale of the Shares substantially in the manner set forth in
the Registration Statement. Except for cumulative changes of less than ten
percent (10%) in each specific item set forth in the "Use of Proceeds" section
of the definitive Prospectus, the Company will not deviate from such use without
giving written notice of such proposed deviation to the Representative at least
ten (10) business days prior to any such deviation. Pending utilization of the
net proceeds by the Company for business purposes, all of the unused net
proceeds from the sale of the Shares will be invested in short term United
States government securities purchased through a bank or in a nondiscretionary
account of the Company with the Representative.
5.12 DELIVERY OF DOCUMENTS. Prior to the Closing Date, the Company agrees
---------------------
to deliver to the Representative true and correct copies of the charter,
articles of association, articles of incorporation and certificate of
incorporation of the Company and its Subsidiaries, and all amendments thereto,
all such copies to be certified by the secretary of state of the state of
incorporation of the Company and by the proper governmental authority of any
foreign country in which one or more Subsidiaries are incorporated to the extent
that such document or an equivalent thereof is made available by such
governmental authority; true and correct copies of the bylaws of the Company and
of the minutes of all meetings of the directors and shareholders of the Company
held prior to the Closing Date; and true and correct copies of all material
contracts to which the Company or any of its Subsidiaries, if any, is a party.
5.13 COOPERATION WITH REPRESENTATIVE'S DUE DILIGENCE. At all times prior
-----------------------------------------------
to the Closing Date, the Company agrees to cooperate with the Representative,
legal counsel for the Representative, and the Representative's consultants in
such investigation as the Representative may make or cause to be made of the
Company, its Subsidiaries and their affiliates and the Company agrees to make
available to the Representative in connection therewith such information and
documents relating to the Company, its Subsidiaries and their affiliates as the
Representative may reasonably request and such persons as the Representative or
legal counsel for the Representative shall deem reasonably necessary or
appropriate in order to verify or substantiate any document or other information
regarding the Company and the preparation and filing of the Registration
Statement.
5.14 ANNUAL MEETINGS. The Company will, at its expense, so long as its
---------------
Common Stock is registered under the Exchange Act, hold an annual meeting of
shareholders for the election of directors within one hundred eighty (180) days
after the end of each of the Company's fiscal years.
5.15 LIMITATIONS ON COMPANY. Except with the Representative's prior
----------------------
written consent, the Company agrees that the Company will not do the following
until (a) the termination of this Agreement or (b) the number of days after the
Effective Date for which the Prospectus is required to be used pursuant to Rule
174 of the Rules and Regulations, whichever occurs first:
16
(i) Undertake or authorize any change in its capital structure;
(ii) Borrow any funds other than in the ordinary course of business
and as contemplated by the Prospectus;
(iii) Consolidate or merge with or into any other corporation;
(iv) Purchase all or substantially all of the assets of another
corporation or any other entity or person or sell all or substantially all
of the Company's assets to another corporation, entity or person;
(v) Purchase fifty percent (50%) or more of the securities of
another corporation or other entity or sell or enter into an exchange
transaction pursuant to which the Company or the Company's shareholders
sell or exchange or otherwise dispose of fifty percent (50%) of the issued
and outstanding shares of the Company's Common Stock in a taxable or tax
free transaction; or
(vi) Create any mortgage or any lien upon any of its properties or
assets other than in the ordinary course of business and as contemplated by
the Prospectus.
5.16 APPOINTMENT OF TRANSFER AGENT. Prior to the Effective Date, the
-----------------------------
Company will have appointed American Securities Transfer & Trust, Inc., ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, as transfer agent for the
Company's Shares and Common Stock. The Company shall not change its transfer
agent for a period of two (2) years after the Effective Date without the
Representative's prior written consent.
5.17 DAILY TRANSFER SHEETS. For the three (3) year period following the
---------------------
Effective Date, the Company, at its expense, shall provide the Representative,
if so requested in writing, with copies of the Company's daily Common Stock
transfer sheets and the __________________________ ("DTC") special security
position listing reports.
5.18 CERTIFICATES. The Company agrees to make arrangements to have
------------
available at the office of the transfer agent sufficient quantities of the
Company's certificates as may be needed for the quick and efficient transfer of
the Shares and Common Stock.
5.19 COMPLIANCE WITH CONDITIONS PRECEDENT. The Company agrees to use all
------------------------------------
reasonable efforts to comply or cause to be complied with the conditions
precedent to the obligations of the members of the Underwriting Group in Section
8 hereof.
5.20 FILINGS OF FORMS. The Company agrees to file with the Commission all
----------------
required reports on Form SR in accordance with the provisions of Rule 463 of the
Rules and Regulations and will file with the appropriate state securities
authorities any sales and other reports required by the rules and regulations of
such agencies and will provide copies of such reports to the Representative and
to the legal counsel for the members of the Underwriting Group.
5.21 REGISTRATION UNDER THE EXCHANGE ACT. Prior to the Effective Date of
-----------------------------------
the Registration Statement, the Company will have made a filing under Section
12(g) of the Exchange Act with respect to the Company's Common Stock. The
Company agrees to deliver a copy of such filing to the Representative and to
legal counsel for the Representative when filed. On the Effective Date of the
Registration Statement, the Company will cause the Company's filing under
Section 12(g) of the Exchange Act to become effective with the Commission.
5.22 LISTING IN MANUALS. The Company will use its best efforts to qualify
------------------
(if not already qualified) the Company's Shares and Common Stock for trading in
all states as soon as legally possible. Therefore, as soon as possible prior to
the Effective Date, the Company will use its best efforts to have the Company
listed in
17
▇▇▇▇▇'▇ Over-the-Counter Manual and Standard & Poor's Standard Corporation
Records and such other Manuals as are reasonably requested by the
Representative.
5.23 NASDAQ/NMS. The Company agrees to have the Shares listed and
----------
available for quotation on the NASDAQ Small Cap Market on the Effective Date of
the Registration Statement. Subject to the Company's ability to meet the
maintenance requirements of the NASDAQ Small Cap Market, the Company agrees to
maintain the listing of its Common Stock such that such Shares will continue to
be available for quotation on the NASDAQ Small Cap Market. The trading symbols
shall be mutually agreeable to the Company and the Representative. As soon as
the Company meets the qualifications required with respect thereto, the Company
will designate its securities for inclusion on the NASDAQ National Market System
or, in the alternative, such national stock exchange as is agreed to between the
Company and the Representative.
5.24 SECONDARY TRADING QUALIFICATIONS. The Company agrees to qualify its
--------------------------------
securities for secondary trading, as soon as legally possible, in California and
such other states as are reasonably requested by the Representative from time to
time.
5.25 LEGENDS ON STOCK CERTIFICATES. The Company agrees to cause the stock
-----------------------------
certificates of its current shareholders that represent "restricted securities,"
and the stock and warrant certificates held by officers, directors, or
controlling persons of the Company to be clearly legended as being restricted
against transfer without compliance with the Act and to cause the Company's
transfer agent and warrant agent to put stop transfer instructions against such
certificates.
5.26 STOCKHOLDERS AND WARRANTHOLDERS LISTS AND TRANSFER SUMMARIES. Within
------------------------------------------------------------
ten (10) business days after the Closing Date and within ten (10) business days
after the Option Closing Date, the Company will deliver to the Representative
complete lists of all holders of the Shares and Common Stock of the Company as
of the Closing Date and as of the Option Closing Date, respectively. Each such
list shall include the name and address of each such holder and the number of
Shares and shares of Common Stock owned by each such person as of such date.
Within ten (10) business days after the end of each of the first twenty-four
(24) calendar months after the Closing Date, the Company will provide the
Representative with a new list containing the information described above with
respect to the Shares and Common Stock as of the end of each such month and a
list which shows each transaction involving a transfer of a Share or Common
Stock certificate during such month. This transfer list shall include the name
and address of the transferor and the transferee and the number of Shares and
shares of Common Stock transferred.
5.27 DIRECTORS, OFFICERS AND COMMITTEES. Immediately after the Closing
----------------------------------
Date, the Representative shall have the right, subject to the approval of the
Board of Directors, to select one member of the Company's Board of Directors.
The director to be selected by the Representative shall serve until the next
annual meeting of the Company's Shareholders. Thereafter, the Company will have
such member renominated for an additional two (2) terms of office. The
Company's officers and directors agree that they will vote their shares of
Common Stock (or any other securities entitled to vote for the election of
directors) to re-elect such member. In addition, the Company will solicit its
shareholders to vote in favor of the Representative's nominee. Following the
date of the final Prospectus, the Company agrees that the persons comprising the
Board of Directors and officers of the Company on the Effective Date must be
acceptable to the Representative. Such acceptance will only be withheld by the
Representative if material adverse information is discovered by the
Representative. By no later than the Closing Date, the Company will, if it has
not already done so, have two (2) outside independent directors serving on the
Board of Directors. The Company shall continue to maintain at least two (2)
independent outside directors for at least the next two (2) fiscal years beyond
the Effective Date. The Company agrees that for a period of three (3) years
after the Closing Date, the Company will permit a representative, designated by
the Representative and acceptable to the Company, to receive notice of and to
attend all meetings of the Board of Directors of the Company. The
Representative shall be provided with the same notice of each meeting of the
Board of Directors as is provided to the Board of Directors. No compensation
shall be paid to such observer. However, the Company will reimburse out of
pocket expenses incurred by such observer to attend meetings.
18
Such observer shall have no vote at such meetings; and, such observer shall be
required, prior to attending any such meeting, to represent in writing to the
Company that such observer is familiar with and will comply with all
requirements of the federal securities laws applicable to a person who comes
into possession of material nonpublic information concerning the Company. The
Board of Directors of the Company will establish an audit and a management
compensation committee and will maintain such committees so long as the Common
Stock of the Company is registered under the Exchange Act. For a period of not
less than two (2) years after the Effective Date, at least two (2) outside
independent director's will serve on the Company's audit and compensation
committees and as such shall comprise a majority of the members of such
committees. The Board of Directors will manage and oversee the application of
the proceeds received by the Company from the Public Offering. Any material
modification in the application of such proceeds which varies from the specific
use described in the Final Prospectus shall require the prior review and
approval of all of the members of the Board of Directors.
5.28 RIGHT OF INSPECTION. The Company agrees that for a period of three
-------------------
(3) years following the date of the final Prospectus, the Representative, at the
Representative's expense, will have the right to have a person or persons
selected by the Representative review the books, records and operations of the
Company, upon seven (7) days written notice. Any person designated by the
Representative to conduct such review shall be required to execute a
confidentiality agreement which will, in part, prohibit disclosure of
information to any person other than the Representative. Unless the Company
specifically agrees otherwise, any such information shall be held in confidence.
5.29 PUBLIC RELATIONS FIRM. At least ninety (90) days prior to the
---------------------
Effective Date, the Company will engage the services of a public relations
advisory firm which is acceptable to the Representative. The Company shall
retain the services of such public relations advisory firm for at least one (1)
year following the Effective Date. The Company shall have sole authority to
determine the compensation and the utilization of such public relations firm.
In any event, the Company shall provide reasonable and frequent notices to the
public concerning material developments in the Company's business operations,
activities and acquisitions. Such public relations firm shall not be a member
of the Underwriting Group or a "related person" of any such member of the
Underwriting Group. The term "related person" is described in Section 5.32 of
this Agreement.
5.30 DISSEMINATION OF INFORMATION. To avoid any appearance of the early
----------------------------
commencement of the Public Offering, the Company shall consult with its counsel
and the Representative prior to distribution to third parties of any financial
information, news releases and/or other publicity regarding the Company, its
business or any terms of the proposed Public Offering, unless such dissemination
is required by law or by prior Company practices. Prior to the distribution
thereof, the Company shall furnish to the Representative copies of all
documents, including, without limitation, financial information, news releases
and other documents regarding the Company, its business, its properties or any
of the terms of the proposed Public Offering, which the Company or its public
relations advisors intend to distribute prior to the Closing Date.
5.31 MANAGEMENT REFERRALS. Persons whom management of the Company believe
--------------------
may be interested in purchasing Shares in the Public Offering will be referred
only to the Representative and management of the Company will purchase Shares in
the Public Offering only through the Representative. The Representative will
have complete control of the distribution of the Shares in the Public Offering.
5.32 NO NASD MEMBER PAYMENTS OR AFFILIATION. For purposes of this Section
--------------------------------------
5.29 and Section 5.32 hereof, a "related person" of an NASD member is a person
who has any of the following relationships with any NASD member: legal counsel,
financial consultant or advisor, finder, associated person, or member of the
immediate family of any such person. The Company represents to the
Representative that the Company has not paid and will not pay, except as
described in the Registration Statement or the next sentence, or agreed to pay
or deliver any item of value, including securities, to any member of the NASD or
to any person associated with a member of the NASD or to any related person of
an NASD member during the period beginning on the three hundred sixty-sixth
(366th) day prior to the filing of the Registration Statement with the
Commission and ending
19
on the forty-fifth (45th) day after the Effective Date of the Registration
Statement. The representation contained in the foregoing sentence shall not
include cash discounts or commissions paid by the Company in connection with a
distribution of the Company's securities which occurs prior to the filing of the
Registration Statement with the Commission. The Company shall supply to legal
counsel for the Representative no later than one (1) week before the expected
filing date of the Registration Statement, the written representation of the
Company's president or chief executive officer as to (i) the existence or non-
existence of any NASD affiliation or association of any officer, director, or
five percent (5%) or greater shareholder of the Company, and, if a shareholder
of the Company is a corporation, the existence or non-existence of such NASD
affiliation or association of any officer, director or five percent (5%) or
greater shareholder of such corporation, (ii) whether or not any unregistered
securities of the Company have been acquired by any NASD member or related
persons during the thirteen (13) month period prior to the anticipated filing
date of the Registration Statement, and (iii) whether or not key-man life
insurance has been or will be provided for any officer or director of the
Company by any NASD member or related person.
5.33 FUTURE SALES.
------------
5.33.1 COMPANY SALES TO OTHERS. During the period of six (6) months
-----------------------
after the Effective Date of the Registration Statement, the Company will
not sell any securities (other than debt securities issued to financial
institutions) not covered by the Registration Statement without the
Representative's prior written consent. Excepted from this provision shall
be sales of Excluded Shares. The term "Excluded Shares" shall mean options
and warrants which are issued and outstanding on the Effective Date of the
Registration Statement or which are issued pursuant to a plan ("Plan")
which has been approved in writing by the Board of Directors of the Company
and the Representative prior to the Effective Date of the Registration
Statement.
5.33.2 COVERED PERSONS. Prior to the Effective Date of the
---------------
Registration Statement, the Company will cause each of its officers,
directors, one percent (1%) or more shareholders, and their affiliates and
any other persons as shall be required by NASDAQ ("Covered Persons) to
agree with the Representative in a written agreement in form and substance
satisfactory to the Representative and legal counsel for the Representative
that, without the prior written consent of the Representative, each such
Covered Person will not sell or otherwise dispose of any of the Company's
shares of Common Stock. Such agreement will also provide that if a Covered
Person who is an officer or director of the Company on the Effective Date
of the Registration Statement ceases to be an officer or director of the
Company at any time during the period of twelve (12) months after the
Closing Date, then such Covered Person and the affiliates of such Covered
Person will agree not to sell any of the Company's shares of Common Stock
which are owned by such Covered Person and such Covered Person's affiliates
on the Effective Date of such Registration Statement until the expiration
of twelve (12) months after the Effective Date. For purposes of this
Agreement, the term "affiliate" shall have the meaning ascribed to it in
Rule 405 of the Act. Such agreements between the Representative and the
Covered Persons will also provide that any sales of shares of Common Stock
of the Company by such persons during the three (3) year period after the
Closing Date, under Rule 144 promulgated by the SEC under the Act ("Rule
144 Sales"), will be executed only through the Representative acting as a
broker or dealer. In such agreement the Representative will agree to
execute such Rule 144 Sales on a competitive basis. If any person required
to execute an agreement under this subsection 5.33.2. has pledged, or
during the applicable period pledges, any of the Company's shares of Common
Stock which are covered by such agreement, such person shall cause his
pledgee to also agree in writing to comply with the pledgor's agreement
with the Representative. A copy of any such written agreement from the
pledgee shall be promptly delivered by the pledgor to the Representative
after execution thereof by the pledgee.
5.34 EXCLUSIVE DEALING. The Company at no time prior to the Closing Date,
-----------------
as contemplated under this Agreement, shall enter into discussions, negotiate or
otherwise make any arrangements with any other underwriter or other person which
relate in any manner to the undertaking of a possible Public Offering of the
20
Company's securities by any such person other than the Representative, so long
as the Representative is discharging and performing its duties and
responsibilities under this Agreement and has not indicated in writing its
decision not to consummate the proposed Public Offering as contemplated under
this Agreement.
5.35 FINANCIAL PRINTER. The Representative has approved the Company's
-----------------
selection and engagement of ▇ ▇ ▇▇▇▇▇▇▇▇▇ Financial as the financial printing
company selected by the Company to print the Preliminary and Final Prospectus
and for the transmitting of all electronic filings to the Commission prior to
the engagement by the Company of the services of such financial printing
company. In addition, the Representative shall approve the form, size, style
and quality of the Preliminary and Final Prospectus.
5.36 LIMITATION ON CERTAIN OFFERINGS. At no time for a period commencing
-------------------------------
on March 17, 1997 and continuing until thirty-six (36) months after the
Effective Date shall the Company, without the prior written consent of the
Representative, conduct an offering of its securities under the exemption from
the registration requirements afforded under Regulation S (i.e., Rules 901
through 904) as promulgated under the Act or any offering of its Shares under an
S-8 Registration Statement (or successor from of registration statement) in
connection with the issuance of the Company's securities to consultants or
advisors for services.
SECTION 6
INDEMNIFICATION
---------------
6.1 INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and hold
--------------------------
harmless the Representative and the other members of the Underwriting Group and
each officer, director, employee, representative, agent, surety, guarantor, and
each person who controls the Representative or any other member of the
Underwriting Group within the meaning of Section 15 of the Act against any and
all losses, claims, damages or liabilities, joint or several, or litigation,
arbitration or mediation proceedings (collectively referred to as "litigation"),
including any and all awards or judgments rendered in connection therewith, to
which they or any of them may become subject under the Act or any other statute
or at common law and to reimburse the persons indemnified for any legal or other
expenses (including the cost of any investigation and preparation) incurred by
them in connection with any litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, damages, liabilities and
litigation (including awards and/or judgments in connection therewith) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereto
and the Prospectus and related exhibits included in the Registration Statement
or any application or other document filed in order to qualify the Shares under
the blue sky or securities laws of the states where filings were made, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, all
as of the date when the Registration Statement or such amendment, as the case
may be, becomes effective, or any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or supplemented if
the Company shall have filed with the Commission any amendments thereof or
supplements thereto), or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however
that the indemnity agreement contained in this subsection 6.1 shall not apply to
the Representative or any of the other members of the Underwriting Group or any
person controlling the Representative or any other member of the Underwriting
Group in respect of any such losses, claims, damages, liabilities or litigation
arising out of or based upon any such untrue statement or alleged untrue
statement, or any such omission or alleged omission, if such statement or
omission was made in reliance upon information peculiarly within the knowledge
of the Representative or another member of the Underwriting Group and furnished
in writing to the Company by a member of the Underwriting Group specifically for
use in connection with the preparation of the Registration Statement and
Prospectus or any such amendment or supplement thereto and such person in making
any such statement, or any such omission or alleged omission, knowingly and
willfully violated applicable law or was guilty of gross negligence in
connection therewith. This indemnity agreement is in addition to any other
liability which the Company may otherwise have to the Representative and other
members of the Underwriting Group or to any person controlling the
Representative or a member of the Underwriting Group. Each member of the
21
Underwriting Group agrees within ten (10) days after the receipt by it of
written notice of the commencement of any action against it or against any
person controlling it as aforesaid, in respect of which indemnity may be sought
from the Company on account of the indemnity agreement contained in this
subsection 6.1 to notify the Company in writing of the commencement thereof.
The failure of such a member of the Underwriting Group so to notify the Company
of any such action shall relieve the person to whom such notice was not given
from any liability which it may have to that member of the Underwriting Group or
any person controlling it as aforesaid on account of the indemnity agreement
contained in this subsection 6.1, but shall not relieve the Company from any
other liability which it may have to that member of the Underwriting Group or
such controlling person. In case any such action shall be brought against the
Representative of any other member of the Underwriting Group or any such
controlling person and the Representative or other member of the Underwriting
Group shall notify the Company of the commencement thereof, the Company shall be
entitled to participate in (and, to the extent that it shall wish, to direct)
the defense thereof at its own expense, but such defense shall be conducted by
legal counsel of recognized standing and reasonably satisfactory to such member
of the Underwriting Group or such controlling person or persons, which is a
defendant or which are defendants in such litigation. No settlement, compromise
or other disposition of any such litigation shall be made by the Company without
the prior written consent of the Representative and the other persons
indemnified hereunder. Conversely, any settlement, compromise or other
disposition shall require the Company's written consent and to the extent the
Company does not consent to any such settlement, compromise or other disposition
of any such litigation, the Company shall not be liable for amounts paid in
connection therewith. If the Company elects to direct such defense, the Company
agrees to furnish to each indemnified member of the Underwriting Group at its
request, copies of all pleadings therein and to apprise each indemnified member
of the Underwriting Group of all developments therein, all at the Company's
expense, and to permit the Representative and each indemnified member of the
Underwriting Group to be an observer therein.
6.2 INDEMNIFICATION BY THE MEMBERS OF THE UNDERWRITING GROUP. The members
--------------------------------------------------------
of the Underwriting Group agree, in the same manner as set forth in subsection
6.1. above, to indemnify and hold harmless the Company, the directors and
officers of the Company and each person, if any, who controls the Company within
the meaning of Section 15 of the Act, with respect to any statement in or
omission from the Registration Statement or any amendment thereto, or the
Prospectus (as amended or as supplemented, if amended or supplemented as
aforesaid) or any application or other document filed in any state or
jurisdiction in order to qualify the Shares under the blue sky or securities
laws thereof, or any information furnished pursuant to subsection 3.6 hereof, if
such statement or omission was made in reliance upon information peculiarly
within the knowledge of a member of the Underwriting Group and furnished in
writing to the Company by a member of the Underwriting Group or on its behalf
specifically for use in connection with the preparation thereof or supplement
thereto and such person in making any such statement, or any such omission or
alleged omission, knowingly or willfully, violated applicable law or was guilty
of gross negligence in connection therewith. No member of the Underwriting
Group shall be liable for amounts paid in settlement of any such litigation if
such settlement was effected without the written consent of the member of the
Underwriting Group. In case of commencement of any action in respect of which
indemnity may be sought from a member of the Underwriting Group on account of
the indemnity agreement contained in this subsection 6.2., each person to be
indemnified by the indemnifying member of the Underwriting Group shall have the
same obligation to notify the member of the Underwriting Group as the members of
the Underwriting Group have toward the Company in subsection 6.1. hereof,
subject to the same loss of indemnity in the event such notice is not given, and
the member of the Underwriting Group shall have the same right to participate in
(and, to the extent that the indemnifying member of the Underwriting Group shall
wish, to direct) the defense of such action at the expense of the indemnifying
member of the Underwriting Group, but such defense shall be conducted by legal
counsel of recognized standing and reasonably satisfactory to the Company. If
the indemnifying member of the Underwriting Group elects to direct such defense,
the indemnifying member of the Underwriting Group agrees to furnish to the
Company at its request copies of all pleadings therein and apprise it of all the
developments therein, all at the expense of the indemnifying member of the
Underwriting Group, and permit the Company to be an observer therein.
22
6.3 CONTRIBUTION. If the indemnification provided for in this Section 6
------------
is unavailable to or insufficient to hold harmless an indemnified party under
subsections 6.1 and 6.2 hereof, in respect of any losses, claims, damages or
liabilities (or actions or litigation including awards and/or judgments in
respect thereof) referred to therein, then each indemnifying party shall in lieu
of indemnifying such indemnified party contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages, or
liabilities (or actions or litigation including awards and/or judgments in
respect thereof) in such proportion as is appropriate to reflect not only (i)
the relative benefits received by the Company on the one hand and the member of
the Underwriting Group on the other from the Public Offering of the Shares, but
also (ii) the relative fault of the Company and the member of the Underwriting
Group in connection with the statements or omissions which resulted in such
losses, claims, damages, or liabilities (or actions or litigation including
awards and/or judgments in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the member of the Underwriting Group on the other shall be deemed
to be in the same proportion as the total net proceeds from the Public Offering
of the Shares (before deducting expenses) received by the Company bears to the
total underwriting discount received by the members of the Underwriting Group,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the member of the Underwriting Group and the person's relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the members of the Underwriting
Group agree that it would not be just and equitable if contribution pursuant to
this subsection 6.3. were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions or litigation including awards and/or judgments in respect thereof)
referred to above in this subsection 6.3 shall be deemed to include any legal or
other expenses to which such indemnified party would be entitled if subsections
6.1 and 6.2 hereof were applied. Notwithstanding the provisions of this
subsection 6.3, no member of the Underwriting Group shall be required to
contribute any amount in excess of the amount equal to the total price of the
Shares underwritten and distributed by it to the public. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11 of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
6.4 THREAT OF REGULATORS' ACTION. The Company and the Representative
----------------------------
agree to advise each other immediately and confirm in writing the receipt of any
threat of or the initiation of any steps or procedures by the Commission or any
other regulatory authority which would impair or prevent the right to offer or
sell any of the Shares or the issuance of any "suspension orders" or other
prohibitions preventing or impairing the proposed Public Offering of the Shares.
In the case of the happening of any such event, neither the Company nor the
members of the Underwriting Group will acquiesce in such steps, procedures or
suspension orders, and each party agrees to actively defend any such actions or
orders unless all parties agree, in writing, to acquiesce in such actions or
orders.
SECTION 7
EFFECTIVENESS OF AGREEMENT
--------------------------
After this Agreement has been executed by the Company and the
Representative, this Agreement shall become effective (i) at 10:00 A.M., Denver,
Colorado Time, on the first full business day after the Effective Date of the
Registration Statement or (ii) upon release by the Representative of the Shares
for offering after the Effective Date, whichever shall first occur. The time of
the release by the Representative of the Shares for offering, for the purposes
of this Section 7, shall mean the time of release by the Representative for
publication of the first newspaper advertisement which is subsequently published
relating to the Shares or the time of the first mailing of copies of the
Prospectus relating to the Shares in connection with a confirmation of a sale of
Shares by an Underwriter or Dealer, whichever shall first occur.
23
SECTION 8
CONDITIONS OF THE OBLIGATIONS OF THE
------------------------------------
MEMBERS OF THE UNDERWRITING GROUP
---------------------------------
After execution of this Agreement by the Company and the Representative,
the obligations of the members of the Underwriting Group to purchase the Shares
and to make payment therefor on the Closing Date and on the Option Closing Date
shall be subject to the accuracy, as of the Closing Date and as of the Option
Closing Date, of the representations and warranties on the part of the Company
herein contained, to the performance by the Company of all of its agreements and
obligations herein contained, to the fulfillment of or compliance by the Company
with all covenants and conditions hereof, and to the following additional
conditions, any of which may be waived or modified by the Representative:
8.1 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
---------------------------------------
shall have become effective and no order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission or be pending; any
request for additional information on the part of the Commission (to be included
in the Registration Statement or Prospectus or otherwise) shall have been
complied with to the satisfaction of the Commission; and neither the
Registration Statement nor the Prospectus nor any amendment thereto shall have
been filed to which legal counsel for the Representative shall have reasonably
objected in writing or shall have withheld giving its consent.
8.2 ACCURACY OF REGISTRATION STATEMENT. The Representative shall not have
----------------------------------
disclosed in writing to the Company that the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto contains an untrue
statement of a fact which, in the opinion of legal counsel for the
Representative is material, or omits to state a fact which, in the opinion of
such legal counsel, is material and is required to be stated therein, or is
necessary to make the statements therein not misleading.
8.3 NO MATERIAL ADVERSE CHANGES. No material adverse changes shall have
---------------------------
occurred in or with respect to the officers or directors of the Company. No
material adverse changes shall have occurred in or with respect to the business,
properties, financial condition or credit of the Company or in or with respect
to any conditions affecting the prospects of its business.
8.4 CASUALTY AND OTHER CALAMITY. The Company or any of its Subsidiaries
---------------------------
shall not have sustained any loss on account of fire, explosion, flood,
accident, calamity or any other cause, of such character as materially adversely
affects the business or properties of the Company of any of its Subsidiaries
considered as an entire entity, whether or not such loss is covered by
insurance, and no officer or director of the Company shall have suffered any
injury, sickness or disability of a nature which would materially adversely
affect his or her ability to properly function as an officer or director of the
Company.
8.5 LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the
--------------------------------
Prospectus, there shall be no litigation instituted or threatened against the
Company and there shall be no proceeding instituted or threatened against the
Company before or by any federal or state commission, regulatory body or
administrative agency or other governmental body, domestic or foreign.
8.6 LACK OF MATERIAL CHANGE. Except as contemplated herein or as set
-----------------------
forth in the Registration Statement and Prospectus, during the period subsequent
to the date of the last audited balance sheet included in the Registration
Statement, the Company (i) shall have conducted its business in the usual and
ordinary manner as the same was being conducted on the date of the last audited
balance sheet included in the Registration Statement, and (ii) except in the
ordinary course of its business, the Company shall not have incurred any
liabilities or obligations (direct or contingent) or disposed of any of its
assets, or entered into any material transaction or suffered or experienced any
materially adverse change in its condition, financial or otherwise. The
24
capital stock and surplus accounts of the Company shall be substantially the
same as at the date of the last balance sheet included in the Registration
Statement, without considering the proceeds from the sale of the Shares, other
than as may be set forth in the Prospectus.
8.7 LEGAL COUNSEL FOR THE REPRESENTATIVE. The authorization of the
------------------------------------
Shares, the Representative's Warrants, the Registration Statement, Prospectus
and all corporate proceedings and other legal matters incident thereto and to
this Agreement shall be reasonably satisfactory in all respects to legal counsel
for the Representative.
8.8 OPINIONS OF LEGAL COUNSEL.
-------------------------
8.8.1. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., LEGAL OPINION. The Company
---------------------------------------------
shall have furnished to the members of the Underwriting Group an opinion,
dated the Closing Date, addressed to the members of the Underwriting Group,
from ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.,legal counsel to the Company, to the
effect that based upon a review by them of the Registration Statement,
Prospectus, the Company's certificate of incorporation,bylaws and relevant
corporate proceedings and contracts, an examination of such statutes as
they deem necessary and based upon such other investigation by such legal
counsel as they deem necessary to express such opinion:
(i) The Company and each of its Subsidiaries have been duly
incorporated or formed and are validly existing corporations or
limited liability companies in good standing under the laws of the
state or foreign country, nation or jurisdiction in which the Company
and each such Subsidiary was incorporated or formed, and that the
Company and each such Subsidiary has full power and authority to own
and operate its properties and to carry on its business as set forth
in the Registration Statement and Prospectus.
(ii) The Company has authorized and outstanding securities as
set forth in the Registration Statement and Prospectus; the
outstanding securities of the Company and each of its Subsidiaries and
the Shares conform to the statements concerning them in the
Registration Statement and Prospectus; the outstanding securities of
the Company and each of its Subsidiaries have been duly and validly
issued and are fully paid and nonassessable, except as otherwise
disclosed by such legal counsel with respect to the ▇▇▇▇▇▇▇▇' ordinary
shares, and contain no preemptive rights; the Shares being sold by the
Company to the Underwriting Group and the Representative's Warrants
have been duly and validly authorized and, upon issuance thereof and
payment therefor in accordance with the terms of this Agreement and
the Representative's Warrants, will be duly and validly issued, fully
paid and nonassessable and will not be subject to the preemptive
rights of any shareholder of the Company.
(iii) To legal counsel's knowledge, no consents, approvals,
authorizations or orders of agencies, officers or other regulatory
authorities are known to such legal counsel which are necessary for
the valid authorization, issue or sale of the Shares being sold by the
Company to the Underwriting Group hereunder, except as required under
the Act or the securities laws of the states in which the Shares are
qualified or except as required by the NASD.
(iv) To legal counsel's knowledge, the issuance and sale of the
Shares being sold by the Company to the Underwriting Group and the
consummation of the transactions herein contemplated and compliance
with the terms of this Agreement will not conflict with or result in a
breach of any of the terms, conditions, or provisions of or constitute
a default under the certificate of incorporation or bylaws of the
Company, or any note, indenture, mortgage, deed of trust, or other
agreement or instrument known to such counsel to which the Company or
any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or any of the properties of any such Subsidiaries are
bound or any existing law (provided this Section 8.8 (iv)
25
shall not relate to federal or state securities laws), order, rule,
regulation, writ, injunction, or decree of any government,
governmental instrumentality, agency, body, arbitration tribunal, or
court, domestic or foreign, having jurisdiction over the Company or
its property or any of the Company's Subsidiaries or the property of
any such Subsidiary which is known to such counsel.
(v) No preemptive rights exist with respect to the Company's
securities.
(vi) The Company has authorized capitalization as described in
the Registration Statement.
(vii) Based upon written or oral communications from the
Commission, the Registration Statement has become effective under the
Act and, to the knowledge of such legal counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose has been instituted or is
pending or contemplated; legal counsel has participated in the
preparation of the Registration Statement and Prospectus and each
amendment and supplement thereto, and no facts have come to the
attention of legal counsel to lead counsel to believe that either the
Registration Statement or the Prospectus or any amendment or
supplement thereto contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances under which made (except for the financial
statements and other financial data included therein, as to which
legal counsel expresses no opinion); and such counsel is familiar with
all contracts referred to in the Registration Statement or Prospectus
and such contracts are sufficiently summarized or disclosed therein or
filed as exhibits thereto as required, and such legal counsel does not
know of any other contracts that are required to be summarized or
disclosed or filed, and such legal counsel does not know of any legal
or governmental proceedings pending or threatened to which the Company
or any of its Subsidiaries are subject of such a character required to
be disclosed in the Registration Statement or the Prospectus which are
not disclosed and properly described therein.
(viii)This Agreement has been duly authorized by the Company and
is a valid and binding agreement of the Company enforceable in
accordance with its terms subject to equitable principles and to
applicable bankruptcy, insolvency and other laws concerning the
enforceability of creditors' rights generally; provided that such
counsel need not express any opinion as to the enforceability of any
indemnification or contribution provisions contained in this
Agreement. A sufficient number of shares of the Company's Common Stock
have been duly reserved for issuance upon exercise of the
Representative's Warrants.
(ix) Except as disclosed in the Registration Statement and
Prospectus, to the knowledge of legal counsel, neither the Company nor
any of its Subsidiaries is in default under any of the contracts,
licenses, leases or agreements to which any of them is a party and
which are described in the Registration Statement or attached thereto
as exhibits and the Public Offering of the Shares being sold by the
Company to the Underwriting Group will not cause the Company to become
in default of any of such contracts, licenses, leases or agreements.
(x) Except as disclosed in the Registration Statement and
Prospectus and subject to equitable principles, to the knowledge of
legal counsel, the properties owned by the Company and its
Subsidiaries described in the Registration Statement are free and
clear of all liens, charges, encumbrances or restrictions; to the
knowledge of legal counsel all of the leases, subleases and other
agreements under which the Company and each of its Subsidiaries holds
its properties and conducts its business are in full force and effect;
to the knowledge of legal counsel neither the Company nor any of its
Subsidiaries is in default under any of the material terms or
provisions of any of such leases, subleases or other agreements known
to such counsel; and to the knowledge of legal counsel there are no
claims against the Company or any
26
of its Subsidiaries concerning the rights of the Company of any of its
Subsidiaries under such leases, subleases and other agreements and
concerning the right of the Company or any of its Subsidiaries to
continued possession of its properties.
(xi) Legal counsel is unaware of any affiliate, parent or
Subsidiaries of the Company except as are described in the
Registration Statement and Prospectus.
(xii) Except as disclosed in the Registration Statement, the
Company and/or each of its Subsidiaries, as the case may be,
exclusively own, possess, or lawfully use, pursuant to licenses,
sublicenses or other agreements, all U.S. or United Kingdom or other
foreign patents, patent applications, trademarks, trademark
applications, service marks, trade names, logos, trade dress, ▇▇▇▇
works, and copyrights (collectively, "Patents, Trademarks and
Copyrights") necessary to the manufacture, distribution and marketing
of the products currently manufactured by the Company's Subsidiaries;
such Patents, Trademarks and copyrights are legal, valid and
enforceable; and to the best of legal counsel's knowledge, the Company
and each of its Subsidiaries has taken all necessary and appropriate
action to maintain and protect the Patents, Trademarks and Copyrights.
(xiii) Such counsel has not received and is not aware of the
Company or any of its Subsidiaries having received any notice of any
claim from any third party which notice would cause such counsel to
conclude that the Company or its Subsidiaries do not own or possess
adequate rights with respect to the Patents, Trademarks and
Copyrights.
(xiv) The licenses, sublicenses and other agreements
("Licenses") covering the use of any of the Patents, Trademarks and
Copyrights by the Company of any of its Subsidiaries is legal,
binding, enforceable and in full force and effect and to the best of
legal counsel's knowledge, neither the Company nor any of its
Subsidiaries is in breach or default of any such Licenses and no event
has occurred which with notice or lapse of time would result in a
breach or default or permit termination, modification or acceleration
under any such License.
(xv) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or
other securities of the Company have registration rights with respect
to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of
the Company having rights to registration of such Common Stock, or
other securities, because of the filing of the Registration Statement
by the Company have, with respect to the Public Offering contemplated
thereby, waived such rights or such rights have expired by reason of
lapse of time following notification of the Company's intent to file
the Registration Statement, or have included securities in the
Registration Statement pursuant to the exercise of such rights.
In rendering such opinions, such legal counsel shall be entitled to rely
upon Public Authority Documents and upon information provided by client
officials in written Certificates provided that copies of such Public Authority
Documents and Certificates are attached as exhibits to the written opinion of
legal counsel. The term "Public Authority Documents" shall have the meaning
ascribed to it in the Legal Opinion Accord of the ABA Section of Business Law
(1991). Such opinions may be subject to such qualifications, exceptions,
definitions, limitations as are normally included in similar opinions.
8.9 ACCOUNTANT'S LETTER. The Representative shall have received a letter
-------------------
addressed to the Representative and dated the Closing Date from KMPG Peat
Marwick LLP, independent public accountants for the Company, stating that with
respect to the Company they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations
thereunder; in their opinion, the Company's financial statements audited by them
at all dates and for all periods referred to in their opinion and
27
included in the Registration Statement and Prospectus, comply in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations thereunder with respect to registration
statements on Form SB-2; on the basis of certain indicated procedures (but not
an audit in accordance with generally accepted accounting principles), including
reading of the instruments of the Company set forth in the Prospectus, a reading
of the latest available interim unaudited financial statements of the Company,
whether or not appearing in the Prospectus, inquiries of the officers of the
Company or other persons responsible for its financial and accounting matters
regarding the specific items for which representations are requested below and a
reading of the minute book of the Company, nothing has come to their attention,
except as disclosed in their letter, which would cause them to believe that
during the period from the last audited balance sheet included in the
Registration Statement to a specified date not more than two (2) days prior to
the date of such letter:
(i) there has been any material change in the financial
position of the Company other than as contemplated by disclosures
contained in the Prospectus;
(ii) there has been any material change in the capital stock or
surplus accounts of the Company or any payment or declaration of any
dividend or other distribution in respect thereof or exchange therefor
or in the debt of the Company from that shown in the Company's last
audited balance sheet included in the Prospectus, other than as
contemplated by disclosures contained in the Prospectus;
(iii) there have been any material decreases in working capital
or net worth as compared with amounts shown in the Company's last
audited balance sheet included in the Prospectus other than as
contemplated by disclosures contained in the Prospectus;
(iv) there have been any material decreases, as compared with
amounts shown in the Company's last audited balance sheet included in
the Prospectus, in the cash balances other than as contemplated by
disclosures contained in the Prospectus;
(v) the financial statements and schedules set forth in the
Registration Statement and Prospectus do not present fairly the
financial position and results of operations of the Company for the
periods indicated in conformity with generally accepted accounting
principles applied on a consistent basis, and are not in all material
respects a fair presentation of the information purported to be shown;
(vi) there is any material obligation or liability on the part
of the Company or any of its Subsidiaries to fund the Apollo and
▇▇▇▇▇▇▇▇ Pension Scheme not otherwise reflected in Company's audited
consolidated financial statements for the fiscal year ended December
31, 1997; and
(vii) the dollar amounts, percentages and other financial
information set forth in the Registration Statement and Prospectus
under the captions "Summary," "The Offering, "Summary Consolidated
Financial Data," "Risk Factors," "Use of Proceeds," "Capitalization,"
"Dilution," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Business," "Summary Compensation," and "Certain Transactions" are not
in agreement with the Company's general ledger, financial records or
computations made by the Company therefrom.
Such letter ("Accountant's Letter") shall also cover such other matters
incident to the transactions contemplated by this Agreement in form satisfactory
to the Representative as the Representative reasonably requests.
28
8.10 CONFORMED COPIES OF ACCOUNTANT'S LETTER. The Representative shall be
---------------------------------------
furnished without charge, in addition to the original signed copies, such number
of signed or photostatic or conformed copies of the Accountant's Letter as the
Representative shall reasonably request.
8.11 OFFICER'S CERTIFICATES. The Company shall have furnished to the
----------------------
Representative two (2) certificates each signed by the president and by the
chief financial officer of the Company, one dated the date of this Agreement and
one dated as of the Closing Date, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct at and as of the date of the
certificate and the Company has complied with all the agreements and
has satisfied all the conditions on its part to be performed or
satisfied at or prior to the date of the certificate;
(ii) The Registration Statement has become effective and no
order suspending the effectiveness of the Registration Statement has
been issued and to the best of the knowledge of the respective
signers, after such respective signers have made inquiry, no
proceeding for that purpose has been initiated or is threatened by the
Commission;
(iii) The respective signers have each carefully examined the
Registration Statement and Prospectus and any amendments and
supplements thereto, and the Registration Statement and the Prospectus
and any amendments and supplements thereto contain all statements
required to be stated therein, and all statements contained therein
are true and correct, and neither the Registration Statement nor
Prospectus nor any amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and, since the Effective Date of the
Registration Statement, there has occurred no event required to be set
forth in an amended or a supplemented Prospectus which has not been so
set forth;
(iv) This Agreement has been, and, as of the Closing Date, the
Representative's Warrants will have been, duly authorized and executed
by the Company;
(v) The respective signers have each reviewed the
questionnaires provided to the Representative by each officer,
director, and five percent (5%) or more shareholder of the Company
and, to the best of their knowledge, the statements made in such
questionnaires are true and correct;
(vi) Except as set forth in the Registration Statement and
Prospectus, since the respective dates as of which information is
given in the Registration Statement and Prospectus and prior to the
date of such certificate, (i) there has not been any change in the
officers or directors of the Company or any substantially adverse
change, financial or otherwise, in the affairs or condition of the
Company, and (ii) the Company has not incurred any liabilities, direct
or contingent, or entered into any transactions, otherwise than in the
ordinary course of business; and
(vii) As of or subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, no
dividends or distributions whatever have been declared and/or paid on
or with respect to the securities of the Company.
8.12 TENDER FOR DELIVERY. All of the Shares being offered by the Company
-------------------
which are sold in the Public Offering shall be tendered for delivery in
accordance with the terms and provisions of this Agreement.
29
8.13 BLUE SKY QUALIFICATION. The Shares shall be qualified in such states
----------------------
as are reasonably designated by the Representative as set forth in Section 5.4
hereof and each such qualification shall be in effect and not subject to any
stop order or other proceeding on the Closing Date or Option Closing Date. On
both the Effective Date of the Registration Statement and on the Closing Date,
the Company and the Representative shall receive from Clanahan, Tanner, ▇▇▇▇▇▇▇
and ▇▇▇▇▇▇▇▇, P.C., a written opinion which contains the following:
(i) The names of the states in which applications to register
or qualify the Shares have been filed;
(ii) The status of such registrations or qualifications in such
states as of the date thereof;
(iii) A list containing the name of each such state in which the
Shares may be legally offered and sold by a dealer licensed in such
state and the number of each which may be legally offered and sold in
each such state as of the date thereof:
(iv) With respect to the written opinion dated on the Effective
Date, a representation that such legal counsel will continuously
update such written information if any changes occur in the
information provided therein between the Effective Date and the
Closing Date and Option Closing Date; and
(v) A statement that the Company, the members of the
Underwriting Group and selected dealers in the Public Offering may
rely upon the opinions contained therein.
8.14 APPROVAL OF LEGAL COUNSEL TO THE REPRESENTATIVE. All opinions,
-----------------------------------------------
letters, certificates and evidence mentioned above or elsewhere in this
Agreement shall be deemed to be in compliance with the provisions hereof only if
they are in form and substance satisfactory to legal counsel for the
Representative. The suggested form of such documents shall be provided to the
legal counsel for the Representative at least three (3) business days before the
Closing Date.
8.15 OFFICER'S CERTIFICATE AS A COMPANY REPRESENTATIVE. Any certificate
-------------------------------------------------
signed by an officer of the Company and delivered to the Representative or to
legal counsel for the Representative will be deemed a representation and
warranty by the Company to the members of the Underwriting Group as to the
statements made therein.
SECTION 9
TERMINATION
-----------
9.1 TERMINATION BECAUSE OF NONCOMPLIANCE. This Agreement may be
------------------------------------
terminated by the members of the Underwriting Group by notice to the Company in
the event that the Company shall have failed or been unable to comply with any
of the terms, conditions or provisions of this Agreement on the part of the
Company to be performed, complied with or fulfilled within the respective times
herein provided for, unless compliance therewith or performance or satisfaction
thereof shall have been expressly waived by the Representative in writing. This
Agreement may be terminated by the Company by notice to the Representative in
the event the members of the Underwriting Group shall have failed or been unable
to comply with any of the terms, conditions or provisions of this Agreement on
the part of the members of the Underwriting Group to be performed, complied with
or fulfilled within the respective times herein provided for, unless compliance
therewith or performance or satisfaction thereof shall have been expressly
waived by the Company in writing.
9.2 TERMINATION BECAUSE OF CHANGES. This Agreement may be terminated by
------------------------------
the members of the Underwriting Group by notice to the Company if the
Representative believes in its sole judgment that any changes have occurred in
or with respect to the management of the Company or any of its Subsidiaries,
that material adverse changes have occurred in or with respect to the business,
financial condition, results of operations,
30
prospects or obligations of the Company or any of its Subsidiaries, or if the
Company or any of its Subsidiaries shall have sustained a loss or anticipated
loss as a result of a strike, governmental action, fire, flood, accident,
contract termination, or other calamity of such a character as, in the sole
judgment of the Representative, may interfere materially with the conduct of the
business and operations of the Company and its Subsidiaries on a consolidated
basis, regardless of whether or not such loss or anticipated loss shall have
been insured.
9.3 MARKET OUT TERMINATION. This Agreement may be terminated by the
----------------------
members of the Underwriting Group by notice to the Company at any time if, in
the judgment of the Representative, payment for and delivery of the Shares is
rendered impracticable or inadvisable because (i) additional material
governmental restrictions not in force and effect on the date hereof shall have
been imposed upon the trading in securities generally, or minimum or maximum
prices shall have been generally established on the New York or American Stock
Exchange, or trading in securities generally on either such Exchange shall have
been suspended, or a general moratorium shall have been established by federal
or state authorities, or (ii) a war or other national calamity or emergency
shall have occurred, or (iii) of any suspension of trading of the Common Stock
of the Company in the over-the-counter market, or (iv) the occurrence of a
material adverse event affecting the Company which materially impairs the
investment quality of the Shares, or (v) substantial and material adverse
changes in the condition of the securities markets beyond normal fluctuations
have occurred.
9.4 EFFECT OF TERMINATION HEREUNDER. If the members of the Underwriting
-------------------------------
Group decide to terminate this Agreement pursuant to this Section 9 or the
Company decides to terminate this Agreement pursuant to Section 9.1 or 10.3
hereof, such party shall provide notice of such termination to the other party.
In such event, the Company shall reimburse the Representative on an accountable
basis for all reasonable and customary expenses incurred by the Representative
in connection with the proposed Public Offering as herein provided up to and
including the date of termination subject to a maximum limit of $50,000. The
Representative shall provide the Company with a statement of the Underwriting
Group's actual accountable out of pocket expenses, which shall include but are
not limited to, fees of legal counsel for the Representative and the fees of
independent consultants and investigators who are not directly or indirectly
affiliated or associated with a member of the NASD and who are retained by the
Underwriting Group to provide a service in connection with the due diligence
investigation of the proposed Public Offering, confirmation and other document
preparation costs, entertainment expenses, travel expenses, postage expenses,
advertising costs, duplication expenses, long distance telephone expenses, and
any other actual out of pocket accountable expense incurred by the Underwriting
Group in connection with the proposed Public Offering. The Representative shall
not be required to include in such accountable expenses any of the expenses to
be paid by the Company under Section 5.7 hereof, and, if the Underwriting Group
has paid any of such expenses on behalf of the Company, the Company shall
separately reimburse the Underwriting Group for such advances immediately upon
receipt of a statement therefor from the Representative. If such actual
accountable out of pocket expenses are less than the amount of the
nonaccountable expense payments the Company has made to the Representative as
provided in Section 3.3 hereof, the Underwriting Group will refund the balance
of such payments net of the Representative's actual accountable out-of-pocket
expenses, to the Company within ten (10) days after the delivery of such
statement by the Representative to the Company. If the amount of the actual
accountable out-of-pocket expenses are more than the amount of the
nonaccountable expense payments made by the Company to the Representative, the
balance shall be promptly paid by the Company to the Representative. The members
of the Underwriting Group shall not have any liabilities to each other if the
Company or the members of the Underwriting Group decide not to proceed with the
proposed offering for any reason set forth in this Section 9 or in Section 10
hereof, except that the Company shall remain obligated to pay the costs and
expenses provided to be paid by it as specified in Section 5.7 hereof and this
Section 9.4, and the Company, and the members of the Underwriting Group shall be
obligated to pay, respectively, all losses, claims, damages or liabilities,joint
or several, under Section 6 hereof.
31
SECTION 10
REPRESENTATIONS AND WARRANTIES OF
---------------------------------
THE MEMBERS OF THE UNDERWRITING GROUP
-------------------------------------
The members of the Underwriting Group represent and warrant to and agree
with the Company that:
10.1 REGISTRATION AS BROKER DEALER AND MEMBER OF NASD. The members of the
------------------------------------------------
Underwriting Group are registered as broker dealers with the Commission and are
members in good standing of the NASD and are licensed as dealers in all states
in which they will sell the Shares.
10.2 NO PENDING PROCEEDINGS. There is not now pending against the
----------------------
Representative any action or proceeding of which it has been advised, either in
any court of competent jurisdiction, before the Commission or any state
securities commission, concerning its activities as a broker or dealer that, in
the opinion of the Representative, would prevent it from acting as such under
federal securities laws or under the laws of the states in which it intends to
offer the Shares.
10.3 COMPANY'S RIGHT TO TERMINATE. In the event any action or proceeding
----------------------------
of the type referred to in Section 10.2 hereof shall be instituted against the
Representative at any time prior to the Closing Date hereunder, or in the event
there shall be filed by or against the Representative in any court pursuant to
any federal, state, local or municipal statute, a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of assets of the Representative or if the Representative makes an assignment for
the benefit of creditors, the Company shall have the right on written notice to
the Representative to terminate this Agreement without any liability to the
members of the Underwriting Group of any kind except for the payment of expenses
as provided in Section 5.7 hereof.
10.4 FINDER. The members of the Underwriting Group know of no outstanding
------
claims against them for compensation for services in the nature of a finder's
fee, origination fee, financial consulting fee or any other form of compensation
as a finder with respect to the offer and sale of the Shares hereunder.
10.5 COMPLIANCE. The members of the Underwriting Group, severally and not
----------
jointly, agree to offer and sell the Shares being purchased hereunder in
accordance with the requirements of federal and state securities laws and the
rules of the NASD.
SECTION 11
RIGHT OF FIRST REFUSAL
----------------------
For a period of three (3) years after the Effective Date of the
Registration Statement, the Representative shall act as managing underwriter for
any public offerings of the Company's securities contemplated by the Company,
its parent company, if any, or any of its Subsidiaries during such period. As
such, the Company shall have a preferential right to purchase for its account or
to sell for any account of the Company, its parent company, if any, or the
Company's Subsidiaries any securities with respect to which the Company, its
parent company, or its Subsidiaries may seek a public or private offering within
the United States for cash. The Company will consult the Representative with
regard to any such covered offering for cash and will offer the Representative
the opportunity to purchase or sell any such securities on terms not less
favorable to the Company, its parent company, or its Subsidiaries than it or
they can secure elsewhere. The Representative will have thirty (30) days in
which to accept such offer. If the Representative rejects such offer, the
Company, its parent company, or its Subsidiaries may sell such securities on
terms not less favorable than those offered to the Representative. If such
securities are not sold within a period of two hundred seventy (270) days, the
Representative will once again have the rights specified herein with respect to
the sale or purchase of such securities. The Company has informed the
Representative that it has not previously granted a similar right of first
refusal to any other person which is currently binding on the Company.
Furthermore, even though the Representative has determined not to exercise its
rights under this Section 11, the Company, upon the request of the
Representative, shall designate the
32
Representative as a co-manager of any public offering of the Shares of the
Company, its parent company, if any, or any of its Subsidiaries and will be
entitled to receive a management fee for acting in such capacity of not less
than twenty percent (20%) of the total management fee payable to the managing
underwriter.
SECTION 12
FEE PAYABLE ON OCCURRENCE OF CERTAIN EVENTS
-------------------------------------------
12.1 FINANCIAL CONSULTING AGREEMENT. On the Closing Date, the Company
------------------------------
shall enter into an agreement ("Financial Consulting Agreement") with the
Representative pursuant to which the Representative shall receive a consulting
fee of Three Thousand Dollars ($3,000) per month for the twenty-four (24) month
period following the Closing Date in consideration for the consulting services
to be provided by the Representative during such period which shall include
advising the Company in connection with business and financial planning,
corporate organization and structure, financial matters in connection with the
operation of the business of the Company, private and public equity and debt
financing, acquisitions, mergers and other similar business combinations, the
Company's relations with the holders of its securities, preparation and
distribution of periodic reports as well as providing the Company with analysis
of the Company's financial statements. Under the terms of the Financial
Consulting Agreement, the Representative shall not be required to spend in
excess of twenty (20) hours per month in providing such consulting services to
the Company. The entire amount of the consulting fee equal to a total of Seventy
Two Thousand Dollars ($72,000) shall be paid by the Company to the
Representative on the Closing Date.
12.2 MERGERS AND ACQUISITIONS. Subject to the purchase of the Shares by
------------------------
the members of the Underwriting Group, for a period of three (3) years after the
Effective Date, the Representative will provide consulting services which are
customary in the industry in connection with, and the Representative will be
paid a consulting fee in connection with any transaction initiated by the
Representative involving, a merger, consolidation, stock exchange, or the
acquisition or sale of all or a material part of the assets or business of any
entity (collectively referred to herein as "Mergers and Acquisitions"), if such
transaction involves the Company, its parent company, or its Subsidiaries. A
transaction will be deemed initiated by the Representative if it is suggested by
the Representative to either party to the transaction. The consulting fee
payable to the Representative in connection with any such Merger or Acquisition
will be computed as follows:
AMOUNT OF TRANSACTION FEE
--------------------- ---
$1.00 - $1,000,000 5% plus
$1,000,001 - $2,000,000 4% plus
$2,000,001 - $3,000,000 3% plus
$3,000,001 - $4,000,000 2% plus
$4,000,001 and over 1%
Amount of the transaction includes:
(i) the total proceeds and other consideration being received by the
Company, its parent company, or its Subsidiaries and/or any of their
securities holders upon the consummation of the transaction (including
payments made in installments) inclusive of cash, securities, notes,
liabilities assumed, consulting agreements and agreements not to compete;
(ii) if a portion of such consideration includes contingent payments
(whether or not related to future earnings or operations), fifty percent
(50%) of the maximum amount of such payments; and
(iii) in the event that the aggregate consideration for a transaction
consists in whole or in part of securities, for the purposes of calculating
the amount of the consideration, the value of such securities will be, in
the case of the existence of a public trading market thereof, the average
of the closing sale prices for the five (5) days preceding the consummation
of the transaction or, in the absence of a public
33
trading market thereof, the fair market value thereof as agreed to by the
parties on the day preceding the consummation of the transaction.
The Company has not previously granted similar rights to any other person.
If the Company, at any time during the three (3) year period following the
Effective Date, contemplates (i) the purchase and sale of its assets or the
assets of any of its Subsidiaries which is not in the ordinary course of
business, (ii) a Merger or Acquisition, (iii) the creation of a joint venture
with one (1) or more third parties, or (iv) a material investment (whether debt
or equity financing) is made by a third party in the Company and the
Representative did not arrange for the transaction, the Company shall engage the
Representative to review, comment and make recommendations with respect to any
such transaction and shall compensate the Representative for such services in a
reasonable amount the Representative and the Company shall mutually agree.
In addition, the Company shall reimburse the Representative for any
reasonable expenses it incurs in arranging and closing such funding or
transactions as contemplated under this subsection 12.2, including legal fees of
its counsel after receiving written approval from the Company.
12.3 ADDITIONAL EQUITY AND DEBT FINANCING. If the Representative, upon
------------------------------------
request by the Company, arranges for equity financing on behalf of the Company
involving the offer and sale of the Company's securities, including, without
limitation, options, warrants or rights into which the Company's shares of
Common Stock or other securities may be acquired upon exercise thereof, other
than the Public Offering contemplated under this Agreement, which financing is
accepted and closed by the Company at any time during the three (3) year period
following the Effective Date, the Company will pay to the Representative a
commission equal to ten percent (10%) of the total amount of the equity
financing arranged by the Representative. For purposes of this subsection 12.3,
the term "arranges" shall mean the efforts of the Representative in locating the
financing, introducing the Company to the source of the financing, and assisting
the Company, in all reasonable way as the Company may request, to negotiate and
complete such financing. If the Representative arranges for debt financing
accepted by and closed with the Company during such three (3) year period, the
Company will pay the Representative a commission equal to five percent (5%) of
the total amount of such debt financing. If the Representative arranges for an
increase in the Company's line of credit, which is accepted and closed with the
Company, the Company will pay the Representative a fee equal to one percent (1%)
of the total amount of such increase.
SECTION 13
NOTICE
------
Except as otherwise expressly provided in this Agreement:
13.1 NOTICE TO THE COMPANY. Whenever notice is required by the provisions
---------------------
of this Agreement to be given to the Company, such notice shall be in writing
addressed as follows:
Coyote Sports, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇,
Chief Executive Officer
13.2 NOTICES. Whenever notice is required by the provisions of this
-------
Agreement to be given to the members of the Underwriting Group, such notice
shall be given in writing addressed to the Representative at the address set
forth in the beginning of this Agreement.
34
SECTION 14
MISCELLANEOUS
-------------
14.1 BENEFIT. This Agreement is made solely for the benefit of the members
-------
of the Underwriting Group, the Company, their respective officers and directors
and any controlling person referred to in Section 15 of the Act, and their
respective successors and assigns, and no other person shall acquire or have any
right under or by virtue of this Agreement. The term "successor" or the term
"successors and assigns" as used in this Agreement shall not include any
purchasers, as such, of any of the Shares. In addition, the indemnity, defense
and contribution obligations of the Company included in Section 6 of this
Agreement also inure to the benefit of the selected dealers and any person who
controls the selected dealers within the meaning of Section 15 of the Act.
14.2 SURVIVAL. The respective indemnities, agreements, representations,
--------
warranties, covenants and other statements as set forth in or made pursuant to
this Agreement and the indemnity and contribution agreements contained in
Section 6 hereof shall survive and remain in full force and effect, regardless
of (i) any investigation made by or on behalf of the Company, or the
Representative or any of the other members of the Underwriting Group or any such
officer or director thereof or any controlling person of the Company or of the
Representative or any other member of the Underwriting Group, (ii) delivery of
or payment for the Shares, and (iii) the occurrence of Closing Date and the
Option Closing Date. Any successor of the Company, any member of the
Underwriting Group or any controlling person, officer or director thereof, shall
be entitled to the benefits hereof.
14.3 GOVERNING LAW AND FORUM. The validity, interpretation and
-----------------------
construction of this Agreement and of each part hereof will be governed by the
laws of the state of Colorado. The parties to the Agreement hereby agree to
submit to the jurisdiction of the courts of the State of Colorado located in
Denver, Colorado which shall be the sole tribunal in which any such parties may
institute and maintain a legal proceeding against the other party arising from
any dispute under this Agreement. If any party initiates a legal proceeding in
a jurisdiction other than in the courts of the State of Colorado, the other
party may assert as a complete defense and as a basis for dismissal of such
legal proceeding failure of the party initiating such proceeding to have
initiated and maintained such proceeding in the courts of the State of Colorado
in accordance with this Section 14.3.
14.4 THE INFORMATION OF THE MEMBERS OF THE UNDERWRITING GROUP.
--------------------------------------------------------
Notwithstanding any participation by the legal counsel for the Representative in
the reorganization and/or revision of the Prospectus, the statements with
respect to the Public Offering of the Shares on the cover page of the Prospectus
and the Notes thereto and under the caption "Underwriting" in the Prospectus
constitute the only written information furnished by or on behalf of the members
of the Underwriting Group referred to in Sections 2.2, 6.1 and 6.2 hereof.
14.5 SEVERABILITY. If any provision or portion of any provision of this
------------
Agreement is determined to be invalid for any reason, such invalid provision or
portion of such invalid provision shall be deemed to be deleted and the validity
of the remaining provisions or portions thereof shall not be affected thereby
and shall remain in full force and effect.
14.6 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
35
Please confirm that the foregoing correctly sets forth the Agreement
between the members of the Underwriting Group and the Company.
Very truly yours,
COYOTE SPORTS, INC.
By:_____________________________________________
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, President
THE REPRESENTATIVE, ON BEHALF OF THE UNDERWRITING GROUP, HEREBY CONFIRMS AS OF
THE DATE HEREOF THAT THE ABOVE LETTER SETS FORTH THE AGREEMENT BETWEEN THE
COMPANY AND THE UNDERWRITING GROUP.
COHIG & ASSOCIATES, INC.
By:______________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, Director of Corporate
Finance of Cohig & Associates, Inc.,
as Attorney in Fact for the several
Underwriters named in Schedule I to
the Underwriting Agreement
36
SCHEDULE I
TO
UNDERWRITING AGREEMENT
UNDERWRITER ADDRESS NUMBER OF SHARES
----------- ------- ----------------
COHIG & ASSOCIATES, INC. ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇