1,500,000 UNITS
CARING PRODUCTS INTERNATIONAL, INC.
UNDERWRITING AGREEMENT
________, 1997
Paulson Investment Company, Inc.
Cohig & Associates, Inc.
As Representatives of the
Several Underwriters
c/o Paulson Investment Company, Inc.
811 SW Front Avenue, Suite 200
Portland, Oregon 97204
Gentlemen:
Caring Products International, Inc., a Delaware corporation (the
"Company"), proposes to sell to the several underwriters (the "Underwriters")
named in Schedule I hereto for whom you are acting as Representatives (the
"Representatives") an aggregate of 1,500,000 Units (the "Firm Units"). Each Unit
will consist of one share of the Company's Common Stock, $0.01 par value
("Common Stock"), and one Common Stock Purchase Warrant substantially in the
form filed as an exhibit to the Registration Statement (hereinafter defined)
("Warrants"). The respective amounts of the Firm Units to be so purchased by the
several Underwriters are set forth opposite their names in Schedule I hereto.
The Company also proposes to grant to the Representatives an option to purchase
an aggregate up to 225,000 additional Units, identical to the Firm Units, (the
"Option Units") as set forth below. The offer and sale of the Firm Units and the
Option Units pursuant to this Agreement is referred to as the "Offering."
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement for yourself as the Representatives and
on behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the number of Firm Units
set forth opposite their respective names in Schedule I. The Firm Units and the
Option Units (to the extent the aforementioned option is exercised) are herein
collectively called the "Units."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as follows:
(a) A registration statement on Form SB-2 (File No. 333-__________)
with respect to the Units has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the requirements of
the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore been
delivered by the Company to you. Such registration statement, together with any
registration statement filed by the Company pursuant to Rule 462(b) of the Act,
herein referred to as the "Registration Statement," which shall be deemed to
include all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, has become effective under the
Act and no post-effective amendment to the Registration Statement has been filed
as of the date of this Agreement. "Prospectus" means (a) the form of prospectus
first filed with the Commission pursuant to Rule 424(b) or (b) the last
preliminary prospectus included in the Registration Statement filed prior to the
time it becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Units, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(b)(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification.
(ii) Each corporation all of the equity securities of which are
directly or indirectly beneficially owned by the Company and the business of
which is material to the Company's business (a "Subsidiary") has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with corporate power and authority to
own or lease its properties and conduct its business as described in the
Registration Statement. Each Subsidiary is duly qualified to transact business
as a foreign corporation in good standing in all other jurisdictions in which
the conduct of its business requires such qualification. Except with respect to
Subsidiaries described in the Prospectus, the Company does not own and never has
owned a controlling interest in any corporation or other business entity that
has or ever has had any material assets, liabilities or operations.
(c) The outstanding shares of Common Stock of the Company and each
Subsidiary have been duly authorized and validly issued and are fully paid and
nonassessable and have been issued and sold by the Company in compliance in all
material respects with applicable securities laws; the Common Stock and Warrants
to be included in the Units have been duly authorized and
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when issued and paid for as contemplated herein will be validly issued, fully
paid and nonassessable; and no preemptive rights of stockholders exist with
respect to any security of the Company or any Subsidiary or the issue and sale
thereof. Neither the filing of the Registration Statement nor the offering or
sale of the Units as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock or other securities of the Company or
any Subsidiary.
(d) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. The Common Stock and the Warrants conform to
the description thereof contained in the Registration Statement. The form of
certificates for the Common Stock and Warrants conform to the corporate law of
the jurisdiction of the Company's incorporation.
(e) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Units nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform, to the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
PROVIDED, HOWEVER, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(f) The consolidated financial statements of the Company, together
with related notes thereto as set forth in the Registration Statement, present
fairly the financial position and the results of operations and cash flows of
the Company and Subsidiaries at the indicated dates and for the indicated
periods. Such financial statements have been prepared in accordance with
generally accepted principles of accounting, consistently applied throughout the
periods involved, except as disclosed herein, and all adjustments necessary for
a fair presentation of results for such periods have been made. The summary
financial and statistical data of the Company included in the Registration
Statement present fairly the information shown therein and such data have been
compiled on a basis consistent with the financial statements presented therein
and the books and records of the Company.
(g) KPMG Peat Marwick LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary
before any court or administrative
3
agency or otherwise which if determined adversely to the Company might result in
any material adverse change in the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company or any Subsidiary or to prevent the consummation of the transactions
contemplated hereby, except as set forth in the Registration Statement.
(i) The Company and each Subsidiary has good and marketable title to
all of the properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those reflected
in such financial statements (or as described in the Registration Statement) or
which are not material in amount. The Company and each Subsidiary occupy their
leased properties under valid and binding leases conforming in all material
respects to the description thereof set forth in the Registration Statement.
(j) The Company and each Subsidiary has filed all Federal, State,
local and foreign income tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments received by it
to the extent that such taxes have become due and are not being contested in
good faith. All tax liabilities have been adequately provided for in the
financial statements of the Company.
(k) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise), or
prospects of the Company or any Subsidiary, whether or not occurring in the
ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company or any Subsidiary, other than transactions in the ordinary course
of business and changes and transactions described in the Registration
Statement, as it may be amended or supplemented. The Company and each Subsidiary
has no material contingent obligations which are not disclosed in the Company's
financial statements included in the Registration Statement or elsewhere in the
Prospectus.
(l) The Company and each Subsidiary are not, nor, with the giving of
notice or lapse of time or both, will it be, in violation of or in default under
its respective certificate of incorporation or by-laws or under any agreement,
lease, contract, indenture or other instrument or obligation to which it is a
party or by which it, or any of its properties, is bound and which default is of
material significance in respect of the condition, financial or otherwise of the
Company or Subsidiary, as the case may be, or the business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company or Subsidiary, as the case may be. The execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust or other agreement or instrument
to which the Company or any Subsidiary is a party, or of the certificate of
incorporation or by-laws of the Company or any Subsidiary or any order, rule or
regulation applicable to the Company or any Subsidiary of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction.
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(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Units for public offering by
the Underwriters under state securities or Blue Sky laws) has been obtained or
made and is in full force and effect.
(n) The Company or its Subsidiaries hold all material patents, patent
rights trademarks, trade names, copyrights, trade secrets and licenses of any of
the foregoing (collectively, "Intellectual Property Rights") that are necessary
to the conduct of its businesses; there is no claim pending or, to the best
knowledge of the Company or any Subsidiary, threatened against the Company or
any Subsidiary alleging any infringement of Intellectual Property Rights, or any
violation of the terms of any license relating to Intellectual Property Rights,
nor does the Company or any Subsidiary know of any basis for any such claim. The
Company and each Subsidiary know of no material infringement by others of
Intellectual Property Rights owned by or licensed to the Company or any
Subsidiary. The Company or its Subsidiaries has obtained, is in compliance in
all material respects with and maintains in full force and effect all material
licenses, certificates, permits, orders or other, similar authorizations granted
or issued by any governmental agency (collectively "Government Permits")
required to conduct its business as it is presently conducted. All applications
for additional Government Permits described in the Prospectus as having been
made by the Company or its Subsidiaries have been properly and effectively made
in accordance with the applicable laws and regulations with respect thereto and
such applications constitute, in the best judgment of the Company's management,
those reasonably required to have been made in order to carry out the Company's
business plan as described in the Prospectus. No proceeding to revoke, limit or
otherwise materially change any Government Permit has been commenced or, to the
Company's best knowledge or that of its Subsidiaries, is threatened against the
Company or any Subsidiary with respect to materials supplied to the Company or
its Subsidiaries, and the Company has no reason to anticipate that any such
proceeding will be commenced against the Company or any Subsidiary. Except as
disclosed or contemplated in the Prospectus, the Company and each Subsidiary has
no reason to believe that any pending application for a Government Permit will
be denied or limited in a manner inconsistent with the Company's business plan
as described in the Prospectus.
(o) The Company and each Subsidiary is in all material respects in
compliance with all applicable Environmental Laws. The Company and each
Subsidiary has no knowledge of any past, present or, as anticipated by the
Company or its Subsidiaries, future events, conditions, activities,
investigation, studies, plans or proposals that (i) would interfere with or
prevent compliance with any Environmental Law by the Company or any Subsidiary
or (ii) could reasonably be expected to give rise to any common law or other
liability, or otherwise form the basis of a claim, action, suit, proceeding,
hearing or investigation, involving the Company or any Subsidiary and related in
any way to Hazardous Substances or Environmental Laws. Except for the prudent
and safe use and management of Hazardous Substances in the ordinary course of
the Company's business, (i) no Hazardous Substance is or has been used, treated,
stored, generated, manufactured or otherwise handled on or at any Facility and
(ii) to the Company's best knowledge or that of its
5
Subsidiaries, no Hazardous Substance has otherwise come to be located in, on or
under any Facility. No Hazardous Substances are stored at any Facility except in
quantities necessary to satisfy the reasonably anticipated use or consumption by
the Company and its Subsidiaries. No litigation, claim, proceeding or
governmental investigation is pending regarding any environmental matter for
which the Company or any Subsidiary has been served or otherwise notified or, to
the knowledge of the Company or any Subsidiary threatened or asserted against
the Company or any Subsidiary, or the officers or directors of the Company or of
any Subsidiary, in their capacities as such, or any Facility or the Company's
business. There are no orders, judgments or decrees of any court or of any
governmental agency or instrumentality under any Environmental Law which
specifically apply to the Company or any Subsidiary, any Facility or any of the
Company's operations. Neither the Company nor any Subsidiary has received from a
governmental authority or other person (i) any notice that it is a potentially
responsible person for any Contaminated site or (ii) any request for information
about a site alleged to be Contaminated or regarding the disposal of Hazardous
Substances. There is no litigation or proceeding against any other person by the
Company or any Subsidiary regarding any environmental matter. The Company has
disclosed in the Prospectus or made available to the Underwriters and their
counsel true, complete and correct copies of any reports, studies,
investigations, audits, analysis, tests or monitoring in the possession of or
initiated by the Company or any Subsidiary pertaining to any environmental
matter relating to the Company, any Subsidiary, its past or present operations
or any Facility.
For the purposes of the foregoing paragraph, "Environmental Laws" means any
applicable federal, state or local statute, regulation, code, rule, ordinance,
order, judgment, decree, injunction or common law pertaining in any way to the
protection of human health or the environment, including without limitation, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Toxic Substances Control Act, the
Clean Air Act, the Federal Water Pollution Control Act and any similar or
comparable state or local law; "Hazardous Substance" means any hazardous, toxic,
radioactive or infectious substance, material or waste as defined, listed or
regulated under any Environmental Law; "Contaminated" means the actual existence
on or under any real property of Hazardous Substances, if the existence of such
Hazardous Substances triggers a requirement to perform any investigatory,
remedial, removal or other response action under any Environmental Laws or if
such response action legally could be required by any governmental authority;
"Facility" means any property currently owned, leased or occupied by the
Company.
(p) Neither the Company or any Subsidiary, nor to the Company's best
knowledge or that of any Subsidiary, any of its affiliates, has taken or intends
to take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Units, Common Stock or Warrants.
(q) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940 and the rules and regulations
of the Commission thereunder.
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's
6
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(s) The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of their respective
businesses and the value of their respective properties and as is customary for
companies engaged in similar industries.
(t) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(u) The Company and each Subsidiary is in material compliance with
all laws, rules, regulations, orders of any court or administrative agency,
operating licenses or other requirements imposed by any governmental body
applicable to it, including, without limitation, all applicable laws, rules,
regulations, licenses or other governmental standards applicable to the
industries in which the Company and its Subsidiaries operates; and the conduct
of the business of the Company and each Subsidiary, as described in the
Prospectus, will not cause the Company or any Subsidiary to be in violation of
any such requirements.
(v) The Warrants have been authorized for issuance to the various
purchasers of the Units and will, when issued, possess rights, privileges, and
characteristics as represented in the most recent form of Warrants filed as an
exhibit to the Registration Statement; the securities to be issued upon exercise
of the Warrants, when issued and delivered against payment therefor in
accordance with the terms of the Warrants, will be duly and validly issued,
fully paid, nonassessable and free of preemptive rights, and all corporate
action required to be taken for the authorization and issuance of the Warrants,
and the securities to be issued upon their exercise, have been validly and
sufficiently taken.
(w) The Representatives' Warrants (as defined in Paragraph (d) of
Section 2 hereof) have been authorized for issuance to the Representatives and
will, when issued, possess rights, privileges, and characteristics as
represented in the most recent form of Representatives' Warrants filed as an
exhibit to the Registration Statement; the securities to be issued upon exercise
of the Representatives' Warrants, when issued and delivered against payment
therefor in accordance with the terms of the Representatives' Warrants, will be
duly and validly issued, fully paid, nonassessable and free of preemptive
rights, and all corporate action required to be taken for the authorization and
7
issuance of the Representatives' Warrants, and the securities to be issued upon
their exercise, have been validly and sufficiently taken.
(x) Except as disclosed in the Prospectus, neither the Company or any
Subsidiary, nor any of their respective officers, directors or affiliates have
caused any person, other than the Underwriters, to be entitled to reimbursement
of any kind, including, without limitation, any compensation that would be
includable as underwriter compensation under the NASD's Corporate Financing Rule
with respect to the offering of the Units, as a result of the consummation of
such offering based on any activity of such person as a finder, agent, broker,
investment adviser or other financial service provider.
2. PURCHASE, SALE AND DELIVERY OF THE UNITS.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $__________ per Unit (representing a
___% discount from the initial public offering price of the Units), the number
of Firm Units set forth opposite the name of each Underwriter in Schedule I
hereof, subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Units to be sold hereunder is to be made in
New York Clearing House funds and, at the option of the Representatives, by
certified or bank cashier's checks drawn to the order of the Company or bank
wire to an account specified by the Company against either uncertificated
delivery of the securities comprising the Firm Units or of certificates therefor
(which delivery, if certificated, shall take place in such location in New York,
New York as may be specified by the Representatives) to the Representatives for
the several accounts of the Underwriters. Such payment is to be made at the
offices of Paulson Investment Company, Inc., at the address set forth on the
first page of this agreement, at 7:00 a.m., Pacific time, on the third business
day after the date of this Agreement or at such other time and date not later
than five business days thereafter as you and the Company shall agree upon, such
time and date being herein referred to as the "Closing Date." (As used herein,
"business day" means a day on which the New York Stock Exchange is open for
trading and on which banks in New York are open for business and not permitted
by law or executive order to be closed.) Except to the extent uncertificated
securities comprising the Firm Units are delivered at closing, the certificates
for the securities comprising the Firm Units will be delivered in such
denominations and in such registrations as the Representatives request in
writing not later than the second full business day prior to the Closing Date,
and will be made available for inspection by the Representatives at least one
business day prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Representatives to purchase the Option
Units at the price per Unit as set forth in the first paragraph of this Section
2. The option granted hereby may be exercised in whole or in part by giving
written notice (i) at any time before the Closing Date and (ii) thereafter (on
one or more occasions) within 45 days after the date of this Agreement, by the
Representatives to the Company setting forth the number of Option Units as to
which the Representatives are exercising the option, the names and
8
denominations in which the securities comprising the Option Units are to be
registered and the time and date at which certificates representing the
securities comprising such Units are to be delivered. The time and date at which
certificates for the securities comprising the Option Units are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The option with respect to the Option Units
granted hereunder may be exercised only to cover over-allotments in the sale of
the Firm Units by the Underwriters. The Representatives may cancel such option
at any time prior to its expiration by giving written notice of such
cancellation to the Company. To the extent, if any, that the option is
exercised, payment for the Option Units shall be made on the Option Closing Date
in New York Clearing House funds and, at the option of the Representatives, by
certified or bank cashier's check drawn to the order of the Company for the
Option Units to be sold by the Company or bank wire to an account specified by
the Company against delivery of certificates therefor at the offices of Paulson
Investment Company, Inc. set forth on the first page of this Agreement.
(d) In addition to the sums payable to the Representatives as
provided elsewhere herein, the Representatives shall be entitled to receive at
the Closing, for themselves alone and not as the Representatives of the
Underwriters, as additional compensation for its services, purchase warrants
(the "Representatives' Warrants") for the purchase collectively of up to 150,000
Units at a price of $__________ per Unit (120% of the initial public offering
price of the Units), upon the terms and subject to adjustment and conversion as
described in the form of Representatives' Warrants filed as an exhibit to the
Registration Statement.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Units as soon as the Representatives deem it advisable to
do so. The Firm Units are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Units are purchased pursuant to
Section 2 hereof, the Representatives will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Units in accordance with an
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at
9
the time of effectiveness of the Registration Statement in reliance on Rule 430A
of the Rules and Regulations, and (ii) not file any amendment to the
Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a copy
or to which the Representatives shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (i) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (ii) of receipt of any comments from the Commission, (iii) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Units for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Units.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Units as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with
10
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(g) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Exchange Act.
The Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements.
(h) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of one year after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of the Representatives, which
consent will not be unreasonably withheld, other than pursuant to outstanding
convertible securities, stock option and warrants or pursuant to employee
benefit plans in effect as of the date hereof, in each case as disclosed in the
Prospectus.
(i) The Company will use its best efforts to list, subject to notice
of issuance, the Units, Common Stock and Warrants on The Nasdaq SmallCap Market.
(j) The Company has caused each officer and director and each person
who owns, beneficially or of record, 5% or more of the Common Stock outstanding
immediately prior to this offering to furnish to you, on or prior to the date of
this Agreement, a letter or letters, in form and substance satisfactory to the
Underwriters ("Lockup Agreements"), pursuant to which each such person shall
agree (A) not to offer to sell, sell, contract to sell, sell short or otherwise
dispose of any shares of Common Stock or other capital stock of the Company, or
any other securities convertible, exchangeable or exercisable for Common Stock
or derivatives of Common Stock owned by such person, or request the registration
for the offer or sale of any of the foregoing (or as to which such person has
the right to direct the disposition of) for a period of one year after the date
of this Agreement (90 days in the case of 5% shareholders who are not officers
or directors of the Company), directly or indirectly, except with the prior
written consent of Paulson Investment Company, Inc., which consent shall not be
unreasonably withheld. The Lockup Agreements shall also provide that, after the
expiration of the lockup period, each person shall give you prior notice
11
with respect to any offers to sell, sales, contracts to sell, short sales or
other dispositions of Common Stock pursuant to Rule 144 under the Act or any
similar provisions enacted subsequent to the date of this Agreement for a period
of five years from the date of this Agreement.
(k) The Company shall apply the net proceeds of its sale of the Units
as set forth in the Prospectus and shall file such reports with the Commission
with respect to the sale of the Units and the application of the proceeds
therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Units in such a manner as would
require the Company or any of the subsidiaries to register as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
(m) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock and a warrant agent for the Warrants.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
5. COSTS AND EXPENSES.
(a) The Representatives shall be entitled to receive from the
Company, for themselves alone and not as the Representatives of the
Underwriters, a nonaccountable expense allowance collectively equal to __% of
the aggregate public offering price of Units sold to the Underwriters in
connection with the Offering. The Representatives shall be entitled to withhold
this allowance on the Closing Date (less the $35,000 advance against such amount
that has been previously paid by the Company) with respect to Units delivered on
the Closing Date and to require the Company to make payment of this allowance on
the Option Closing Date with respect to Units delivered on the Option Closing
Date.
(b) In addition to the payment described in Paragraph (a) of this
Section 5, the Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of electronic filing, printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey
and any supplements or amendments thereto; the filing fees of the Commission;
the filing fees incident to securing any required review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Units; the Listing Fee of The Nasdaq SmallCap Market; the reasonable costs
of conducting a due diligence investigation of the principals of the Company by
a firm acceptable to the Representatives, and the expenses, including the fees
and disbursements of counsel for the Underwriters, incurred in connection with
the
12
qualification of the Units under State securities or Blue Sky laws. Any transfer
taxes imposed on the sale of the Units to the several Underwriters will be paid
by the Company. The Company agrees to pay all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of directed shares of the Common
Stock by the Underwriters to employees and persons having business relationships
with the Company. The Company shall not, however, be required to pay for any of
the Underwriters' expenses (other than those related to qualification under NASD
regulation and State securities or Blue Sky laws) except that, if this Agreement
shall not be consummated, then the Company shall reimburse the several
Underwriters for reasonable accountable out-of-pocket expenses, including fees
and disbursements of counsel, reasonably incurred in connection with
investigating, marketing and proposing to market the Units or in contemplation
of performing their obligations hereunder (less the $35,000 advance that has
been paid by the Company); but the Company shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Units. In the event this Agreement is not
consummated, any nonaccountable portion of the $35,000 advance shall be promptly
returned to the Company.
(c) In the event the Company elects to redeem the Warrants at any
time commencing one year after the date of this Agreement, the Company shall
retain Paulson Investment Company Inc. as the Company's solicitation agent (the
"Warrant Solicitation Agent"). The Company shall pay to the Warrant Solicitation
Agent for its services a solicitation fee equal to 3% of the total amount paid
by the holders of the Warrants whom the Warrant Solicitation Agent solicits to
exercise the Warrants. The exercise will be presumed to be unsolicited unless
the customer states in writing that the transaction was solicited by the
Warrants Solicitation Agent and designates in writing the registered
representative of the Warrant Solicitation Agent entitled to receive
compensation for the exercise. The fee shall not be payable for the exercise of
any Warrant held by the Warrant Solicitation Agent in a discretionary account at
the time of exercise, unless the Warrant Solicitation Agent receives from the
customer prior specific written approval of such exercise.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Units
on the Closing Date and the Option Units, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company contained
herein, and to the performance by the Company of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any
13
nature by a Federal or state court of competent jurisdiction shall have been
issued as of the Closing Date which would prevent the issuance of the Units.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Bryan Cave LLP, counsel
for the Company, dated the Closing Date or the Option Closing Date, as the case
may be, addressed to the Underwriters (and stating that it may be relied upon by
counsel to the Underwriters), substantially as follows:
(i) The Company and the Subsidiaries each has been duly organized
and is validly existing as a corporation in good standing under the laws of its
respective jurisdictions of incorporation, with corporate power and authority to
own or lease its properties and conduct its business as described in the
Registration Statement; each of the Company and the Subsidiaries is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification, or in which the failure to qualify would
have a materially adverse effect upon the business of the Company and its
Subsidiaries.
(ii) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus; the outstanding
shares of the Company's Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable; all issued and outstanding shares
of the capital stock of the Company and the Subsidiaries and all other
securities issued and sold or exchanged by the Company and its Subsidiaries have
been issued and sold or exchanged in compliance in all material respects with
applicable securities laws and regulations; all of the securities of the Company
conform to the description thereof contained in the Prospectus; the certificates
for the Common Stock and Warrants, assuming they are in the form filed with the
Commission, are in due and proper form; the shares of Common Stock to be sold by
the Company pursuant to this Agreement, including shares of Common Stock to be
sold as a part of the Option Units have been duly authorized and, upon issuance
and delivery thereof as contemplated in this Agreement and the Registration
Statement, will be validly issued, fully paid and nonassessable; no preemptive
rights of stockholders exist with respect to any of the Common Stock of the
Company or the issuance or sale thereof pursuant to any applicable statute or
the provisions of the Company's charter documents or, to such counsel's best
knowledge, pursuant to any contractual obligation. The Warrants and the
Representatives' Warrants have been authorized for issuance to the purchasers of
Units or the Representatives' Warrants, as the case may be, and will, when
issued, possess rights, privileges, and characteristics as represented in the
most recent form of Warrants or Representatives' Warrants, as the case may be,
filed as an exhibit to the Registration Statement; the securities to be issued
upon exercise of the Representatives' Warrants, when issued and delivered
against payment therefor in accordance with the terms of the Representatives'
Warrants, will be duly and validly issued, fully paid, nonassessable and free of
preemptive rights, and all corporate action required to be taken for the
authorization and issuance of the Warrants, the Representatives' Warrants, and
the securities to be issued upon their exercise, has been validly and
sufficiently taken.
(iii) Except as described in or contemplated by the Prospectus, to
the knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any
14
character obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Units or the right to have any Common Stock or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the Act
and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each amendment
or supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
therein).
(vi) The statements under the captions "Business - Patents,
Trademarks and Proprietary Rights," "Business - Legal Proceedings" and
"Description of Securities" in the Prospectus and in Item 24 of the Registration
Statement, insofar as such statements constitute a summary of documents referred
to therein or matters of law, fairly summarize in all material respects the
information called for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are not so filed or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all material
respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any Subsidiary, except
as set forth in the Registration Statement.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the certificate of incorporation or by-laws of the
Company or any Subsidiary, or any agreement or instrument known to such counsel
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary may be bound.
(x) This Agreement has been duly authorized, executed and delivered
by the Company; the Warrant Agreement has been duly authorized, executed and
delivered by the Company; and the Representatives' Warrants have been duly
authorized, executed and delivered by the Company.
15
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by State securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
In rendering such opinion, such counsel may rely as to matters
governed by the laws of states other than Delaware or New York or Federal laws
on local counsel in such jurisdictions, provided that in each case such counsel
shall state that they believe that they and the Underwriters are justified in
relying on such other counsel. In addition to the matters set forth above, the
opinion of Bryan Cave LLP shall also include a statement to the effect that
nothing has come to the attention of such counsel that has caused them to
believe that (i) the Registration Statement, at the time it became effective
under the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements and statistical
information therein).
(c) The Representatives shall have received from Grover T.
Wickersham, P.C., counsel for the Underwriters, an opinion dated the Closing
Date or the Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs (i), (iv) and (v) of Paragraph (b) of this Section 6.
In rendering such opinion, Grover T. Wickersham, P.C. may rely as to all matters
governed other than by the laws of the State of California or Federal laws on
the opinion of counsel referred to in Paragraph (b) of this Section 6. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
that has caused them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact, necessary in
order to make the statements, in the light of the circumstances under which they
are made, not
16
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Grover T. Wickersham, P.C. may state that their belief is based upon
the procedures set forth therein, but is without independent check and
verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Grover T. Wickersham, P.C. a memorandum or summary, in form
and substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Units under the
State securities or Blue Sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
(e) The Representatives, on behalf of the several Underwriters, shall
have received, on each of the dates hereof, the Closing Date and the Option
Closing Date, as the case may be, a letter dated the date hereof, the Closing
Date or the Option Closing Date, as the case may be, in form and substance
satisfactory to the Representatives, of KPMG Peat Marwick LLP confirming that
they are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations and containing such other statements and information as are
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer or the President and the Chief Financial Officer of
the Company (or the executive officer performing the functions of the Chief
Financial Officer, if no person holds such office at the Closing Date or the
Option Closing Date, as the case may be) to the effect that, as of the Closing
Date or the Option Closing Date, as the case may be, each of them severally
represents as follows:
(i) The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for such purpose have been taken or are, to his
or her knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained in
Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules 424 or
430A under the Act have been made;
(iv) He or she has carefully examined the Registration Statement and
the Prospectus and, in his or her opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and Prospectus did not
omit to state a material fact required to be stated therein or
17
necessary in order to make the statements therein not misleading, and since the
effective date of the Registration Statement, no event has occurred which should
have been set forth in a supplement to or an amendment of the Prospectus which
has not been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company, whether or not
arising in the ordinary course of business.
(g) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(h) The Units, Common Stock and Warrants have been approved for
quotation upon notice of issuance on the Nasdaq SmallCap Market.
(i) The Lockup Agreements described in Section 4(j) are in full force
and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Grover T.
Wickersham, P.C., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Units required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses,
18
claims, damages or liabilities to which such Underwriter or any such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse each Underwriter and each such controlling person
upon demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Units, whether or not such Underwriter or controlling person is a party to any
action or proceeding; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement,
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but
19
the failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of the provisions of Section 8(a)
or (b). In case any such proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or
within 30 days of presentation) the fees and expenses of the counsel retained by
the indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel,
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iii) the indemnifying party shall
have failed to assume the defense and employ counsel acceptable to the
indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party shall
not, in onnection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by you in the case of parties indemnified pursuant to Section 8(a) and
by the Company in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. In addition, the indemnifying party will not,
without the prior written consent of the indemnified party, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action or proceeding of which indemnification may be sought hereunder (whether
or not any indemnified party is an actual or potential party to such claim,
action or proceeding) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Units. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the
20
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company bears to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by PRO
RATA allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Units purchased by such Underwriter, and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section 8(d)
to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
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If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Units
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
the Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Units or Option Units, as the case may be,
which the defaulting Underwriter or Underwriters failed to purchase. If during
such 36 hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Units or Option Units, as the
case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of Units with respect to which
such default shall occur does not exceed 10% of the Firm Units or Option Units,
as the case may be, covered hereby, the other Underwriters shall be obligated,
severally, in proportion to the respective numbers of Firm Units or Option
Units, as the case may be, which they are obligated to purchase hereunder, to
purchase the Firm Units or Option Units, as the case may be, which such
defaulting Underwriter or Underwriters failed to purchase, or (b) if the
aggregate number of Firm Units or Option Units, as the case may be, with respect
to which such default shall occur equals or exceeds 10% of the Firm Units or
Option Units, as the case may be, covered hereby, the Company or you as the
Representatives of the Underwriters will have the right, by written notice given
within the next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting Underwriters
or of the Company except to the extent provided in Section 8 hereof. In the
event of a default by any Underwriter or Underwriters, as set forth in this
Section 9, the Closing Date or Option Closing Date, as the case may be, may be
postponed for such period, not exceeding seven days, as you, as the
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Paulson Investment
Company, Inc., 811 SW Front Avenue, Portland, Oregon 97204, Attention: Chester
L.F. Paulson; with a copy to Grover T. Wickersham, P.C., 430 Cambridge Avenue,
Suite 100, Palo Alto, California 94306, Attention: Debra K. Weiner; if to the
Company, to Caring Products International, Inc., 200 First Avenue West, Suite
200, Seattle, Washington 98119, Attention: Susan A. Schreter; with a copy to
Bryan Cave LLP, 245 Park Avenue, New York, New York 10167, Attention: Steven A.
Saide.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as
follows:
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(a) at any time prior to the earlier of (i) the time the Units are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and its subsidiaries taken as
a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
its subsidiaries taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable to market the Units or to enforce contracts for the sale of the
Units, (iii) the Dow Jones Industrial Average shall have fallen by 15 percent or
more from its closing price on the day immediately preceding the date that the
Registration Statement is declared effective by the Commission, (iv) suspension
of trading in securities generally on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on hours
or numbers of days of trading) for securities on either such Exchange, (v) the
enactment, publication, decree or other promulgation of any statute, regulation,
rule or order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company, (vi) declaration of a banking moratorium
by United States or New York State authorities, (vii) any downgrading in the
rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g) under
the Exchange Act); (viii) the suspension of trading of the Common Stock by the
Commission on the Nasdaq SmallCap Market or (ix) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal affairs which
in your reasonable opinion has a material adverse effect on the securities
markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Units from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph
23
on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-B under the Act
and the information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Units under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Oregon. All disputes relating to this Underwriting
Agreement shall be adjudicated before a court located in Multnomah County,
Oregon to the exclusion of all other courts that might have jurisdiction.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
CARING PRODUCTS
INTERNATIONAL, INC.
By:
-------------------------------
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The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the date
first above written.
PAULSON INVESTMENT COMPANY,
INC.
COHIG & ASSOCIATES, INC.
As Representatives of the several
Underwriters listed on Schedule I
By:
-------------------------------------
Authorized Officer of Paulson
Investment Company, Inc.
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SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Units
Underwriter To Be Purchased
----------- -------------------------
Paulson Investment Company, Inc.
Cohig & Associates, Inc.
-----------
Total 1,500,000
-----------
-----------
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