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EXHIBIT 1.1
SIMULATIONS PLUS, INC.
1,150,000 Shares
UNDERWRITING AGREEMENT
________________, 1997
Waldron & Co., Inc.
(As Representative of the Several
Underwriters Named in Schedule 1 hereto)
19000 MacArthur, 8th Floor
Irvine, California 92715
Dear Sirs:
Simulations Plus, Inc., a California corporation (the "Company"), hereby
confirms its agreement (this "Agreement") with the several underwriters named in
Schedule 1 hereto (the "Underwriters"), for whom Waldron & Co., Inc. has been
duly authorized to act as representative (in such capacity, the
"Representative"), as set forth below:
SECTION 1.
DESCRIPTION OF TRANSACTION
The Company proposes to issue and sell to the Underwriters on the
Closing Date (as defined below), pursuant to the terms and conditions of this
Agreement, an aggregate of 1,150,000 shares ("Firm Shares") of the Company's
Common Stock ("Common Stock") at a price of $5.00 per Share on the terms as
hereinafter set forth. The Company also proposes to issue and sell to the
several Underwriters on or after the Closing Date not more than 150,000
additional Shares if requested by the Representative as provided in Section 3.2
of this Agreement (the "Option Shares"). The Firm Shares and any Option Shares
are collectively referred to herein as the "Shares."
SECTION 2.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Underwriters to enter into this Agreement, the
Company hereby represents and warrants to and agrees with the Underwriters that:
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2.1 Registration Statement and Prospectus. A registration
statement on Form SB- 2 (File No. _______) with respect to the Shares, including
the related prospectus, copies of which have heretofore been delivered by the
Company to the Underwriters, has been filed by the Company in conformity with
the requirements of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), and one or more
amendments to such registration statement have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(a) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration statement),
with such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by the Representative prior to the execution of this Agreement, or (b) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Representative prior to the execution of this
Agreement. As used in this Agreement, the term "Registration Statement" means
such registration statement on Form SB-2 and all amendments thereto, including
the prospectus, all exhibits and financial statements, as it becomes effective;
the term "Preliminary Prospectus" means each prospectus included in said
Registration Statement before it becomes effective; and the term "Prospectus"
means the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act or, if no prospectus is required to be filed pursuant to said Rule
424(b), such term means the prospectus included in the Registration Statement
when it becomes effective.
2.2 Accuracy of Registration Statement and Prospectus. Neither
the Commission nor the "blue sky" or securities authority of any jurisdiction
has issued any order preventing or suspending the use of any Preliminary
Prospectus. When (a) any Preliminary Prospectus was filed with the Commission,
(b) the Registration Statement or any amendment thereto was or is declared
effective, and (c) the Prospectus or any amendment or supplement thereto is
filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus or such
amendment or supplement is not required to be so filed, when the Registration
Statement or the amendment thereto containing such amendment or supplement to
the Prospectus was or is declared effective) and on the Closing Date the
Prospectus, as amended or supplemented at any such time, such filing (i)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
promulgated thereunder (the "Rules and Regulations") and (ii) did not or will
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made. The foregoing representation
does not apply to statements or omissions made in any Preliminary Prospectus,
the Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representative specifically for use therein.
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2.3 Incorporation and Standing. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of California and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the Company.
2.4 Due Power and Authority. The Company has full corporate power
to own or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus; and the Company has full
corporate power to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it. The execution and delivery of this
Agreement and consummation of the transactions contemplated herein have been
duly authorized by the Company and this Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with the terms
thereof, except as may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
general equitable principles, and as rights to indemnity and contribution
hereunder may be limited by applicable law.
2.5 Consents; No Defaults. The issuance, offering and sale of the
Shares to the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (a) require
the consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained, or as may be
required under the Act or under the securities or blue sky laws of any
jurisdiction, or (b) conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, lease or other material agreement or instrument to
which the Company is a party or by which the Company or any of its properties is
bound, or the charter documents or bylaws of the Company, or any statute or any
judgment, decree, order, rule or regulation of any court or other governmental
authority or any arbitrator applicable to the Company.
2.6 No Breach or Default. The Company is not in breach of any
term or provision of its Certificate of Incorporation or Bylaws; no default
exists, and no event has occurred which with notice or lapse of time or both,
would constitute a default, in the Company's due performance and observance of
any term, covenant or condition of any indenture, mortgage, deed of trust,
lease, note, bank loan or credit agreement or any other material agreement or
instrument to which the Company or its properties may be bound or affected in
any respect which would have a material adverse effect on the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company.
2.7 Licenses. The Company possesses all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary for the conduct of its business, and the
Company has not received any notice of proceedings relating to the revocation
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or modification of any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a material adverse change in the condition (financial
or otherwise), business prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Registration Statement.
Each approval, registration, qualification, license, permit, consent, order,
authorization, designation, declaration or filing by or with any regulatory,
administrative or other governmental body or agency necessary in connection with
the execution and delivery by the Company of this Agreement and the consummation
of the transactions contemplated (except such additional actions as may be
required by the National Association of Securities Dealers, Inc. or may be
necessary to qualify the Common Stock for public offering under state securities
or blue sky laws) has been obtained or made and each is in full force and
effect.
2.8 Compliance with Laws. Except as disclosed in the Registration
Statement and in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), the Company is not in violation of any
laws, ordinances, governmental rules or regulations to which it is subject,
which would have a material adverse effect on the condition (financial or
otherwise), business, properties, prospects, net worth or results of operations
of the Company.
2.9 Existing Capital Structure and Shareholder Rights. The
Company has an authorized, issued and outstanding capitalization as set forth
in, and capital stock conforms in all material respects to the description
contained in, the Prospectus or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus. Except as described in the Registration Statement
and in the Prospectus there are no outstanding (a) securities or obligations of
the Company convertible into or exchangeable for any capital stock of the
Company, (b) warrants, rights or options to subscribe for or purchase from the
Company any such capital stock or any such convertible or exchangeable
securities or obligations, or (c) obligations of the Company to issue such
shares, any such convertible or exchangeable securities or obligations, or any
such warrants, rights or obligations. All of the issued shares of capital stock
of the Company have been duly authorized and validly issued and are fully paid
and nonassessable, and have been issued in compliance with all federal and state
securities laws. No preemptive rights of shareholders exist with respect to any
capital stock of the Company. No shareholder of the Company has any right
pursuant to any agreement which has not been waived or honored to require the
Company to register the sale of any securities owned by such shareholder under
the Act in the public offering contemplated herein except as disclosed in the
Registration Statement. Other than Words+, Inc., a California corporation, the
Company has no subsidiaries, and does not own any shares of stock or any other
equity interest in any firm, partnership, association or other entity.
2.10 Authority for Issuance of Shares. The issuance of the Common
Stock issuable in connection with the Shares has been duly authorized and at any
Firm or Option Closing Date as defined herein after payment therefor in
accordance herewith, such Common Stock will be validly issued, fully paid and
nonassessable. The Shares will conform in all material respects with all
statements with regard thereto in the Registration Statement and the Prospectus.
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2.11 Title to Tangible Property. Except as otherwise set forth in
or contemplated by the Registration Statement and Prospectus, the Company has
good and marketable title to all items of personal property owned by the
Company, free and clear of any security interest, liens, encumbrances, equities,
claims and other defects, except such as do not materially and adversely affect
the value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company, and any real property and
buildings held under lease by the Company are held under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such property
and buildings by the Company.
2.12 Title to Intellectual Property. Except as described in the
Prospectus, the Company does not own any patents or trademarks. The Company owns
or possesses, or can acquire on reasonable terms, all material, service marks,
trade names, licenses, copyrights and proprietary or other confidential
information currently employed by it in connection with its business, and the
Company has not received any notice of infringement of or conflict with asserted
rights of any third party with respect to any of the foregoing intellectual
property rights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding would result in a material adverse
change in the condition (financial or otherwise), business prospects, net worth
or results of operations of the Company, except as described in or contemplated
by the Prospectus.
2.13 Contract Rights. The agreements to which the Company is a
party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company in accordance with their terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditor's rights generally or by equitable principles, and, to the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any of such agreements.
2.14 No Market Manipulation. The Company has not taken nor will
it take, directly or indirectly, any action designed to cause or result, or
which might reasonably be expected to cause or result, in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Stock.
2.15 No Other Sales or Commissions. The Company has not since the
filing of the Registration Statement (i) sold, bid for, purchased, attempted to
induce any person to purchase, or paid anyone any compensation for soliciting
purchases of, its capital stock or (ii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any securities of the Company
except for the sale of Shares by the Company under this Agreement.
2.16 Accuracy of Financial Statements. The financial statements
and schedules of the Company included in the Registration Statement and the
Prospectus, or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus, fairly present in all material respects the financial
position of the Company and the results of operations and changes in financial
condition as of the
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dates and periods therein specified. Such financial statements and schedules
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as otherwise noted
therein and include all financial information required to be included by the
Act. The selected financial data set forth under the captions "PROSPECTUS
SUMMARY--Summary Financial Information," "SELECTED FINANCIAL DATA" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" in the Prospectus, or, if the Prospectus is not in existence the
most recent Preliminary Prospectus, fairly present in all material respects, on
the basis stated in the Prospectus or such Preliminary Prospectus, the
information included therein.
2.17 Independent Public Accountant. Singer, Lewak, Greenbaun &
Goldstein LLP, which have certified or shall certify certain of the financial
statements of the Company filed or to be filed as part of the Registration
Statement and the Prospectus, are independent certified public accountants
within the meaning of the Act and the Rules and Regulations.
2.18 Internal Accounting. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (a)
transactions are executed in accordance with management's general or specific
authorization; (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (c) access to assets is
permitted only in accordance with management's general or specific
authorization; and (d) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2.19 Litigation. Except as set forth in the Registration
Statement and Prospectus, there is and at the 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 which might result in
judgments against the Company not adequately covered by insurance or which
collectively might result in any material adverse change in the condition
(financial or otherwise), the business or the prospects of the Company, or would
have a material adverse effect on the properties or assets of the Company. The
Company is not subject to the provisions of any injunction, judgement, decree or
order of any court, regulatory body, administrative agency or other governmental
body or arbitral forum, which might result in a material adverse change in the
business, assets or condition of the Company.
2.20 No Material Adverse Change. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), (a) the Company has not incurred any material adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business affairs, management, or business prospects of the
Company, whether or not occurring in the ordinary course of business, (b) there
has not been any material transaction entered into by the Company, other than
transactions in the ordinary course of business or transactions specifically
described in the Registration Statement as it may be amended or supplemented,
(c) the Company has
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not sustained any material loss or interference with its business or properties
from fire, flood, windstorm, accident or other calamity, (d) the Company has not
paid or declared any dividends or other distribution with respect to its capital
stock and the Company is not in default in the payment of principal or interest
on any outstanding debt obligations, and (e) there has not been any change in
the capital stock (other than the sale of the Common Stock hereunder or the
exercise of outstanding stock options or warrants as described in the
Registration Statement) or material increase in indebtedness of the Company. The
Company does not have any known material contingent obligation which is not
disclosed in the Registration Statement (or contained in the financial
statements or related notes thereto), as such may be amended or supplemented.
2.21 Transactions With Affiliates. Subsequent to the respective
dates as of which information is given in the Registration Statement and
Prospectus or if the Prospectus is not in existence the most recent Preliminary
Prospectus, and except as may otherwise be indicated or contemplated herein or
therein, (a) the Company has not entered into any transaction with an
"affiliate" of the Company, as defined in the Act and the Rules and Regulations,
or (b) declared, paid or made any dividend or distribution of any kind on or in
connection with any class of its capital stock, and (c) the Company has no
knowledge of any transaction between any affiliate of the Company and any
significant customer or supplier of the Company, except in its ordinary course
of business.
2.22 Insurance. Except as otherwise set forth in or contemplated
by the Registration Statement and Prospectus, the Company is insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the business in which it is engaged; the
Company has not been refused any insurance coverage sought or applied for; and
the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company.
2.23 Tax Returns. The Company has filed all foreign, federal,
state and local tax returns that are required to be filed or has requested
extensions thereof and has paid all taxes required to be paid by it and any
other assessment, fine or penalty levied against it, to the extent that any of
the foregoing is due and payable or adequate accruals have been set up to cover
any such unpaid taxes, except for any such assessment, fine or penalty that is
currently being contested in good faith.
2.24 Political Contributions. The Company has not directly or
indirectly, (a) made any unlawful contribution to any candidate for public
office, or failed to disclose fully any contribution in violation of law, or (b)
made any payment to any federal, state, local, or foreign governmental officer
or official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any other such jurisdiction.
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2.25 Investment Company Act. The Company conducts its operations
in a manner that does not subject it to registration as an investment company
under the Investment Company Act of 1940, as amended, and the transactions
contemplated by this Agreement will not cause the Company to become an
investment company subject to registration under the Investment Company Act of
1940, as amended.
SECTION 3.
PURCHASE, SALE AND DELIVERY OF THE SHARES
3.1 Purchase of Firm Shares. On the basis of the representations,
warranties, agreements and covenants herein contained and subject to the terms
and conditions herein set forth, the Company agrees to issue and sell to each of
the Underwriters named in Schedule I hereto, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company, at a purchase
price of $____ per Share, the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule 1 hereto. The Company will make one or more
certificates for Common Stock constituting the Firm Shares, in definitive form
and in such denomination or denominations and registered in such name or names
as the Representative shall request upon notice to the Company at least 48 hours
prior to the Firm Closing Date, available for checking and packaging by the
Representative at the offices of the Company's transfer agent or registrar (or
the correspondent or the agent of the Company's transfer agent or registrar) at
least 24 hours prior to the Firm Closing Date. Payment for the Firm Shares shall
be made by bank wire payable in same day funds to the order of the Company drawn
to the order of the Company for the Firm Shares, against delivery of
certificates therefor to the Representative. Delivery of the documents,
certificates and opinions described in Section 6 of this Agreement, the Firm
Shares and payment for the Firm Shares and the Option Shares shall be made at
the offices of Waldron & Co., Inc., 19000 MacArthur, 8th Floor, Irvine,
California 92715, at 9:00 a.m., Los Angeles time, on the third full business day
following the date hereof (on the fourth full business day if this Agreement is
executed after 12:30 p.m., California time), or at such other places, time or
date as the Representative and the Company may agree upon or as the
Representative may determine pursuant to Section 9 hereof, such time and date of
delivery against payment being herein referred to as the "Firm Closing Date."
3.2 Over-Allotments; Option Shares. For the purpose of covering
any over-allotments in connection with the distribution and sale of the Firm
Shares as contemplated by the Prospectus, the Company hereby grants to you on
behalf of the several Underwriters an option to purchase, severally and not
jointly, the Option Shares. The purchase price to be paid for any Option Shares
shall be the same price per share as the price per Share for the Firm Shares set
forth above in Section 3.1, plus, if the purchase and sale of any Option Share
takes place after the Firm Closing Date and after the Common Stock is trading
"ex-dividend," an amount equal to the dividends payable on the Common Stock
contained in such Option Shares. The option granted hereby may be exercised in
the manner described below as to all or any part of the Option Shares from time
to time within forty-five days after the date of the Prospectus. The
Underwriters shall not be under any obligation to purchase any of the Option
Shares prior to the exercise of such option. The Representative may
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from time to time exercise the option granted hereby by giving notice in writing
or by telephone (confirmed in writing) to the Company setting forth the
aggregate number of Option Shares as to which the several Underwriters are then
exercising the option and the date and time for delivery of and payment for such
Option Shares. Any such date of delivery shall be determined by the
Representative but shall not be earlier than two business days or later than
seven business days after such exercise of the option and, in any event, shall
not be earlier than the Firm Closing Date. The time and date set forth in such
notice, or such other time on such other date as the Representative and the
Company may agree upon or as the Representative may determine pursuant to
Section 9 hereof, is herein called the "Option Closing Date" with respect to
such Option Shares. Upon each exercise of the option as provided herein, subject
to the terms and conditions herein set forth, the Company shall become obligated
to sell to each of the several Underwriters, and each of the Underwriters
(severally and not jointly) shall become obligated to purchase from the Company,
the same percentage of the total number of the Option Shares as to which the
several Underwriters are then exercising the option as such Underwriter is
obligated to purchase of the aggregate number of Firm Shares, as adjusted by the
Representative in such manner as it deems advisable to avoid fractional shares.
If the option is exercised as to all or any portion of the Option Shares, one or
more certificates for the Common Stock contained in such Option Shares, in
definitive form, and payment therefore, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
Section 3.1, except that reference therein to the Firm Shares and the Firm
Closing Date shall be deemed, for purposes of this Section 3.2, to refer to such
Option Shares and Option Closing Date, respectively. No Option Shares shall be
required to be, or be, sold and delivered unless the Firm Shares have been, or
simultaneously are, sold and delivered as provided in this Agreement.
3.3 Default by an Underwriter. It is understood that you,
individually and not as the Representative, may (but shall not be obligated to)
make payment on behalf of any Underwriter or Underwriters for any of the Shares
to be purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their obligations
hereunder.
SECTION 4.
OFFERING BY THE UNDERWRITERS
Upon payment by the Underwriters of the purchase price of $____ per
Share and the Company's authorization of the release of the Firm Shares, the
several Underwriters shall offer the Firm Shares for sale to the public upon the
terms set forth in the Prospectus. The Representative may from time to time
thereafter change the public offering prices and other selling terms. If the
option set forth in Section 3.2 of this Agreement is exercised, then upon the
Company's authorization of the release of the Option Shares the several
Underwriters shall offer such Shares for sale to the public upon the foregoing
terms.
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SECTION 5.
COVENANTS OF THE COMPANY
Except as otherwise stated below, the Company covenants and agrees with
each of the Underwriters that:
5.1 Company's Best Efforts to Cause Registration Statement to
Become Effective. The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective as promptly as
possible. If required, the Company will file the Prospectus and any amendment or
supplement thereto with the Commission in the manner and within the time period
required by Rule 424(b) under the Act. During any time when a prospectus
relating to the Common Stock is required to be delivered under the Act, the
Company (a) will comply with all requirements imposed upon it by the Act and the
Rules and Regulations to the extent necessary to permit the continuance of sales
of or dealings in the Common Stock in accordance with the provisions hereof and
of the Prospectus, as then amended or supplemented, and (b) will not file with
the Commission the prospectus or the amendment referred to in the second
sentence of Section 2.1 hereof, any amendment or supplement to such prospectus
or any amendment to the Registration Statement unless and until the
Representative have been advised of such proposed filing, has been furnished
with a copy for a reasonable period of time prior to the proposed filing, and
has given its consent to such filing, which shall not be unreasonably withheld
or delayed.
5.2 Preparation and Filing of Amendments and Supplements. The
Company will prepare and file with the Commission, in accordance with the Rules
and Regulations of the Commission, promptly upon written request by the
Representative or counsel for the Representative, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be reasonably necessary or advisable in connection with the distribution of the
Shares by the several Underwriters, and the Company will use its best efforts to
cause any such amendment to the Registration Statement to be declared effective
by the Commission as promptly as possible. The Company will advise the
Representative, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Representative of each such
filing or effectiveness.
5.3 Notice of Stop Orders. The Company will advise the
Representative promptly after receiving notice or obtaining knowledge of: (a)
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or any amendment thereto, or any order preventing or
suspending the use of any Preliminary Prospectus of the Prospectus or any
amendment or supplement thereto; (b) the suspension of the qualification of the
Shares for offering or sale in any jurisdiction; (c) the institution,
threatening or contemplation of any proceeding for any such purpose; or (d) any
request made by the Commission for amending the Registration Statement, for
amending or supplementing the Prospectus or for additional information. The
Company will use
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its best efforts to prevent the issuance of any such stop order and, if any such
stop order is issued to obtain the withdrawal thereof as promptly as possible.
5.4 Blue Sky Qualification. The Company will arrange and
cooperate with counsel to the Representative for the qualification of the Shares
for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representative may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Shares; provided, however, that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to execute
a general consent to service of process in any jurisdiction.
5.5 Post-Effective Amendments. If, at any time when a prospectus
relating to the Shares is required to be delivered under the Act, any event
occurs as a result of which the Prospectus, as then amended or supplemented,
would include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading,
in the light of the circumstances under which they were made, or if for any
other reason it is necessary at any time to amend or supplement the Prospectus
to comply with the Act or the Rules or Regulations, the Company will promptly
notify the Representative thereof and, subject to Section 3 hereof, will prepare
and file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
5.6 Delivery of Prospectuses. The Company will, without charge,
provide (a) to the Representative and to counsel for the Representative a signed
copy of the Registration Statement originally filed with respect to the Shares
and each amendment thereto (in each case including exhibits thereto), (b) to
each other Underwriter so requesting in writing, a conformed copy of such
Registration Statement and each amendment thereto (in each case without exhibits
thereto) and (c) so long as a prospectus relating to the Shares is required to
be delivered under the Act, as many copies of each Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto as the Representative may
reasonably request.
5.7 Section 11(a) Financials. The Company will, as soon as
practicable but in any event not later than 90 days after the period covered
thereby, make generally available to its security holders and to the
Representative a consolidated earnings statement of the Company and its
subsidiaries that satisfies the provisions of Section 11(a) of the Act and Rule
158 thereunder covering a twelve-month period beginning not later than the first
day of the Company's fiscal quarter next following the effective date of the
Registration Statement.
5.8 Application of Proceeds. The Company will apply the net
proceeds from the sale of the Shares as set forth in the Prospectus and
Registration Statement and will not take any action that would cause it to
become an investment company under the Investment Company Act of 1940, as
amended.
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5.9 Sales of Securities. The Company will not, directly or
indirectly, without ten (10) days prior written notice to the Representative,
offer, sell, grant any option to purchase or otherwise dispose (or announce any
offer, sale, grant of any option to purchase or other disposition) of any shares
of Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for a period of two years after the date
hereof, except (a) to the Underwriters pursuant to this Agreement; (b) up to
250,000 options to be granted pursuant a stock option plan to be adopted by the
Company; and (c) up to 300,000 shares of Common Stock reserved for issuance upon
exercise by Walter S. and Virginia Woltosz of certain performance warrants;
provided that such persons have delivered to the Representative the agreement
described in Section 7.7 of this Agreement.
5.10 Application to NASDAQ. The Company will cause the Shares to
be duly included for quotation on the Nasdaq SmallCap Market prior to the
Closing Date. If requested by the Representative, the Company will also cause
the Shares to be duly included for listing on the Pacific Stock Exchange. The
Company will use its best efforts to ensure that the Shares remain included for
quotation on the Nasdaq SmallCap Market and the Pacific Stock Exchange (if
applicable) following the Closing Date for a period of not less than three
years.
5.11 Application for Secondary Market Exemptions. To the extent
necessary or appropriate, the Company will make such applications, file such
documents, and furnish such information as may be necessary to list the Shares
in the securities listing manuals of Standard & Poor's Corporation or Moody's
Industrial Services contemporaneous with the filing of the Prospectus with the
Commission, and shall maintain listing in such manuals thereafter for a period
of no less than five years. As of the first date that the Company and its
securities are eligible, the Company will apply with the Department of
Corporations in the State of California to have the Shares listed as an
"Eligible Security" for purposes of secondary market exemptions in the State of
California. The Company will take such other similar steps as are reasonably
necessary to obtain exemptions for secondary trading of the Company's Shares in
various United States jurisdictions.
5.12 Reports to Shareholders. So long as any Common Stock is
outstanding until five years after the Closing Date, the Company will furnish to
the Representative (a) as soon as available a copy of each report of the Company
mailed to shareholders and filed with the Commission and (b) from time to time
such other information concerning the Company as the Representative may
reasonably request.
5.13 Delivery of Documents. At or prior to the Closing, the
Company will deliver to the Representative true and correct copies of the
certificate of incorporation of the Company and all amendments thereto, all such
copies to be certified by the Secretary of State of the State of California, a
good standing certificate from the Secretary of State of California, dated no
more than five business days prior to the Closing Date; true and correct copies
of the bylaws of the Company, as amended, certified by the Secretary of the
Company and true and correct copies of the minutes of all meetings of the
directors and shareholders of the Company held prior to the Closing Date which
in any way relate to the subject matter of this Agreement.
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5.14 Underwriters' Warrant. On or prior to the Closing Date, the
Company shall deliver to the Representative warrants (the "Underwriter's
Warrants"), at an aggregate purchase price of $100, to purchase Shares equal to
10% of the Firm Shares sold in the Offering, which Underwriter's Warrants shall
be exercisable for a per Share exercise price equal to 120% of the per Share
public offering price of the Firm Shares.
5.15 Cooperation With Representative' Due Diligence. At all times
prior to the Closing Date, the Company will cooperate with the Representative in
such investigation as the Representative may make or cause to be made of all the
properties, business and operations of the Company in connection with the
purchase and public offering of the Shares and the Company will make available
to the Representative in connection therewith such information in its possession
as the Representative may reasonably request.
5.16 Stock Transfer Agent. The Company has appointed U.S. Stock
Transfer, Glendale, California, as Transfer Agent for the Common Stock. The
Company will not change or terminate such appointment for a period of two years
from the effective date without first obtaining the written consent of the
Representative, which consent shall not be unreasonably withheld.
5.17 Publicity. Prior to the Firm Closing Date, or the Option
Closing Date, as the case may be, the Company shall not issue any press release
or other communication directly or indirectly and shall hold no press conference
with respect to the Company, its financial condition, results of operations,
business, properties, assets, liabilities and any of them, or this offering,
without the prior written consent of the Representative. If at any time during
the 90 day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in the opinion of the Representative the market price of the
Common Stock has been or is likely to be materially affected, regardless of
whether such rumor, publication or event necessitates a supplement to or
amendment of the Prospectus, the Company will, after written notice from the
Representative, evaluate the propriety of disseminating a press release or other
public statement reasonably acceptable to the Representative and their counsel,
commenting on such rumor, publication or event.
5.18 Board of Directors Meetings. The Company shall notify the
Representative of all meetings of the Board of Directors and shareholders of the
Company and shall have the right, for a period of three (3) years from the date
of the Prospectus, to have an observer at such meetings. Such designee shall be
entitled to receive reimbursement for all reasonable costs incurred in attending
such meetings, including, but not limited to, food, lodging, and transportation.
5.19 Forecasts and Projections. For a period of two years from
the effective date of the Registration Statement, the Company shall provide the
Representative with routine internal forecasts if any such reports are prepared
by the Company for dissemination to the public.
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5.20 Key Man Insurance. The Company will maintain for a period of
at least five (5) years, Key Man Insurance on Walt Woltosz in the amount of
$1,000,000. The Representative reserves the right to write the above policy at
the next renewal date thereof providing it can do so on terms no less favorable
to the Company.
SECTION 6.
EXPENSES
6.1 Offering Expenses. The Company will pay upon demand all costs
and expenses incident to the performance of the Company's obligations under this
Agreement, whether or not the transactions contemplated herein are consummated
or this Agreement is terminated pursuant to Section 11 hereof, including all
costs and expenses incident to (a) the printing or other production of documents
with respect to the transactions, including any costs of printing the
Registration Statement originally filed with respect to the Shares and any
amendment thereto, any Preliminary Prospectus and the Prospectus and any
amendment or supplement thereto, this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, and any blue sky memoranda, (b) all
arrangements relating to the delivery to the Underwriters of copies of the
foregoing documents, (c) the fees and disbursements of counsel, accountants and
any other experts or advisors retained by the Company, (d) preparation, issuance
and delivery to the Underwriters of any certificates evidencing the Common
Stock, including transfer agent's and registrar's fees, (e) the qualification of
the Shares under state securities and blue sky laws, including filing fees and
fees and disbursements of counsel for the Representative relating thereto, (f)
the filing fees of the Commission and the National Association of Securities
Dealers, Inc. relating to the Shares, (g) any listing fees for the quotation of
the Common Stock on the Nasdaq SmallCap Market or listing on the Pacific Stock
Exchange (if applicable), (h) one-half the cost of placing "tombstone
advertisements" in any publications which may be selected by the Representative
(provided that any such cost in excess of $5,000 shall require the consent of
both the Company and the Representative), and (i) all other advertising that has
been approved in advance by the Company relating to the offering of the Shares
(other than as shall have been specifically approved in writing by the
Representative to be paid for by the Underwriters). In addition to the
foregoing, the Company agrees to pay to the Representative a non-accountable
expense allowance of 3% of the gross amount to be raised from the sale of the
Shares hereunder, payable at the Closing(s), of which $25,000 has already been
paid by the Company in connection with this offering. If the sale of the Shares
provided for herein is not consummated because any condition to the obligations
of the Underwriters set forth in Section 7 (other than Section 7.5) hereof is
not satisfied, because this Agreement is terminated pursuant to Section 11
hereof or because of any failure, refusal or inability on the part of the
Company to perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder other than by reason of a default by any of the
Underwriters, the Company will reimburse the Underwriters severally upon demand
for all out-of-pocket expenses (including counsel fees and disbursements) that
shall have been reasonably incurred by them in connection with the proposed
purchase and sale of the Shares, excluding any costs in excess of $35,000. The
Company shall in no event be liable to any of the Underwriters for the loss of
anticipated profits from the transactions covered by this Agreement.
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6.2 Interim Indemnification. The Company agrees that as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 8.1 hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Underwriters shall promptly return
such payment to the Company together with interest, compounded daily, determined
on the basis of the prime rate (or other commercial lending rate for borrowers
of the highest credit standing) listed from time to time in THE WALL STREET
JOURNAL which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
The Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8.2 hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses incurred
in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
SECTION 7.
CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS
The obligations of the several Underwriters to purchase and pay for the
Firm Shares shall be subject, unless waived by the Representative in its sole
discretion, to the accuracy of the representations and warranties of the Company
contained herein as of the date hereof and as of the Firm Closing Date as if
made on and as of the Firm Closing Date, to the accuracy of the statements of
the Company's officers made pursuant to the provisions hereof, to the
performance by the Company of its covenants and agreements hereunder and to the
following additional conditions:
7.1 Effectiveness of Registration Statement. If the Registration
Statement or any amendment thereto filed prior to the Firm Closing Date has not
been declared effective as of the time
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of execution hereof, the Registration Statement or such amendment shall have
been declared effective not later than 11 a.m., California time, on the date on
which the amendment to the Registration Statement originally filed with respect
to the Shares or to the Registration Statement, as the case may be, containing
information regarding the initial public offering price of the Shares has been
filed with the Commission, or such later time and date as shall have been
consented to by the Representative; if required, the Prospectus and any
amendment or supplement thereto shall have been filed with the Commission in the
manner and within the time period required by Rule 424(b) under the Act; no stop
order suspending the effectiveness of the Registration Statement or any
amendment thereto shall have been issued, and no proceedings for that purpose
shall have been instituted or threatened or, to the knowledge of the Company or
the Representative, shall be contemplated by the Commission; and the Company
shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) to the reasonable satisfaction of counsel for the underwriters.
7.2 Opinion of Counsel. The Representative shall have received an
opinion, dated the Firm Closing Date, of Donahue & Mesereau, Los Angeles,
California counsel for the Company, substantially to the effect that:
(a) the Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
California, and duly qualified to transact business as a foreign corporation and
is in good standing under the laws of all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company;
(b) the Company has the corporate power to own or lease
its properties; to conduct its business as described in the Registration
Statement and the Prospectus; to enter into this Agreement and to carry out all
of the terms and provisions hereof to be carried out by it;
(c) the Company has an authorized capital stock as set
forth under the heading "CAPITALIZATION" in the Prospectus; effective upon the
Closing all of the Company's all of the shares have been duly authorized and
validly issued and are fully paid and nonassessable; the shares have been duly
authorized by all necessary corporate action of the Company, and, when issued
and delivered to and paid for pursuant to this Agreement, will be validly
issued, fully paid and nonassessable; the shares have been duly authorized for
quotation on the Nasdaq SmallCap Market; no holders of outstanding shares of
capital stock of the Company are entitled as such to any preemptive or other
rights to subscribe for any of the Shares; and no holders of securities of the
Company are entitled to have such securities registered under the Registration
Statement;
(d) the capital stock of the Company conforms, as to legal
matters, to the statements set forth under the heading "DESCRIPTION OF
SECURITIES" in the Prospectus in all material respects;
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(e) the execution and delivery of this Agreement have been
duly authorized by all necessary corporate action of the Company and this
Agreement is a valid and binding obligation of the Company except as rights to
indemnity and contribution thereunder may be limited by applicable federal or
state securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally and subject to general principles
of equity.
(f) no legal or governmental proceedings are pending to
which the Company is a party or to which the property of the Company is subject
that are required to be described in the Registration Statement or the
Prospectus and are not described therein, and, to the best knowledge of such
counsel, no such proceedings have been threatened against the Company or with
respect to any of its properties that can reasonably be expected to, or, if
determined adversely to the Company, would, in any individual case or in the
aggregate, result in any material adverse change in the business, financial
condition or results of operations of the Company;
(g) no contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described therein or filed as
required;
(h) the issuance, offering and sale of the Shares by the
Company pursuant to this Agreement, the compliance by the Company with the other
provisions of this Agreement and the consummation of the other transactions
herein contemplated do not require the consent, approval, authorization,
registration or qualification of or with any governmental authority, except such
as have been obtained and such as may be required under state securities or blue
sky laws, or conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, lease or other agreement or instrument, known to such counsel, to
which the Company is a party or by which the Company or any of its properties
are bound, or the Articles of Incorporation or Bylaws of the Company, or any
statute or any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator known to such counsel and applicable to
the Company;
(i) the Registration Statement is effective under the Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto has been issued by the Commission, and no proceedings for that purpose
have been instituted or, to the knowledge of such counsel, are threatened or
contemplated by the Commission;
(j) the Registration Statement and the Prospectus and each
amendment or supplement thereto (in each case, other than the financial
statements and other financial and statistical information contained therein, as
to which such counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the Rules and
Regulations;
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(k) the Company is not required, and, if the Company uses
the proceeds of the sale of the Firm Shares and the Option Shares solely as
described in the Prospectus, will not be required as a result of the sale of
such Shares to be registered as an investment company within the meaning of the
Investment Company Act of 1940, as amended; and
(l) such counsel shall also state that they have no reason
to believe that the Registration Statement, as of its effective date, contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, as of its date or the date of such opinion,
included or includes any untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided
that in each case such counsel need not express any opinion as to the financial
statements and other financial and statistical information contained therein.
In rendering any such opinion, such counsel may rely as to matters of fact, to
the extent such counsel deems proper, on certificates of responsible officers of
the Company and public officials. The foregoing opinion may be limited to the
laws of the United States, the laws of the State or California and the General
Corporation Law of the State of California. References to the Registration
Statement and the Prospectus in this Section 7.2 shall include any amendment or
supplement thereto at the date of such opinion. Such counsel shall permit Luce,
Forward, Hamilton & Scripps LLP to rely upon such opinion in rendering its
opinion in Section 7.3.
7.3 Review by and Opinion of Representative' Counsel. The
Representative shall have received an opinion, dated the Firm Closing Date, of
Luce, Forward, Hamilton & Scripps LLP, counsel for the Representative, with
respect to certain matters as the Representative may reasonably require, and the
Company shall have furnished to such counsel such documents and certificates as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
7.4 Accountant's Letter. The Representative shall have received
from Singer, Lewak, Greenbaum & Goldstein LLP, a letter or letters dated,
respectively, the date hereof and the Closing Date, in form and substance
reasonably satisfactory to the Representative, substantially to the effect that:
(a) they are independent accountants with respect to the
Company within the meaning of the Act and the Rules and Regulations;
(b) in their opinion, the financial statements audited by
them and included in the Registration Statement and the Prospectus comply in
form in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations;
(c) on the basis of a reading of the audited financial
statements of the Company, for the years ended August 31, 1996, August 31, 1995,
and August 31, 1994 and the unaudited financial statements of the Company for
the period ended December 31, 1996 and the notes
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thereto, carrying out certain specified procedures (which do not constitute an
audit made in accordance with generally accepted auditing standards) that would
not necessarily reveal matters of significance with respect to the comments set
forth in this paragraph, a reading of the minute books of the shareholders, the
board of directors and any committees thereof of the Company, and inquiries of
certain officials of the Company who have responsibility for financial and
accounting matters, nothing came to their attention that caused them to believe
that:
(i) the unaudited condensed financial statements
of the Company included in the Registration Statement and the Prospectus do not
comply in form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder or are not in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the audited
financial statements included in the Registration Statement and the Prospectus;
and
(ii) at a specific date not more than five
business days prior to the date of such letter, there were any changes in the
capital stock or long-term debt of the Company or any decreases in net current
assets or shareholders' equity of the Company, in each case compared with
amounts shown on the December 31, 1996 balance sheet included in the
Registration Statement and the Prospectus, or for the period from December 31,
1996 to such specified date there were any decreases, as compared with the
corresponding period in the preceding year, in net sales, gross profit, selling,
general and administrative expenses, employee plans and bonuses, income (loss)
from operations, interest expenses, income (loss) before income taxes, provision
(benefit) for income taxes, net income (loss) or net income (loss) per share of
the Company, except in all instances for changes, decreases or increases set
forth in such letter; and
(d) they have carried out certain specified procedures,
not constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting records of
the Company and are included in the Registration Statement and the Prospectus,
and have compared such amounts, percentages and financial information with such
records of the Company and with information derived from such records and have
found them to be in agreement, excluding any questions of legal interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representative deems such explanation unnecessary, and such changes, decreases
or increases do not, in the sole judgment of the Representative, make it
impractical or inadvisable to proceed with the purchase and delivery of the
Shares as contemplated by the Registration Statement, as amended as of the date
hereof.
References to the Registration Statement and the Prospectus in this
Section 7.4 with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
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7.5 Officer's Certificate. The Representative shall have received
a certificate, dated the Firm Closing Date, of the president and the principal
financial or accounting officer of the Company to the effect that:
(a) the representations and warranties of the Company in
this Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing Date, does
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading, in light
of the circumstances in which they were made and the Prospectus, as amended or
supplemented as of the Firm Closing Date, does not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein not misleading, in the light of the circumstances under
which they were made; and the Company has in all material respects performed all
covenants and agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Firm Closing Date;
(b) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the best
of their knowledge, are contemplated by the Commission; and
(c) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not sustained any material loss or interference with its business or
properties from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a prospective material adverse change, in the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company, except in each case as described in or contemplated by the
Prospectus (exclusive of any amendment or supplement thereto).
7.6 NASD Review. The NASD, upon review of the terms of the public
offering of the Firm Shares and Option Shares, shall not have objected to the
Underwriters' participation in such offering.
7.7 Lockups. The Representatives shall have received from each
person who owns Common Stock, or securities convertible into Common Stock, an
agreement to the effect that such person will not, directly or indirectly,
without the prior written consent of the Representative, offer, sell or grant
any option to purchase or otherwise dispose (or announce any offer, sale, grant
of an option to purchase or other disposition) of any shares of Common Stock or
any securities convertible into, or exchangeable for, shares of Common Stock for
a period of eighteen months.
7.8 Due Diligence Examination. The counsel to the Representative
and other persons retained by the Representative to conduct a due diligence
investigation with respect to the offering, shall be reasonably satisfied with
the results of their respective due diligence investigations.
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7.9 Blue Sky Qualification. The Shares shall be qualified in such
states as the Representative may reasonably request pursuant to Section 5.4, 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, as the case may be.
7.10 Other Documents. On or before the Firm Closing Date, the
Representative and counsel for the Representative shall have received such
further certificates, documents or other information as they may have reasonably
requested from the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representative. The
Company shall furnish to the Representative such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representative and the counsel to the Representative shall reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Shares shall be subject, in the Representative' discretion,
to each of the foregoing conditions to purchase the Firm Shares, except that all
references to the Firm Shares and the Firm Closing Date shall be deemed to refer
to such Option Shares and the related Option Closing Date, respectively.
SECTION 8.
INDEMNIFICATION AND CONTRIBUTION
8.1 Indemnification by Company. The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934 (the "Exchange Act") against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(a) any untrue statement or alleged untrue statement made
by the Company in Section 2 of this Agreement;
(b) any untrue statement or alleged untrue statement of
any material fact contained in (i) the Registration Statement or any amendment
thereto or any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (ii) any application or other document, or any amendment
or supplement thereto, executed by the Company and based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify the Shares under the securities or blue sky laws thereof or
filed with the Commission or any securities association or securities exchange
(each an "Application"); or
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(c) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they are made, and
will reimburse, as incurred, each Underwriter and each such controlling person
for any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; 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 any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representative specifically for use therein; and provided further,
that the Company will not be liable to any Underwriter or any person controlling
such Underwriter with respect to any such untrue statement or omission made in
any Preliminary Prospectus that is corrected in the Prospectus (or any amendment
or supplement thereto) if the person asserting any such loss, claim, damage or
liability purchased Shares from such Underwriter but was not sent or given a
copy of the Prospectus (as amended or supplemented), other than the documents
incorporated by reference therein at or prior to the written confirmation of the
sale of such Shares to such person in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Act, unless such
failure to deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5.5 of this Agreement. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have. The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
8.2 Indemnification by Underwriters. Each Underwriter will
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act against any losses, claims, damages or liabilities to which
the Company, any such director or officer of the Company or any such controlling
person of the Company may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (a) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application or (b) the omission
or the alleged omission to state therein a material fact required to be stated
in the Registration Statement or any amendment
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thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or any Application or necessary to make the statements
therein not misleading in light of the circumstances in which they are made, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through the Representative specifically for use therein; and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by the
Company or any director, officer or controlling person of the Company in
connection with investigation or defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or any action
in respect thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have. No Underwriter will,
without the prior written consent of the Company, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought hereunder
(whether or not the Company, any of its directors, any of its officers who
signed the Registration Statement or any person who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of the Company and each
such director, officer and controlling person from all liability arising out of
such claim, action, suit or proceeding.
8.3 Notice of Defense. Promptly after receipt by an indemnified
party under this Section 8 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party and the indemnified party shall have reasonably concluded that there may
be one or more legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the indemnifying
party, the indemnifying party shall not have the right to direct the defense of
such action on behalf of such indemnified party or parties and such indemnified
party or parties shall have the right to select separate counsel to defend such
action on behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party (which may not be unreasonably withheld or delayed) under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (a) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel at any one time in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or
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circumstances, designated by the Representative in the case of Section 8.1,
representing the indemnified parties under such Section 8.1 who are parties to
such action or actions) or (b) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the consent of the indemnifying party, unless such indemnified party
waived its rights under this Section 8 in which case the indemnified party may
effect such a settlement without such consent.
8.4 Contribution. In circumstances in which the indemnity
agreement provided for in the preceding paragraphs of this Section 8 is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages or liability (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (a) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Shares or (b) if the
allocation provided by the foregoing clause (a) is not permitted by applicable
law, not only such relative benefits but also the relative fault of the
indemnifying party or parties on the one hand and the indemnified party on the
other in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liability (or action
in respect thereof). The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (after deducting expenses)
received by the Company bear to the total underwriting discounts and commissions
received by the Underwriters. The relative fault of the parties 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
Underwriters, the parties' relative intents, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances. The Company and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take into account the equitable consideration
referred to in the first sentence of this Section 8.4. Notwithstanding any other
provision of this Section 8.4, no Underwriter shall be obligated to make
contributions hereunder that in the aggregate exceed the underwriter discount on
the Shares purchased by such Underwriter under this Agreement, less the
aggregate amount of any damages that such Underwriter has otherwise been
required to pay in respect of the same or any substantially similar claim, and
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 to
contribute hereunder are several in proportion to their respective underwriting
obligations and not joint, and contributions among Underwriters shall be
governed by the provisions of the Agreement Among Underwriters. For purposes of
this Section 8.4, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the
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Exchange Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall
have the same right to contribution as the Company as the case may be.
SECTION 9.
DEFAULT OF UNDERWRITERS
If one or more Underwriters default in their obligations to purchase
Firm Shares, or Option Shares hereunder and the aggregate number of such Shares
that such defaulting Underwriter or Underwriters agreed but failed to purchase
is ten percent or less of the aggregate number of Firm Shares or Option Shares
to be purchased by all of the Underwriters at such time hereunder, the other
Underwriters may make arrangements satisfactory to the Representative for the
purchase of such Shares by other persons (who may include one or more of the
non-defaulting Underwriters, including the Representative), but if no such
arrangements are made by the Firm Closing Date or the related Option Closing
Date, as the case may be, the other Underwriters shall be obligated severally in
proportion to their respective commitments hereunder to purchase the Firm
Shares, or Option Shares that such defaulting Underwriter or Underwriters agreed
but failed to purchase. In the event of any default by one or more Underwriters
as described in this Section 9, the Representative shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than seven business
days in order that any necessary changes may be made in the arrangements or
documents for the purpose and delivery of the Firm Shares or Option Shares, as
the case may be. As used in this Agreement, the term "Underwriter" includes any
persons substituted for an Underwriter under this Section 9. Nothing herein
shall relieve any defaulting Underwriter from liability for its default.
SECTION 10.
SURVIVAL
The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company, its officers and directors and
the several Underwriters set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (a) any investigation made by or on behalf of the Company,
any of its officers or directors, any Underwriter or any controlling person
referred to in Section 8 hereof and (b) delivery of and payment for the Shares.
The respective agreements, covenants, indemnities and other statements set forth
in Sections 5 and 8 hereof shall remain in full force and effect, regardless of
any termination or cancellation this Agreement.
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SECTION 11.
TERMINATION
11.1 By Representative. This Agreement may be terminated with
respect to the Firm Shares or any Option Shares in the sole discretion of the
Representative by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing date or such Option Closing Date,
respectively:
(a) the Company shall have sustained any material loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from any
labor dispute or any legal or governmental proceeding or there shall have been
any material adverse change, or any development involving a prospective material
adverse change (including financial or otherwise), in the business prospects,
net worth or results of operations of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(b) trading in the Common Stock shall have been suspended
by the Commission or the National Association of Securities Dealers Automated
Quotation SmallCap Market or trading in securities generally on the New York
Stock Exchange or the American Stock Exchange shall have been suspended or
minimum or maximum prices shall have been established on any such exchange or
market system;
(c) a banking moratorium shall have been declared by New
York, California, or United States authorities; or
(d) there shall have been (i) an outbreak or escalation of
hostilities between the United States and any foreign power, (ii) an outbreak or
escalation of any other insurrection or armed conflict involving the United
States or (iii) any other calamity or crisis having an effect on the financial
markets that, in the reasonable judgment of the Representative, makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares as contemplated by the Registration Statement, as amended as of
the date hereof.
11.2 Effect of Termination Hereunder. Termination of this
Agreement pursuant to this Section 11 shall be without liability of any party to
any other party, except as provided in Section 10 hereof.
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SECTION 12.
INFORMATION SUPPLIED BY UNDERWRITERS
The statements set forth in the last paragraph on the front cover page
and under the heading "Underwriting" in any Preliminary Prospectus or the
Prospectus, to the extent such statements relate to the Underwriters constitute
the only information furnished by any Underwriter through the Representative to
the Company for the purposes of Section 8 and 10 hereof. The Underwriters
represent and warrant to the Company that such statements, to such extent, are
correct as of the date hereof and at each Closing Date.
SECTION 13.
NOTICES
All communications hereunder shall be in writing and, if sent to any of
the Underwriters, shall be mailed (certified or registered mail, postage
prepaid, return receipt requested) or delivered or sent by facsimile
transmission and confirmed in writing to Waldron & Co., Inc., 19000 MacArthur,
8th Floor, Irvine, California 92715, Attention: Mr. Cery Perle (with a copy to
James A. Mercer III, Esq., Luce, Forward, Hamilton & Scripps LLP, 600 West
Broadway, Suite 2600, San Diego, CA 92101), if sent to the Company, shall be
mailed (certified or registered mail, postage prepaid, return receipt
requested), delivered or telegraphed and confirmed in writing to the Company at
40015 Sierra Highway, Bldg. B-110, Palmdale, California 93550, Attention: Walt
Woltosz (with a copy to Asher Leids, Esq., Donahue & Mesereau, 1900 Avenue of
the Stars, Suite 2700, Los Angeles, California 90067). Notices shall be
effective if mailed, 48 hours after deposit in the mail properly addressed, sent
by facsimile, upon receipt and in any other instance, when delivered.
SECTION 14.
SUCCESSORS
This Agreement shall inure to the benefit of and shall be binding upon
the several Underwriters, the Company and their respective successors and legal
Representative, and nothing expressed or mentioned in this Agreement is intended
or shall be construed to give any other person any legal or equitable right,
remedy or claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (a) the indemnities of the
Company contained in Section 8 of this Agreement shall also be for the benefit
of any person or persons who control any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act and (b) the indemnities
of the Underwriters contained in Section 8 of this Agreement shall also be for
the benefit of the directors of the Company, the officers of the Company who
have signed the Registration Statement and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of Shares from any Underwriter shall be deemed a
successor because of such purchase.
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SECTION 15.
APPLICABLE LAW
The validity and interpretation of this Agreement, and the terms and
conditions set forth herein, shall be governed by and construed in accordance
with the laws of the State of California without giving effect to any provisions
relating to conflicts of laws.
SECTION 16.
COUNTERPARTS
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.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company, and each of the
several Underwriters.
Very truly yours,
SIMULATIONS PLUS, INC.
By:_____________________________________
Walter S. Woltosz
Chief Executive Officer
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
Waldron & Co., Inc.
(As Representative of the several
Underwriters named in Schedule 1 hereto)
By:______________________________________
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SCHEDULE 1
UNDERWRITERS
Number of Firm Shares
Underwriter to be purchased
- ----------- ---------------
Waldron & Co., Inc.
---------------
Total 1,500,000