Exhibit 1.1
2,000,000 Units
audiohighway.com
UNDERWRITING AGREEMENT
____________, 1998
Paulson Investment Company, Inc.
As Representative of the
Several Underwriters
c/o Paulson Investment Company, Inc.
811 SW Front Avenue
Portland, Oregon 97204
Gentlemen:
audiohighway.com, a California corporation (the "Company"), proposes
to sell to the several underwriters (the "Underwriters") named in Schedule I
hereto for whom you are acting as Representative (the "Representative") an
aggregate of 2,000,000 Units (the "Firm Units"). Each Unit will consist of
one share of the Company's Common Stock ("Common Stock") and one Purchase
Warrant substantially in the form filed as an exhibit to the Registration
Statement (hereinafter defined) ("Warrants"). The respective number 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 Representative an option to purchase in aggregate up to 300,000
additional Units, identical to the Firm Units, (the "Option Units") as set
forth below.
As the Representative, you have advised the Company (a) that you
are authorized to enter into this Agreement for yourself as Representative
and on behalf of the several Underwriters, and (b) that the several
Underwriters are willing, acting severally and not jointly, to purchase the
numbers 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) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of California,
with corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement. The Company does
not own and never has owned a controlling interest in any other corporation
or other business entity that has or ever has had any material assets,
liabilities or operations. The Company is duly qualified to transact business
in all jurisdictions in which the conduct of its business requires such
qualification.
(c) The outstanding shares of each class or series of capital
stock of the Company have been duly authorized and validly issued and are
fully paid and non-assessable and have been issued and sold by the Company in
compliance in all material respects with applicable securities laws; the
issuance and sale of the Units have been duly authorized by all necessary
corporate action and, when issued and paid for as contemplated herein, the
Units will be validly issued, fully paid and non-assessable; and no
preemptive rights of stockholders exist with respect to any security of the
Company 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.
(d) The information set forth under the caption "Capitalization"
in the Prospectus is true and correct. The Common Stock conforms and the
Warrants and the Representative's Warrant will conform to the description
thereof contained in the Registration Statement. The forms of certificates
for the securities comprising the Units conform to the requirements of the
corporate law of California.
(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Units nor instituted proceedings for that purpose. The Registration
Statement contains, and the Prospectus and any amendments or supplements
thereto will contain, all statements which are required to be stated therein
by, and will conform, to the requirements of the Act and the Rules and
Regulations. The Registration Statement and any amendment thereto do not
contain, and will not contain, any untrue statement of a material fact and do
not omit, and will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus and any amendments and supplements thereto do not contain, and
will not contain, any untrue statement of material fact; and do not omit, and
will not omit, to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
Company makes no representations or warranties as to information contained in
or omitted from the Registration Statement or the Prospectus, or any such
amendment or supplement, in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any Underwriter
through the Representative, specifically for use in the preparation thereof.
(f) The financial statements of the Company, together with related
notes and schedules as set forth in the Registration Statement, present
fairly the financial position and the results of operations and cash flows of
the Company at the indicated dates and for the indicated periods. Such
financial statements and related schedules 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 presents fairly the information shown
therein and such data has been compiled on a basis consistent with the
financial statements presented therein and the books and records of the
Company.
(g) Grant Thornton 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 before any court
or administrative 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 to prevent the
consummation of the transactions contemplated hereby, except as set forth in
the Registration Statement.
(i) The Company has good and marketable title to all properties
and assets, tangible and intangible, reflected in the financial statements
(or as described in the Registration Statement) hereinabove described,
subject to no lien, mortgage, pledge, charge or encumbrance of any kind
except those reflected in such financial statements (or as described in the
Registration Statement) or which are not material. The Company's ownership
rights in its patents, patent licenses and other material technology is
consistent with (i) the description thereof in the Registration Statement,
and (ii) the business needs of the Company. All of the leases and subleases
under which the Company holds properties are in full force and effect (with
only such exceptions as are commonly accepted by prudent companies engaged in
the Company's business) and the Company has not received notice of any
material claim of any sort that has been asserted by anyone materially
adverse to the rights of the Company under any of such leases or subleases,
or affecting or questioning the rights of the Company to the continued
possession of the leased or subleased premises or property under any such
lease or sublease.
(j) The Company 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 have been amended or supplemented,
there has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company, 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, 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 has no material
contingent obligations which are not disclosed in the Company's financial
statements or elsewhere in the Prospectus which are included in the
Registration Statement.
(l) The Company is not, nor, with the giving of notice or lapse of
time or both, will it be, in violation of or in default under its 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 the business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company. 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 any member of the Company is a party, or of the
Certificate of Incorporation or by-laws of the Company or any order, rule or
regulation applicable to the Company of any court or of any regulatory body
or administrative agency or other governmental body having jurisdiction.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by
the Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the
Commission, the National Association of Securities Dealers, Inc. (the "NASD")
or such additional steps as may be necessary to qualify the Units for public
offering by the Underwriters under state securities or Blue Sky laws) has
been obtained or made and is in full force and effect.
(n) The Company holds 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, threatened against any member of the Company
alleging any infringement of Intellectual Property Rights, or any violation
of the terms of any licence relating to Intellectual Property Rights, nor
does the Company know of any basis for any such claim. The Company knows of
no material infringement by others of Intellectual Property Rights owned by
or licensed to any member of the Company. The Company has obtained, is in
compliance in all material respect with and maintains in full force and
effect all material licenses, certificates, permits, orders or other, similar
authorizations granted or issued by any governmental agency (collectively
"Government Permits") required to conduct its business as it is presently
conducted. No proceeding to revoke, limit or otherwise materially change any
Government Permit has been commenced or, to the Company's best knowledge, is
threatened against the Company, and the Company has no reason to anticipate
that any such proceeding will be commenced against the Company. Except as
disclosed or contemplated in the Prospectus, the Company 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 is in all material respects in compliance with all
applicable Environmental Laws. The Company has no knowledge of any past,
present or, as anticipated by the Company, 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 (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 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, 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. No litigation, claim, proceeding or
governmental investigation is pending regarding any environmental matter for
which the Company has been served or otherwise notified or, to the knowledge
of the Company threatened or asserted against the Company, or the officers or
directors of any such member 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, any Facility or
any of the Company's operations. The Company has not 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 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 pertaining to any environmental
matter relating to the Company, 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, nor to the Company's best knowledge, 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.
(q) The Company is not an "investment company" within the meaning
of such term under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) 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)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company 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 confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes in
any material way, the Company will provide the Department notice of such
business or change, as appropriate, in a form acceptable to the Department.
(v) The Company 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 its business; and
the conduct of the business of the Company, as described in the Prospectus,
will not cause the Company to be in violation of any such requirements.
(w) Each of the Warrants and the Representative's Warrants (as
defined in Paragraph (d) of Section 2 hereof) have been authorized for
issuance to the purchasers thereof or to the Representative or its designees,
as the case may be, and will, when issued, possess
rights, privileges, and characteristics as represented in the most recent
form of Warrants or Representative's Warrants, as the case may be, filed as
an exhibit to the Registration Statement; the securities to be issued upon
exercise of the Warrants and the Representative's Warrants, when issued and
delivered against payment therefor in accordance with the terms thereof, will
be duly and validly issued, fully paid, nonassessable and free of preemptive
rights, and all corporate action required to be taken for the authorization
and issuance of the Warrants and the Representative's Warrants, and the
securities to be issued upon their exercise, have been validly and
sufficiently taken.
(x) Except as disclosed in the Prospectus, neither the Company nor
any of its officers, directors or affiliates have caused any person, other
than the Underwriters, to be entitled to reimbursement of any kind,
including, without limitation, any compensation that would be includable as
underwriter compensation under the NASD's Corporate Financing Rule with
respect to the offering of the Units, 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, 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 Representative, 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 Firm Units or of certificates therefor (which delivery, if
certificated, shall take place in such location in New York, New York as may
be specified by the Representative) to the Representative for the several
accounts of the Underwriters. Such payment is to be made at the offices of
the Representative at the address set forth on the first page of this
agreement, at 7:00 a.m., Pacific time, on the third business day after the
date of this Agreement or at such other time and date not later than five
business days thereafter as you and the Company shall agree upon, such time
and date being herein referred to as the "Closing Date." (As used herein,
"business day" means a day on which the New York Stock Exchange is open for
trading and on which banks in New York are open for business and not
permitted by law or executive order to be closed.) Except to the extent
uncertificated Firm Units are delivered at closing, the certificates for the
Firm Units will be delivered in such denominations and in such registrations
as the Representative requests in writing not later than the second full
business day prior to the Closing Date, and will be made available for
inspection by the Representative at least one business day prior to the
Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Representative to
purchase the Option Units at the price per Unit as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in
whole or in part by giving written notice (i) at any time before the Closing
Date and (ii) only once thereafter within 45 days after the date of this
Agreement, by the Representative to the Company setting forth the number of
Option Units as to which the Representative is exercising the option, the
names and denominations in which the Option Units are to be registered and
the time and date at which certificate representing such Units are to be
delivered. The time and date at which certificates for Option Units are to
be delivered shall be determined by the Representative but shall not be
earlier than three nor later than 10 full business days after the exercise of
such option, nor in any event prior to the Closing Date (such time and date
being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is three or more days before the Closing Date, the
notice of exercise shall set the Closing Date as the Option Closing Date.
The option with respect to the Option Units granted hereunder may be
exercised only to cover over-allotments in the sale of the Firm Units by the
Underwriters. The Representative may cancel such option at any time prior to
its expiration by giving written notice of such cancellation to the Company.
To the extent, if any, that the option is exercised, payment for the Option
Units shall be made on the Option Closing Date in New York Clearing House
funds and, at the option of the Representative, by 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 Representative as
provided elsewhere herein, the Representative shall be entitled to receive at
the Closing, for themselves alone and not as Representative of the
Underwriters, as additional compensation for their services, purchase
warrants (the "Representative's Warrants") for the purchase of up to 200,000
Units at a price of $_____ per Unit, upon the terms and subject to adjustment
and conversion as described in the form of Representative's Warrants filed as
an exhibit to the Registration Statement.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Units as soon as the Representative deems it advisable
to do so. The Firm Units are to be initially offered to the public at the
initial public offering price set forth in the Prospectus. The
Representative may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option
Units are purchased pursuant to Section 2 hereof, the Representative will
offer them to the public on the foregoing terms.
It is further understood that you will act as the Representative
for the Underwriters in the offering and sale of the Units in accordance with
an Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A
of the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a
form approved by the Representative containing information previously omitted
at the time of effectiveness of the Registration Statement in reliance on
Rule 430A of the Rules and Regulations, and (B) not file any amendment to the
Registration Statement or supplement to the Prospectus of which the
Representative shall not previously have been advised and furnished with a
copy or to which the Representative shall have reasonably objected in writing
or which is not in compliance with the Rules and Regulations.
(b) The Company will advise the Representative promptly (A) when
the Registration Statement or any post-effective amendment thereto shall have
become effective, (B) of receipt of any comments from the Commission, (C) of
any request of the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, and (D)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the use of the Prospectus or
of the institution of any proceedings for that purpose. 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 Representative in
endeavoring to qualify the Units for sale under the securities laws of such
jurisdictions as the Representative may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any jurisdiction where it is not
now so qualified or required to file such a consent. The Company will, from
time to time, prepare and file such statements, reports, and other documents,
as are or may be required to continue such qualifications in effect for so
long a period as the Representative may reasonably request for distribution
of the Units.
(d) The Company will deliver to, or upon the order of, the
Representative, from time to time, as many copies of any Preliminary
Prospectus as the Representative may reasonably request. The Company will
deliver to, or upon the order of, the Representative during the period when
delivery of a Prospectus is required under the Act, as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as the
Representative may reasonably request. The Company will deliver to the
Representative at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto including all exhibits
filed therewith, and will deliver to the Representative such number of copies
of the Registration Statement (including such number of copies of the
exhibits filed
therewith that may reasonably be requested), and of all amendments thereto,
as the Representative may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the 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
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
earning 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 earning statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has been so
made available.
(g) The Company will, for a period of five years from the Closing
Date, deliver to the Representative copies of annual reports and copies of
all other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or
the Securities Exchange Act of 1934, as amended. The Company will deliver to
the Representative similar reports with respect to significant subsidiaries,
as that term is defined in the Rules and Regulations, which are not
consolidated in the Company's financial statements.
(h) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivatives of
Common Stock (or agreement therefor) will be made for a period of one year
after the date of this Agreement, directly or indirectly, by the Company
otherwise than hereunder or with the prior written consent of the
Representative, which consent will not be unreasonably withheld.
(i) The Company will use its best efforts to list, subject to
notice of issuance, the Units on The Nasdaq National 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, 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, directly or indirectly, except with
the prior written consent of the Representative, provided, however, that, on
or after the 61st day following the effective date of the date of this
Agreement, each such person may, without restriction imposed hereby, sell or
otherwise dispose of a number of shares not greater than ten percent of the
number of shares owned by such person on the date of this Agreement; and (B)
to give prior written notice to the Representative for a period of one year
from the effective date of the Registration Statement, with respect to any
sales of Common Stock of the Company pursuant to Rule 144 under the
Securities Act or any similar rule.
(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 Representative shall be entitled to reimbursement from the
Company, for itself alone and not as Representative of the Underwriters, to a
non-accountable expense allowance equal to 2% of the aggregate initial public
offering price of the Firm Units and any Option Units purchased by the
Underwriters. The Representative shall be entitled to withhold this
allowance on the Closing Date related to the purchase of the Firm Units or
the Option Units, as the case may be.
(b) In addition to the payment described in Paragraph (a) of this
Section 5, the Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses,
the Prospectus, this Agreement, the 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 and expenses (including legal fees and
disbursements) incident to securing any required review by the NASD) of the
terms of the sale of the Units; the Listing Fee of The Nasdaq Stock Market;
and the expenses, including the fees and disbursements of counsel for the
Underwriters, incurred in connection with the qualification of the Units
under State securities or Blue Sky laws. Any transfer taxes imposed on the
sale of the Units to the several Underwriters will be paid by the Company.
The Company 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 Units 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
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; 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.
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
Representative 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 nature by a Federal or state court of
competent jurisdiction shall have been issued as of the Closing Date which
would prevent the issuance of the Units.
(b) The Representative shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Grover T.
Wickersham, P.C., counsel for the Company, dated the Closing Date or the
Option Closing Date, as the case may be, addressed to the Underwriters (and
stating that it may be relied upon by counsel to the Underwriters) to the
effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
California, with corporate power and 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, or in which the
failure to qualify would have a materially adverse effect upon the business
of the Company.
(ii) The Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the Prospectus; the
outstanding shares of Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable; all of the securities of the
Company conform to the description thereof contained in the Prospectus; the
certificates for the Common Stock and Warrants are in due and proper form;
the shares of Common Stock to be sold by the Company pursuant to this
Agreement, including shares of Common Stock to be sold as a part of the
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 non-assessable; no preemptive rights
of stockholders exist with respect to any of the Common Stock or the issuance
or sale thereof pursuant to any applicable statute or the provisions of the
Company's Articles of Incorporation or By-laws or, to such counsel's best
knowledge, pursuant to any contractual obligation. The Warrants and the
Representative's Warrants have been authorized for issuance to the purchasers
of Units or the Representative, as the case may be, and will, when issued,
possess rights, privileges, and characteristics as represented in the most
recent form of Warrants or Representative's Warrants, as the case may be,
filed as an exhibit to the Registration Statement; the securities to be
issued upon exercise of the Representative's Warrants, when issued and
delivered against payment therefor in accordance with the terms of the
Representative's Warrants, will be duly and validly issued, fully paid,
nonassessable and free of preemptive rights, and all corporate action
required to be taken for the authorization and issuance of the Warrants, the
Representative's Warrants, and the securities to be issued upon their
exercise, has been validly and sufficiently taken.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or
any securities convertible or exchangeable into or evidencing the right to
purchase or subscribe for any
shares of such stock; and except as described in the Prospectus, to the
knowledge of such counsel, no holder of any securities of the Company or any
other person has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell or otherwise
issue to them, or to permit them to underwrite the sale of, any of the Units
or the right to have any Common Stock or other securities of the Company
included in the Registration Statement or the right, as a result of the
filing of the Registration Statement, to require registration under the Act
of any shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under
the Act and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects
with the requirements of the Act and the applicable rules and regulations
thereunder (except that such counsel need express no opinion as to the
financial statements and related schedules therein).
(vi) The statements under the captions "Shares Eligible for
Future Sale" and "Description of Securities" in the Prospectus and in Item __
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.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Articles of Incorporation or By-laws of the
Company, or any agreement or instrument known to such counsel to which the
Company is a party or by which the Company may be bound.
(x) Each of this Agreement and the Warrant Agreement by and
among the Company, the Warrantholders (defined therein) and Registrar and
Transfer Company, as trustee, has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative
or other governmental body is necessary in
connection with the execution and delivery of this Agreement and the
consummation of the transactions herein contemplated (other than as may be
required by the NASD or as required by State securities and Blue Sky laws as
to which such counsel need express no opinion) except such as have been
obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
In rendering such opinion, such counsel may rely as to matters
governed by the laws of states other than California or Federal laws on local
counsel in such jurisdictions, provided that in each case such counsel shall
state that they believe that they and the Underwriters are justified in
relying on such other counsel. In addition to the matters set forth above,
the opinion of Grover T. Wickersham, P.C. shall also include a statement to
the effect that nothing has come to the attention of such counsel that has
caused him 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, and (ii) the Prospectus, or any supplement thereto, on the date it was
filed pursuant to the Rules and Regulations and as of the Closing Date or the
Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make
the statements, in the light of the circumstances under which they are made,
not misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein).
(c) The Representative shall have received from Stoel Rives LLP,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (i), (iv) and (v) of Paragraph (b) of this Section 6. In
rendering such opinion Stoel Rives LLP may rely as to all matters governed
other than by the laws of the State of Oregon or Federal laws on the opinion
of counsel referred to in Paragraph (b) of this Section 6. In addition to
the matters set forth above, such opinion shall also include a statement to
the effect that nothing has come to the attention of such counsel that has
caused them to believe that (i) the Registration Statement, or any amendment
thereto, as of the time it became effective under the Act (but after giving
effect to any modifications incorporated therein pursuant to Rule 430A under
the Act) as of the Closing Date or the Option Closing Date, as the case may
be, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and
as of the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact, necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With
respect to such statement, Stoel Rives LLP may state that their belief is
based upon the procedures set forth therein, but is without independent check
and verification.
(d) The Representative shall have received at or prior to the
Closing Date from Stoel Rives LLP a memorandum or summary, in form and
substance satisfactory to the Representative, with respect to the
qualification for offering and sale by the Underwriters of the Units under
the State securities or Blue Sky laws of such jurisdictions as the
Representative may reasonably have designated to the Company.
(e) The Representative, on behalf of the several Underwriters,
shall have received, on each of the dates hereof, the Closing Date and the
Option Closing Date, as the case may be, a letter dated the date hereof, the
Closing Date or the Option Closing Date, as the case may be, in form and
substance satisfactory to the Representative, of Grant Thornton LLP
confirming that they are independent public accountants within the meaning of
the Act and the applicable published Rules and Regulations thereunder and
stating that in their opinion the financial statements and schedules examined
by them and included in the Registration Statement comply in form in all
material respects with the applicable accounting requirements of the Act and
the related published Rules and Regulations and containing such other
statements and information as is ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus.
(f) The Representative shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the
case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under
the Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been
taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or
the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;
(iv) He 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 necessary in order to make the statements therein not misleading,
and since the effective date of the Registration Statement, no event has
occurred which should have been set forth in a
supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company,
whether or not arising in the ordinary course of business.
(g) The Company shall have furnished to the Representative such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as
the Representative may reasonably have requested.
(h) The Firm Units and Option Units, if any, have been approved
for designation upon notice of issuance on the Nasdaq National 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 Representative and to Stoel Rives LLP,
counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representative by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as
the case may be.
In such event, the Company and the Underwriters shall not be under
any obligation to each other (except to the extent provided in Sections 5 and
8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of
the Units required to be delivered as and when specified in this Agreement
are subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to
which such Underwriter or any such controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, 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 Representative
specifically for use in the preparation thereof. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement and each person, if any, who controls
the Company within the meaning of the Act, against any losses, claims,
damages or liabilities to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein 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 Representative specifically for use in the preparation thereof.
This indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was materially prejudiced by the failure
to give such notice, but the failure to give such notice shall not relieve
the indemnifying party or parties from any liability which it or they may
have to the indemnified party for contribution or otherwise than on account
of the provisions of Section 8(a) or (b). In case any such proceeding shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party and 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 connection 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
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 Units and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor
to any Underwriter, or to the Company, its directors or officers, or any
person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may
be, any Underwriter shall fail to purchase and pay for the portion of the
Units which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representative 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 Representative, shall not
have procured such other Underwriters, or any others, to purchase the Firm
Units or Option Units, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
Units with respect to which such default shall occur does not exceed 10% of
the Firm Units or Option Units, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Units or Option Units, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Units or Option Units,
as the case may be, which such defaulting Underwriter or Underwriters failed
to purchase, or (b) if the aggregate number of Firm Units or Option Units, as
the case may be, with respect to which such default shall occur exceeds 10%
of the Firm Units or Option Units, as the case may be, covered hereby, the
Company or you as the Representative of the Underwriters will have the right,
by written notice given within the next 36-hour period to the parties to this
Agreement, to terminate this Agreement without liability on the part of the
non-defaulting Underwriters or of the Company except to the extent provided
in Section 8 hereof. In the event of a default by any Underwriter or
Underwriters, as set forth in this Section 9, the Closing Date or Option
Closing Date, as the case may be, may be postponed for such period, not
exceeding seven days, as you, as Representative, may determine in order that
the required changes in the Registration Statement or in the Prospectus or in
any other documents or arrangements may be effected. The term "Underwriter"
includes any person substituted for a defaulting Underwriter. Any action
taken under this Section 9 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, 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 Stoel Rives LLP, 900 SW 5th
Avenue, Portland, Oregon 97204, Attention: John J. Halle; if to the Company,
to audiohighway.com, 20600 Mariani Avenue, Cupertino, California 95014
Attention: Nathan M. Schulhof; with a copy to Grover T. Wickersham, P.C., 430
Cambridge Avenue, Suite 100, Palo Alto, California, 94306, Attention: Grover
T. Wickersham.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as
follows:
(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 or the Warrants by the Commission on the Nasdaq
Stock Market or (ix) the taking of any action by any governmental
body or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and
controlling persons referred to herein, and no other person will have any
right or obligation hereunder. No purchaser of any of the Units from any
Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the
only information furnished or to be furnished by any Underwriter to the
Company for inclusion in any Prospectus or the Registration Statement
consists of the information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), legends
required by Item 502(d) of Regulation S-K 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,
audiohighway.com
By:
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Nathan M. Schulhof, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
PAULSON INVESTMENT COMPANY, INC.
As Representative of the several
Underwriters listed on Schedule I
By:
-----------------------------------
Authorized Officer
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Units
Underwriter to be Purchased
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Paulson Investment Company, Inc.
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Total 2,000,000