UNDERWRITING AGREEMENT
_____________, 1999
▇.▇. ▇▇▇▇▇▇▇▇ & CO.
As the Representative of the several Underwriters
named on Schedule A hereto
c/o ▇.▇. ▇▇▇▇▇▇▇▇ & Co.
▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Direct Focus, Inc., a Washington corporation (the "COMPANY"), and certain
shareholders of the Company named in Schedule B hereto (hereinafter called the
"SELLING SHAREHOLDERS") address you as the Representative of each of the
persons, firms and corporations listed in Schedule A hereto (hereinafter
collectively called the "UNDERWRITERS") and hereby confirm their respective
agreements with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell 825,000
shares of its authorized and unissued Common Stock, having no par value, to the
several Underwriters. The Selling Shareholders, acting severally and not
jointly, propose to sell an aggregate of 175,000 shares of the Company's
authorized and outstanding Common Stock to the several Underwriters. The
825,000 shares of Common Stock of the Company to be sold by the Company are
hereinafter called the "COMPANY SHARES" and the 175,000 shares of Common Stock
to be sold by the Selling Shareholders are hereinafter called the "SELLING
SHAREHOLDER SHARES." The Company Shares and the Selling Shareholder Shares are
hereinafter collectively referred to as the "FIRM SHARES." The Company also
grants to the Underwriters an option to purchase up to 150,000 additional shares
of the Company's Common Stock (the "OPTION SHARES"), as provided in Section 8
hereof. As used in this Agreement, the term "SHARES" shall include the Firm
Shares and the Option Shares. All shares of Common Stock of the Company to be
outstanding after giving effect to the sales contemplated hereby, including the
Shares, are hereinafter referred to as "COMMON STOCK."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents and warrants to and agrees with each Underwriter that:
(a) A registration statement on Form S-1 (File No. 333-_____) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "ACT"), and the applicable rules and regulations
(the "RULES AND REGULATIONS") of the Securities and Exchange Commission (the
"COMMISSION") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company will
file such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
as may hereafter be required. Copies of such registration statement and
amendments, of each related prospectus subject to completion (the "PRELIMINARY
PROSPECTUSES") and of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if ▇.▇. ▇▇▇▇▇▇▇▇ & Co., on behalf of the
several Underwriters, shall agree to the utilization of Rule 434 of the Rules
and Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations
pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if ▇.▇.
▇▇▇▇▇▇▇▇ & Co., on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations. The term "REGISTRATION STATEMENT" as
used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"PROSPECTUS" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations); provided,
however, that if in reliance on Rule 434 of the Rules and Regulations and with
the consent of ▇.▇. ▇▇▇▇▇▇▇▇ & Co., on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that a confirmation is sent or
given for purposes of Section 2(10)(a) of the Act, the term "PROSPECTUS" shall
mean the "prospectus subject to completion" (as defined in Rule 434(g) of the
Rules and Regulations) last provided to the Underwriters by the Company and
circulated by the Underwriters to all prospective purchasers of the Shares
(including the information deemed to be a part of the Registration Statement at
the time it became effective pursuant to Rule 434(d) of the Rules and
Regulations). Notwithstanding the foregoing, if any revised prospectus shall be
provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "PROSPECTUS" shall refer to such revised prospectus
from and after the time it is first provided to the Underwriters for such use.
If in reliance on Rule 434 of the Rules and Regulations and with the consent of
▇.▇. ▇▇▇▇▇▇▇▇ & Co., on behalf of the several Underwriters, the Company shall
have provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c),
as applicable, prior to the time that a confirmation is sent or given for
purposes of Section 2(10)(a) of the Act, the Prospectus and the term sheet,
together, will not be materially different from the prospectus in the
Registration Statement.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, at
the time the Registration Statement became or becomes, as the case may be,
effective and at all times subsequent thereto up to and on the Closing Date
(hereinafter defined) and on any later date on which Option Shares are to be
purchased, (i) the Registration Statement and the Prospectus, and any amendments
or supplements thereto, contained and will contain all material information
required to be included therein by the Act and the Rules and Regulations and
will in all material respects conform to the requirements of the Act and the
Rules and Regulations, (ii) the Registration Statement, and any amendments or
supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (iii) the
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Prospectus, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that none of the
representations and warranties contained in this subparagraph (b) shall apply to
information contained in or omitted from the Registration Statement or
Prospectus, or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information relating to any Underwriter or Selling
Shareholder furnished to the Company by such Underwriter or Selling Shareholder
specifically for use in the preparation thereof.
(c) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation with full power and authority
(corporate and other) to own, lease and operate its properties and conduct its
business as described in the Prospectus; the Company owns all of the outstanding
capital stock of its subsidiaries free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest other than the lien in favor
of Bank of America as the successor to SeaFirst Bank; each of the Company and
its subsidiaries is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the ownership or leasing of
its properties or the conduct of its business requires such qualification,
except where the failure to be so qualified or be in good standing would not
have a material adverse effect on the condition (financial or otherwise),
results of operations, earnings, operations, business or business prospects of
the Company and its subsidiaries considered as one enterprise; no proceeding has
been instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification;
each of the Company and its subsidiaries is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders and
permits from state, federal and other regulatory authorities which are material
to the conduct of its business, all of which are valid and in full force and
effect; neither the Company nor any of its subsidiaries is in violation of its
respective articles of incorporation or bylaws or in default in the performance
or observance of any material obligation, agreement, covenant or condition
contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture orother material agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it or any of
its subsidiaries or their respective properties may be bound; and neither the
Company nor any of its subsidiaries is in material violation of any law, order,
rule, regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of its subsidiaries or over their respective properties of
which it has knowledge. The Company does not own or control, directly or
indirectly, any corporation, partnership, limited liability company, joint
venture, association or other entity other than Nautilus Fitness Products, Inc.,
Nautilus, Inc., Nautilus Human Performance Systems, Inc., Direct Focus Sales
Corporation, Instant Comfort Corporation, Direct Focus FSC, Inc., DFI
Properties, LLC and DFI Advertising, Inc.
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(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification and contribution
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles; the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, (i) any material bond, debenture, note or other evidence of indebtedness,
or under any material lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other material agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective properties may be bound, (ii) the articles of
incorporation or bylaws of the Company or any of its subsidiaries, or (iii) any
law, order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or over their
respective properties. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties is required for the execution
and delivery of this Agreement and the consummation by the Company or any of its
subsidiaries of the transactions herein contemplated, except such as may be
required under the Act, the Securities Exchange Actof 1934, as amended (the
"EXCHANGE ACT"), state or other securities or blue sky laws or the bylaws, rules
and regulations of the National Association of Securities Dealers, Inc. (the
"NASD"), all of which requirements have been satisfied in all material respects.
(e) Except as disclosed in the Prospectus, there is not any pending
or, to the best of the Company's knowledge, threatened action, suit, claim or
proceeding against the Company, any of its subsidiaries or any of their
respective officers or any of their respective properties, assets or rights
before any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or over
their respective officers or properties or otherwise which (i) might result in
any material adverse change in the condition (financial or otherwise), results
of operations, earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise or might materially
and adversely affect their properties, assets or rights, (ii) might prevent
consummation of the transactions provided herein, or (iii) is required to be
disclosed in the Registration Statement or Prospectus and is not so disclosed;
and there are no agreements, contracts, leases or documents of the Company or
any of its subsidiaries of a character required to be described or referred to
in the Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations which have not
been accurately described in all material respects in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company (including
the Selling Shareholder Shares) have been duly authorized and validly issued and
are fully paid and nonassessable, have been issued in compliance with all
federal, provincial, and state securities laws, were not issued in violation of
or subject to any pre-emptive rights or other rights to subscribe for or
purchase securities, and the authorized and (as of the date set forth therein)
the outstanding capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization" and conforms in all material respects to the
statements relating thereto contained in the Registration Statement and the
Prospectus (and such statements correctly state the substance of the instruments
defining the capitalization of the Company in all material respects); the Firm
Shares and the Option Shares to be purchased from the Company hereunder have
been duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than the
lien in favor of Bank of America as the successor in interest to SeaFirst Bank;
and no pre-emptive right, co-sale right, registration right, right of first
refusal or other similar right of shareholders exists with respect to any of the
Firm Shares or Option Shares to be purchased from the Company hereunder or the
issuance and sale thereof other than those that have been expressly waived prior
to the date hereof and those that will automatically expire upon or will not
apply to the consummation of the transactions contemplated on the Closing Date
(as defined in Section 4 hereof). No further approval or authorization of any
shareholder, the Board of Directors of the Company or others is required for the
issuance and sale or transfer of the Shares except as may be
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required under the Act, state or other securities or blue sky laws or the
bylaws, rules and regulations of the NASD. All issued and outstanding shares of
capital stock of each subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and were not issued in
violation of or subject to any pre-emptive right, or other rights to subscribe
for or purchase shares and are owned by the Company free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest.
Except as disclosed in the Prospectus and the financial statements of the
Company, and the related notes thereto, included in the Prospectus, neither the
Company nor any of its subsidiaries has outstanding any options to purchase, or
any pre-emptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(g) Deloitte & Touche LLP which has audited the financial statements
of the Company, together with the related notes, as of December 31, 1997 and
December 31, 1998 and for each of the years in the three (3) years ended
December 31, 1998 filed with the Commission as a part of the Registration
Statement and which are included in the Prospectus, are independent accountants
within the meaning of the Act and the Rules and Regulations; KPMG Peat Marwick
LLP, which has examined the financial statements of the Nautilus Business
("NAUTILUS"), substantially all the assets of which having been acquired by the
Company in a transaction consummated on January 4, 1999, together with the
related schedules and notes, as of June 28, 1997 and June 27, 1998 and for each
of the two (2) years ended June 27, 1998, filed with the Commission as part of
the Registration Statement and which are included in the Prospectus, are
independent accountants within the meaning of the Act and the Rules and
Regulations; the audited financial statements of the Company, together with the
related schedules and notes, and the unaudited pro forma financial information,
together with the related explanatory notes, forming part of the Registration
Statement and Prospectus, fairly present the financial position and the results
of operations of the Company and its subsidiaries at the respective dates and
for the respective periods to which they apply; and all audited financial
statements of the Company, together with the related schedules and notes, and
the unaudited pro forma financial statements (other than the selected and
summary financial and statistical data included in the Registration Statement),
filed with the Commission as part of the Registration Statement, have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as may be otherwise
stated therein. The selected and summary financial and statistical data
included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements or schedules are
required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), results of
operations, earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise, (ii) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or (other than through the exercise of
options or warrants disclosed in the Prospectus) outstanding indebtedness of the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries considered as one enterprise, (v) any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company or any of
its subsidiaries, or (vi) any loss or damage (whether or not insured) to the
property of the Company or any of its subsidiaries which has been sustained or
will have been sustained which has a material adverse effect on the condition
(financial or otherwise), results of operations, earnings, operations, business
or business prospects of the Company and its subsidiaries considered as one
enterprise.
(i) Except as set forth in the Registration Statement and Prospectus,
(i) each of the Company and its subsidiaries has good and marketable title to
all properties and assets described in the Registration Statement and Prospectus
as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than the lien in favor of
SeaFirst Bank or its successor and, other than such as would not have a material
adverse
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effect on the condition (financial or otherwise), results of operations,
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (ii) the agreements to which the
Company or any of its subsidiaries is a party described in the Registration
Statement and Prospectus are valid agreements, enforceable by the Company and
its subsidiaries (as applicable), except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) each of the Company and
its subsidiaries has valid and enforceable leases for all properties described
in the Registration Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except as set
forth in the Registration Statement and Prospectus, the Company owns or leases
all such properties as are necessary to its operations as now conducted or as
proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), results of operations, earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise; and all tax liabilities are adequately provided for on the books
of the Company and its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, (i) insurance covering real and personal property owned or
leased by the Company or its subsidiaries against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, and (ii)
product liability insurance concerning the products sold by the Company, all of
which insurance is in full force and effect; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any 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), results of operations,
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(l) To the best of the Company's knowledge, no labor disturbance by
the employees of the Company or any of its subsidiaries exists or is imminent;
and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, value added resellers,
authorized dealers or international distributors that might be expected to
result in a material adverse change in the condition (financial or otherwise),
results of operations, earnings, operations, business or business prospects of
the Company and its subsidiaries considered as one enterprise. No collective
bargaining agreement exists with any of the Company's employees and, to the best
of the Company's knowledge, no such agreement is imminent.
(m) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as described in the Registration Statement
and Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not have a material
adverse effect on the condition (financial or otherwise), results of operations,
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise; except to the extent described in the
Registration Statement and the Prospectus, the Company has not received any
notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and except to the extent described in the Registration
Statement and the Prospectus, the Company has not received any notice of, and
has no knowledge of, any infringement of or conflict with asserted rights of
others with respect to any patent, patent rights,
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inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a material adverse effect on the
condition (financial or otherwise), results of operations, earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise.
(n) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is approved for quotation on the Nasdaq National Market, and
the Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the 1934 Act or delisting
the Common Stock from the Nasdaq National Market, nor has the Company received
any notification that the Commission or the NASD is contemplating terminating
such registration or listing.
(o) The Company has been advised concerning the Investment Company
Act of 1940, as amended (the "1940 ACT"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) the completion of the distribution of
the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(q) Neither the Company nor any of its subsidiaries has at any time
during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state 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 jurisdiction thereof.
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(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and each Selling
Shareholder has agreed in writing that each such person will not, for a period
of 180 days from the date that the Registration Statement is declared effective
by the Commission (the "LOCK-UP PERIOD"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "DISPOSITION") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "SECURITIES") now
owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, or (ii) with the prior written consent
of ▇.▇. ▇▇▇▇▇▇▇▇ & Co. The foregoing restriction has been expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person has also agreed and consented to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by such person except in compliance with
this restriction. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the agreements pursuant to which
its officers, directors and shareholders have agreed to such or similar
restrictions (the "LOCK-UP AGREEMENTS") presently in effect or effected hereby.
The Company hereby represents and warrants that it will not release any of its
officers, directors or other shareholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of ▇.▇.
▇▇▇▇▇▇▇▇ & Co.
(t) Except as set forth in the Registration Statement and Prospectus,
(i) the Company is in material compliance with all rules, laws and regulations
applicable to its business, including, without limitation, laws, rules and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws"),
(ii) the Company has received no notice from any governmental authority or third
party of an asserted claim under Environmental Laws, which claim is required to
be disclosed in the Registration Statement and the Prospectus, (iii) the Company
will not be required to make future material capital expenditures to comply with
Environmental Laws, and (iv) no property which is owned, leased or occupied by
the Company has been designated as a Superfund site pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Section 9601, et seq.), or otherwise designated as a
contaminated site under applicable state or local law.
(u) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (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.
(v) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(w) The minute books of the Company provided to the Underwriters'
counsel contain a complete
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summary of all meetings, consents and actions of the Board of Directors and
shareholders of the Company since January 1, 1997, accurately reflecting all
transactions referred to in such minutes in all material respects.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SELLING
SHAREHOLDERS. Each Selling Shareholder, severally and not jointly, represents
and warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Shareholder now has and on the Closing Date will
have valid marketable title to the Shares to be sold by such Selling
Shareholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than pursuant to this Agreement; and upon
delivery of such Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid marketable title to the
Shares purchased by it from such Selling Shareholder, free and clear of any
pledge, lien, security interest pertaining to such Selling Shareholder or such
Selling Shareholder's property, encumbrance, claim or equitable interest,
including any liability for estate or inheritance taxes, or any liability to or
claims of any creditor, devisee, legatee or beneficiary of such Selling
Shareholder.
(b) Such Selling Shareholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representative,
an irrevocable Power of Attorney (the "POWER OF ATTORNEY") appointing ▇▇▇▇▇ ▇.
▇▇▇▇ and ▇▇▇ ▇. ▇▇▇▇ as attorneys-in-fact (collectively, the "ATTORNEYS" and
individually, an "ATTORNEY") and a Letter of Transmittal and Custody Agreement
(the "CUSTODY AGREEMENT") with ______________________________, as custodian (the
"CUSTODIAN"); each of the Power of Attorney and the Custody Agreement
constitutes a valid and binding agreement on the part of such Selling
Shareholder, enforceable in accordance with its terms, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and each of such Selling
Shareholder's Attorneys, acting alone, is authorized to execute and deliver this
Agreement and the certificate referred to in Section 7(h) hereof on behalf of
such Selling Shareholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Shareholder as provided in Section 4
hereof, to authorize the delivery of the Selling Shareholder Shares under this
Agreement and to duly endorse (in blank or otherwise) the certificate or
certificates representing such Shares or a stock power or powers with respect
thereto, to accept payment therefor, and otherwise to act on behalf of such
Selling Shareholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required for
the execution and delivery by such Selling Shareholder of the Power of Attorney
and the Custody Agreement, the execution and delivery by or on behalf of such
Selling Shareholder of this Agreement and the sale and delivery of the Selling
Shareholder Shares under this Agreement, the issuance of the order of the
Commission declaring the Registration Statement effective and such consents,
approvals, authorizations or orders as may be necessary under state or other
securities or Blue Sky laws and the bylaws, rules and regulations of the NASD)
have been obtained and are in full force and effect; such Selling Shareholder,
if other than a natural person, has been duly organized and is validly existing
in good standing under the laws of the jurisdiction of its organization as the
type of entity that it purports to be; and such Selling Shareholder has full
legal right, power and authority to enter into and perform its obligations under
this Agreement and such Power of Attorney and Custody Agreement, and to sell,
assign, transfer and deliver the Shares to be sold by such Selling Shareholder
under this Agreement.
(d) Such Selling Shareholder will not, during the Lock-up Period,
effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Shareholder or with respect to which such Selling
Shareholder has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, or (ii) with the prior written consent
of ▇.▇. ▇▇▇▇▇▇▇▇ & Co. The foregoing restriction is expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than the Selling Shareholder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option)
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with respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Such Selling Shareholder also
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the Securities held by such
Selling Shareholder except in compliance with this restriction.
(e) Certificates in negotiable form for all Shares and securities
which are convertible into Shares to be sold by such Selling Shareholder under
this Agreement, together with a stock power or powers duly endorsed in blank by
such Selling Shareholder, have been placed in custody with the Custodian for the
purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by each Selling
Shareholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Shareholder and is a valid and binding
agreement of such Selling Shareholder, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of or constitute a default under any material bond, debenture, note
or other evidence of indebtedness, or under any material lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which such Selling Shareholder is a party or by which
such Selling Shareholder, or any Selling Shareholder Shares hereunder, may be
bound or, to the best of such Selling Shareholders' knowledge, result in any
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over such Selling Shareholder or over the
properties of such Selling Shareholder, or, if such Selling Shareholder is other
than a natural person, result in any violation of any provisions of the charter,
bylaws or other organizational documents of such Selling Shareholder.
(g) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Shareholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Shareholder relating to such Selling Shareholder and the Selling Shareholder
Shares that is contained in the representations and warranties of such Selling
Shareholder in such Selling Shareholder's Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, was or will be, true, correct
and complete, and does not, and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date (hereinafter defined) will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make such information not misleading.
(j) Such Selling Shareholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date and
will advise one of its Attorneys and ▇.▇. ▇▇▇▇▇▇▇▇ & Co. prior to the Closing
Date if any statement to be made on behalf of such Selling Shareholder in the
certificate contemplated by Section 7(i) would be inaccurate if made as of the
Closing Date.
(k) Such Selling Shareholder does not have, or has waived prior to
the date hereof, any pre-emptive right, co-sale right or right of first refusal
or other similar right to purchase any of the Shares that are to be sold by the
Company or any of the other Selling Shareholders to the Underwriters pursuant to
this Agreement; such Selling Shareholder does not have, or has waived prior to
the date hereof, any registration right or other similar right to
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participate in the offering made by the Prospectus, other than such rights of
participation as have been satisfied by the participation of such Selling
Shareholder in the transactions to which this Agreement relates in accordance
with the terms of this Agreement; and such Selling Shareholder does not own any
warrants, options or similar rights to acquire, and does not have any right or
arrangement to acquire, any capital stock, rights, warrants, options or other
securities from the Company, other than those described in the Registration
Statement and the Prospectus.
(l) Such Selling Shareholder is not aware (without having conducted
any investigation or inquiry) that any of the representations and warranties of
the Company set forth in Section 2 above is untrue or inaccurate in any material
respect.
4. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Shareholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Shareholders, respectively, at a purchase price of $_____ per share
(the per share price to public as set forth in the Registration Statement less
the per share underwriting discounts and commissions) the respective number of
Firm Shares set forth on Schedule A hereto. The obligation of each Underwriter
to the Company and to each Selling Shareholder shall be to purchase from the
Company or such Selling Shareholder that number of Company Shares or Selling
Shareholder Shares, as the case may be, which (as nearly as practicable, as
determined by you) is in the same proportion to the number of Company Shares or
Selling Shareholder Shares, as the case may be, set forth opposite the name of
the Company or such Selling Shareholder in Schedule B hereto as the number of
Firm Shares which is set forth opposite the name of such Underwriter in Schedule
A hereto (subject to adjustment as provided in Section 11) is to the total
number of Firm Shares to be purchased by all the Underwriters under this
Agreement.
The certificates in negotiable form for the Selling Shareholder Shares
(or certificates representing securities convertible into such Shares) have been
placed in custody (for delivery under this Agreement) under the Custody
Agreement. Each Selling Shareholder agrees that the certificates for the
Selling Shareholder Shares of such Selling Shareholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Shareholder for such custody, including the Power of
Attorney, is to that extent irrevocable and that the obligations of such Selling
Shareholder hereunder shall not be terminated by the act of such Selling
Shareholder or by operation of law, whether by the death or incapacity of such
Selling Shareholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Shareholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Shareholder Shares hereunder, the
Selling Shareholder Shares to be sold by such Selling Shareholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 4 shall be made against
payment of the purchase price therefor by the several Underwriters drawn in
same-day funds, payable to the order of the Company with regard to the Shares
being purchased from the Company, and to the order of the Custodian for the
respective accounts of the Selling Shareholders with regard to the Shares being
purchased from such Selling Shareholders, at the offices of
________________________________________________________________ (or at such
other place as may be agreed upon among the Representative and the Company), at
_:__ _.M., _____________ time (a) on the third (3rd) full business day following
the first day that Shares are traded, (b) if this Agreement is executed and
delivered after 1:30 P.M., Vancouver, Washington time, the fourth (4th) full
business day following the day that this Agreement is executed and delivered or
(c) at such other time and date not later than seven (7) full business days
following the first day that Shares are traded as the Representative and the
Company and the Attorneys may agree (or at such time and date to which payment
and delivery shall have been postponed pursuant to Section 11 hereof), such time
and date of payment and delivery being herein called the "CLOSING DATE;"
provided, however, that if the Company has not made available to the
Representative copies of the Prospectus within the time provided in Section
5(d) hereof, the Representative may,
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in their sole discretion, postpone the Closing Date until no later than two (2)
full business days following delivery of copies of the Prospectus to the
Representative. The certificates for the Firm Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for checking
at least one (1) full business day prior to the Closing Date and will be in such
names and denominations as you may request, such request to be made at least two
(2) full business days prior to the Closing Date. If the Representative so
elects, delivery of the Firm Shares may be made by credit through full fast
transfer to the account at The Depository Trust Company designated by the
Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 12 hereof) of the Firm Shares at an initial public offering
price of $_____ per share.
The information set forth in the second to last paragraph on the front
cover page (insofar as such information relates to the Underwriters), and under
all the paragraphs under the caption "Underwriting" in any Preliminary
Prospectus and in the Prospectus constitutes the only information furnished by
the Underwriters to the Company for inclusion in any Preliminary Prospectus, the
Prospectus or the Registration Statement, and you, on behalf of the respective
Underwriters, represent and warrant to the Company and the Selling Shareholders
that the statements made therein do not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereto, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; as promptly as practicable upon your
request, it will prepare and file with the Commission any amendments or
supplements to the Registration Statement or Prospectus which, in the reasonable
opinion of counsel for the several Underwriters ("UNDERWRITERS' COUNSEL"), may
be necessary or advisable in connection with the distribution of the Shares by
the Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time
-12-
when a prospectus relating to the Shares is required to be delivered under the
Act, any event shall have occurred as a result of which the Prospectus or any
other prospectus relating to the Shares as then in effect would include any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare as promptly
as practicable upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus which shall not previously have been
submitted to you a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing, subject, however, to compliance
with the Act and the Rules and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in
the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434 of the Rules and Regulations, in no event later than the first (1st)
full business day following the first day that Shares are traded, copies of the
Registration Statement (three of which will be signed and which will include all
exhibits), each Preliminary Prospectus, the Prospectus and any amendments or
supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you may
from time to time reasonably request. Notwithstanding the foregoing, if ▇.▇.
▇▇▇▇▇▇▇▇ & Co., on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time reasonably
request.
(e) Unless the requirement has otherwise been satisfied in full, the
Company will make generally available to its security holders as soon as
practicable, but in any event not later than the forty-fifth (45th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to you and the other several Underwriters hereunder, upon
request (i) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, any securities exchange or
the NASD, (ii) every material press release and every material news item or
article in respect of the Company or its affairs which was prepared by the
Company or any of its subsidiaries and generally released to shareholders; and
(iii) any additional information of a public nature concerning the Company or
its subsidiaries, or its business which you may reasonably request. During such
five (5) year period, if the Company shall have active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and
shall be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
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(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company or any
Selling Shareholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to Section
12(a) hereof, or if the Underwriters shall terminate this Agreement pursuant to
Section 12(b)(i), the Company will reimburse the several Underwriters for all
out-of-pocket expenses (including fees and disbursements of Underwriters'
Counsel) incurred by the Underwriters in investigating or preparing to market or
marketing the Shares within fifteen (15) days of the determination that the
transactions contemplated hereby will not be consummated, provided that the
amount of such reimbursement shall not exceed $100,000.
(j) If at any time during the ninety (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 your
opinion 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 you advising the Company to the effect set forth
above, forthwith consult with you concerning the timing and substance of a press
release or other public statement, if any, responding to or commenting on such
rumor, publication or event.
(k) During the Lock-up Period, the Company will not, without the
prior written consent of ▇.▇. ▇▇▇▇▇▇▇▇ & Co., effect the Disposition of,
directly or indirectly, any Securities other than (i) the sale of the Firm
Shares and the Option Shares to be sold by the Company hereunder, (ii) the
issuance of shares pursuant to the exercise of outstanding options or warrants,
(iii) the granting of options pursuant to a stock incentive plan approved by the
Company's board of directors or (iv) the issuance of shares of Common Stock as
consideration for the acquisition of one or more corporations or entities
provided that (1) such shares in the aggregate represent less than 5% (or,
following 90 days after the date of the Prospectus, 7.5%) of the total number of
shares of the Company's Common Stock outstanding immediately after giving effect
to the sales of Common Stock pursuant to this Agreement and (2) subject to
applicable pooling of interests rules, the Company has taken reasonable steps to
ensure that such shares may not be resold during the 180 days after the date of
the Prospectus (provided that during the Lock-Up Period, the Company will in any
event consult with ▇.▇. ▇▇▇▇▇▇▇▇ & Co. concerning any such acquisition a
reasonable time in advance thereof).
(l) During a period of ninety (90) days from the effective date of
the Registration Statement, the Company will not file a registration statement
registering shares under any employee benefit plan other than a stock incentive
plan approved by the Company's Board of Directors.
6. EXPENSES.
(a) The Company and the Selling Shareholders agree with each
Underwriter that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
issuance and delivery of the Shares hereunder to the several Underwriters,
including transfer taxes, if any, the cost of all certificates representing the
Shares and transfer agents' and registrars' fees; the fees and disbursements of
counsel for the Company; all fees and other charges of the Company's independent
certified public accountants; the cost of furnishing to the several Underwriters
copies of the Registration Statement (including appropriate exhibits),
Preliminary Prospectus and the Prospectus, and any amendments or supplements to
any of the foregoing; NASD filing fees and the cost of qualifying the Shares
under
-14-
the laws of such jurisdictions as you may designate (including filing fees and
fees and disbursements of Underwriters' Counsel in connection with such NASD
filings and blue sky qualifications); and all other expenses directly incurred
by the Company and the Selling Shareholders in connection with the performance
of their obligations hereunder. Any additional expenses incurred as a result of
the sale of the Shares by the Selling Shareholders will be borne by the Company.
The provisions of this Section 6(a)(i) are intended to relieve the Underwriters
from the payment of the expenses and costs which the Selling Shareholders and
the Company hereby agree to pay, but shall not affect any agreement which the
Selling Shareholders and the Company may make, or may have made, for the sharing
of any of such expenses and costs. Such agreements shall not impair the
obligations of the Company and the Selling Shareholders hereunder to the several
Underwriters.
(ii) In addition to its other obligations under Section 6(a)(i)
hereof, the Company will pay to you a non-accountable expense allowance equal to
one half of one percent (0.5%) of the gross sales price of the Shares to the
public. This non-accountable expense allowance with respect to the Firm Shares
shall be paid to you on the Closing Date and the non-accountable expense
allowance with respect to the Option Shares shall be paid to you on the closing
of the sale to you of the Option Shares.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Shareholders
herein, to the performance by the Company and the Selling Shareholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than _:__ _.M., _________ time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Shareholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section 7.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), results of operations, earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, the following
opinion of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, counsel for the Company and the Selling
Shareholders, dated the Closing Date or such later date on which Option Shares
are to be purchased, addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters (and stating that it
might be relied upon by LeBoeuf, Lamb, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P., Underwriters
Counsel, in rendering its opinion pursuant to Section 7(e) of this Agreement),
to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation under the laws of the jurisdiction of its
incorporation;
(ii) The Company has the corporate power and corporate authority
to own, lease and operate
-15-
its properties and to conduct its business as described in the Prospectus;
(iii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if any, in which the
ownership or leasing of its properties or maintenance of an office requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), results of operations, earnings, operations or business of the
Company and its subsidiaries considered as one enterprise. To such counsel's
knowledge, the Company does not own or control, directly or indirectly, any
corporation, association or other entity other than Nautilus Fitness Products,
Inc., Nautilus, Inc., Nautilus Human Performance Systems, Inc., Direct Focus
Sales Corporation, Instant Comfort Corporation, Direct Focus FSC, Inc., DFI
Properties, LLC and DFI Advertising, Inc.;
(iv) The authorized and, to such counsel's knowledge, issued and
outstanding capital stock of the Company is as set forth in the Prospectus under
the caption "Capitalization" as of the dates stated therein; the issued and
outstanding shares of capital stock of the Company (including the Selling
Shareholder Shares) have been duly and validly issued, are fully paid and
nonassessable and, to such counsel's knowledge, have not been issued in
violation of or subject to any pre-emptive right, co-sale right, registration
right, right of first refusal, or other similar right;
(v) The Firm Shares or the Option Shares, as the case may be, to
be issued by the Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully paid
and nonassessable, and, to such counsel's knowledge, will not have been issued
in violation of or subject to any pre-emptive right, co-sale right, registration
right, right of first refusal or other similar right;
(vi) The Company has the corporate power and corporate authority
to enter into this Agreement and to issue, sell and deliver to the Underwriters
the Shares to be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution and delivery
by you, is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except insofar as indemnification provisions may be
limited by applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally or by general equitable principles;
(viii) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, (a) no stop order suspending the
effectiveness of the Registration Statement has been issued and (b) no
proceedings for that purpose have been instituted or are pending or threatened
under the Act;
(ix) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (in each case other than the financial
statements (including notes and supporting schedules) and financial and
statistical data included therein, as to which such counsel need express no
opinion), as of the effective date of the Registration Statement, complied as to
form in all material respects with the requirements of the Act and the
applicable Rules and Regulations;
(x) The information in the Prospectus under the captions (a)
"Management--Directors and Officers Indemnification and Liability" and
"Management--Benefit Plans," and "Description of Capital Stock" and "Shares
Eligible For Future Sale," to the extent that the same constitutes a matter of
law or a legal conclusion, has been reviewed by such counsel and is a fair
summary of such matters and conclusions;
(xi) The form of certificate evidencing the Common Stock and
filed as an exhibit to the Registration Statement complies with Washington law;
(xii) The description in the Registration Statement and the
Prospectus of the articles of
-16-
incorporation and bylaws of the Company and of any statutes are accurate and
fairly present the information required to be presented by the Act and the
applicable Rules and Regulations;
(xiii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement which are
not described or referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation of
the transactions herein contemplated (other than performance of the Company's
indemnification and contribution obligations hereunder, concerning which no
opinion need be expressed) does not as of the Closing Date (a) result in any
violation of the Company's articles of incorporation or bylaws or (b) to such
counsel's knowledge, result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any agreement, instrument or
document known to such counsel to which the Company is a party or by which its
properties or assets are bound, or any applicable statute, rule or regulation
known to such counsel or, to such counsel's knowledge, any order, writ or decree
of any court, government or governmental agency or governmental body having
jurisdiction over the Company or any of its subsidiaries, or over any of their
properties, assets or operations;
(xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of their
properties or operations is necessary in connection with the consummation by the
Company of the transactions herein contemplated, except such as have been
obtained under the Act or such as may be required under state or other
securities or blue sky laws or the bylaws, rules or regulations of the NASD in
connection with the purchase and the distribution of the Shares by the
Underwriters;
(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or any of its
subsidiaries of a character required to be disclosed in the Registration
Statement or the Prospectus by the Act or the Rules and Regulations, other than
those described therein and the information contained in the Prospectus fairly
summarizes such proceedings;
(xvii) To such counsel's knowledge, neither the Company nor any of
its subsidiaries is presently (a) in material violation of its respective
articles of incorporation or bylaws, or (b) in material breach of any applicable
statute, rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries, or over any of
their properties, assets or operations;
(xviii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to securities of
the Company and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having rights known to such
counsel to registration of such shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company have, with
respect to the offering contemplated thereby, waived such rights or such rights
have expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full satisfaction of
such rights;
(xix) Each Selling Shareholder which is not a natural person has
full right, power and authority to enter into and to perform its obligations
under the Power of Attorney and Custody Agreement to be executed and delivered
by it in connection with the transactions contemplated herein; the Power of
Attorney and Custody Agreement of each Selling Shareholder that is not a natural
person has to such counsel's knowledge, been duly authorized by such Selling
Shareholder; the Power of Attorney and Custody Agreement of each Selling
Shareholder has been duly executed and delivered by or on behalf of such Selling
Shareholder;
-17-
(xx) The Power of Attorney and Custody Agreement of each Selling
Shareholder constitutes the valid and binding agreements of such Selling
Shareholder, enforceable in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles;
(xxi) To such counsel's knowledge, each of the Selling
Shareholders has full right, power and authority to enter into and to perform
its obligations under this Agreement and to sell, transfer, assign and deliver
the Shares to be sold by such Selling Shareholder hereunder;
(xxii) To such counsel's knowledge, this Agreement has been duly
authorized by each Selling Shareholder that is not a natural person and has been
duly executed and delivered by or on behalf of each Selling Shareholder; and
(xxiii) Upon the delivery of and payment for the Shares to be sold
by the Selling Shareholders as provided in this Agreement, and upon registration
of such Shares in the stock records of the Company in the names of the
Underwriters or their nominees and the issuance by the Company of stock
certificates therefor, each of the Underwriters will receive valid title to the
Shares purchased by it from such Selling Shareholder, free and clear of any
adverse claim as defined in RCW 62A.8.102(1)(a) (other than any right, title or
interest in or to the Shares granted by the Underwriters to any person or entity
in connection with the sale of such Shares to the public), provided that (a) the
Underwriters are purchasing such Shares in good faith, and (b) the Underwriters,
together with their nominees (if any), hold such Shares without notice of any
adverse claim.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representative, Underwriters' Counsel and the independent
certified public accountants of the Company, at which conferences the contents
of the Registration Statement and Prospectus and related matters were discussed,
and although they have not verified the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectus, nothing
has come to the attention of such counsel which causes them to believe that, at
the time the Registration Statement became effective and at all times subsequent
thereto up to and on the Closing Date and (in the case of an Option Closing) on
any later date on which Option Shares are to be purchased, the Registration
Statement and any amendment or supplement thereto (other than the financial
statements including notes and supporting schedules and the other financial and
statistical information therein, as to which such counsel need express no
comment) contained any 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, or at the Closing Date or (in the case of an Option
Closing) any later date on which the Option Shares are to be purchased, as the
case may be, the Prospectus and any amendment or supplement thereto (except as
aforesaid) contained any untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions
of law not involving the laws of the United States or the State of Washington
upon opinions of local counsel, and as to questions of fact upon representations
or certificates of officers of the Company, the Selling Shareholders or officers
of the Selling Shareholders (when the Selling Shareholder is not a natural
person), and of government officials, in which case their opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as the Representative of the Underwriters, and to
Underwriters' Counsel.
In rendering their opinions, such counsel may rely solely and
state that they are relying solely upon the representations and warranties of
such Selling Shareholders in this Agreement and the Power of Attorney and
Custody Agreement referred to in paragraph (xix), insofar as any of the same
relate to factual matters, above, provided such counsel shall state that they
believe that both you and they are justified in relying upon such
representations and warranties.
(e) You shall have received on the Closing Date and on any later date
on which Option Shares are
-18-
to be purchased, as the case may be, an opinion of LeBoeuf, Lamb, ▇▇▇▇▇▇ &
▇▇▇▇▇▇, L.L.P., in form and substance satisfactory to you, with respect to the
sufficiency of all such corporate proceedings and other legal matters relating
to this Agreement and the transactions contemplated hereby as you may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may have reasonably requested for the purpose of enabling them to pass upon
such matters.
(f) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter from
Deloitte & Touche LLP addressed to the Underwriters, dated the Closing Date and
such later date on which Option Shares are to be purchased, as the case may be,
confirming that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations and based upon the procedures described in such letter delivered
to you concurrently with the execution of this Agreement (herein called the
"DELOITTE ORIGINAL LETTER"), but carried out to a date not more than five (5)
business days prior to the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, (i) confirming, to the extent
true, that the statements and conclusions set forth in the Deloitte Original
Letter are accurate as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Deloitte Original Letter which are necessary to reflect any changes in the facts
described in the Deloitte Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not indicate that there has been any change in
the condition (financial or otherwise), results of operations, earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. The
Deloitte Original Letter shall be addressed to or for the use of the
Underwriters in form and shall be in substance satisfactory to the Underwriters
and shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations, (ii) set forth their opinion
with respect to their audit of the balance sheets of the Company as of December
31, 1997 and 1998 and related statements of operations, shareholders' equity,
and cash flows for the three (3) years ended December 31, 1998, (iii) state that
they have read the unaudited pro forma condensed balance sheet as of December
31, 1998 and the unaudited pro forma condensed statements of operations for the
year ended December 31, 1998 included in the Registration Statement and the pro
forma information included in the Summary and Selected Financial Data sections
and the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Registration Statement and
that they have inquired of certain officials of the Company and of Nautilus who
have responsibility for financial and accounting matters about the basis for
their determination of the pro forma adjustments and whether all significant
assumptions regarding the business combinations have been reflected in the pro
forma adjustments and whether the unaudited pro forma condensed financial
statements referred to herein comply as to form in all material respects with
the applicable accounting requirements of Rule 11-02 of Regulation S-X and they
have proved the arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the unaudited pro forma condensed
financial statements; and (iv) address other matters agreed upon by Deloitte &
Touche LLP and you. In addition, you shall have received from Deloitte & Touche
LLP a letter addressed to the Company stating that their review of the Company's
system of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements as of December 31, 1998, did not disclose any weaknesses in internal
controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter from
KPMG Peat Marwick LLP addressed to the Underwriters, dated the Closing Date or
such later date on which Option Shares are to be purchased, as the case may be,
confirming that they are independent certified public accountants with respect
to Nautilus within the meaning of the Act and the applicable published Rules and
Regulations and based upon the procedures described in such letter delivered to
you concurrently with the execution of this Agreement (herein called the "PEAT
MARWICK ORIGINAL LETTER"), but carried out to a date not more than five (5)
business days prior to the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, (i) confirming, to the extent
true, that the statements and conclusions set forth in the Peat Marwick
-19-
Original Letter are accurate as of the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, and (ii) setting forth
any revisions and additions to the statements and conclusions set forth in the
Peat Marwick Original Letter which are necessary to reflect any changes in the
facts described in the Peat Marwick Original Letter since the date of such
letter, or to reflect the availability of more recent financial statements, data
or information. The letter shall not indicate that there has been any change in
the condition (financial or otherwise), results of operations, earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. The Peat
Marwick Original Letter shall be addressed to or for the use of the Underwriters
in form and shall be in substance satisfactory to the Underwriters and shall (i)
represent, to the extent true, that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations, (ii) set forth their opinion with
respect to their examination of the consolidated balance sheets of Nautilus as
of December 27, 1997 and January 4, 1999 and related consolidated statements of
operations, shareholders' equity, and cash flows for the two (2) years ended
January 4, 1999, and (iii) address other matters agreed upon by KPMG Peat
Marwick LLP and you. In addition, you shall have received from KPMG Peat
Marwick LLP a letter addressed to the Company stating that their review of
the Nautilus' system of internal accounting controls, to the extent they
deemed necessary in establishing the scope of their examination of Nautilus'
consolidated financial statements as of and for the period ended January 4,
1999, did not disclose any weaknesses in internal controls that they
considered to be material weaknesses.
(h) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct in all material respects, as if made on and as of
the Closing Date or any later date on which Option Shares are to be purchased,
as the case may be, and the Company has complied in all material respects with
all the agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Act and the Rules and Regulations and in all material respects conformed to
the requirements of the Act and the Rules and Regulations, the Registration
Statement did not, and any amendment or supplement thereto, does not include any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
the Prospectus did not, and any amendment or supplement thereto, does not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and, since the effective date of the
Registration Statement, there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not been (a)
any material adverse change in the condition (financial or otherwise), results
of operations, earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise, (b) any transaction
that is material to the Company and its subsidiaries considered as one
enterprise, except transactions entered into in the ordinary course of business,
(c) any obligation, direct or contingent, that is material to the Company and
its subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(d) any change in the capital stock (other than exercises
-20-
of options and warrants) or outstanding indebtedness of the Company or any of
its subsidiaries that is material to the Company and its subsidiaries considered
as one enterprise, (e) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company or any of its subsidiaries, or (f)
any loss or damage (whether or not insured) to the property of the Company or
any of its subsidiaries which has been sustained or will have been sustained
which has a material adverse effect on the condition (financial or otherwise),
results of operations, earnings, operations, business or business prospects of
the Company and its subsidiaries considered as one enterprise.
(i) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, from the Attorneys for each Selling
Shareholder to the effect that, as of the Closing Date, they have not been
informed that:
(i) The representations and warranties made by such Selling
Shareholder herein are not true or correct in any material respect on the
Closing Date; or
(ii) Such Selling Shareholder has not complied, in any material
respect, with any obligation or satisfied any condition which is required to be
performed or satisfied on the part of such Selling Shareholder at or prior to
the Closing Date.
(j) The Company shall have obtained and delivered to you a written
agreement from each officer and director of the Company and each Selling
Shareholder that each such person will not, during the Lock-up Period, effect
the Disposition of any Securities now owned or hereafter acquired directly by
such person or with respect to which such person has or hereafter acquires the
power of disposition, otherwise than (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this restriction, or
(ii) with the prior written consent of ▇.▇. ▇▇▇▇▇▇▇▇ & Co. The foregoing
restriction shall have been expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than the such holder. Such prohibited hedging or other
transactions would including, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person will have also agreed and consented to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by such person except in compliance with
this restriction.
(k) The Company and the Selling Shareholders shall have furnished to
you such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling Shareholders or
officers of the Selling Shareholders (when the Selling Shareholder is not a
natural person)) as to the accuracy of the representations and warranties of the
Company and the Selling Shareholders herein, as to the performance by the
Company and the Selling Shareholders of its their respective obligations
hereunder and as to the other conditions concurrent and precedent to the
obligations of the Underwriters hereunder. All such opinions, certificates,
letters and documents will be in compliance with the provisions hereof only if
they are reasonably satisfactory to Underwriters' Counsel. The Company and the
Selling Shareholders will furnish you with such number of conformed copies of
such opinions, certificates, letters and documents as you shall reasonably
request.
8. OPTION SHARES.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of 150,000 Option
Shares at the purchase price per share for the Firm Shares set forth in Section
4 hereof. Such option may be exercised by the Representative on behalf of the
several Underwriters on one or more occasions in whole or in part during the
period of thirty days after the date on which the Firm Shares are initially
offered to the public, by giving written notice to the Company. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
-21-
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by the Representative
in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 8 shall be made against payment of the purchase price
therefor by the several Underwriters drawn in same-day funds, payable to the
order of the Company. In the event of any breach of the foregoing, the Company
shall reimburse the Underwriters for the interest lost and any other expenses
borne by them by reason of such breach. Such delivery and payment shall take
place at the offices of _____________________________________________ or at such
other place as may be agreed upon among the Representative and the Company (i)
on the Closing Date, if written notice of the exercise of such option is
received by the Company at least two (2) full business days prior to the Closing
Date, or (ii) on a date which shall not be later than the third (3rd) full
business day following the date the Company receives written notice of the
exercise of such option, if such notice is received by the Company less than two
(2) full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representative so elects, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 8(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, to the conditions set forth in Section 7 hereof, and to the condition
that all proceedings taken at or prior to the payment date in connection with
the sale and transfer of such Option Shares shall be reasonably satisfactory in
form and substance to you and to Underwriters' counsel, and you shall have been
furnished with all such documents, certificates and opinions as you may
reasonably request in order to evidence the accuracy and completeness of any of
the representations, warranties or statements, the performance of any of the
covenants or agreements of the Company or the satisfaction of any of the
conditions herein contained.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the
-22-
light of the circumstances under which they were made, not misleading, and
agrees to promptly reimburse each Underwriter for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter or Selling Stckholder furnished
to the Company by such Underwriter or Selling Shareholder, directly or through
you, specifically for use in the preparation thereof and, provided further, that
the indemnity agreement provided in this Section 9(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased Shares,
if a copy of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected had not been sent or
given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 5(d) hereof. The indemnity agreement in this Section 9(a) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities (or actions in respect thereof), joint or several, to which such
Underwriter may become subject (including, without limitation, in its capacity
as an Underwriter or as a "qualified independent underwriter" within the meaning
of Schedule E or the Bylaws of the NASD) under the Act, or otherwise, arising
out of or based upon (i) any breach of any representation, warranty, agreement
or covenant of such Selling Shareholder herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, in the case of subparagraphs (ii) and (iii) of
this Section 9(b) 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 about such
shareholder to the Company or such Underwriter by such Selling Shareholder,
directly or through such Selling Shareholder's representatives, specifically for
use in the preparation thereof, and agrees to promptly reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that (i) the indemnity agreement
provided in this Section 9(b) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of a material fact or omission or alleged omission
to state therein a material fact purchased Shares, if a copy of the Prospectus
in which such untrue statement or alleged untrue statement or omission or
alleged omission was corrected had not been sent or given to such person within
the time required by the Act and the Rules and Regulations, unless such failure
is the result of noncompliance by the Company with Section 5(d) hereof, and (ii)
the aggregate liability of each Selling Shareholder under this Section 9(b)
shall be limited to an amount equal to the net proceeds (after deducting the
aggregate Underwriters' discount, but before deducting expenses) received by
such Selling Shareholder from the sale of his or her Securities pursuant to this
Agreement. The indemnity agreement in this Section 9(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
such Selling Shareholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and each Selling Shareholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
Selling Shareholder may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
-23-
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 9(c) 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 such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and each such Selling Shareholder for any legal or other expenses
reasonably incurred by the Company and each such Selling Shareholder in
connection with investigating or defending any such loss, claim, damage,
liability or action. The indemnity agreement in this Section 9(c) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Reistration Statement and each director of
the Company, each Selling Shareholder and each person, if any, who controls the
Company or any Selling Shareholder within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 9, notify the indemnifying party in writing 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 9. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 9 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 9(a),
9(b) or 9(c) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on all
claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 9
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal)
-24-
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 9 provides for indemnification in such case, all the
parties hereto shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that, except as set forth in Section 9(f) hereof, the
Underwriters severally and not jointly are responsible pro rata for the portion
represented by the percentage that the underwriting discount bears to the
initial public offering price, and the Company and the Selling Shareholders are
responsible for the remaining portion, provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the underwriting discount applicable to the Shares purchased by such
Underwriter exceeds the amount of damages which such Underwriter has otherwise
required to pay, and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 9(e) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter, the Company or any Selling
Shareholder within the meaning of the Act or the Exchange Act and each officer
of the Company who signed the Registration Statement and each director of the
Company.
(f) The aggregate liability of each Selling Shareholder under the
representations, warranties and agreements contained herein and under the
indemnity, contribution and reimbursement agreements contained in the provisions
of this Section 9 shall be limited to an amount equal to the lesser of (i) the
initial public offering price of the Selling Shareholder Shares sold by such
Selling Shareholder to the Underwriters minus the amount of the underwriting
discount paid thereon to the Underwriters by such Selling Shareholder (the
"SELLING SHAREHOLDER PROCEEDS"), less (if and only if clause (ii) immediately
below is applicable) the amount of any income taxes described in clause (y)
immediately below, and (ii) solely in the case of an indemnity, contribution or
reimbursement claim arising out of or based upon any breach of the
representation and warranty contained in Section 3(l) hereof, the result
obtained by (x) multiplying the aggregate liability of all indemnifying parties
by the proportion which such Selling Shareholder's Selling Shareholder Proceeds
bear to the total of all Selling Shareholder Proceeds of all Selling
Shareholders and (y) subtracting therefrom any applicable United States federal
and state income taxes incurred by such Selling Shareholder as a result of the
sale of such Selling Shareholder's Selling Shareholder Shares pursuant to this
Agreement. The Company and such Selling Shareholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 9, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act. The parties are advised that federal or state public policy, as
interpreted by the courts in certain jurisdictions, may be contrary to certain
of the provisions of this Section 9, and the parties hereto hereby expressly
waive and relinquish any right or ability to assert such public policy as a
defense to a claim under this Section 9 and further agree not to attempt to
assert any such defense.
10. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company, the Selling Shareholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 9 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Shareholder, or
any of their officers, directors or controlling persons within the meaning of
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement.
11. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining
-25-
Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Shares of such defaulting
Underwriter or Underwriters.
If any Underwriter (or Underwriters) so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any non-defaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date, the Closing Date may, at the option of the Company, be postponed for a
further twenty-four (24) hours, if necessary, to allow the Company the privilege
of finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 11, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and
pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters as
aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 11, neither the Company nor any Selling
Shareholder shall be liable to any Underwriter (except as provided in Sections 6
and 9 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Shareholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Shareholder (except to the
extent provided in Sections 6 and 9 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 11.
12. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of (i) _:__
_.M., _____________ time, on the first full business day following the effective
date of the Registration Statement, or (ii) the time of the initial public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telecopy or electronic mail transmission, with each telephone, telecopy or
electronic mail transmission confirmed by letter, whichever shall first occur.
By giving notice as set forth in Section 13 before the time this Agreement
becomes effective, you, as the Representative of the several Underwriters, or
the Company, may prevent this Agreement from becoming effective without
liability of any party to any other party, except as provided in Sections 5(i),
6 and 9 hereof.
(b) You, as the Representative of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later
-26-
date on which Option Shares are to be purchased, as the case may be, (i) if the
Company or any Selling Shareholder shall have failed, refused or been unable to
perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled is
not fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole judgment,
is material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York, California, Washington
or Montana authorities, or (iii) if the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
to interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbeak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representative, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event
of termination pursuant to subparagraph (b)(i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 5(i), 6 and 9 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
6 and 9 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 12, you shall promptly
notify the Company by telephone, telecopy, telegram or electronic mail
transmission, in each case confirmed by letter. If the Company shall elect to
prevent this Agreement from becoming effective, the Company shall promptly
notify you by telephone, telecopy, or electronic mail transmission, in each
case, confirmed by letter.
13. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, or telecopied (and confirmed by letter) or sent by electronic
mail (and confirmed by letter) to you c/o ▇.▇. ▇▇▇▇▇▇▇▇ & Co., ▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, telecopy number (▇▇▇) ▇▇▇-▇▇▇▇, Attention:
_____________; if sent to the Company, such notice shall be mailed, delivered,
or telecopied (and confirmed by letter) or sent by electronic mail (and
confirmed by letter) to Direct Focus, Inc., ▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, telecopy number (▇▇▇) ▇▇▇-▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇,
President and Chief Executive Officer; if sent to one or more of the Selling
Shareholders, such notice shall be sent mailed, delivered, or telecopied (and
confirmed by letter) to ▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇ ▇. ▇▇▇▇, as Attorneys-in-Fact for
the Selling Shareholders, at ▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
telecopy number (▇▇▇) ▇▇▇-▇▇▇▇.
14. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and the Selling Shareholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 9 hereof, any legal or equitable right, remedy or claim
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 the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Shareholders under
this Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Shareholders shall be entitled to act and
-27-
rely upon any statement, request, notice or agreement made or given by you
jointly or by ▇.▇. ▇▇▇▇▇▇▇▇ & Co. on behalf of you.
15. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Washington.
16. COUNTERPARTS. This Agreement may be signed by facsimile and in
several counterparts, each of which will constitute an original.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-28-
If the foregoing correctly sets forth the understanding among the Company
the Selling Shareholders and the several Underwriters, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement among the Company, the Selling Shareholders and the several
Underwriters.
Very truly yours,
DIRECT FOCUS, INC.
By:
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇
Its: President and Chief Executive Officer
SELLING SHAREHOLDERS
By:
---------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇
By:
---------------------------------------
▇▇▇ ▇. ▇▇▇▇
Attorneys-in-Fact for the Selling
Shareholders named in Schedule B hereto
ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
▇.▇. ▇▇▇▇▇▇▇▇ & CO.,
on its behalf and on behalf of each of the several
Underwriters named in Schedule A attached hereto.
By:
---------------------------------
Name:
--------------------------------
Its:
---------------------------------
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SCHEDULE A
NUMBER OF FIRM SHARES
UNDERWRITERS TO BE PURCHASED
------------- ---------------------
▇.▇. ▇▇▇▇▇▇▇▇ & Co................................
---------------
[NAMES OF OTHER UNDERWRITERS].....................
---------------
TOTAL........................................ 1,000,000
---------------
---------------
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SCHEDULE B
NUMBER OF
COMPANY SHARES
COMPANY TO BE SOLD
------- -------------
Direct Focus, Inc.........................................
----------
TOTAL................................................ 825,000
----------
----------
NUMBER OF
SELLING SHAREHOLDER
SELLING SHAREHOLDERS SHARES TO BE SOLD
-------------------- -------------------
▇▇▇▇▇ ▇. ▇▇▇▇............................................. 25,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇......................................... 25,000
▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ Investments, Inc................. 100,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.......................................... 12,500
▇▇▇ ▇. ▇▇▇▇............................................... 12,500
TOTAL................................................ 175,000
-------
-------
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