EXHIBIT 1.1
CREATIVE MASTER INTERNATIONAL, INC.
UNDERWRITING AGREEMENT
December __, 1998
Cruttenden Xxxx Incorporated
As Representative of the
Several Underwriters
00000 Xxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
Creative Master International, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the Underwriters named in Section 2(a)
hereof (the "Underwriters") an aggregate of 1,525,276 shares (the "Company
Shares") of its authorized but unissued Common Stock, par value $0.0001 per
share (the "Common Stock"). Certain stockholders of the Company named in
Schedule B hereto (the "Firm Selling Stockholders"), acting severally and not
jointly, propose to sell to the Underwriters an aggregate of 74,724 shares (the
"Firm Selling Stockholder Shares," and together with the Company Shares, the
"Firm Shares") of the Company's authorized and outstanding Common Stock. Acma
Investments Pte., Ltd. (the "Option Selling Stockholder" and together with the
Firm Selling Stockholders, the "Selling Stockholders") proposes to grant to the
Underwriters the option to purchase up to 240,000 additional shares of Common
Stock (the "Option Shares") for the sole purpose of covering over-allotments, if
any, in connection with the sale of the Firm Shares. The Firm Shares and any
Option Shares purchased pursuant to this Agreement are referred to in this
Agreement as the "Shares." The Company also proposes to sell to you
individually, and not in your capacity as Representative, five-year warrants
(the "Representative's Warrants") to purchase up to 160,000 shares of Common
Stock (the "Representative's Warrant Stock"). The sale of the Representative's
Warrants will be consummated in accordance with the terms and conditions of the
form of the Representative's Warrant Agreement filed as an Exhibit to the
Registration Statement. Cruttenden Xxxx Incorporated is acting as representative
of the several Underwriters, and in that capacity is referred to in this
Agreement as the "Representative."
The Company hereby confirms its agreement with the Underwriters as follows:
1. Representations and Warranties of the Company and Option Selling
Stockholder.
(a) The Company and Option Selling Stockholder, severally and not jointly,
each represents and warrants to, and agrees with, the Underwriters as follows:
(i) The Company meets the requirements for use of Form SB-2 under the
Securities Act of 1933, as amended (the "Securities Act"), and a registration
statement (Registration
No. 333-65929) on Form SB-2 relating to the Shares, the Representative's
Warrants and the Representative's Warrant Stock, including such amendments to
such registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under and in conformity with the
provisions of the Securities Act, and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission. If such registration
statement has not become effective upon execution of this Agreement, a further
amendment to such registration statement, including a form of final prospectus,
necessary to permit such registration statement to become effective will
promptly be filed by the Company with the Commission. If such registration
statement has become effective, a final prospectus containing information
permitted to be omitted at the time of effectiveness by Rule 430A of the Rules
and Regulations will promptly be filed by the Company with the Commission in
accordance with Rule 424 of the Rules and Regulations (and in form and substance
reasonably satisfactory to the counsel for the Underwriters). 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) 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) and, in the event of any amendment thereto after
the effective date of the Registration Statement, shall also mean (from and
after the effectiveness of such amendment) the Registration Statement as so
amended. Any registration statement filed pursuant to Rule 462(b) under the
Rules and Regulations is herein called the "462(b) Registration Statement," and
after such filing the term "Registration Statement" shall include the Rule
462(b) Registration Statement. The term "Prospectus" as used in this Agreement
shall mean the prospectus relating to the Shares included in the Registration
Statement at the time it became effective, except that 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 on file with the
Commission at the time the Registration Statement became or becomes, as the case
may be, effective, whether or not the 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.
(ii) No stop order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of the Prospectus has been issued
and no proceedings for that purpose are pending or threatened or, to the best
knowledge of the Company, contemplated by the Commission; no stop order
suspending the sale of the Shares in any jurisdiction has been issued and no
proceedings for that purpose are pending or, to the best knowledge of the
Company, threatened or are contemplated; and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) has been complied with.
(iii) The Company and each of its subsidiaries have been duly
incorporated or registered and are validly existing in good standing under the
laws of their respective jurisdiction of organization, have full corporate power
and authority to own or lease their respective properties and conduct business
as described in the Registration Statement and the Prospectus and as they are
currently conducting such business, and are duly qualified as a foreign
organization and in good standing in all jurisdictions in which the character of
the property owned or leased or the nature of the business transacted by it
makes qualification necessary (except where the failure to be so
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qualified would not have a material adverse effect on the business, properties,
condition (financial or otherwise), prospects or results of operations of the
Company and its subsidiaries, taken as a whole). Except as disclosed in the
Registration Statement, the Company and each of its subsidiaries have obtained,
are in possession of, and operating in compliance with, all authorizations,
licenses, certificates, consents, orders and permits from state, federal and
other regulatory authorities (including foreign governments) that are material
to the conduct of their respective business, all of which are valid and in full
force and effect. The Company owns the percentage of the outstanding capital
stock of each of its subsidiaries as set forth in Note 3 of the Notes to the
Consolidated Financial Statements included in the Registration Statement. The
Company holds such outstanding capital stock of each of its subsidiaries free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest of any type, kind or nature. All issued and outstanding
shares of capital stock or other equity interest of each such 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 preemptive
right, or other rights to subscribe for or purchase shares or other equity
interest.
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any material
loss or interference with the Company's business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any court or
governmental action, order or decree, or any changes in the capital stock or
long-term debt of the Company or any of its subsidiaries, or any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company, or any material adverse change, or a development known to the Company
that might cause or result in a material adverse change, in or affecting the
general affairs, management, business, properties, condition (financial or
otherwise), prospects or results of operations of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in the
ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the ordinary
course of business, neither the Company nor any of its subsidiaries has entered
into any material transaction not described in the Registration Statement and
the Prospectus.
(v) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus, at the
time of filing thereof, conformed in all material respects to the requirement of
the Securities Act and the Rules and Regulations; when the Registration
Statement became or becomes, as the case may be, effective (the "Effective
Date"), when any 462(b) Registration Statement became or becomes effective, and
when the Prospectus is first filed (if required) in accordance with Rule 424(b),
and at all times subsequent thereto up to and at the "Closing Date" (as
hereinafter defined) and through any later date on which Option Shares are to be
purchased, as the case may be, the Registration Statement, the Rule 462(b)
Registration Statement and the Prospectus, and any amendments or supplements
thereto, will in all material respects conform to the requirements of the
Securities Act and the Rules and Regulations, and the Securities Exchange Act of
1934, as amended, (the "Exchange Act"), and the rules and regulations of the
Commission thereunder; on the Effective Date, the Registration Statement, and
any 462(b) Registration Statement, on the date it became or becomes effective,
did not or will not contain any untrue statement of a material fact and did not
or will not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and neither
the Registration Statement, any 462(b) Registration Statement, nor the
Prospectus, nor any
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amendment or supplement thereto, will include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties in this Section 1(a)(v) shall apply to statements in, or omissions
from, the Registration Statement, and any 462(b) Registration Statement or the
Prospectus made in reliance upon and in conformity with information furnished to
the Company by or on behalf of the Underwriters specifically for use in the
Registration Statement or the Prospectus. There is no agreement, contract,
license, lease or other document required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement which is not described or filed as required. The contracts so
described in the Prospectus are in full force and effect on the date hereof, and
neither the Company nor any of its subsidiaries, nor to the best knowledge of
the Company, any other party, is in material breach of or default under any such
contracts.
(vi) All of the outstanding shares of capital stock of the Company
(including the shares to be sold by the Selling Stockholders hereunder) have
been duly authorized and validly issued and are fully paid and nonassessable,
have been issued in compliance with all applicable securities laws (including
any applicable United States and state securities laws), were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and the authorized and outstanding capital stock of
the Company 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). The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted or
exercised thereunder, set forth in the Prospectus accurately and fairly present
the information shown therein with respect to such plans, arrangements, options
and rights. The Common Stock to be sold by the Company hereunder has 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. Other than this Agreement, the Representative's
Warrants and the options and warrants to purchase the Common Stock described in
the Prospectus, there are no options, warrants or other rights outstanding to
subscribe for or purchase any shares of the Company's capital stock. There are
no preemptive rights or any restrictions upon the voting or transfer of any of
the Shares pursuant to the Company's Certificate of Incorporation or any other
governing document or agreement to which the Company or any of its subsidiaries
is a party or by which any of them may be bound. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated by
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any of the Shares or any
other capital stock of the Company.
(vii) The Company has full corporate right, power and authority to
enter into and perform its obligations under this Agreement and the
Representative's Warrant Agreement, and to issue, sell and deliver the Company
Shares. This Agreement and the Representative's Warrant Agreement have each
been duly authorized, executed and delivered by the Company and constitute the
valid and binding agreements of the Company and each is enforceable against the
Company in accordance with their respective terms; except insofar as the
indemnification and contribution provisions hereunder may be limited by
applicable law, and except as the enforcement may be
4
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws or judicial decisions relating to or affecting creditors'
right generally or by general equitable principles.
(viii) Neither the Company nor any of its subsidiaries is, or with the
giving of notice or lapse of time or both would be, in violation of or in
default under, nor will the execution or delivery of this Agreement or the
Representative's Warrant Agreement, or the consummation of the transactions
contemplated by such agreements result in a violation of the Certificate of
Incorporation or other charter or governing documents of the Company or any of
its subsidiaries, or constitute a material default (with the giving of notice,
passage of time or otherwise) under any material obligation, agreement, covenant
or condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, deed of trust, loan
agreement, lease, license, joint venture or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it or any of
their properties may be bound or affected, nor will the performance by the
Company of its obligations under this Agreement or the Representative's Warrant
Agreement violate any law, rule, administrative regulation or decree of any
court or any governmental agency or body having jurisdiction over the Company,
its subsidiaries or any of their respective properties, or result in the
creation or imposition of any lien, charge, claim or encumbrance upon any
material property or asset of the Company or any of its subsidiaries. Except
for permits and similar authorizations required under the Securities Act, the
Exchange Act or state securities or "Blue Sky" laws, and for such permits and
authorizations that have been obtained, no consent, approval, authorization or
order of any court, governmental agency or body or financial institution is
required in connection with the consummation of the transactions contemplated by
this Agreement or the Representative's Warrant Agreement.
(ix) The Company and each of its subsidiaries owns, or has valid
rights to use, all items of real and personal property which are material to the
business of the Company and its subsidiaries taken as a whole, free and clear of
all liens, encumbrances and claims that might materially interfere with the
business, properties, condition (financial or otherwise) or prospects of the
Company and its subsidiaries, taken as a whole.
(x) Except as described in the Prospectus, there is no litigation
or governmental proceeding to which the Company or any of its subsidiaries is a
party, or to which any property of the Company or any of its subsidiaries is
subject, which is pending, or to the best knowledge of the Company, contemplated
against the Company or any of its subsidiaries, that would have any material
adverse effect on, or would result in any material adverse change in the
business, properties, condition (financial or otherwise), prospects or results
of operations of the Company and its subsidiaries, taken as a whole, or that
would prevent consummation of the transactions contemplated by this Agreement or
the Representative's Warrant Agreement or that are required to be disclosed in
the Registration Statement.
(xi) Neither the Company nor any of its subsidiaries is in violation
of any law, order, ordinance, rule, regulation, writ, injunction, judgment or
decree of any court or governmental agency or body to which it or its properties
(whether owned or leased) may be subject, which violation would have a material
adverse effect on the business, properties, condition (financial or otherwise),
prospects or results of operations of the Company and its subsidiaries, taken as
a whole.
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(xii) Each of the Company and each of its subsidiaries owns or
possesses adequate rights to use all material patents, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names and
copyrights described or referred to in the Prospectus as owned by or used by any
of them, or which are necessary for the conduct of their business as described
in the Prospectus; and neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any patents, patent rights, 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 business, properties, condition
(financial or otherwise), prospects or results of operations of the Company and
its subsidiaries, taken as a whole.
(xiii) The Company has not taken, and shall not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to cause or result in, under the Exchange
Act, the rules and regulations of the Commission under the Exchange Act, or
otherwise, the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares. No bid or purchase by
the Company, and, to the best knowledge of the Company, no bid or purchase that
could be attributed to the Company (as a result of bids or purchases by an
"affiliated purchaser" within the meaning of Regulation M under the Exchange
Act) for or of the Common Stock, any securities of the same class or series as
the Common Stock or any securities immediately convertible into or exchangeable
for or that represent any right to acquire the Common Stock, is now pending or
in progress or will have commenced at any time prior to the completion of the
distribution of the Shares.
(xiv) Xxxxxx Xxxxxxxx & Co., whose report appears in the Registration
Statement and Prospectus, to the Company's knowledge are, and during the periods
covered by their report in the Registration Statement were, independent
accountants as required by the Securities Act and the Rules and Regulations.
The financial statements included in the Registration Statement, any Preliminary
Prospectus or the Prospectus present fairly the consolidated financial
condition, results of operations, cash flow and changes in stockholders' equity
of the Company and its subsidiaries at the dates and for the periods indicated,
and the financial statements included in the Registration Statement present
fairly the information required to be stated therein. Such financial statements
have been prepared in accordance with generally accepted accounting principles
in the United States of America, applied on a consistent basis throughout the
periods presented, except as stated therein. The selected and summary financial
data included in the Registration Statement and the Prospectus present fairly
the information shown therein and have been compiled on a basis consistent with
the audited financial statements presented therein. No financial statements or
schedules are required to be included in the Registration Statement other than
the financial statements and schedules appearing therein.
(xv) The books, records and accounts of the Company and each of its
subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in and dispositions of the assets of the Company and each of its
subsidiaries. The systems of internal accounting controls maintained by the
Company and each of its subsidiaries are sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
(A) to permit preparation of financial statements in conformity with generally
accepted accounting principles and (B) to maintain accountability for assets;
(iii)
6
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 the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(xvi) The Company has delivered to the Representative the written
agreement of each of its officers and directors and certain beneficial owners of
its Common Stock and/or securities exercisable or exchangeable for, or
convertible into, Common Stock (collectively, "Material Holders") to the effect
that each of the Material Holders will not, for a period of six months following
the Closing Date, offer, sell or contract to sell, or otherwise dispose of, or
announce the offer of, any Common Stock and/or securities exercisable or
exchangeable for, or convertible into, Common Stock other than intra-family
transfers or transfers to trusts for estate planning purposes, without the prior
written consent of the Representative.
(xvii) No labor disturbance by the employees of the Company or any of
its subsidiaries exists or is imminent, nor is the Company aware of any existing
or imminent labor disturbance by the employees of any principal suppliers,
contract manufacturing organizations, manufacturers, authorized dealers or
distributors, in either case, where such labor disturbance would result in any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or prospects of the Company and its subsidiaries,
considered as a whole. No collective-bargaining agreement exists with any of
the Company's or any of the Company's subsidiaries' employees and, to the best
knowledge of the Company, no such agreement is imminent.
(xviii) Each of the Company and each of its subsidiaries has filed all
United States, state, local, Hong Kong, Peoples' Republic of China and other
foreign tax returns which are respectively required of the Company and each of
its subsidiaries to be filed, or has requested extensions thereof, and has paid
all taxes, including withholding taxes, penalties and interest, assessments,
fees and other charges to the extent that the same have become due and payable.
No material tax assessment or deficiency has been made or proposed against the
Company or any of its subsidiaries nor has the Company or any of its
subsidiaries received any notice of any such proposed assessment or deficiency.
(xix) Except as set forth in the Prospectus and except for
advancements of expenses in the ordinary course of business, none of which is
material, there are no outstanding loans, advances or guaranties of indebtedness
by the Company to or for the benefit of any of its "affiliates," as such term is
defined in the Rules and Regulations, or any of the officers or directors of any
of its subsidiaries, or any of the members of the families of any of them.
(xx) Neither the Company nor any of its subsidiaries has, directly
or indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution, in
violation of law; (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or allowed by all applicable
laws; or (iii) violated nor is it in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(xxi) Neither the Company nor any of its subsidiaries has any
liability, known or unknown, matured or not matured, absolute or contingent,
assessed or unassessed, imposed or based
7
upon any provision of, or has received notice of any potential liability under,
any law, rule or regulation, or the civil or common law, or any tort, nuisance
or absolute liability theory, applicable to the Company or any of its
subsidiaries, or under any code, order, decree, judgment or injunction
applicable to the Company or any of its subsidiaries relating to public health
or safety, worker health or safety or pollution, damage to or protection of the
environment, including, without limitation, laws relating to damage to natural
resources, emissions, discharges, releases or threatened releases of hazardous
materials into the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), or otherwise
relating to the manufacture, processing, use, treatment, storage, generation,
disposal, transport or handling of hazardous materials, in each case that might
cause or result in a material adverse change in the business, properties,
condition (financial or otherwise), prospects or results of operations of the
Company and its subsidiaries, taken as a whole. As used herein, "hazardous
material" includes chemical substances, wastes, pollutants, contaminants,
hazardous or toxic substances, constituents, materials or wastes, whether solid,
gaseous or liquid in nature.
(xxii) The Company has not distributed and will not distribute prior
to the Closing Date or on or prior to any date on which the Option Shares are to
be purchased, as the case may be, any prospectus or other offering material in
connection with the offering and sale of the Shares other than the Prospectus,
the Registration Statement and any other material which may be permitted by the
Securities Act and the Rules and Regulations.
(xxiii) The Common Stock has been approved for listing on the National
Market of The Nasdaq Stock Market (the "Nasdaq National Market"), subject to
official notice of issuance.
(xxiv) The Company is familiar with and has discussed with its United
States legal counsel 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" within the meaning of the 1940
Act and such rules and regulations.
(xxv) The Representative's Warrants have been duly and validly
authorized, and when issued and delivered will be valid and binding obligations
of the Company in accordance with their terms; except insofar as the
indemnification and contribution provisions hereunder may be limited by
applicable law, and except as the enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws or
judicial decisions relating to or affecting creditors' right generally or by
general equitable principles; the Representative's Warrant Stock has been duly
and validly authorized for issuance upon exercise of the Representative's
Warrants, and when so issued will be validly issued, fully paid and non-
assessable; and no stockholder of the Company has any preemptive rights with
respect to the Representative's Warrants or the Representative's Warrant Stock.
(xxvi) The Company does not know of any facts which may adversely
affect its earnings, prospects or business which have not been fully disclosed
in the Prospectus.
(b) Each Selling Stockholder, severally for itself and not jointly,
represents and warrants to and agrees with the several Underwriters that:
8
(i) Such Selling Stockholder has valid and unencumbered title to the
Shares to be sold by such Selling Stockholder hereunder and has full right,
power and authority to enter into and perform this Agreement and to sell,
assign, transfer and deliver the Shares to be sold by such Selling Stockholder
hereunder.
(ii) Custody Agreement.
(A) With regards to the Firm Selling Stockholders, such Selling
Stockholder has duly executed and delivered, in the form heretofore furnished to
the Representative, an Irrevocable Custody Agreement (the "Irrevocable Custody
Agreement") with Jersey Trust and Transfer Company as custodian; the Irrevocable
Custody Agreement constitutes a valid and binding agreement on the part of such
Selling Stockholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by applicable bankruptcy, in solvency,
reorganization, moratorium or other, similar laws relating to or affecting
creditors' rights generally or by general equitable principles;
(B) With regards to the Option Selling Stockholder, the Option
Selling Stockholder has duly executed and delivered, in the form heretofore
furnished to the Representative, an Irrevocable Custody Agreement and Power of
Attorney (the "Option Custody Agreement" and together with the Irrevocable
Custody Agreement, the "Custody Agreement") appointing Xxxx Xxxx as attorney-in-
fact (the "Attorney") with Jersey Trust and Transfer Company as custodian (the
"Custodian"); the Option Custody Agreement constitutes a valid and binding
agreement on the part of such Selling Stockholder, 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 such Selling Stockholder's Attorney, acting alone, is authorized
to execute and deliver this Agreement and the certificate referred to in Section
5(n) hereof on behalf of such Selling Stockholder, to determine the price to be
paid by the several Underwriters to such Selling Stockholder as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold by such
Selling Stockholder 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 Stockholder in connection with this Agreement;
(iii) All authorizations, approvals and consents necessary for the
execution and delivery by such Selling Stockholder of the Custody Agreement, the
execution and delivery by or on behalf of such Selling Stockholder of this
Agreement and the sale and delivery of the Shares to be sold by such Selling
Stockholder hereunder, have been obtained and are in full force and effect; and
such Selling Stockholder has full right, power and authority to enter into this
Agreement and such Custody Agreement, and to sell, transfer and deliver the
Shares that may be sold by such Selling Stockholder hereunder.
(iv) Certificates in negotiable form for all Shares which may be sold
by such Selling Stockholder hereunder, together with a stock power or powers
duly endorsed in blank by such
9
Selling Stockholder, have been placed in custody with the Custodian for the
purpose of effecting delivery hereunder.
(v) This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder and is a valid and binding agreement of such
Selling Stockholder, enforceable against such Selling Stockholder in accordance
with its terms; except insofar as the indemnification and contribution
provisions hereunder may be limited by applicable law, and except as the
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws or judicial decisions relating to or affecting
creditors' right generally or by general equitable principles.
(vi) Upon the delivery of and payment for such Shares to be sold by
such Selling Stockholder hereunder in good faith and without notice of any
adverse claim within the meaning of Article VIII of the Uniform Commercial Code,
the several Underwriters will acquire valid title to the Shares to be sold by
such Selling Stockholder free and clear of any encumbrances created by or known
to such Selling Stockholder.
(vii) The consummation of the transactions herein contemplated and
the fulfillment of the terms hereof will not result in a material breach of any
of the terms or provisions of, or constitute a material default under, any
material agreement, indenture or other instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder is, or the
certificates for the Shares to be sold by such Selling Stockholder hereunder
are, bound or, to the best of the knowledge of such Selling Stockholder, any
statute, ruling, decree, judgment, order or regulation of any governmental
authority having jurisdiction over such Selling Stockholder or the property of
such Selling Stockholder, or, if such Selling Stockholder is other than a
natural person, result in any violation of any provisions of the charter, bylaws
or other organizational documents of such Selling Stockholder.
(viii) Such Selling Stockholder has not taken, directly or indirectly,
any action designed to, or which might reasonably be expected to, cause or
result in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares pursuant to the
distribution contemplated by this Agreement and, other than as permitted by the
Act, the Selling Stockholder has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and the
sale of the Shares.
(ix) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder, its parent and affiliates, the
Common Stock of such Selling Stockholder, and the Shares that is contained in
the representations and warranties of such Selling Stockholder in such Selling
Stockholder's Custody Agreement or set forth in the Registration Statement and
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, and on any later date on which Option Shares are to be
purchased, 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 and on any
later date on which Option Shares are to be purchased, 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.
10
(x) Such Selling Stockholder 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
on any later date on which Option Shares are to be purchased, as the case may
be, and will advise its Attorney and the Representative prior to the Closing
Date and on any later date on which any Option Shares are to be purchased, if
any statement to be made on behalf of such Selling Stockholder in the
certificate contemplated by Section 5(n) would be inaccurate if made as of the
date on which such Shares are to be purchased.
(xi) Such Selling Stockholder does not have, or has waived prior to
the date hereof, any preemptive right, co-sale right or right of first refusal
or other similar right to purchase any of the Company Shares or any of the other
Shares of the Selling Stockholders; such Selling Stockholder does not have, or
has waived prior to the date hereof, any registration right or other similar
right to participate in the offering made by the Prospectus, other than such
rights of participation as have been satisfied by the participation of such
Selling Stockholder in the transactions to which this Agreement relates in
accordance with the terms of this Agreement; and such Selling Stockholder 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.
(xii) Except for the Shares, Selling Stockholder will not, for a
period of six months following the Closing Date, offer, sell or contract to
sell, or otherwise dispose of, or announce the offer of, any Common Stock and/or
securities exercisable or exchangeable for, or convertible into, Common Stock
without the prior written consent of the Representative
2. Purchase, Sale and Delivery of Shares.
(a) On the basis of the representations, warranties and covenants
contained in this Agreement, and subject to the terms and conditions set forth
in this Agreement, the Company and the Firm Selling Stockholders 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 Firm
Selling Stockholders, the respective number of Company Shares and Firm Selling
Stockholder Shares set forth opposite the names of the Company and the Firm
Selling Stockholders in Schedule B hereto at a purchase price of $_____ per Firm
Share, the number of Firm Shares set forth opposite such Underwriter's name in
Schedule A hereto. The obligation of each Underwriter to the Company and to
each Firm Selling Stockholder shall be to purchase from the Company or such Firm
Selling Stockholder that number of Company Shares or Firm Selling Stockholder
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 Firm Selling
Stockholder Shares, as the case may be, set forth opposite the name of the
Company or such Firm Selling Stockholder 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 8) is to the total number
of Firm Shares to be purchased by all the Underwriters under this Agreement. In
the event that any Firm Selling Stockholder shall have failed, refused or been
unable to perform any agreement on his, her or its part to be performed
hereunder, the Company and not such Firm Selling Stockholder shall sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company and not from such Firm
11
Selling Stockholder, at the same price per share as set forth in this Section 2,
that number of additional authorized but unissued shares of Common Stock which
were otherwise to be sold by such Firm Selling Stockholder but for such Firm
Selling Stockholder's failure, refusal or inability to perform any agreement on
his, her or its part to be performed hereunder. The additional shares of Common
Stock so sold by the Company as a result of the provisions of the preceding
sentence shall added to, and included within, "Company Shares," and shall be
subtracted and excluded from "Selling Stockholder Shares" as may be applicable
in the context of this Agreement.
The certificates in negotiable form for the Selling Stockholder Shares have
been placed in custody (for delivery under this Agreement) under the Custody
Agreements. Each Selling Stockholder agrees that the certificates for the
Selling Stockholder Shares of such Selling Stockholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Stockholder for such custody, including the Power of
Attorney, if applicable, is to that extent irrevocable and that the obligations
of such Selling Stockholder hereunder shall not be terminated by the act of such
Selling Stockholder or by operation of law, whether by the death or incapacity
of such Selling Stockholder or the occurrence of any other event, except as
specifically provided herein or in the Custody Agreement. If any Selling
Stockholder should die or be incapacitated, or if any other such event should
occur, before the delivery of the certificates for the Selling Stockholder
Shares hereunder, the Selling Stockholder Shares to be sold by such Selling
Stockholder 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.
(b) On the basis of the representations, warranties and covenants
contained in this Agreement, and subject to the terms and conditions set forth
in this Agreement, including the terms set forth below, Option Selling
Stockholder grants an option to the Underwriters to purchase from Option Selling
Stockholder all or any portion of 240,000 Option Shares at the same price per
Share as the Underwriters shall pay for the Firm Shares. Said option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time on or before
the 45/th/ day after the date of the Prospectus upon written, telecopied or
telegraphic notice by the Representative to Option Selling Stockholder setting
forth the aggregate number and class of Option Shares as to which the
Underwriters are exercising the option and the settlement date. The Option
Shares shall be purchased severally, and not jointly, by each Underwriter, if
purchased at all, in the same proportion that the number of Firm Shares to be
purchased by such Underwriter bears to the total number of Firm Shares to be
purchased by the Underwriters under Section 2(a), above, subject to such
adjustments as the Representative in its absolute discretion shall make to
eliminate any fractional shares. Delivery of certificates for the Option
Shares, and payment therefor, shall be made as provided in Section 2(c) and
Section 2(d) below.
(c) Delivery of certificates for the Firm Shares and the Option
Shares (if the option granted by Option Selling Stockholder in Section 2(b)
above shall have been exercised not later than 10:00 a.m., New York time, on the
date two business days preceding the Closing Date), and payment therefor shall
be made at the office of Cruttenden Xxxx Incorporated,18301 Xxx Xxxxxx, Xxxxx
000, Xxxxxx, Xxxxxxxxxx 00000, at 10:00 a.m., New York time, on the later to
occur of
12
(i) the fourth business day after the date of this Agreement, (ii) the third
business day after the d ate the Firm Shares are first offered to the public, or
(iii) as provided in Section 9 of this Agreement. The date and hour of delivery
and payment for the Firm Shares are referred to in this Agreement as the
"Closing Date." As used in this Agreement, "business day" means a day on which
the New York Stock Exchange is open for trading and on which banks in New York
are open for business and not permitted by law or executive order to be closed.
(d) If any of the options granted by Option Selling Stockholder in
Section 2(b) above shall be exercised after 10:00 a.m., New York time, on the
date two business days preceding the Closing Date, delivery of certificates for
the Option Shares, and payment therefor, shall be made at the office of
Cruttenden Xxxx Incorporated, 00000 Xxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxx
00000, at 10:00 a.m., New York time, on the date specified by the Representative
(which date shall not be earlier than four and not later than 10 full business
days after the exercise of said option, nor in any event prior to the Closing
Date, and such time and date is referred to herein as the "Option Closing
Date"). Time shall be of the essence and delivery at the time and place
specified in this subsection (d) is a further condition to your obligations
hereunder.
(e) Payment of the purchase price for the Firm Shares and the Option
Shares by the Underwriters, less any reimbursable expenses provided for in
----
Section 4(a) of this Agreement and the non-accountable expense allowance
provided for in Section 4(b) of this Agreement, shall be made by certified or
official bank check or checks drawn in next-day funds, payable to the order of
the Company with regard to the Company Shares, and to each such Selling
Stockholder (or the Custodian for the respective accounts of the Selling
Stockholders, if applicable) with regard to the Shares being purchased from such
Selling Stockholders (and the Company and such Selling Stockholders agree not to
deposit or permit deposit of any such check in the bank on which drawn until the
day following the date of its delivery to the Company or the Custodian, as the
case may be) or by wire transfer to the account of the Company or such Selling
Stockholder pursuant to wire transfer instructions provided by the Company and
such Selling Stockholder, respectively. Such payment shall be made upon
delivery of certificates for the Shares to you for the account of the
Underwriters. Certificates for the Shares to be delivered to you shall be
registered in such name or names and shall be in such denominations as the
Representative may request at least two business days before the Closing Date,
in the case of Firm Shares, and at least one business day prior to the Option
Closing Date, in the case of the Option Shares. Such certificates will be made
available to the Representative for inspection, checking and packaging at such
office or such other location as you may reasonably request, not less than one
full business day prior to the Closing Date or, in the case of the Option
Shares, by 3:00 p.m., New York time, on the first business day preceding the
date of purchase.
(f) It is understood that the Underwriters propose to offer the
Shares for sale to the public as soon as the Representative deems it advisable
to do so (the "Public Offering"). The Firm Shares are to be initially offered to
the public at the public offering price set forth in the Prospectus (the "Public
Offering Price"). The Underwriters may from time to time thereafter change the
public offering price and other selling terms.
(g) The statements in the first, third, seventh and last paragraphs
under the caption "Underwriting" in any Preliminary Prospectus and in the final
form of Prospectus filed pursuant to
13
Rule 424(b) constitute the only information furnished by the Underwriters to the
Company for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement.
3. Further Agreements of the Company. The Company covenants and agrees
with the Underwriters as follows:
(a) The Company will use its best efforts to cause the Registration
Statement, and any amendment thereof, if not effective at the time of execution
of this Agreement, to become effective as promptly as possible. If the
Registration Statement has become or becomes effective pursuant to Rule 430A, or
filing of the Prospectus is otherwise required under Rule 424(b), the Company
will file the Prospectus, properly completed (and in form and substance
reasonably satisfactory to counsel for the Underwriters) pursuant to Rule 424(b)
within the time period prescribed and will provide evidence satisfactory to the
Representative of such timely filing. The Company will not file the Prospectus,
any amended Prospectus, any amendment of the Registration Statement or
supplement to the Prospectus or make any filing under Rule 462(b) of the Rules
and Regulations without advising the Representative of, and furnishing the
Underwriters with copies thereof a reasonable time prior to the proposed filing
of, such amendment or supplement and without obtaining the prior consent of the
Representative to such filing. The Company will prepare and file with the
Commission, promptly upon the request of the Representative, any amendment to
the Registration Statement or supplement to the Prospectus that may be necessary
or advisable in connection with the distribution of the Shares by you, and use
its best efforts to cause the same to become effective as promptly as possible.
(b) The Company will promptly advise the Representative (i) when the
Registration Statement shall have become effective, (ii) when any amendment
thereof shall have become effective, (iii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the Prospectus
or for any additional information, (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (v) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The Company will use its best
efforts to prevent the issuance of any such stop order or suspension and, if
issued, to obtain as soon as possible the withdrawal thereof.
(c) The Company will (i) on or before the Closing Date, deliver to
each of you and your counsel a conformed copy of the Registration Statement as
filed and of each amendment thereto filed prior to the time the Registration
Statement becomes effective and, promptly upon the filing thereof, a conformed
copy of each 462(b) Registration Statement and post-effective amendment, if any,
to the Registration Statement (together with, in each case, all exhibits thereto
unless previously furnished to you) and all documents filed by the Company with
the Commission under the Exchange Act and deemed to be incorporated by reference
into any Preliminary Prospectus or the Prospectus, and will also deliver to you,
for distribution to the Underwriters, a sufficient number of additional
conformed copies of each of the foregoing (excluding exhibits) so that one copy
of each may be distributed to each Underwriter, (ii) as promptly as possible
deliver to the Underwriters, at such office or offices as you may designate, as
many copies of any Preliminary Prospectus and the Prospectus as you may
reasonably request and (iii) thereafter from time to time
14
during the period in which a prospectus is required by law to be delivered by an
Underwriter or a dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended Prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or a dealer any event shall
occur as a result of which it is necessary to supplement or amend the Prospectus
in order to make the Prospectus not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser of the Shares, or if it
shall be necessary to amend or to supplement the Prospectus to comply with the
Securities Act or the Rules and Regulations, the Company will forthwith prepare
and file with the Commission a supplement to the Prospectus or an amended
Prospectus so that the Prospectus as so supplemented or amended will not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading, and so that it then will otherwise comply with the
Securities Act and the Rules and Regulations. If, after the public offering of
the Shares by the Underwriters and during such period, the Underwriters shall
propose to vary the terms of offering thereof by reason of changes in general
market conditions or otherwise, you will advise the Company in writing of the
proposed variation, and, if in the opinion either of counsel for the Company or
of counsel for the Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended prospectus
setting forth such variation. The Company authorizes the Underwriters and all
dealers to whom any of the Shares may be sold by the Underwriters to use the
Prospectus, as from time to time amended or supplemented, in connection with the
sale of the Shares in accordance with the applicable provisions of the
Securities Act and the Rules and Regulations for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any 462(b) Registration
Statement, post-effective amendment to the Registration Statement and any
supplement to the Prospectus or any amended Prospectus proposed to be filed.
(f) The Company will cooperate with you and your counsel in the
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or a dealer,
in keeping such qualifications in good standing under said securities or Blue
Sky laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction in which it is not so qualified. The Company
will, from time to time, prepare and file such statements, reports, and other
documents as are or may be required to continue such qualifications in effect
for so long a period as you may reasonably request for distribution of the
Shares.
(g) During a period of five years commencing with the date of this
Agreement, the Company will promptly furnish to you, and to each Underwriter who
may so request in writing, copies of all periodic and special reports furnished
to stockholders of the Company, of all
15
information, documents and reports filed with Commission, any securities
exchange or the National Association of Securities Dealers, Inc. and of all
press releases and material news items or articles in respect of the Company,
its products or affairs released or prepared by the Company (other than
promotional and marketing materials disseminated solely to customers and
potential customers of the Company in the ordinary course of business); and any
additional information concerning the Company or its business which you may
reasonably request.
(h) As soon as practicable, but not later than the 45th day following
the end of the fiscal quarter first ending after the first anniversary of the
Effective Date, the Company will make generally available to its securities
holders and furnish to the Underwriters an earnings statement or statements in
accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(i) The Company agrees that it will cause each of its executive
officers and directors and those other Material Holders designated by the
Representative prior to the date of this Agreement to enter into agreements with
the Representative to the effect that they will not, directly or indirectly,
without your prior written consent, sell, offer, contract to sell, grant any
option to purchase, or otherwise dispose of any shares of Common Stock, or any
securities convertible into, exchangeable for or exercisable for Common Stock,
or any rights to purchase or acquire Common Stock (other than intra-family
transfers or transfers to trusts for estate planning purposes) for a period of
six months after the Closing Date.
(j) The Company will apply the net proceeds from the offering
received by it in the manner set forth under the caption "Use of Proceeds" in
the Prospectus and will file such reports with the Commission with respect to
the sale of the Shares and the application of the proceeds therefrom as may be
required pursuant to Rule 463 of the Rules and Regulations.
(k) The Company will, prior to the date of this Agreement, and at all
times thereafter, unless such securities are then listed on a national
securities exchange, use its best efforts to cause the Shares and
Representative's Warrant Stock to be included for quotation on the Nasdaq
National Market, and the Company will comply with all registration, filing,
reporting and other requirements of the Exchange Act and the Nasdaq National
Market which may from time to time be applicable to the Company. The Company
further agrees not to delist from the Nasdaq National Market without the
Representative's approval, unless required to do so by the Nasdaq National
Market. As soon as practicable after the Shares become eligible therefor, the
Company will apply for listing in one or more securities manuals (such as
Xxxxx'x Over-the-Counter Industrial Manual or Standard & Poor's Corporation
Description Manual).
(l) The Company will use its best efforts to maintain insurance of
the types and in the amounts which it deems adequate for its business and
consistent with insurance coverage maintained by companies of similar size and
engaged in similar businesses, including, but not limited to, general liability
insurance covering all real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against. The Company will use its best efforts to obtain and
maintain a reasonable amount of Directors and Officers liability insurance from
a reputable insurer, and the level of coverage as well as the identity of the
insurer shall be reasonably acceptable to the Representative.
16
(m) In accordance with the Representative's Warrants, the Company
agrees, upon its receipt from the Representative of the sum of $160.00 in
payment therefor, to deliver to the Representative on the Closing Date upon
completion of the purchase and sale of the Shares pursuant to Section 2 of this
Agreement, the Representative's Warrants representing the right to purchase up
to 160,000 shares of Common Stock at a price equal to 165% of the offering price
per share of Common Stock to the public as set forth on the cover page of the
Prospectus.
(n) The Company shall use its best efforts to retain in their current
positions the individuals named as executive officers under the caption
"Management" in the Registration Statement for a reasonable period after the
consummation of the Public Offering.
(o) The Company shall, following the Closing Date, amend its Bylaws
to provide that it will use its best efforts to at all times maintain at least
two (2) independent directors (that is directors that are not officers of the
Company, who are neither related to its officers nor represent concentrated or
family holdings of the Company's shares, and who, in the view of the Company's
board of directors, are free of any relationship that would interfere with the
exercise of independent judgement (the "Independent Directors"). The Independent
Directors shall constitute a majority of the Company's audit and compensation
committees.
(p) Except in connection with acquisitions or shares of Common Stock
issuable upon exercise of options or warrants outstanding prior to the Closing
Date and except for the grant of options to its officers and employees under the
Company's 1998 Stock Option Plan at an exercise price equal to the Public
Offering Price per share, during the period of the offering, and for a period of
six months from the Closing Date, the Company will not (i) sell or otherwise
dispose of any securities of the Company (except pursuant to the Company's
employee benefit plans described in the Registration Statement) or (ii) purchase
any shares of capital stock of the Company (except for fractional shares
purchased pursuant to the recently approved 3-for-4 reverse stock split of the
Company's Common Stock), without your prior written consent.
(q) During the period of two (2) years commencing with the date of
this Agreement, the Company's Chief Executive Officer or Chief Financial Officer
will visit the United States investor community twice each year, stopping once
on the West Coast, once on the East Coast, and once in the Midwest on each trip,
as reasonably directed by the Representative.
(r) The Company will instruct its transfer agent to provide you with
copies of the Depository Trust Company stock transfer sheets on a weekly basis
for a period of six months from the Closing Date and on a monthly basis
thereafter for six additional months.
(s) The Company will reserve and keep available that maximum number
of its authorized but unissued securities which are issuable upon exercise of
the Representative's Warrants.
4. Fees and Expenses. The Company agrees with each Underwriter that:
(a) The Company shall pay all costs and expenses incident to the
purchase, sale and delivery of the Shares, including without limitation, all
fees and expenses of filing the Registration Statement with the SEC and the
NASD; all Blue Sky fees and expenses, including legal
17
fees and expenses, if any, of the Underwriters' counsel (which shall undertake
all such Blue Sky matters); fees and disbursements of counsel and accountants
for the Company; printing and mailing costs, including costs of printing the
Registration Statement, any amendments thereto, all underwriting documents, Blue
Sky memoranda and a reasonable quantity of prospectuses as determined by the
Representative; the Company's road show cost and expenses; and the cost of
preparing a total of four (4) sets of bound volumes of the Public Offering
documents for the Representative and Underwriters' counsel. The Company shall
also pay for the cost of advertising the Public Offering, including the cost of
"tombstone" ads in various financial and news publications or other promotional
material as directed by the Representative and shall pay for all other expenses
for advertising undertaken at the Company's request, including graphic slide
costs. The Underwriters shall pay the fees and disbursements of its counsel,
with the exception of the Blue Sky fees described above, and the
Representative's road show costs and expenses. Any additional expenses incurred
as a result of the sale of the Shares by the Selling Stockholders will be borne
by the Company. The provisions of this Section 4(a) are intended to relieve the
Underwriters from the payment of the expenses and costs which the Selling
Stockholders and the Company, as the case may be, have agreed to pay, but shall
not affect any agreement which the Selling Stockholders 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
Stockholders hereunder to the several Underwriters.
(b) In addition to its obligations under Section 4(a) above, the
Company agrees with the Representative to pay the Representative a non-
accountable expense allowance equal to three percent (3%) of the aggregate
Public Offering Price of the Shares (including the Firm Shares to be sold by the
Firm Selling Stockholders) sold by them in the Public Offering. Such allowance,
less $50,000 which was paid to the Representative by the Company as an advance
against non-accountable expenses, shall be paid to the Representative by the
Company, as provided in Section 2(d) of this Agreement. The Representative
agrees to repay to the Company any portion of the $50,000 paid by the Company
for non-accountable expenses that has not been utilized by the Representative in
connection with the Public Offering on an accountable basis.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from any Underwriter or from any other person for
services as a finder in connection with the proposed offering, and the Company
agrees to indemnify and hold harmless you, and you agree to indemnify and hold
harmless, the Company from and against any losses, claims, damages or
liabilities, (which shall, for all purposes of this Agreement, include, but not
be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees), to which the indemnified party may become subject
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the claim of any person (other than an
employee of the party claiming indemnity) or entity that he or it is entitled to
a finder's fee in connection wit the proposed offering by reason of such
person's or entity's influence or prior contact with the indemnifying party.
(d) In addition to its other obligations under Section 7(a) hereof,
the Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding described in Section 7(a)
hereof, it will pay the Underwriters on a monthly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
18
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Company's obligation to pay the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Company together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) listed from time to time in
The Wall Street Journal which represents the base rate on corporate loans posted
by a substantial majority of the nation's thirty (30) largest banks (the "Prime
Rate"). Any such interim payments which are not made to the Underwriters within
thirty (30) days of a request for reimbursement shall bear interest at the Prime
Rate from the date of such request.
(e) In addition to their other obligations under Section 7(b) hereof,
each Selling Stockholder agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding described in
Section 7(b) hereof relating to such Selling Stockholder, it will pay the
Underwriters on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of such Selling
Stockholder's obligation to pay the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Selling Stockholders, together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Underwriters within
thirty (30) days of a request for reimbursement shall bear interest at the Prime
Rate from the date of such request.
(f) In addition to its other obligations under Section 7(c) hereof,
the Underwriters agree that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding described in Section
7(c) hereof, it will reimburse the Company and each such Selling Stockholder on
a monthly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Stockholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Stockholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(g) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 4(d), (e) and (f)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on
19
which such amounts shall be apportioned among the reimbursing parties, shall be
settled by arbitration conducted pursuant to the Code of Arbitration Procedure
of the NASD in Los Angeles County, California. Any such arbitration may be
commenced by service of a written demand for arbitration or a written notice of
intention to arbitrate, therein electing the arbitration tribunal. In the event
the party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Any such arbitration will be limited to the
operation of the interim reimbursement provisions contained in Sections 4(d),
(e) and (f) hereof and will not resolve the ultimate propriety or enforceability
of the obligation to indemnify for expenses which is created by the provisions
of Sections 7(a), 7(b) and 7(c) hereof or the obligation to contribute to
expenses which is created by the provisions of Section 7(e) hereof.
5. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Shares shall be subject, in the sole
discretion of the Representative, to the accuracy as of the date of execution of
this Agreement, the Closing Date and the date on which the Option Shares are to
be purchased, as the case may be, of the representations and warranties of the
Company and the Selling Stockholders set forth in this Agreement, to the
accuracy of the statements of the Company and its officers made in any
certificate delivered pursuant to the terms of this Agreement, to the
performance by the Company and the Selling Stockholders of all of its
obligations to be performed under this Agreement at or prior to the Closing Date
or any later date on which Option Shares are to be purchased, as the case may
be, and to the following additional conditions:
(a) The Registration Statement shall have become effective, (or, if a
post-effective amendment is required to be filed pursuant to Rule 430A under the
Act, such post-effective amendment shall become effective) and, at the Closing
Date, or, with respect to the Option Shares, the date on which such Option
Shares are to be purchased, no stop order suspending the effectiveness of the
Registration Statement or any qualification or exemption from qualification for
the sale of the Shares in any jurisdiction shall have been issued and no
proceedings for that purpose shall have been instituted or threatened; and any
request for additional information on the part of the Commission shall have been
complied with to the reasonable satisfaction of the Underwriters and their
counsel.
(b) The Underwriters shall have received from Freshman, Marantz,
Orlanski, Xxxxxx & Xxxxx, a law corporation, counsel for the Underwriters, an
opinion dated the Closing Date, with respect to such matters related to the
Public Offering as the Underwriters may reasonably require, and the Company
shall have furnished counsel for the Underwriters with the legal opinion of its
counsel and all other documents which it may request for the purpose of enabling
it to pass upon such matters.
(c) You shall have received on the Closing Date and on any Option
Closing Date on which Option Shares are purchased, as the case may be, the
opinion of Xxxx & Xxxxx Professional Corporation, United States counsel for the
Company, addressed to the Underwriters and dated the Closing Date or such later
date, to the effect set forth in Annex A to this Agreement.
(d) You shall have received on the Closing Date and on any Option
Closing Date on which Option Shares are purchased, as the case may be, the
opinion of Xxxxxx Xxxx & Co.,
20
Hong Kong counsel for the Company, addressed to the Underwriters and dated the
Closing Date or such later date, to the effect set forth in Annex B to this
Agreement.
(e) You shall have received on the Closing Date and on any Option
Closing Date on which Option Shares are purchased, as the case may be, the
opinion of The Fada Law Firm, Peoples' Republic of China counsel for the
Company, addressed to the Underwriters and dated the Closing Date or such later
date, to the effect set forth in Annex C to this Agreement.
(f) You shall have received on the Closing Date and on any Option
Closing Date on which Option Shares are purchased, as the case may be, the
opinion of Xxxxxx X. Xxxxxxx, Esq., counsel to the Firm Selling Stockholders,
addressed to the Underwriters and dated the Closing Date or such later date, to
the effect set forth in Annex D to this Agreement.
(g) In addition, on any Option Closing Date, you shall have received
the opinion of Xxxxxx Xxxx & Co., counsel for Option Selling Stockholder,
addressed to the Underwriters and dated the Option Closing Date, covering the
matters set forth in Annex D to this Agreement.
(h) You shall be satisfied that there has not been any material
change in the market for securities in general or in political, financial or
economic conditions from those reasonably foreseeable as to render it
impracticable in your sole judgment to make a public offering of the Shares, or
a material adverse change in market levels for securities in general (or those
of companies in particular) or financial or economic conditions which render it
inadvisable to proceed.
(i) You shall have received on the Closing Date and on any Option
Closing Date on which Option Shares are purchased a certificate, dated the
Closing Date or such later date, as the case may be, and signed by the Chief
Executive Officer and the Chief Financial Officer of the Company, stating that:
(i) the representations and warranties of the Company set forth
in Section 1 of this Agreement are true and correct with the same force and
effect as if expressly made at and as of such date, and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such date;
(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, to the best of their knowledge, are
threatened under the Securities Act;
(iii) the Common Stock has been duly designated for listing on
the Nasdaq National Market beginning no later than the time Firm Shares are
first offered to the public; and
(iv) (A) they have carefully examined the Registration
Statement in the form in which it originally became effective and the Prospectus
and any supplements or amendments thereto, and that, as of the Effective Date,
the statements made in the Registration Statement and the Prospectus were true
and correct in all material respects, and the Registration Statement did not
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and the Prospectus did not
omit to state any material fact required to be stated
21
therein or necessary in order to make the statements therein, in light of the
circumstance under which they were made, not misleading, (B) since the Effective
Date, no event has occurred that should have been set forth in a supplement or
amendment to the Prospectus that has not been set forth in such a supplement or
amendment, (C) since the respective dates as of which information is given in
the Registration Statement in the form in which it originally became effective
and the Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change in or
affecting the business, properties, condition (financial or otherwise),
capitalization, prospects or results of operations of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in the
ordinary course of business, and, since such dates, except in the ordinary
course of business, neither the Company nor any of its subsidiaries has entered
into any material transaction not referred to in the Registration Statement in
the form in which it originally became effective and the Prospectus contained
therein, (D) there are not any pending or known threatened legal proceedings to
which the Company or any of its subsidiaries is a party or of which property of
the Company or any of its subsidiaries is the subject which are material and
which are not disclosed in the Registration Statement and the Prospectus, and
(E) there are not any license agreements, contracts, leases or other documents
that are required to be filed as exhibits to the Registration Statement that
have not been filed as required.
(j) You shall have received on the Closing Date and on any Option
Closing Date later date on which Option Shares are to be purchased, as the case
may be, a letter from Xxxxxx Xxxxxxxx & Co., addressed to the Company and 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 the Company within the meaning of
the Securities 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 "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 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 Original Letter which are necessary to reflect any changes in
the facts described in the 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 disclose any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company 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 Original Letter from
Xxxxxx Xxxxxxxx & Co. shall be addressed to or for the use of the Underwriters
in form and 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 its opinion with respect to its
examination of the balance sheet of the Company as of December 31, 1996 and 1997
and related statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1995, 1996 and 1997, (iii) state that Xxxxxx
Xxxxxxxx & Co. has performed the procedure set out in Statement on Auditing
Standards No. 71 ("SAS 71") for a review of interim financial information as
described in SAS 71 on the financial statements of the Company for each of the
nine-month
22
periods ended September 30, 1997 and 1998, and (iv) address other matters agreed
upon by Xxxxxx Xxxxxxxx & Co. and you. In addition, you shall have received from
Xxxxxx Xxxxxxxx & Co. a letter addressed to the Company and made available to
the Underwriters stating that its review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of its examination of the Company's financial statements as of December
31, 1997 did not disclose any weaknesses in internal controls that they
considered to be material weaknesses.
(k) The Common Stock has been duly designated for listing on the
Nasdaq National Market effective no later than the time Firm Shares were first
offered to the public.
(l) On or prior to the Closing Date, you shall have received from the
Company's officers and directors and all Material Holders executed lock-up
agreements covering the matters described in Section (1)(xvi) of this Agreement.
(m) On the Closing Date, the Company shall have issued the
Representative's Warrant Agreement and Representative's Warrants, substantially
in the form filed as Exhibit 4.2 to the Registration Statement; and on the
Closing Date, concurrently with the purchase and sale of the Shares, the Company
shall have issued, sold and delivered the Representative's Warrants to the
Representative.
(n) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be, from each Selling Stockholder or the
Attorney to the effect that, as of the Closing Date, or any later date on which
Option Shares are to be purchased, as the case may be, they have not been
informed that:
(i) The representations and warranties made by such Selling
Stockholder herein are not true or correct in any material respect on the
Closing Date or on any later date on which Option Shares are to be purchased, as
the case may be; or
(ii) Such Selling Stockholder has not complied with any
obligation or satisfied any condition which is required to be performed or
satisfied on the part of such Selling Stockholder at or prior to the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be.
(o) The Company and the Selling Stockholders shall have furnished to
you such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling Stockholders or
officers of the Selling Stockholders (when the Selling Stockholder is not a
natural person)), as to the accuracy of the representations and warranties of
the Company and the Selling Stockholders set forth in this Agreement, as to the
performance by the Company and the Selling Stockholders of its obligations under
this Agreement and as to the other conditions concurrent and precedent to the
obligations of the Underwriters under this Agreement.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement will be in compliance with the provisions of this
Agreement only if they are reasonably satisfactory to Freshman, Marantz,
Orlanski, Xxxxxx & Xxxxx, a law corporation, counsel for the
23
Underwriters. The Company and the Selling Stockholders will furnish you with
such number of conformed copies of such opinions, certificates, letters and
documents as you shall reasonably request.
If any of the conditions specified in this Section 5 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriters and its counsel, this Agreement and all
obligations of the Underwriters hereunder may be canceled by the Underwriters
at, or at any time prior to, the Closing Date or (with respect to the Option
Shares) prior to the Option Closing Date upon which the Option Shares are to be
purchased, as the case may be. Notice of such cancellation shall be given to
the Company in writing or by telephone, telecopy or telegraph confirmed in
writing. Any such termination shall be without liability of the Company or the
Selling Stockholders to the Underwriters (except as provided in Section 4 or
Section 7 of this Agreement) and without liability of the Underwriters to the
Company or the Selling Stockholders (except to the extent provided in Section 7
of this Agreement).
6. Conditions of the Obligation of the Company. The obligations of the
Company and the Selling Stockholders to sell and deliver the Shares required to
be delivered as and when specified in this Agreement shall be subject to the
condition that at the Closing Date or (with respect to the Option Shares) the
date upon which the Option Shares are to be purchased, no stop order suspending
the effectiveness thereof shall be in effect and no proceedings therefor shall
be pending or threatened by the Commission.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Underwriters against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are 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, (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 light of the circumstances under which they were
made, not misleading, and agrees to 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, or (iv) any untrue
statement or alleged untrue statement of a material fact contained in any
application or other document, or any amendment or supplement thereto, executed
by the Company or based upon written information furnished by or on behalf of
the Company filed in any jurisdiction in order to qualify the Shares under the
securities or Blue Sky laws thereof or filed with the Commission or any
securities association or securities exchange, or the omission or alleged
omission to state therein a
24
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; 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 furnished to the Company by such Underwriter, directly or
through you, specifically for use in the preparation thereof and, provided
further, that the indemnity agreement provided in this Section 7(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 4(d) hereof. The indemnity agreements of the Company contained in
this Section 7(a) and the representations and warranties of the Company
contained in Section 1 of this Agreement shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Shares.
The indemnity agreement in this Section 7(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any of the Underwriters 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 Stockholder agrees, severally and not jointly, to
indemnify and hold harmless the Underwriters against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject
under the Act, the Exchange Act or otherwise, specifically including, but not
limited to, losses, claims, damages or liabilities, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any breach of any representation, warranty, agreement or
covenant of such Selling Stockholders 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 light of the circumstances under which they were made, not misleading, in
the case of subparagraphs (ii) and (iii) of this Section 7(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 to the Company by such Underwriter, directly or
through you, specifically for use in the preparation thereof, and agrees to
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 further, that the indemnity agreement
provided in this Section 7(b) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter
25
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 such Selling
Stockholder with Section 4(e) hereof.
The indemnity agreements of the Selling Stockholders contained in this
Section 7(b) and the representations and warranties of the Selling Stockholders
contained in Section 1 of this Agreement shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Shares.
(c) The Underwriters severally agree, each in proportion to the
number of Firm Shares to be purchased by such Underwriter bears to the total
number of Firm Shares to be purchased pursuant to section 2(a) hereof, to
indemnify and hold harmless the Company, and each Selling Stockholder, against
any losses, claims, damages or liabilities, joint or several, to which the
Company or such Selling Stockholder may become subject under the Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any breach of any
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 7(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 Stockholder for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 7(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 Registration Statement and each director of the
Company, each Selling Stockholder, and each person, if any, who controls the
Company or each Selling Stockholder within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any liabilities
which the Underwriters may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section
7 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 7, notify the indemnifying party in writing of the commencement
thereof but the omission so to notify the indemnifying party will not
26
relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 7. 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 7 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 7(a), 7(b) or 7(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 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 7
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) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 7 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 the Underwriters are
responsible for the portion represented by the percentage that the underwriting
discount bears to the initial public offering price, and the Company and the
Selling Stockholders are responsible for the remaining portion; provided,
however, that (i) the Underwriters shall not be required to contribute any
amount in excess of the underwriting discount and non-accountable expense
allowance (less the Underwriters' actual out-of-pocket expenses on an
accountable basis, including legal fees and expenses) applicable to the Shares
purchased by such Underwriter in excess of the amount of
27
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
7(e) shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any of the Underwriters, the
Company or any Selling Stockholder 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 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 7, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 7 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 7, 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 7 and further agree not to attempt to
assert any such defense.
8. 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 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, but nothing herein shall relieve a defaulting underwriter from
liability for its default.
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 but nothing herein shall relieve a defaulting underwriter from
liability for its default. 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
nondefaulting 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
28
as provided in this Section 8, (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 or supplements to the Prospectus 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 8, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 4
and 7 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
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 4 and 7 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 8.
9. Effective Date of Agreement and Termination.
(a) If the Registration Statement has not been declared effective
prior to the date of this Agreement, this Agreement shall become effective at
such time, after notification of the effectiveness of the Registration Statement
has been released by the Commission, as you shall release the Shares to the
public. If you shall not have released the Shares prior to 5:00 p.m., New York
time, on the fifth full business day after the Registration Statement shall have
become effective, this Agreement shall thereupon terminate without liability on
the part of the Underwriters to the Company or Selling Stockholders, except as
set forth in Section 4 and Section 7 of this Agreement. By giving notice as set
forth in Section 10 of this Agreement before the time this Agreement becomes
effective, you, as Representative, may prevent this Agreement from becoming
effective without liability of any party to the other parties, except that the
Company and the Selling Stockholders shall remain obligated to pay costs and
expenses to the extent provided in Section 4 and Section 7 of this Agreement. If
the Registration Statement has been declared effective prior to the date of this
Agreement, this Agreement shall become effective upon execution and delivery by
you, the Company and each Selling Stockholder (which may be by power-of-
attorney).
(b) This Agreement may be terminated by you in your absolute
discretion by giving written notice to the Company and each Selling Stockholder
(which may be through power-of-attorney) at any time on or prior to the Closing
Date or, with respect to the purchase of the Option Shares, on or prior to any
later date on which the Option Shares are to be purchased, as the case may be,
if prior to such time any of the following has occurred or, in your opinion, is
likely to occur: (i)
29
after the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or development
involving a prospective adverse change in or affecting particularly the
condition (financial or otherwise) of the Company and its subsidiaries
considered as a whole or the earnings, prospects or business affairs of the
Company and its subsidiaries considered as a whole, whether or not arising in
the ordinary course of business, which would materially impair the investment
quality of the offered securities; or (ii) if there shall have been the
engagement in major hostilities or an escalation of major hostilities by the
United States or the declaration of war or a national emergency by the United
States on or after the date hereof, or any outbreak of major hostilities or
other national or international calamity or crisis or material adverse change in
economic or political conditions, if the effect of such outbreak, calamity,
crisis or material adverse change in economic or political conditions on the
financial markets of the United States would, in your sole judgment, make the
offering or delivery of the Shares impracticable, or (iii) if there shall have
been suspension of trading in securities generally or a material adverse decline
in value of securities generally on the New York Stock Exchange, the American
Stock Exchange, or The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, or (iv) if there shall have been the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of, or commencement of any proceeding or investigation
by, or change in material substantive policy by, any court, legislative body,
agency or other foreign or domestic governmental authority which in your sole
judgment materially and adversely affects or will materially adversely affect
the business, operations or prospects of the Company and its subsidiaries
considered as a whole, or (v) if there shall have been the declaration of a
banking moratorium by United States, New York or California state authorities,
or (vi) if there shall have been the taking of any action by any United States,
state or local government or agency in respect of its monetary or fiscal affairs
which in your reasonable judgment has a material adverse effect on the
securities markets in the United States or (vii) existing international monetary
conditions shall have undergone a material change which, in your sole judgment,
makes the offering or delivery of the Shares impracticable. If this Agreement
shall be terminated pursuant to this Section 9, there shall be no liability of
the Company or the Selling Stockholders to the Underwriters and no liability of
the Underwriters to the Company or the Selling Stockholders (except to the
extent provided in Section 4 or Section 7 of this Agreement); provided, however,
that in the event of any such termination the Company agrees to indemnify and
hold harmless the Underwriters from all costs or expenses of the Company
incident to the performance of the obligations of the Company under this
Agreement, including all costs, expenses and advances referred to in Section 4
of this Agreement.
10. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by either telecopier or telegraph and, if to
the Underwriters, shall be mailed, telecopied or telegraphed or delivered to
Cruttenden Xxxx Incorporated ,18301 Xxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxx
00000 (telecopier: (000) 000-0000) Attention: Managing Director Corporate
Finance; and if to the Company or the Option Selling Stockholders, shall be
mailed, telecopied, telegraphed or delivered to Xxxxx Ind. Bldg., 0/xx/ Xxxxx,
00 Xxxxxxx Xxxx, Xxxxxxxxx, Xxxxxxx, Xxxx Xxxx (telecopier: (000) 0000-0000);
and if to the Firm Selling Stockholders, shall be mailed, telecopied or
telegraphed or delivered to Xxxxxx Xxxxxxxxxx, x/x Xxxxxx X. Xxxxxxx, Xxx., 00
Xxxx Xxxxxxx Road, Site 000, Xxxxxxxxxx Xxxxxxx, Xxx Xxxx 00000 (telecopier
(000) 000-0000). All notices given by telecopy or telegraph shall be promptly
confirmed by letter.
30
11. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of the Company, each Selling Stockholder and the Underwriters
and, with respect to the provisions of Section 4 and Section 7 of this
Agreement, the several parties (in addition to the Company, each Selling
Stockholder and the Underwriters) indemnified under the provisions of said
Section 4 and Section 7, and their respective personal representatives,
successors and assigns. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Shares from the
Underwriters.
12. Miscellaneous. Notwithstanding any provision of this Agreement to the
contrary, the reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company,
each Selling Stockholder or their respective directors, officers or controlling
persons thereof, and (c) delivery and payment for the Shares under this
Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall constitute an original, but all of which together shall constitute one and
the same instrument.
13. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE, AND TO BE PERFORMED, SOLELY WITHIN THAT STATE.
14. Submission to Jurisdiction and Waiver of Immunity and Inconvenient
Forum. Subject to the arbitration provisions of 4(g), the Company and each
Selling Stockholder agree that any and all disputes arising in connection with
this Underwriting Agreement and the transactions contemplated by this
Underwriting Agreement, including the offer and sale of the Firm Shares and the
Option Shares, may be brought in any state or federal court of record located in
the County of Los Angeles, State of California. By its signature to this
Agreement, the Company and each Selling Stockholder irrevocably submit to the
jurisdiction of the state and federal courts located in the County of Los
Angeles, State of California, in any legal action or proceeding relating to this
Underwriting Agreement and the transactions contemplated by this Underwriting
Agreement, including the offer and sale of the Firm Shares and the Option
Shares.
The Company and each Selling Stockholder irrevocably waive all immunity
from jurisdiction, attachment and execution, whether on the basis of sovereignty
or otherwise, to which each of them respectively might otherwise be entitled in
any legal action or proceeding in any state or federal court located in the
County of Los Angeles, State of California. The Company and each Selling
Stockholder irrevocably waive, to the fullest extent permitted by law, any
objection which it may now or hereafter have to any suit, action or proceeding
relating to this Underwriting Agreement and the transactions contemplated by
this Underwriting Agreement, including the offer and the sale of the Firm Shares
and the Option Shares, being brought in the federal or state courts located in
the County of Los Angeles, State of California, and hereby further irrevocably
waive any
31
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
32
If the foregoing correctly sets forth the understanding among the Company,
the Selling Stockholders and the 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 Stockholders and the
Underwriters.
Very truly yours,
CREATIVE MASTER INTERNATIONAL, INC.
By: ___________________________
Name:
Title:
ACMA INVESTMENTS PTE., LTD.
By: ___________________________
Xxxx Xxxx
Attorney-in-fact
XXXXXX XXXXXXXXXX
________________________________
XXXX XXXXXXXXXX
________________________________
MODERN TECHNOLOGY CORP.
By: ___________________________
Xxxxxx X. Xxxxxxxxxx
President
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
CRUTTENDEN XXXX INCORPORATED
By: ___________________________
Name:
Title:
33
SCHEDULE A
Number of
Firm
Shares to be
Underwriters Purchased
------------ ------------
Cruttenden Xxxx Incorporated...........................
TOTAL..................................................
---------
1,600,000
=========
SCHEDULE B
Number of
Company
Shares to be
Company Sold
------- ------------
Creative Master International, Inc. ................. 1,575,276
---------
TOTAL 1,575,276
=========
Number of
Selling
Stockholder
Shares to be
Name of Selling Stockholder Sold
--------------------------- ------------
Xxxxxx Xxxxxxxxxx.................................... 33,047
Xxxx Xxxxxxxxxx...................................... 4,102
Modern Technology Corp. ............................. 37,575
------
TOTAL 74,724
======
ANNEX A
Matters to be Covered in the Opinion of
Xxxx & Xxxxx Professional Corporation
United States Counsel for the Company
(1) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware. Each of
the Company and each of its subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in the United
States, if any, in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure so
to qualify would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise.
(2) The Company has the corporate power to own, lease and operate its
properties and to conduct its business as described in the Prospectus.
(3) The authorized, 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 have been duly and validly authorized and issued, are fully paid and
nonassessable and to such counsel's knowledge have not been issued in violation
of any preemptive right, co-sale right, right of first refusal or other similar
right.
(4) To the best knowledge of such counsel, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to securities of
the Company and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having rights to
registration of such 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 hereby, waived such rights or such rights have expired by
reason of lapse of time following notification of the Company's intent to file
the Registration Statement, or have included securities in the Registration
Statement pursuant to the exercise of such rights.
(5) The Shares to be issued and sold by the Company will be, upon issuance
and delivery against payment therefor in accordance with the terms of the
Agreement, duly authorized and validly issued and fully paid and nonassessable
and, will not have been issued in violation of any preemptive right,
registration right, co-sale right, right of first refusal or other similar right
set forth in the Certificate of Incorporation or Bylaws of the Company, or any
other contract agreement or document of which such counsel has knowledge.
(6) The Company has corporate power and authority to enter into the
Agreement and the Representative's Warrant Agreement and to issue, sell and
deliver the Shares to the Underwriters.
(7) The Agreement and the Representative's Warrant Agreement each has been
duly authorized by all necessary corporate action on the part of the Company and
each has been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery
A-1
by the Representative, are the valid and binding agreements of the Company,
except insofar as the indemnification and contribution provisions of such
agreements may be limited by public policy concerns, and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or judicial decisions relating to or affecting
creditors' rights generally or by general equitable principles.
(8) The performance of the Agreement and the Representative's Warrant
Agreement and the consummation of the transactions contemplated thereby will not
result in the breach or violation of any of the terms and provisions of the
Company's Certificate of Incorporation or Bylaws, or to the best of such
counsel's knowledge, result in the breach or violation of any of the terms and
provisions of, or constitute a default under, any material indenture, mortgage,
deed of trust, loan agreement, bond, debenture, note agreement or other evidence
of indebtedness, or any lease, license, contract or other agreement or
instrument known to such counsel to which the Company is a party or by which any
of its properties are bound, or to the best of such counsel's knowledge, (other
than performance of the Company's indemnification and contribution obligations
under such agreements, concerning which no opinion need be expressed) any
applicable statute, rule or regulation or, to the best of such counsel's
knowledge, any order, writ or decree of any court or governmental agency or body
having jurisdiction over the Company or over any of its properties or
operations; provided, however, that no opinion need be rendered concerning state
securities or Blue Sky laws.
(9) No authorization, approval or consent of any governmental authority or
agency of the United States of America is necessary in connection with the
consummation of the transactions contemplated by the Agreement and the
Representative's Warrant Agreement, except such as have been obtained under the
Securities Act or such as may be required under the rules and regulations of the
National Association of Securities Dealers, Inc., or under state securities or
Blue Sky laws in connection with the purchase and the distribution of the Shares
by the Underwriters.
(10) To the best knowledge of such counsel, neither the Company nor any of
its subsidiaries is presently in breach of, or in default under, any bond,
debenture, note or other evidence of indebtedness or any contract, indenture,
mortgage, deed of trust, loan agreement, lease, license or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which any of their properties are bound which is material to the financial
condition, earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise;
(11) The Representative's Warrant Stock has been duly and validly
authorized for issuance upon exercise of the Representative's Warrants and when
so issued in accordance with the terms thereof will be validly issued, fully
paid and non-assessable; and, to such counsel's knowledge no stockholder has any
preemptive rights with respect to the Representative's Warrant Stock.
(12) All of the information in the Prospectus, to the extent constituting
matters of law or legal conclusion under the laws of the United States of
America or the State of Delaware, has been reviewed by us and is a fair summary
of such matters and conclusions.
A-2
(13) The form of certificate evidencing the Common Stock complies with
Delaware law.
(14) The Registration Statement has become effective under the Securities
Act and 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, to the best knowledge of such counsel, threatened under the
Securities Act.
(15) To the best knowledge of such counsel, there are no agreements,
contracts, licenses, leases or documents 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 that are not described or referred to
therein and filed as required.
(16) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements, 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 Securities Act and
the applicable Rules and Regulations.
(17) To the best knowledge of such counsel, the Common Stock conforms in
all material respects to all statements in relation thereto contained in the
Prospectus.
(18) The description in the Registration Statement and the Prospectus of
the Certificate of Incorporation and Bylaws of the Company and of statutes and
contracts are accurate in all material respects and fairly present in all
material respects the information required to be presented by the Securities Act
and the Rules and Regulations.
(19) There are no legal or governmental proceedings pending or, to the best
knowledge of such counsel, threatened against the Company or any of its
subsidiaries in any jurisdiction in the United States of a character which are
required to be disclosed in the Registration Statement or the Prospectus by the
Securities Act or the applicable Rules and Regulations, other than those
described therein.
(20) The information in the Prospectus under the captions "Description of
Capital Stock" and "Shares Eligible For Future Sale," to the extent that it
constitutes matters of law or legal conclusions, has been reviewed by such
counsel and is a fair summary of such matters and conclusions.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Underwriters, Underwriters' counsel and the independent public accountants of
the Company, at which conferences the contents of the Registration Statement and
the Prospectus and related matters were discussed, and although they have not
(with the exception of the matters covered in paragraphs (12), (13) and (20) of
their opinion) independently checked or verified the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to the attention of such counsel that caused them
to believe that, at the time the Registration Statement became effective, the
Registration Statement (except as to financial statements, financial data and
supporting schedules
A-3
contained therein, as to which such counsel need express no opinion) 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 any later date on which the Option Shares
are to be purchased, as the case may be, the Prospectus (except as aforesaid)
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,
in 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 States of California or Delaware
upon opinions of local counsel, and as to questions of fact upon representations
or certificates of officers of the Company, and of government officials, in
which case their opinion is explicitly to state that they are so relying thereon
and that they have no knowledge of any material misstatement or inaccuracy in
such opinions, representations or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Underwriters, and to Underwriters' Counsel.
A-4
ANNEX B
Matters to be Covered in the Opinion of
Xxxxxx Xxxx & Co.
Hong Kong Counsel for the Company
1. Each of Creative Master Limited, Excel Master Limited, Carison
Engineering Limited, Techtime Industries Limited, Mastercraft Engineering
Limited (formerly Queenex Enterprises Limited) (the "Hong Kong subsidiaries")
has been duly registered and is validly existing as a limited liability company
in good standing under the laws of Hong Kong.
2. Each of the Hong Kong subsidiaries has the corporate power and
authority to own, lease and operate its properties and to conduct its business
in the manner currently conducted and as proposed to be conducted respectively
as described in the Prospectus.
3. The description in the Registration Statement and the Prospectus of
each of the Hong Kong subsidiaries and the relationship between the Company and
the Hong Kong subsidiaries is accurate in all material respects, and fairly
presents in all material respects the information set forth therein.
4. The Company owns all of the outstanding capital stock of each Hong
Kong Subsidiary except for Mastercraft Engineering Limited, Carison Engineering
Limited and Techtime Limited of which it owns 70%, 70% and 55%, respectively.
All of the issued and outstanding capital stock of each of the Hong Kong
subsidiaries has been duly and validly authorized and issued, is fully paid and
nonassessable, is not owned or held and has not been issued in violation of any
preemptive rights contained in the charter documents of the respective Hong Kong
Subsidiary and, to such counsel's knowledge, to the extent owned by the Company,
is owned directly by the Company free and clear of any lien, encumbrance, claim,
security interest, restriction or transfer.
5. To such counsel's knowledge, there are no outstanding options,
warrants, calls, rights or other agreements or commitments with respect to the
purchase or sale of any capital stock of any of the Hong Kong subsidiaries.
6. Those contracts which are included as exhibits to the Registration
Statement and which are made or to be performed in, or stated to be governed by
the law of, Hong Kong are valid and enforceable under Hong Kong law.
7. No authorization, approval or consent of any governmental authority or
agency of Hong Kong is necessary in connection with the consummation of the
transactions contemplated by the Agreement and the Representative's Warrant
Agreement.
8. There are no legal or governmental proceedings pending or, to the best
knowledge of such counsel, threatened against the Company or any of the Hong
Kong subsidiaries other than those, if any, described in the Registration
Statement or the Prospectus.
B-1
9. To the best of such counsel's knowledge, none of the Hong Kong
subsidiaries is presently in breach of, or in default under, any bond,
debenture, note or other evidence of indebtedness or any contract, indenture,
mortgage, deed of trust, loan agreement, lease, license or other agreement or
instrument to which each such respective company is a party or by which any of
their respective properties are bound which is material to the financial
condition, earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise.
10. All of the information in the Prospectus, to the extent constituting
matters of law or legal conclusions under the laws of Hong Kong has been
reviewed by such counsel and is a fair summary of such matters and conclusions.
11. Under the laws of Hong Kong, the submission to Jurisdiction and Waiver
of Immunity and Inconvenient Forum clause of Section 14 of the Agreement is
valid and binding upon the Company.
In addition, such counsel shall state that although they have not (with the
exception of the matters covered in paragraph 10 of their opinion) independently
checked or verified the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus relating to the
Company and its operations in Hong Kong, nothing has come to the attention of
such counsel that caused them to believe that, at the time the Registration
Statement became effective, the Registration Statement (except as to financial
statements, financial data and supporting schedules contained therein) contained
any untrue statement of a material fact, or omitted to sate a material fact
required to be stated therein or necessary to make such statements not
misleading, or at the Closing Date or any later date on which the Option Shares
are to be purchased, as the case may be, the Prospectus (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact to be stated therein or necessary to make such statements, in light of the
circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of fact
upon representations or certificates of officers of the companies which are the
subject of said opinion, and of government officials in which case their opinion
is explicitly to state that they are so relying thereon and that they have no
knowledge of any material misstatement or inaccuracy in such opinions,
representations or certificate. Copies of any opinion, representation or
certificates so relied upon shall be delivered to you, as Representative of the
Underwriters, and to Underwriters' counsel.
B-2
ANNEX C
Matters to be Covered in the Opinion of
The Fada Law Firm
China Counsel for the Company
1. Dongguan Xxxx Xx Zhen Trading Company has been duly organized and is
validly existing in good standing under the laws of China.
2. Dongguan Xxxx Xx Xxxx Trading Company has the legal capacity,
necessary power and authority to execute and perform its obligations under the
Joint Enterprise Agreement, dated September 10, 1994, the Supplement, dated
April 1, 1996, to the Joint Enterprise Agreement, and the Processing Agreement
dated June 18, 1998 (the "Joint Enterprise Agreements").
3. Dongguan Process Assembly Servicing Company has the right and power to
enter into with Creative Master Limited the Processing Agreement, dated June 11,
1995 and the Supplement dated November 11, 1995. Dongguang Process Assembly
Servicing Company has the right and power to enter into with Creative Master
Limited the Import Material & Processing Agreement dated November 10, 1995.
4. The Joint Enterprise Agreements have been validly executed by Dongguan
Xxxx Xx Zhen Trading Company and Creative Master Limited and duly approved by
the Chinese government which constitute valid and binding obligations of each of
the two parties, enforceable in accordance with their terms and conditions under
the law of China.
5. Each local Chinese government agency has the right and power to enter
into the manufacturing leases, which are filed as exhibits to the Registration
Statement, and each factory and dormitory lease has been validly executed and
constitutes the valid and binding obligations of the parties, enforceable in
accordance with their respective term and conditions under the laws of China.
6. The Dongguan Chuangying Toys Factory Co., Ltd. has been duly organized
as a limited liability company and is validly existing in good standing under
the laws of China.
7. Dongguan Chuangying Toys Factory Co., Ltd. has the right and power to
own, lease and operate its properties and to conduct its business as described
in the Prospectus, including the right and power to execute and perform its
obligations under the Joint Enterprise Agreement, dated September 10, 1994.
8. No authorization, approval or consent of any governmental authority or
agency of China is necessary in connection with the consummation of the
transactions contemplated by the Agreement and the Representative's Warrant
Agreement.
9. The Company and [list subsidiaries party to the factory and dormitory
leases and Joint Enterprise and Processing Agreements] are in possession of, and
operating in China in compliance with such authorizations, licenses,
certificates, orders and permits as may be required from
C-1
applicable regulatory authorities in China which are material to the conduct of
their business, all of which are valid and in full force and effect; neither the
Company nor [list subsidiaries party to the factory and dormitory leases and
Joint Enterprise and Processing Agreements] is in default in the performances or
observance of any material obligation, agreement covenant or condition contained
in any bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument known to such counsel to which
the Company or [list subsidiaries party to the factory and dormitory leases and
Joint Enterprise and Processing Agreements] is a party or by which any of them
or their properties may be bound, in each case that might cause or result in a
material adverse change in the business, properties, condition (financial or
otherwise), prospects or results of operations of the Company and its
subsidiaries, taken as a whole; and neither the Company nor [list subsidiaries
party to the factory and dormitory leases and Joint Enterprise and Processing
Agreements] is in material violation of, or liable under, any law, order, rule,
regulation, writ, injunction, judgement or decree of any court, government or
governmental agency or body of China having jurisdiction over the Company or
[list subsidiaries party to the factory and dormitory leases and Joint
Enterprise and Processing Agreements] or over any of their properties;
10. All of the information in the Prospectus, to the extent constituting
matters of law or legal conclusions under the laws of China has been reviewed by
such counsel and is a fair summary of such matters and conclusions;
11. There are no legal or governmental proceedings pending or, to such
counsel's knowledge, threatened against the Company or [list subsidiaries party
to the factory and dormitory leases and Joint Enterprise and Processing
Agreements].
12. Under Chinese law, the submission to Jurisdiction and Waiver of
Immunity and Inconvenient Forum clause of Section 14 of the Agreement is valid
and binding upon the Company.
13. All translations of documents from Chinese to English which were
provided to counsel for the Underwriters and which are included as exhibits to
the Registration Statement are complete and accurate translations in all
material respects.
In addition, such counsel shall state that although they have not (with the
exception of the matters covered in paragraph 10 of their opinion) independently
checked or verified the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus relating to the
Company and its operations in China, nothing has come to the attention of such
counsel that caused them to believe that, at the time the Registration Statement
became effective, the Registration Statement (except as to financial statements,
financial data and supporting schedules contained therein) contained any untrue
statement of a material fact, or omitted to sate a material fact required to be
stated therein or necessary to make such statements not misleading, or at the
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, the Prospectus (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact to be stated
therein or necessary to make such statements, in light of the circumstances
under which they were made, not misleading.
C-2
Counsel rendering the foregoing opinion may rely as to questions of fact
upon representations or certificates of officers of the companies which are the
subject of said opinion, and of government officials in which case their opinion
is explicitly to state that they are so relying thereon and that they have no
knowledge of any material misstatement or inaccuracy in such opinions,
representations or certificate. Copies of any opinion, representation or
certificates so relied upon shall be delivered to you, as Representative of the
Underwriters, and to Underwriters' counsel.
C-3
ANNEX D
Opinion of Counsels to
Selling Stockholders
1. The Agreement and the Irrevocable Custody Agreement [and Power of
Attorney] have been duly and validly authorized, executed and delivered by such
Selling Stockholder and each is a valid and binding obligation of such Selling
Stockholder, enforceable against it in accordance with its terms except as
rights to indemnity and contribution may be limited by Federal or state
securities laws and judicial decisions and except as enforcement (i) may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and (ii) is subject to general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
2. To the best knowledge of such counsel, such Selling Stockholder has
all requisite power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, filings, qualifications, licenses and
permits of and from all courts and all public, governmental or regulatory
agencies and bodies, as required for the execution, delivery and performance of
this Agreement, the Irrevocable Custody Agreement [and Power of Attorney] and
the consummation of the transactions contemplated hereby and thereby, except for
(A) such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the Underwriters,
as to which counsel need express no opinion and (B) such as have been made or
obtained under the Act.
3. Upon the delivery of and payment for the Shares to be sold by such
Selling Stockholder pursuant to the Agreement, you will receive good, valid and
marketable title to the Shares purchased from such Selling Stockholder, to such
counsel's knowledge, free and clear of all liens, encumbrances, claims, security
interests, restrictions on transfer, stockholders' agreements, voting trusts and
other defects in title created by or known to such Selling Stockholder.
4. The execution, delivery and performance of this Agreement, the
Irrevocable Custody Agreement [Power of Attorney] by such Selling Stockholder
and the consummation of the transactions contemplated hereby and thereby will
not violate or conflict with, to the best knowledge of such counsel, any
judgment, decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over any of such
Selling Stockholder or any of their properties or assets.
5. The statements in the Prospectus under the caption "Principal
Stockholders and Selling Stockholders," insofar as such statements constitute a
summary of matters referred to therein with respect to such Selling Stockholder,
fairly present the information with respect to such matters.
D-1
