Exhibit
1.1
Wm Smith Securities,
Incorporated
1700 Lincoln Street, Suite 2545
Denver CO 80203
July 24, 2007
Pure Cycle Corporation
8451 Delaware St.
Thornton, Colorado 80260
Ladies and Gentlemen:
Pure Cycle Corporation, a Delaware corporation (the Company),
proposes to issue and sell to certain investors (each an Investor and,
collectively, the Investors), up to 1,200,000 (the Primary Shares) of the
Companys common stock, $0.00333 par value per share (the Common Stock), and
the stockholders of the Company listed on Schedule 1 hereto (the Selling
Stockholders and each a Selling Stockholder) hereby agree, severally but not
jointly, to sell an aggregate of up to 1,656,697 shares (the Secondary Shares and,
collectively with the Primary Shares, the Shares). This letter agreement confirms our
understanding that the Company and the Selling Stockholders desire to engage Wm
Smith Securities, Incorporated and Flagstone Securities, LLC as their exclusive
placement agents (the Placement Agents and each, a Placement Agent) in
connection with such issuance and sale of the Shares.
The Company and the Selling Stockholders hereby
confirm as follows their agreements with the Placement Agents.
1. Agreement to Act as Placement Agents. On the
basis of the representations, warranties and agreements of the Company and the
Selling Stockholders herein contained and subject to all the terms and
conditions of this Agreement, the Placement Agents agree to act as the Companys
and the Selling Stockholders exclusive placement agents in connection with the
issuance and sale, on a best efforts basis, of the Shares to the Investors. The
Placement Agents shall use commercially reasonable efforts to assist the
Company and the Selling Stockholders in obtaining performance by each Investor
whose offer to purchase Shares has been solicited by the Placement Agents and
accepted by the Company, but the Placement Agents shall not, except as
otherwise provided in this Agreement, have any liability to the Company or the
Selling Stockholders in the event any such purchase is not consummated for any
reason. The Company and each Selling Stockholder shall pay to the Placement
Agents an aggregate amount equal to 2.0% of the proceeds received by the
Company or such Selling Stockholder from the sale of the Share as set forth on
the cover page of the Prospectus (as hereinafter defined); provided that 60% of
such aggregate amount shall be paid directly to Wm Smith Securities,
Incorporated and 40% of such aggregate amount shall be paid directly to
Flagstone Securities, LLC. This Agreement shall not give rise to a commitment
by the Placement Agents or any of their affiliates to underwrite or purchase
any of the Shares or otherwise provide any financing. Notwithstanding the
foregoing, it is understood and agreed that the Placement Agents or any of
their affiliates may, solely at their discretion and without any obligation to
do so, purchase Shares as principals. The Placement Agents, without the prior
consent of the Company or any Selling Stockholder,
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may appoint any co-agent
or sub-agent in connection with the issuance and sale of the Shares and may
allocate any portion of such fee to such co-agent or sub-agent.
2. Delivery and Payment. The payment of the purchase
price for, and delivery of the Shares shall be made at one or more closings
(each a Closing and the date on which the Closing occurs, the Closing Date)
at the offices of Davis Graham & Stubbs LLP, counsel for the Company,
located at 1550 Seventeenth Street, Suite 500, Denver, Colorado 80202. Prior to the Closing Date, the Selling
Stockholders shall deposit certificates in negotiable form representing all of
the Shares to be sold by such Selling Stockholder hereunder in an account
designated by the Placement Agents. The
Placement Agents shall cause the Investors to wire an amount equal to the price
per share as shown on the cover page of the most recent Prospectus (as
hereinafter defined) for all of the Shares offered hereby to an account
designated by the Company or the Selling Stockholder, as applicable, and the
Company or Placement Agents, as applicable, shall deliver the Shares to the
Investors, which delivery may be made through the facilities of The Depository
Trust Company. The first such Closing
shall take place at such time and date as the Placement Agents and the Company
determine. All actions taken at the Closing shall be deemed to have occurred
simultaneously.
3. Representations and Warranties of the Company.
The Company represents and warrants and covenants to the Placement Agents that:
(a) A
registration statement on Form S-3 (File No. 333-142335) with respect to the
Common Stock of the Company has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the Act), and the
rules and regulations (the Rules and Regulations) of the Securities and
Exchange Commission (the Commission) thereunder, and has been filed with the
Commission. The Company and the transactions contemplated by this Agreement
meet the requirements and comply with the conditions for the use of Form S-3.
The Registration Statement meets the requirements of Rule 415 under the Act and
complies in all materials respects with said rule. As used in this Agreement:
(i) Applicable
Time means the time of execution of this Agreement;
(ii) Effective
Date means any date as of which any part of the Registration Statement became,
or is deemed to have become, effective under the Act in accordance with the
Rules and Regulations;
(iii) Issuer
Free Writing Prospectus means each issuer free writing prospectus (as
defined in Rule 405 of the Rules and Regulations) prepared by or on behalf of
the Company or used or referred to by the Company in connection with the
offering of the Shares, each as listed on Schedule 2 hereto;
(iv) Preliminary
Prospectus means any preliminary prospectus relating to the Shares included in
the Registration Statement or filed with the Commission pursuant to Rule 424(b)
of the Rules and Regulations, including any preliminary prospectus supplement
thereto relating to the Shares;
(v) Pricing
Disclosure Materials means, as of the Applicable Time, the most recent
Preliminary Prospectus, together with each Issuer Free Writing Prospectus filed
or used by
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the Company on or before the Applicable Time, and the
information set forth on Schedule 3 hereto;
(vi) Prospectus
means the final prospectus relating to the Shares including any prospectus
supplement thereto relating to the Shares, as filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations; and
(vii) Registration
Statement means, collectively, the various parts of such registration
statement, each as amended as of the Effective Date for such part, including
any Preliminary Prospectus or the Prospectus and all exhibits to such
registration statement.
Any reference to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include any documents incorporated or deemed to be incorporated by reference
therein pursuant to Form S-3 under the Act as of the date of such Preliminary
Prospectus or the Prospectus, as the case may be. Any reference herein to the
terms amend, amendment or supplement with respect to the Registration
Statement, any Preliminary Prospectus or the Prospectus shall be deemed to refer
to and include any document filed under the Securities Exchange Act of 1934, as
amended (the Exchange Act), after the effective date of the Registration
Statement, the date of such Preliminary Prospectus or the date of the
Prospectus, as the case may be, which is incorporated therein by reference.
(b) The
Registration Statement has heretofore become effective under the Act or, with
respect to any registration statement to be filed to register the offer and
sale of Shares pursuant to Rule 462(b) under the Act, will be filed with the
Commission and become effective under the Act no later than 10:00 p.m., New
York City time, on the date of determination of the public offering price for
the Shares; no stop order of the Commission preventing or suspending the use of
any Prospectus, or the effectiveness of the Registration Statement, has been
issued, and no proceedings for such purpose have been instituted or, to the
Companys knowledge, are contemplated by the Commission.
(c) The
Company was not at the time of the initial filing of the Registration
Statement, has not been since the date of such filing, and will not be on the
applicable Closing Date, an ineligible issuer (as defined in Rule 405 under
the Act). The Company has been since the time of initial filing of the
Registration Statement and continues to be eligible to use Form S-3 for the
offering of the Shares.
(d) The
Registration Statement, at the time it became effective, as of the date hereof,
and at the Closing Date conformed and will conform in all material respects to
the requirements of the Act and the Rules and Regulations. The Preliminary
Prospectus conformed, and the Prospectus will conform, when filed with the
Commission pursuant to Rule 424(b) and on the Closing Date to the requirements
of the Act and the Rules and Regulations. The documents incorporated by
reference in any Preliminary Prospectus or the Prospectus conformed, and any
further documents so incorporated will conform, when filed with the Commission,
to the requirements of the Exchange Act or the Act, as applicable, and the
rules and regulations of the Commission thereunder.
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(e) The
Registration Statement did not, as of the Effective Date, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(f) The
Prospectus will not, as of its date and on the Closing Date, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company makes no representation or warranty with respect to any
statement contained in the Prospectus in reliance upon and in conformity with
information concerning a Placement Agent and furnished in writing by such
Placement Agent to the Company expressly for use in the Prospectus, as set
forth in Section 10(c).
(g) The
documents incorporated by reference in any Preliminary Prospectus or the
Prospectus did not, and any further documents filed and incorporated by
reference therein will not, when filed with the Commission, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated in such document or necessary to make the statements in such document,
in light of the circumstances under which they were made, not misleading.
(h) The
Pricing Disclosure Materials did not, as of the Applicable Time, contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided,
however, that the Company makes no representation or warranty with respect to
any statement contained in the Pricing Disclosure Materials in reliance upon
and in conformity with information concerning a Placement Agent and furnished
in writing by such Placement Agent to the Company expressly for use in the
Pricing Disclosure Materials, as set forth in Section 10(c).
(i) Each
Issuer Free Writing Prospectus, when considered together with the Pricing
Disclosure Materials as of the Applicable Time, did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however ,
that the Company makes no representation or warranty with respect to any
statement contained in the Issuer Free Writing Prospectus in reliance upon and
in conformity with information concerning a Placement Agent and furnished in
writing by such Placement Agent to the Company expressly for use in the Issuer Free
Writing Prospectus, as set forth in Section 10(c).
(j) Each
Issuer Free Writing Prospectus conformed or will conform in all material
respects to the requirements of the Act and the Rules and Regulations on the
date of first use, and the Company has complied or will comply with any filing
requirements applicable to such Issuer Free Writing Prospectus pursuant to the
Rules and Regulations. Each Issuer Free Writing Prospectus, as of its issue
date and at all subsequent times through the completion of the public offer and
sale of the Shares, did not, does not and will not include any information that
conflicted, conflicts or will conflict with the information contained in the
Registration Statement or the Prospectus, including any document incorporated
by reference therein that has not been superseded or modified. The Company has
not made any offer relating to the Shares that would
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constitute an Issuer Free Writing Prospectus without
the prior written consent of the Placement Agents. The Company has retained in
accordance with the Rules and Regulations all Issuer Free Writing Prospectuses
that were not required to be filed pursuant to the Rules and Regulations.
(k) The
Company is, and at the Closing Date will be, duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Company (i)
has, and at the Closing Date will have, full power and authority to conduct all
the activities conducted by it, to own or lease all the assets owned or leased
by it and to conduct its business as described in the Registration Statement
and the Prospectus and (ii) is, and at the Closing Date will be, duly licensed
or qualified to do business and in good standing as a foreign organization in
all jurisdictions in which the nature of the activities conducted by it or the
character of the assets owned or leased by it makes such licensing or
qualification necessary; except, in each case, where the failure to be so
qualified or in good standing or have such power or authority would not,
individually or in the aggregate, have a material adverse effect or would not
reasonably be expected to have a material adverse effect on or affecting the
business, properties, management, financial position, stockholders equity or
results of operations of the Company (a Material Adverse Effect). Complete
and correct copies of the articles or certificate of incorporation and of the
bylaws of the Company and all amendments thereto have been delivered or made
available to the Placement Agents, and no changes therein will be made
subsequent to the date hereof and prior to the Closing Date.
(l) The
issued and outstanding shares of capital stock of the Company have been validly
issued, are fully paid and non-assessable and, other than as set forth in the
Registration Statement, are not subject to any preemptive rights, rights of
first refusal or similar rights. The Company has an authorized, issued and
outstanding capitalization as set forth in the Prospectus as of the dates
referred to therein. The descriptions of the securities of the Company in the
Registration Statement and the Prospectus are, and at the Closing Date will be,
complete and accurate in all respects. Except as set forth in the Registration
Statement and the Prospectus, the Company does not have outstanding any rights
(other than stock options or other equity awards under the Companys equity
incentive and stock purchase plans) or warrants to subscribe for, or any
securities or obligations convertible into, or exchangeable for, or any
contracts or commitments to issue or sell, any shares of capital stock or other
securities.
(m) The
Company has full legal right, power and authority to enter into this Agreement
and perform the transactions contemplated hereby. This Agreement has been
authorized and validly executed and delivered by the Company and is a legal,
valid and binding agreement of the Company enforceable against the Company in
accordance with its respective terms, subject to the effect of applicable
bankruptcy, insolvency or similar laws affecting creditors rights generally
and equitable principles of general applicability.
(n) The
issuance and sale of the Primary Shares have been duly authorized by the
Company, and the Primary Shares, when issued and paid for in accordance with
this Agreement, will be duly and validly issued, fully paid and non-assessable
and will not be subject to preemptive or similar rights. The holders of the
Primary Shares will not be subject to personal liability by reason of being
such holders. The Primary Shares, when issued, and the Secondary Shares,
following their sale, will conform in all material respects to the description
thereof set forth in or incorporated into the Prospectus.
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(o) The
financial statements and the related notes included in the Registration
Statement and the Prospectus present fairly, in all material respects, the
financial condition of the Company as of the dates thereof and the results of
operations and cash flows at the dates and for the periods covered thereby in
conformity with generally accepted accounting principles (GAAP). No other
financial statements or schedules of the Company or any other entity are
required by the Act or the Rules and Regulations to be included in the
Registration Statement or the Prospectus. Except as set forth on Schedule 4,
all disclosures contained in the Registration Statement, the Pricing Disclosure
Materials and the Prospectus regarding non-GAAP financial measures (as such
term is defined by the Rules and Regulations) comply with Regulation G of the
Exchange Act and Item 10 of Regulation S-K under the Act, to the extent
applicable. The Company does not have any material liabilities or obligations,
direct or contingent (including any off-balance sheet obligations), not
disclosed in the Registration Statement, the Pricing Disclosure Materials and
the Prospectus.
(p) Anton Collins Mitchell LLP and KPMG LLP (the
Accountants), who have reported on such financial statements and schedules,
are registered independent public accountants with respect to the Company as
required by the Act and the Rules and Regulations and by the rules of the
Public Accounting Oversight Board. The financial statements of the Company and
the related notes and schedules included in the Registration Statement and the
Prospectus have been prepared in conformity with the requirements of the Act
and the Rules and Regulations and present fairly the information shown therein.
(q) Except
as set forth in the Registration Statement and the Prospectus, there is and has
been no failure on the part of the Company, or to its knowledge after due
inquiry, any of the Companys directors or officers, in their capacities as
such, to comply with any applicable provisions of the Sarbanes Oxley Act of
2002 and the rules and regulations promulgated therewith (the Sarbanes Oxley
Act), including without limitation Section 402 related to loans and Sections
302 and 906 related to certifications.
(r) Except
as set forth in the Registration Statement and the Prospectus, the Company
maintains systems of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
managements general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with managements
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. The Company has
established disclosure controls and procedures (as defined in Exchange Act Rule
13a-15) for the Company and designed such disclosure controls and procedures to
ensure that material information relating to the Company is made known to the
certifying officers by others within those entities, particularly during the
period in which the Companys Annual Report on Form 10-K or Quarterly Report on
Form 10-Q, as the case may be, is being prepared. The Companys certifying
officers have evaluated the effectiveness of the Companys disclosure controls
and procedures as of the end of the period covered by the Form 10-K for the
year ended August 31, 2006 (such date, the Evaluation Date). The Company
presented in its Form 10-K for the year ended August 31, 2006 the conclusions
of the certifying officers about the
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effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date.
(s) Except
as set forth in or otherwise contemplated by the most recent Preliminary
Prospectus, since the date of the most recent financial statements of the
Company included or incorporated by reference in the most recent Preliminary
Prospectus and prior to Closing, (i) there has not been and will not have been
any change in the capital stock of the Company or long-term debt of the Company
or any issuance of stock options or any dividend or distribution of any kind
declared, set aside for payment, paid or made by the Company on any class of
capital stock, or any material adverse change, in the business, properties,
management, financial position, stockholders equity, or results of operations
of the Company taken as a whole (a Material Adverse Change) and (ii) the
Company has not sustained any material loss or material interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor disturbance or dispute or any action, order or
decree of any court or arbitrator or governmental or regulatory authority,
except in each case as otherwise disclosed in the Registration Statement and
the Prospectus.
(t) Since
the date as of which information is given in the most recent Preliminary
Prospectus, the Company has not entered and will not enter prior to the Closing
into any transaction or agreement, not in the ordinary course of business, that
is material to the Company or incurred any liability or obligation, direct or
contingent, not in the ordinary course of business, that is material to the
Company.
(u) Except
as set forth in the Registration Statement and the Prospectus, the Company has
good and valid title in fee simple to all items of real property and good and
valid title to all tangible personal property described in the Registration
Statement or the Prospectus as being owned by them that are material to the
businesses of the Company, in each case free and clear of all liens,
encumbrances and claims except those that (i) do not materially interfere with
the use made and proposed to be made of such property by the Company or (ii)
would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect. Any real property described in the Registration
Statement or the Prospectus as being leased by the Company or that is material
to the business of the Company is held by it under valid, existing and
enforceable leases, except those that (A) do not materially interfere with the
use made or proposed to be made of such property by the Company or (B) would
not be reasonably expected, individually or in the aggregate, to have a
Material Adverse Effect.
(v) The
Company is not, nor upon completion of the transactions contemplated herein
will it be, an investment company or promoter or principal underwriter
for an investment company, as such terms are defined in the Investment
Company Act of 1940, as amended (the Investment Company Act).
(w) Except
as set forth in the Registration Statement and the Prospectus, there are no
legal, governmental or regulatory actions, suits or proceedings pending, nor,
to the Companys knowledge, any legal, governmental or regulatory
investigations, to which the Company is a party or to which any property of the
Company is the subject that, individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect or materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement
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(collectively, the Actions); to the Companys
knowledge, no such Actions are threatened by any governmental or regulatory
authority or threatened by others; and there are no current or pending legal,
governmental or regulatory investigations, actions, suits or proceedings that
are required under the Act to be described in the Prospectus that are not so
described.
(x) Except
as set forth in the Registration Statement and the Prospectus, the Company has,
and at the Closing Date will have, (i) all governmental licenses, permits, consents,
orders, approvals and other authorizations necessary to carry on its respective
business as presently conducted except where the failure to have such
governmental licenses, permits, consents, orders, approvals and other
authorizations would not have a Material Adverse Effect, (ii) complied with all
laws, regulations and orders applicable to either it or its business, except
where the failure to so comply would not have a Material Adverse Effect, and
(iii) performed all its obligations required to be performed, and is not, and
at the Closing Date will not be, in default, under any indenture, mortgage,
deed of trust, voting trust agreement, loan agreement, bond, debenture, note
agreement, lease, contract or other agreement or instrument (collectively, a contract
or other agreement) to which it is a party or by which its property is bound
or subject, except where such default would not have a Material Adverse Effect,
and, to the Companys knowledge, no other party under any material contract or
other agreement to which it is a party is in default in any respect thereunder
where such default would have a Material Adverse Effect. The Company is not in
violation of any provision of its organizational or governing documents.
(y) All
consents, authorizations, approvals and orders required for the execution and
delivery of this Agreement have been obtained, including approval of
stockholders of the Company as necessary, except such as may be required under
state securities or Blue Sky Laws or the by-laws and rules of the National
Association of Securities Dealers, Inc. (the NASD) or the NASDAQ Capital
Market in connection with the distribution of the Shares by the Placement
Agents.
(z) Neither
the execution of this Agreement, nor the issuance, offering or sale of the
Shares, nor the consummation of any of the transactions contemplated herein and
therein, nor the compliance by the Company with the terms and provisions hereof
and thereof will conflict with, or will result in a breach of, any of the terms
and provisions of, or has constituted or will constitute a default under, or
has resulted in or will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company pursuant to
the terms of any contract or other agreement to which the Company may be bound
or to which any of the property or assets of the Company is subject, except (i)
such conflicts, breaches or defaults as may have been waived and (ii) such
conflicts, breaches and defaults that would not have a Material Adverse Effect;
nor will such action result (x) in any violation of the provisions of the
organizational or governing documents of the Company, or (y) in any material
violation of the provisions of any statute or any order, rule or regulation applicable
to the Company or of any court or of any federal, state or other regulatory
authority or other government body having jurisdiction over the Company.
(aa) There
is no document or contract of a character 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. All such
contracts to which the Company is a party have been authorized, executed and
delivered by the Company, constitute valid and binding
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agreements of the Company, and are enforceable against
the Company in accordance with the terms thereof, subject to the effect of
applicable bankruptcy, insolvency or similar laws affecting creditors rights
generally and equitable principles of general applicability.
(bb) No
statement, representation or warranty made by the Company in this Agreement or
made in any certificate or document required by this Agreement to be delivered
to the Placement Agents or the Investors was, when made, inaccurate, untrue or
incorrect in any material respect.
(cc) The
Company and its directors, officers or controlling persons have not taken,
directly or indirectly, any action intended, or which might reasonably be
expected, to cause or result, under the Act or otherwise, in, or which has
constituted, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Common Stock.
(dd) No
holder of securities of the Company has rights to the registration of any securities
of the Company as a result of the filing of the Registration Statement or the
transactions contemplated by this Agreement, except for such rights as have
been waived or satisfied.
(ee) The
Common Stock is currently listed on the NASDAQ Capital Market. Except as
disclosed in the Registration Statement, the Company has not, in the 12 months
preceding the date hereof, received notice from the NASDAQ Capital Market to
the effect that the Company is not in compliance with the listing or
maintenance requirements. The Company has no reason of which it is currently
aware to believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.
(ff) The
Company is not involved in any material labor dispute nor is any such dispute
known by the Company to be threatened.
(gg) The
business and operations of the Company have been and are being conducted in
compliance with all applicable laws, ordinances, rules, regulations, licenses,
permits, approvals, plans, authorizations or requirements relating to
occupational safety and health, or pollution, or protection of health or the
environment (including, without limitation, those relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants or
hazardous or toxic substances, materials or wastes into ambient air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
chemical substances, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, gaseous or liquid in nature) of any
governmental department, commission, board, bureau, agency or instrumentality
of the United States, any state or political subdivision thereof, or any
foreign jurisdiction, and all applicable judicial or administrative agency or
regulatory decrees, awards, judgments and orders relating thereto, except where
the failure to be in such compliance will not, individually or in the
aggregate, have a Material Adverse Effect; and the Company has not received any
notice from any governmental instrumentality or any third party alleging any
material violation thereof or liability thereunder (including, without
limitation, liability for costs of investigating or remediating sites
containing hazardous substances and/or damages to natural resources) that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
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(hh) Except
as disclosed in the Registration Statement, (i) the Company owns or has
obtained valid and enforceable licenses or options for the inventions, patent
applications, patents, trademarks (both registered and unregistered), trade
names, copyrights and trade secrets necessary for the conduct of its business
as currently conducted (collectively, the Intellectual Property); and (ii)
(a) there are no third parties who have any ownership rights to any
Intellectual Property that is owned by, or has been licensed to, the Company
for the products described in the Registration Statement that would preclude
the Company from conducting its business as currently conducted and have a
Material Adverse Effect, except for the ownership rights of the owners of the
Intellectual Property licensed or optioned by the Company; (b) there are
currently no sales of any products that would constitute an infringement by
third parties of any Intellectual Property owned, licensed or optioned by the
Company, which infringement would have a Material Adverse Effect; (c) there is
no pending or, to the Companys knowledge, threatened action, suit, proceeding
or claim by others challenging the rights of the Company in or to any
Intellectual Property owned, licensed or optioned by the Company, other than
claims which would not reasonably be expected to have a Material Adverse
Effect; (d) there is no pending or, to the Companys knowledge, threatened
action, suit, proceeding or claim by others challenging the validity or scope
of any Intellectual Property owned, licensed or optioned by the Company, other
than actions, suits, proceedings and claims which would not reasonably be
expected to have a Material Adverse Effect; and (e) there is no pending or, to
the Companys knowledge, threatened action, suit, proceeding or claim by others
that the Company infringes or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary right of others, other than
actions, suits, proceedings and claims which would not reasonably be expected
to have a Material Adverse Effect.
(ii) The
Company has filed all necessary federal, state and foreign income and franchise
tax returns and has paid or accrued all taxes shown as due thereon, and the
Company has no knowledge of any federal, state or other governmental tax deficiency,
penalty or assessment which has been or might be asserted or threatened against
it which could have a Material Adverse Effect.
(jj) On
the Closing Date, all stock transfer or other taxes (other than income taxes)
which are required to be paid in connection with the sale and transfer of the
Shares to be sold hereunder will be, or will have been, fully paid or provided
for by the Company and all laws imposing such taxes will be or will have been
fully complied with.
(kk) The
Company maintains insurance of the types and in the amounts that the Company
reasonably believes is adequate for its businesses and as is customary for
companies engaged in similar businesses.
(ll) Neither
the Company, nor, to the knowledge of the Company, any director, officer, agent
or employee of the Company, has directly or indirectly, (i) made any unlawful
contribution to any candidate for public office, or failed to disclose fully
any contribution in violation of law, (ii) made any payment to any federal or
state governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof, (iii) violated or is in
violation of any provisions of the U.S. Foreign Corrupt Practices Act of 1977
or (iv) made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
10
(mm) The
Company has not distributed and, prior to the later to occur of the Closing
Date and completion of the distribution of the Shares, will not distribute any
offering material in connection with the offering and sale of the Shares other
than any Preliminary Prospectus, the Prospectus and any Issuer Free Writing
Prospectus to which the Placement Agents have consented.
(nn) Each
material employee benefit plan, within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended (ERISA), that is
maintained, administered or contributed to by the Company or any of its
affiliates for employees or former employees of the Company has been maintained
in material compliance with its terms and the requirements of any applicable statutes,
orders, rules and regulations, including but not limited to ERISA and the
Internal Revenue Code of 1986, as amended (the Code); no prohibited
transaction, within the meaning of Section 406 of ERISA or Section 4975 of the
Code, has occurred which would result in a material liability to the Company
with respect to any such plan excluding transactions effected pursuant to a
statutory or administrative exemption; and for each such plan that is subject
to the funding rules of Section 412 of the Code or Section 302 of ERISA, no accumulated
funding deficiency as defined in Section 412 of the Code has been incurred,
whether or not waived, and the fair market value of the assets of each such
plan (excluding for these purposes accrued but unpaid contributions) exceeds
the present value of all benefits accrued under such plan determined using
reasonable actuarial assumptions.
(oo) No
relationship, direct or indirect, exists between or among the Company, on the
one hand, and the directors, officers, stockholders, customers or suppliers of
the Company, on the other, which is required by the Act to be disclosed in the
Registration Statement and the Prospectus and is not so disclosed.
(pp) The
Company has not sold or issued any securities that would be integrated with the
offering of the Shares contemplated by this Agreement pursuant to the Act, the
Rules and Regulations or the interpretations thereof by the Commission.
(qq) The
Company is not a party to any contract, agreement or understanding with any
person (other than this Agreement) that would give rise to a valid claim
against the Company or the Placement Agents (or the Placement Agents co-agent
or sub-agent, if any) for a brokerage commission, finders fee or like payment
in connection with the offering and sale of the Shares.
4. Representations and Warranties of the Selling
Stockholders. Each Selling
Stockholder, severally and not jointly, hereby represents, warrants and
covenants to the Placement Agents that:
(a) Placement
Agency Agreement. This
Agreement has each been duly authorized, executed and delivered by such Selling
Stockholder and constitutes a valid and binding obligation of such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification and contribution hereunder may be limited by applicable law and
except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
11
(b) No
Consents, Approvals or Authorizations Required. No consent, approval,
authorization or order of, or any filing or declaration with, any court or
governmental agency or body is required in connection with the sale of the
Shares by such Selling Stockholder or the consummation by such Selling
Stockholder of the transactions on its part contemplated by this Agreement,
except such as have been obtained under the Act or the rules and regulations
promulgated thereunder and are in full force and effect, and such as may be
required under applicable state securities or blue sky laws.
(c) No
Conflicts. The sale of the
Shares by such Selling Stockholder and the performance by such Selling
Stockholder of this Agreement and the consummation of the transactions
contemplated hereby will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of such Selling Stockholder
pursuant to the terms or provisions of, or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or give any
party a right to terminate any of its obligations under, or result in the
acceleration of any obligation under, any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, bond, debenture, note agreement or
other evidence of indebtedness, lease, contract or other agreement or
instrument to which such Selling Stockholder is a party or by which such
Selling Stockholder or any of its properties is bound or affected, or violate or
conflict with any judgment, ruling, decree, order, statute, rule or regulation
of any court or other governmental agency or body applicable to such Selling
Stockholder or, if such Selling Stockholder is a corporation, partnership or
other entity, the organizational documents of such Selling Stockholder.
(d) Title
to Shares. Such Selling
Stockholder is, on the date hereof, the record and beneficial owner of all of
the Shares to be sold by the Selling Stockholder hereunder free and clear of
all liens, encumbrances, equities and claims and has duly indorsed such Shares
in blank or has duly signed a stock power assigning all right, title and
interest to the Shares to be sold by such Selling Stockholder. On or prior to the Closing Date, certificates
in negotiable form representing all of the Shares to be sold by such Selling
Stockholder hereunder will be placed in an account designated by the Placement
Agents.
(e) Transfer
Taxes and Other Fees. On the
Closing Date, all stock transfer or other taxes (other than income taxes) that
are required to be paid in connection with the sale and transfer by such
Selling Stockholder of the Shares to the Investors will be fully paid or
provided for by such Selling Stockholder and all laws imposing such taxes will
be fully complied with. Each Selling Stockholder understands that any federal,
state and local taxes related to any gain on the sale of the Shares shall be
the responsibility of such Selling Stockholder.
(f) Compliance
with Applicable Regulations.
All information with respect to such Selling Stockholder contained in the
Registration Statement, the Pricing Disclosure Materials and any Prospectus or
any amendment or supplement thereto complied or will comply in all material
respects with all applicable requirements of the Act and rules and regulations
promulgated thereunder and does not and will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
12
(g) No
Transfer. Such Selling
Stockholder, directly or indirectly, has not entered into any commitment,
transaction or other arrangement, including any prepaid forward contract,
10b5-1 plan or similar agreement, which transfers or may transfer any of the
legal or beneficial ownership or any of the economic consequences of ownership
of the Shares, except as has been previously disclosed in writing to the
Placement Agents.
(h) Free Writing Prospectus.
Such Selling Stockholder represents and warrants that it has not prepared or
had prepared on its behalf or used or referred to any free writing prospectus
(as defined in Rule 405 of the Act) and further represents that it has not
distributed and will not distribute any written materials in connection with
the offer or sale of the Shares that could otherwise constitute a free writing
prospectus (as defined in Rule 405 of the Act) required to be filed with the
Commission or retained under Rule 433 of the Act.
(i) Disclosure
Made by Such Selling Stockholder. All
information relating to such Selling Stockholder furnished by or on behalf of
such Selling Stockholder in writing expressly for use in the Registration
Statement, the Pricing Disclosure Materials, Prospectus or any Preliminary
Prospectus, as the case may be, is as of the Applicable Time true, correct, and
complete in all material respects, and does not contain any untrue statement of
a material fact or omit to state any material fact necessary to make such
information not misleading. In addition, such Selling Stockholder confirms
as accurate the number of shares of Common Stock set forth opposite such
Selling Stockholders name in the Pricing Disclosure Materials and any
Prospectus under the caption Selling Stockholders (both prior to and after
giving effect to the sale of the Shares).
(j) No
Registration or Other Similar Rights. Such
Selling Stockholder does not have any registration or other similar rights to
have any equity or debt securities registered for sale by the Company under the
Registration Statement, except for such rights that have been waived or
satisfied.
(k) No
Price Stabilization or Manipulation. Such Selling Stockholder has not
taken and will not take, directly or indirectly, any action designed to or that
might be reasonably 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.
5. Agreements of the Company. The Company covenants
and agrees with the Placement Agents as follows:
(a) The
Registration Statement has become effective, and if Rule 430A is used or the
filing of the Prospectus is otherwise required under Rule 424(b), the Company
will file the Prospectus (properly completed if Rule 430A has been used),
subject to the prior approval of the Placement Agents, pursuant to Rule 424(b)
within the prescribed time period and will provide a copy of such filing to the
Placement Agents promptly following such filing.
(b) The
Company will not, during such period as the Prospectus would be required by law
to be delivered in connection with sales of the Shares by an underwriter or
dealer in connection with the offering contemplated by this Agreement, file any
amendment or supplement to the Registration Statement or the Prospectus unless
a copy thereof shall first have
13
been submitted to the Placement Agents within a
reasonable period of time prior to the filing thereof and the Placement Agents
shall not have reasonably objected thereto in good faith.
(c) The
Company will notify the Placement Agents promptly, and will, if requested,
confirm such notification in writing, (1) when any post-effective amendment to
the Registration Statement becomes effective, but only during the period
mentioned in Section 5(b); (2) of any request by the Commission for any amendments
to the Registration Statement or any amendment or supplements to the Prospectus
or any Issuer Free Writing Prospectus or for additional information related to
the offering of the Shares or for additional information related to the
Registration Statement, the Prospectus or any Issuer Free Writing Prospectus,
but only during the period mentioned in Section 5(b); (3) of the issuance by
the Commission of any stop order preventing or suspending the effectiveness of
the Registration Statement, or the initiation of any proceedings for that
purpose or the threat thereof, but only during the period mentioned in Section
5(b); (4) of becoming aware of the occurrence of any event during the period
mentioned in Section 5(b) that in the reasonable judgment of the Company makes
any statement made in the Registration Statement or the Prospectus untrue in
any material respect or that requires the making of any changes in the
Registration Statement or the Prospectus in order to make the statements
therein, in light of the circumstances in which they are made, not misleading;
and (5) of receipt by the Company of any notification with respect to any
suspension of the qualification of the Shares for offer and sale in any
jurisdiction. If at any time the Commission shall issue any order suspending
the effectiveness of the Registration Statement in connection with the offering
contemplated hereby, the Company will make every reasonable effort to obtain
the withdrawal of any such order at the earliest possible moment. If the Company
has omitted any information from the Registration Statement, pursuant to Rule
430A, it will use its best efforts to comply with the provisions of and make
all requisite filings with the Commission pursuant to said Rule 430A and to
notify the Placement Agents promptly of all such filings.
(d) If,
at any time when a Prospectus relating to the Shares is required to be
delivered under the Act, the Company becomes aware of the occurrence of any
event as a result of which the Prospectus, as then amended or supplemented,
would, in the reasonable judgment of counsel to the Company or counsel to the
Placement Agents, include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or the
Registration Statement, as then amended or supplemented, would, in the
reasonable judgment of counsel to the Company or counsel to the Placement
Agents, include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading, or if
for any other reason it is necessary, in the reasonable judgment of counsel to
the Company or counsel to the Placement Agents, at any time to amend or
supplement the Prospectus or the Registration Statement to comply with the Act
or the Rules and Regulations, the Company will promptly notify the Placement
Agents and, subject to Section 5(b) hereof, will promptly prepare and file with
the Commission, at the Companys expense, an amendment to the Registration
Statement or an amendment or supplement to the Prospectus that corrects such
statement or omission or effects such compliance and will deliver to the
Placement Agents, without charge, such number of copies thereof as the
Placement Agents may reasonably request. The Company consents to the use of the
Prospectus or any amendment or supplement thereto by the Placement Agents.
14
(e) The
Company will furnish, upon request, to the Placement Agents and its counsel,
without charge (i) one conformed copy of the Registration Statement as
originally filed with the Commission and each amendment thereto, including
financial statements and schedules, and all exhibits thereto, and (ii) so long
as a prospectus relating to the Shares is required to be delivered under the
Act, as many copies of each Issuer Free Writing Prospectus, Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto as the
Placement Agents may reasonably request.
(f) The
Company will comply with all the undertakings contained in the Registration
Statement.
(g) Prior
to the sale of the Shares to the Investors, the Company will cooperate with the
Placement Agents and their counsel in connection with the registration or
qualification of the Shares for offer and sale under the state securities or
Blue Sky laws of such jurisdictions as the Placement Agents may reasonably
request; provided, that in no event shall the Company be obligated to qualify
to do business in any jurisdiction where it is not now so qualified or to take
any action which would subject it to general service of process in any
jurisdiction where it is not now so subject.
(h) The
Company will apply the net proceeds from the offering and sale of the Shares in
the manner set forth in the Prospectus under the caption Use of Proceeds.
(i) The
Company will use its best efforts to ensure that the Shares are listed or
quoted on the NASDAQ Capital Market at the time of the Closing and to maintain
such listing.
(j) The
Company will not at any time, directly or indirectly, take any action intended,
or which might reasonably be expected, to cause or result in, or which will
constitute, stabilization of the price of the Shares to facilitate the sale or
resale of any of the Shares.
6. Agreements of the Selling Stockholders. Each Selling Stockholder, severally and not
jointly, covenants and agrees with the Placement Agents as follows:
(a) Agreement
Not to Offer or Sell Additional Securities. Such
Selling Stockholder irrevocably agrees, for the benefit of the Company
and the Placement Agents, that, without the prior written consent
of the Placement Agents, but only if requested by the Investors on or
prior to the Closing, such Selling Stockholder will not, directly or
indirectly, (i) offer, sell, sell short, transfer, hypothecate, pledge, or
otherwise dispose of (or enter into any agreement or transaction that is
designed to effect, or could be expected to result in, any such disposition of)
securities of the Company, or securities convertible into or exchangeable or
exercisable for any other Company securities (including, without limitation,
securities that may be deemed to be beneficially owned by the undersigned in
accordance with the rules and regulations of the Commission and shares of
Common Stock), or (ii) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of the economic
benefits or risks of ownership of such securities, whether any such transaction
described in clauses (i) or (ii) above is to be settled by delivery
of securities, cash or otherwise, for the period beginning on the
date hereof and ending 90 days after the completion of
the distribution of the Shares contemplated hereby. Notwithstanding the
foregoing, such Selling Stockholder may transfer any
15
or all of such securities by gift, will or intestacy;
provided that it shall be a condition to any such permitted transfer by gift,
will, or intestacy that the transferee execute an agreement obliging
such transferee to hold the transferred securities subject to the
provisions of this Agreement.
(b) Delivery
of Form W-9. Selling
Stockholder will deliver to the Placement Agents prior to the applicable
Closing Date a properly completed and executed United States Treasury Department
Form W-9.
(c) Notification
of Material Changes. Such Selling Stockholder will advise the
Placement Agents promptly, and if requested by the Placement Agents, will
confirm such advice in writing, of any change in information relating to such
Selling Stockholder in the Registration Statement, the Pricing Disclosure
Materials or any Prospectus.
(d) No
Free Writing Prospectuses. Such Selling Stockholder agrees that it
will not prepare or have prepared on its behalf or use or refer to
any free writing prospectus (as such term is defined in Rule 405
under the Act), and agrees that it will not distribute any written materials in
connection with the offer or sale of the Shares.
7. Agreements of the Placement Agents. The Placement
Agents agree that they shall not include any issuer information (as defined
in Rule 433 under the Act) in any free writing prospectus (as defined in Rule
405) used or referred to by such Placement Agents without the prior consent of
the Company (any such issuer information with respect to whose use the Company
has given its consent, Permitted Issuer Information). The Placement Agents
also agree to provide to each Investor, prior to the Closing, a copy of the
Prospectus and any amendments or supplements thereto.
8. Expenses. Whether or not the transactions
contemplated by this Agreement are consummated or this Agreement is terminated,
the Company will pay all costs and expenses incident to the performance of the
obligations of the Company and the Selling Stockholders under this Agreement,
including but not limited to costs and expenses of or relating to (1) the
preparation, printing and filing of the Registration Statement (including each
pre- and post-effective amendment thereto) and exhibits thereto, any Issuer
Free Writing Prospectus, each Preliminary Prospectus, the Prospectus and any
amendments or supplements thereto, including all fees, disbursements and other
charges of counsel and accountants to the Company, (2) the preparation and
delivery of certificates representing the Shares, (3) furnishing (including
costs of shipping and mailing) such copies of the Registration Statement
(including all pre- and post-effective amendments thereto), the Prospectus and
any Preliminary Prospectus or Issuer Free Writing Prospectus, and all amendments
and supplements thereto, as may be requested for use in connection with the
direct placement of the Shares, (4) the listing of the Common Stock on the
NASDAQ Capital Market, (5) any filings required to be made by the Placement
Agents with the NASD, and the fees, disbursements and other charges of counsel
for the Placement Agents in connection therewith, (6) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of such jurisdictions designated pursuant to Section 5(g), including the
reasonable fees, disbursements and other charges of counsel to the Placement
Agents in connection therewith and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda and (7) fees, disbursements and other
charges of counsel to the
16
Company. The Company
shall reimburse the Placement Agents for all reasonable travel, legal and other
out-of-pocket expenses in an aggregate amount not to exceed $5,000.
9. Conditions of the Obligations of the Placement Agents.
The obligations of the Placement Agents hereunder are subject to the following
conditions:
(a) (i)
No stop order suspending the effectiveness of the Registration Statement shall
have been issued, and no proceedings for that purpose shall be pending or
threatened by any securities or other governmental authority (including,
without limitation, the Commission), (ii) no order suspending the effectiveness
of the Registration Statement or the qualification or registration of the
Shares under the securities or Blue Sky laws of any jurisdiction shall be in
effect and no proceeding for such purpose shall be pending before, or
threatened, to the Companys knowledge, or in writing by, any securities or
other governmental authority (including, without limitation, the Commission),
(iii) any request for additional information on the part of the staff of any
securities or other governmental authority (including, without limitation, the
Commission) shall have been complied with to the satisfaction of the staff of
the Commission or such authorities and (iv) after the date hereof and prior to
the Closing no amendment or supplement to the Registration Statement, any
Issuer Free Writing Prospectus or the Prospectus shall have been filed unless a
copy thereof was first submitted to the Placement Agents and the Placement
Agents did not object thereto in good faith.
(b) Since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there shall not have been a Material Adverse
Change or any development involving a prospective Material Adverse Effect in
the business, properties, management, financial condition or results or
operations of the Company.
(c) Each
of the representations and warranties of the Company contained herein shall be
true and correct in all material respects at the Closing Date, as if made on
such date, and all covenants and agreements herein contained to be performed on
the part of the Company and all conditions herein contained to be fulfilled or
complied with by the Company at or prior to the Closing Date shall have been
duly performed, fulfilled or complied with in all material respects.
(d) The
Placement Agents shall have received an opinion, dated the Closing Date of
Davis Graham & Stubbs LLP, as counsel to the Company, in form and substance
reasonably satisfactory to the Placement Agents and their counsel.
(e) At
the Closing Date, there shall be furnished to the Placement Agents a
certificate, dated the date of its delivery, signed by each of the Chief
Executive Officer and the Chief Financial Officer of the Company, in form and
substance satisfactory to the Placement Agents to the effect that each signer
has carefully examined the Registration Statement, the Prospectus and the
Pricing Disclosure Materials, and that to each of such persons knowledge:
(i) (A)
As of the date of such certificate, (x) the Registration Statement does not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
17
statements therein not misleading and (y) neither the
Prospectus nor the Pricing Disclosure Materials contains any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (B) no event has
occurred as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein not untrue or misleading in
any material respect.
(ii) Each
of the representations and warranties of the Company contained in this
Agreement were, when originally made, and are, at the time such certificate is
delivered, true and correct in all material respects.
(iii) Each
of the covenants required herein to be performed by the Company on or prior to
the date of such certificate has been duly, timely and fully performed in all
material respects and each condition herein required to be complied with by the
Company on or prior to the delivery of such certificate has been duly, timely
and fully complied with in all material respects.
(iv) Subsequent
to the date of the most recent financial statements in the Prospectus, there
has been no Material Adverse Change.
(v) No
stop order suspending the effectiveness of the Registration Statement or of any
part thereof has been issued, and no proceedings for that purpose have been
instituted or are pending or threatened by any securities or other governmental
authority (including, without limitation, the Commission).
(vi) No
order suspending the effectiveness of the Registration Statement or the
qualification or registration of the Shares under the securities or Blue Sky
laws of any jurisdiction are in effect and no proceeding for such purpose is
pending before, or threatened, to the Companys knowledge or in writing by, any
securities or other governmental authority (including, without limitation, the
Commission).
(f) At
the Closing Date, there shall be furnished to the Placement Agents a
certificate, dated the date of its delivery, signed by the Secretary of the
Company, in form and substance satisfactory to the Placement Agents, certifying
that (i) attached thereto is a true, complete and correct copy of the
certificate of incorporation and bylaws of the Company as in effect on the
Closing Date and (ii) that attached thereto are true, complete and correct
copies of resolutions duly adopted by the board of directors of the Company and
continuing in effect, which authorize the execution, delivery and performance
by the Company of this Agreement and the transactions contemplated hereby.
(g) The
Shares shall be qualified for sale in such states as the Placement Agents may
reasonably request.
(h) The
Company shall have furnished or caused to be furnished to the Placement Agents
such certificates, in addition to those specifically mentioned herein, as the
Placement Agents may have reasonably requested as to the accuracy and
completeness at the Closing Date of any statement in the Registration Statement
or the Prospectus, as to the accuracy at the Closing Date of the
representations and warranties of the Company as to the performance by the
Company of its obligations hereunder, or as to the fulfillment of the
conditions concurrent and precedent to the obligations hereunder of the
Placement Agents.
18
(i) The
Company and the Selling Stockholders shall provide such further information,
certificates and documents, as the Placement Agents may reasonably request.
(j) The
Company shall have prepared and filed with the Commission a Current Report on
Form 8-K including as an exhibit thereto this Agreement.
10. Indemnification.
(a) The
Company shall indemnify and hold harmless each Placement Agent, its respective
directors, officers, employees and agent and each person, if any, who controls
such Placement Agent within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, from and against any and all losses, claims, liabilities,
expenses and damages, joint or several, (including any and all investigative,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted),
to which it, or any of them, may become subject under the Act or other Federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, liabilities, expenses or damages arise out of or are based
on any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus, the Registration Statement, the
Prospectus, any Issuer Free Writing Prospectus, each as amended and
supplemented, or arise out of or are based upon the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement,
the Prospectus or any Issuer Free Writing Prospectus, each as amended or
supplemented, a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; provided, however, that the Company will not be liable to
the extent that such loss, claim, liability, expense or damage arises from the
sale of the Shares in the public offering to any person and is based solely on
an untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to a Placement Agent,
furnished in writing to the Company by such Placement Agent expressly for
inclusion in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any Issuer Free Writing Prospectus, which information the parties
agree is limited as set forth in Section 10(d) below). This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) Each
Selling Stockholder, severally and not jointly, shall indemnify and hold
harmless each Placement Agent, its respective directors, officers, employees
and agent and each person, if any, who controls such Placement Agent within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, liabilities, expenses and damages, joint or
several, (including any and all investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted), to which it, or any of
them, may become subject under the Act or other Federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus, the Registration Statement, the Prospectus, any Issuer
Free Writing Prospectus, each as amended and supplemented, or arise out of or
are based upon the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement, the Prospectus or any Issuer Free
Writing Prospectus, each as amended or supplemented, a material
19
fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; provided, however, that the foregoing
indemnity agreement shall apply to any loss, claim, damage, liability or
expense to the extent, but only to the extent, arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
the Company by such Selling Stockholder expressly for use in the Preliminary
Prospectus, the Registration Statement, the Prospectus, any Issuer Free Writing
Prospectus (or any amendment or supplement thereto), it being understood that
such information consists exclusively of such Selling Stockholders name and
address and the number of shares of Common Stock set forth opposite such
Selling Stockholders name in the Prospectus under the caption Selling
Stockholders (both prior to and after giving effect to the sale of the
Shares); and provided, further, that, notwithstanding anything to the contrary
above, the liability of each Selling Stockholder shall be limited to an amount
equal to the aggregate gross proceeds after placement agent fees and commissions,
but before expenses, to such Selling Stockholder from the sale of Shares sold
by such Selling Stockholder hereunder. The indemnity agreement shall be in
addition to any liabilities that such Selling Stockholder may otherwise have.
(c) Each
Placement Agent, severally and not jointly, will indemnify and hold harmless
the Company and the Selling Stockholders, each person, if any, who controls the
Company or a Selling Stockholder within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, each director of the Company and each officer
of the Company who signs the Registration Statement, to the same extent as the
foregoing indemnity from the Company to each Placement Agent, but only insofar
as losses, claims, liabilities, expenses or damages arise out of or are based
on any untrue statement or omission or alleged untrue statement or omission
made in reliance on and in conformity with information relating to a Placement
Agent furnished in writing to the Company by such Placement Agent expressly for
use in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any Issuer Free Writing Prospectus. This indemnity agreement will be in
addition to any liability that such Placement Agent might otherwise have. The
Company acknowledges that, for all purposes under this Agreement, the name of
each Placement Agent and the paragraph relating to placement agent fees and
reimbursement of expenses appearing under the caption Plan of Distribution in
the Prospectus constitute the only information relating to each Placement Agent
furnished in writing to the Company by such Placement Agent expressly for
inclusion in the Registration Statement, any Preliminary Prospectus or the
Prospectus.
(d) Any
party that proposes to assert the right to be indemnified under this Section 10
will, promptly after receipt of notice of commencement of any action against
such party in respect of which a claim is to be made against an indemnifying
party or parties under this Section 10, notify each such indemnifying party of
the commencement of such action, enclosing a copy of all papers served, but the
omission so to notify such indemnifying party will not relieve it from any
liability that it may have to any indemnified party under the foregoing
provisions of this Section 10 unless, and only to the extent that, such
omission results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly
20
notified, to assume the defense of the action, with counsel reasonably
satisfactory to the indemnified party, and after notice from the indemnifying
party to the indemnified party of its election to assume the defense, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses except as provided below. The indemnified party will have the
right to employ its own counsel in any such action, but the fees, expenses and
other charges of such counsel will be at the expense of such indemnified party
unless (1) the employment of counsel by the indemnified party has been
authorized in writing by the indemnifying party, (2) the indemnified party has
reasonably concluded (based on advice of counsel) that a conflict exists (based
on advice of counsel to the indemnified party) between the indemnified party
and the indemnifying party that would prevent the counsel selected by the
indemnifying party from representing the indemnified party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (3) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be
at the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable
fees, disbursements and other charges of more than one separate firm admitted
to practice in such jurisdiction at any one time for all such indemnified party
or parties. All such fees, disbursements and other charges will be reimbursed
by the indemnifying party promptly as they are incurred. The indemnifying party
will not, without the prior written consent of the indemnified party (which
consent will not be unreasonably withheld), settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification has been sought hereunder,
unless such settlement, compromise or consent includes an unconditional release
of the indemnified party from all liability arising out of such claim, action,
suit or proceeding. An indemnifying party will not be liable for any settlement
of any action or claim effected without its written consent (which consent will
not be unreasonably withheld).
(e) In
order to provide for just and equitable contribution in circumstances in which
the indemnification provided for in the foregoing paragraphs of this Section 10
is applicable in accordance with its terms but for any reason is held to be
unavailable from the Company, the Selling Stockholders or the Placement Agents,
the Company, the Selling Stockholders and the Placement Agents will contribute
to the total losses, claims, liabilities, expenses and damages (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted, but after deducting any contribution received by the Company
from persons other than the Placement Agents or Selling Stockholders such as
persons who control the Company within the meaning of the Act or the Exchange
Act, officers of the Company who signed the Registration Statement and
directors of the Company, who also may be liable for contribution) to which the
Company, the Selling Stockholders and the Placement Agents may be subject in
such proportion as shall be appropriate to reflect the relative benefits
received. The relative benefits received shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting Company expenses)
received by the Company and the Selling Stockholders as set forth in the table
on the cover page of the Prospectus bear to the fee received by the Placement
Agents hereunder. If, but only if, the allocation provided by the foregoing
sentence is not permitted by applicable law, the allocation of contribution
shall be made in such proportion as is
21
appropriate to reflect not only the relative benefits
referred to in the foregoing sentence but also the relative fault of the
Company, the Selling Stockholders, and each Placement Agent, with respect to
the statements or omissions which resulted in such loss, claim, liability,
expense or damage, or action in respect thereof, as well as any other relevant
equitable considerations with respect to such offering. Such relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company, the Selling Stockholders
or a Placement Agent, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, the Selling Stockholders and the Placement Agents agree
that it would not be just and equitable if contributions pursuant to this
Section 10(e) were to be determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, liability, expense or damage, or action
in respect thereof, referred to above in this Section 10(e) shall be deemed to
include, for purpose of this Section 10(e), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 10(e), no Placement Agent shall be required to contribute any amount in
excess of the fee received by it, no Selling Stockholder shall be required to
contribute any amount in excess of the aggregate gross proceeds received by it
after placement agent fees and commissions, but before expenses, and no person
found guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section
10(e), any person who controls a party to this Agreement within the meaning of
the Act or the Exchange Act will have the same rights to contribution as that
party, and each officer of the Company who signed the Registration Statement
will have the same rights to contribution as the Company, subject in each case
to the provisions hereof. Any party entitled to contribution, promptly after
receipt of notice of commencement of any action against such party in respect
of which a claim for contribution may be made under this Section 10(e), will
notify any such party or parties from whom contribution may be sought, but the
omission so to notify will not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have under
this Section 10(e). No party will be liable for contribution with respect to
any action or claim settled without its written consent (which consent will not
be unreasonably withheld).
11. Termination.
(a) This
Agreement shall automatically terminate 90 days from the date hereof.
(b) The
obligations of the Placement Agents under this Agreement may be terminated at
any time prior to the Closing Date, by notice to the Company from the Placement
Agents, without liability on the part of the Placement Agents if, prior to
delivery and payment for the Shares, in the sole judgment of the Placement
Agents (i) trading in the Common Stock of the Company shall have been suspended
by the Commission or by the NASDAQ Capital Market, (ii) trading in securities generally
on Nasdaq, the New York Stock Exchange or the American Stock Exchange shall
have been suspended or limited or minimum or maximum prices shall have been
generally established on any of such exchange or additional material
governmental restrictions, not in force on the date of this Agreement, shall
have been imposed upon trading in securities
22
generally by any of such exchange or by order of the
Commission or any court or other governmental authority, (iii) a general
banking moratorium shall have been declared by Federal or New York State
authorities, or (iv) any material adverse change in the financial or securities
markets in the United States or any outbreak or material escalation of
hostilities or declaration by the United States of a national emergency or war
or other national or State of Colorado calamity or crisis shall have occurred,
the effect of any of which is such as to make it, in the sole judgment of the
Placement Agents, impracticable or inadvisable to market the Shares on the
terms and in the manner contemplated by the Prospectus.
(c) If
this Agreement shall be terminated pursuant to any of the provisions hereof, or
if the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Placement Agents set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company or the Selling Stockholders to perform any agreement herein or comply
with any provision hereof, the Company will, subject to demand by the Placement
Agents, reimburse the Placement Agents for all out-of-pocket expenses incurred
in connection herewith in an aggregate amount not to exceed $5,000.
12. No Fiduciary Duty. The Company
acknowledges and agrees that in connection with this offering, sale of the
Shares or any other services the Placement Agents may be deemed to be providing
hereunder, notwithstanding any preexisting relationship, advisory or otherwise,
between the parties or any oral representations or assurances previously or
subsequently made by the Placement Agents: (i) no fiduciary or agency
relationship between the Company, the Selling Stockholders and any other
person, on the one hand, and the Placement Agents, on the other, exists; (ii)
the Placement Agents are not acting as advisors, experts or otherwise, to the
Company or the Selling Stockholders, including, without limitation, with
respect to the determination of the offering price of the Shares, and such
relationship between the Company, on the one hand, and the Placement Agents, on
the other, is entirely and solely commercial, based on arms-length
negotiations; (iii) any duties and obligations that the Placement Agents may
have to the Company or the Selling Stockholders shall be limited to those
duties and obligations specifically stated herein; and (iv) the Placement
Agents and their respective affiliates may have interests that differ from
those of the Company or the Selling Stockholders. The Company and the Selling
Stockholders hereby waive any claims that they may have against the Placement
Agents with respect to any breach of fiduciary duty in connection with this
offering.
13. Notices. Notice given pursuant
to any of the provisions of this Agreement shall be in writing and, unless
otherwise specified, shall be mailed or delivered (a) if to the Company, at the
office of the Company, 8451 Delaware St., Thornton, Colorado 80260, Attention:
Mark W. Harding, President, with copies to Davis Graham & Stubbs LLP, 1550
Seventeenth Street, Suite 500, Denver, Colorado 80202, Attention: Wanda J.
Abel, (b) if to the Placement Agents, at the office of Wm Smith Securities,
Incorporated., 1700 Lincoln Street, Suite 2545, Denver CO, 80203, Attention:
William S. Smith and at the office of Flagstone Securities, LLC, 7733 Forsyth
Blvd., Suite 1950, Saint Louis MO, 63105, Attention: William Riley, with copies
to Holme Roberts & Owen LLP, 1700 Lincoln Street, Suite 4100, Denver, CO
80203, Attention: Garth B. Jensen, or (c) if to the Selling Stockholders, at
the addresses set forth on Schedule 1. Any such notice shall be effective only upon
receipt. Any notice under Section 10 may be made by facsimile or telephone, but
if so made shall be subsequently confirmed in writing.
23
14. Survival. The respective
representations, warranties, agreements, covenants, indemnities and other
statements of the Company, the Selling Stockholders and the Placement Agents
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement shall remain in full force and effect, regardless of
(i) any investigation made by or on behalf of the Selling Stockholders, the
Company, any of its officers or directors, the Placement Agents or any
controlling person referred to in Section 10 hereof and (ii) delivery of and
payment for the Shares. The respective agreements, covenants, indemnities and
other statements set forth in Sections 8 and 10 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
15. Successors. This Agreement
shall inure to the benefit of and shall be binding upon the parties hereto and
their respective successors and legal representatives, and to the benefit of
the employees, officers and directors and controlling persons referred to in
Section 10 hereof, and no other person will have any right or obligation
hereunder.
16. Applicable Law. The validity
and interpretations of this Agreement, and the terms and conditions set forth
herein, shall be governed by and construed in accordance with the laws of the
State of Colorado, without giving effect to any provisions relating to
conflicts of laws.
17. Counterparts. This Agreement
may be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument.
18. Entire Agreement. This
Agreement constitutes the entire understanding between the parties hereto as to
the matters covered hereby and supersedes all prior understandings, written or
oral, relating to such subject matter.
24
Please confirm that the foregoing correctly sets forth
the agreement between the Company, the Selling Stockholders and the Placement
Agents.
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Very truly yours,
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WM SMITH SECURITIES, INCORPORATED
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By:
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/s/ William S. Smith
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William S. Smith
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President
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FLAGSTONE SECURITIES, LLC
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By:
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/s/ William Riley
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William Riley
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Managing Director
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Agreed to and accepted as of the date first above
mentioned:
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PURE CYCLE CORPORATION
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By:
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/s/ Mark W. Harding
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Mark W. Harding
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President
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[Signature
Pages of Selling Stockholders Follow]
25
Agreed to and accepted as of the date first
above mentioned:
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ENVIRONMENTAL VENTURE FUND LIQUIDATING TRUST
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By:
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First Analysis Corporation, Liquidating Trustee
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By:
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/s/ Joseph G. Chopp
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Joseph G. Chopp
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Chief Financial Officer
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Agreed to and accepted as of the date first
above mentioned:
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ENVIRONMENTAL PRIVATE EQUITY FUND II
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LIQUIDATING TRUST
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By:
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Environmental Private Equity Management II, L.P.,
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Liquidating Trustee
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By:
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First Analysis EPEF Management Company II,
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G.P., Managing Partner
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By:
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First Analysis Corporation, General Partner
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By:
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/s/ Joseph G. Chopp
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Joseph G. Chopp
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Chief Financial Officer
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Agreed to and accepted as of the date first
above mentioned:
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THE PRODUCTIVITY FUND II LIQUIDATING TRUST
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By:
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First Analysis Corporation, Liquidating Trustee
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By:
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/s/ Joseph G. Chopp
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Joseph G. Chopp
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Chief Financial Officer
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Agreed to and accepted as of the date first
above mentioned:
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APEX INVESTMENT FUND II, L.P.
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By:
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Apex Management Partnership, General Partner
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By:
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/s/ George Middlemas
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George Middlemas
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General Partner
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Agreed to and accepted as of the date first
above mentioned:
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INCO SECURITIES CORPORATION
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By:
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/s/ Carl DeLuca
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Carl DeLuca
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President
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30
SCHEDULE
1
SELLING STOCKHOLDERS
Selling Stockholder
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Number of Shares
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Apex Investment Fund
II, L.P.
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677,239
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Environmental Private
Equity Fund II Liquidating Trust
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309,371
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Environmental Venture
Fund Liquidating Trust
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241,362
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Inco Securities Corporation
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242,169
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The Productivity Fund II Liquidating Trust
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186,556
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Addresses for
Selling Stockholders
Inco
Securities Corporation:
CVRD Inco Limited
200 Bay Street
Royal Bank Plaza Suite 1600, South Tower, P.O. Box 70
Toronto, Canada M5J 2K2
Attn: Carl DeLuca, Associate General Counsel and Assistant Secretary
Environmental
Private Equity Fund II Liquidating Trust, Environmental Venture Fund
Liquidating Trust and The Productivity Fund II Liquidating Trust:
First Analysis Corporation
One South Wacker Drive, Suite 3900
Chicago, Illinois 60606
Attn: Angela Soliz
with a copy to:
Horwood Marcus & Berk Chartered
180 North LaSalle Street, Suite 3700
Chicago, Illinois 60601
Attn: James L. Jerue
Apex
Investment Fund II, L.P.
Apex Venture Partners
225 West Washington Street, Suite 1500
Chicago, Illinois 60606
Attn: Nancy Corrie
with a copy to:
Horwood Marcus & Berk Chartered
180 North LaSalle Street, Suite 3700
Chicago, Illinois 60601
Attn: James L. Jerue
SCHEDULE 2
ISSUER FREE WRITING
PROSPECTUSES
NONE.
SCHEDULE
3
TERM SHEET INFORMATION
Price per share $7.75.
SCHEDULE
4
NON-GAAP FINANCIAL
MEASURES
The
Company received a comment letter from the Commission dated June 14, 2007,
concerning a non-GAAP disclosure in Note 3 to its Form 10-Q for
the fiscal quarter ended February 28, 2007, which is incorporated in the
Registration Statement by reference. The
comment and Company response are set forth below:
Note 3 Investments in Water and Water Systems, page 10
We
note you disclose on page 11 the per-share impact of imputed interest on
your Tap Participation Fees payable.
Please tell us why you believe you are permitted to include this
non-GAAP measure in you filing considering Question 11 of the Staffs
Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures,
available on our website at www.sec.gov.
If you believe inclusion of this
measure in your filing appropriate, please explain how the measure is used by
management and in what way it provides meaningful information to
investors. Also, ensure you provide a
reconciliation of the measurement to the GAAP EPS figure.
17 CFR § 244.100 General
rules regarding disclosure of non-GAAP financial measures (Regulation G)
provides that a non-GAAP financial measure, when considered together with accompanying
information, may not contain an untrue statement of a material fact nor may it
omit to state a material fact necessary to make the non-GAAP financial measure
not misleading, in-light of the circumstances.
The disclosure of the per-share impact of the imputed interest does not
provide an untrue statement of a material fact, nor does it omit any
information which makes the note misleading.
Management provided the information as means to highlight the magnitude
of the imputed interest as a result of accounting for the Tap Participation Fee
payable to HP A&M (as defined in the Form 10-Q). Upon review, the Company believes it should
have disclosed the most directly comparable financial measure computed in
accordance with GAAP (total net loss EPS) in the same footnote. However, since that is disclosed in the
statement of operations, and the amount of the imputed interest is disclosed in
the notes and the statement of operations, the reader can easily reconcile the
GAAP and non-GAAP financial measures.
Therefore, the Company does not believe this is a material omission
requiring restatement. It should further
be noted that Accounting Series Release No. 142 states per share data
other than that relating to net income, net assets and dividends should (emphasis added) be avoided in
reporting financial results, but this is not specifically prohibited by
ASR 142.
The
Company received a subsequent comment letter from the Commission on
July 13, 2007 noting that the per-share impact of imputed interest on Tap
Participation Fees payable was still mentioned in the Companys Form 10-Q
for the fiscal quarter ended May 31, 2007.
The Company informed the Commission that the line was inadvertently not
removed and it will be removed from future filings.