INTERACTIVE MAGIC, INC.
2,600,000 Shares of Common Stock
(Par Value $.10 per share)
UNDERWRITING AGREEMENT
New York, New York
July __, 1998
Blue Stone Capital Partners, L.P.
Royce Investment Group, Inc.
as Representatives of the
Several Underwriters named
in Schedule A hereto
c/o BlueStone Capital Partners, L.P.
575 Fifth Avenue
New York, New York 10017
Dear Sirs:
Interactive Magic, Inc., a North Carolina corporation (the "Company"),
proposes to issue and sell to the underwriters (the "Underwriters") named in
Schedule A to this Underwriting Agreement (the "Agreement"), for whom BlueStone
Capital Partners, L.P. ("BlueStone") and Royce Investment Group, Inc. are acting
as representatives (hereinafter sometimes referred to together as the
"Representatives"), two million six hundred thousand (2,600,000) shares of
common stock, par value $.10 per share (the "Offered Shares"), which Offered
Shares are presently authorized but unissued shares of the common stock, par
value $.10 per share (individually a "Common Share" and collectively the "Common
Shares"), of the Company. In addition, the Representatives, in order to cover
over-allotments in the sale of the Offered Shares, may purchase from the
Company, for their own accounts, up to an aggregate of three hundred ninety
thousand (390,000) Common Shares (the "Optional Shares"; the Offered Shares and
the Optional Shares are hereinafter sometimes collectively referred to as the
"Shares"). The Shares are described in the Registration Statement, as defined
below. The Company also proposes to issue and sell to the Representatives for
their own accounts and/or the accounts of their designees, warrants to purchase
an aggregate of two hundred sixty thousand (260,000) Common Shares (the "Warrant
Shares") at an exercise price of $_____ per Warrant Share (the "Representatives'
Warrants"), which sale will be consummated in accordance with the
terms and conditions of the form of Representatives' Warrant Agreement filed as
an exhibit to the Registration Statement.
The Representatives hereby warrant to the Company that they have been
authorized by each of the Underwriters to enter into this Underwriting Agreement
on their behalf and to act for them in the manner herein provided. The Company
hereby confirms its respective agreements with the Representatives and each of
the Underwriters, on whose behalf the Representatives are signing this
Agreement, as follows:
1. Purchase and Sale of Offered Shares. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company hereby agrees to sell the Offered
Shares to the Underwriters, severally, and each Underwriter agrees severally and
not jointly, to purchase from the Company, at a purchase price of $______ per
share, the number of Offered Shares set forth opposite the name of such
Underwriter in Schedule A attached hereto, plus any additional Offered Shares
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof. The Underwriters plan to offer the Offered
Shares to the public at a public offering price of $_____ per share.
2. Payment and Delivery.
(a) Payment for the Offered Shares will be made to the Company by
wire transfer of same day funds against delivery of the Offered Shares to the
Representatives. Such payment and delivery will be made at 10:00 A.M. New York
City time, on the third business day following the Effective Date (as
hereinafter defined) (the fourth business day following the Effective Date in
the event that trading of the Offered Shares commences on the day following the
Effective Date), the date and time of such payment and delivery being herein
called the "Closing Date." The certificates representing the Offered Shares to
be delivered will be in such denominations and registered in such names as the
Representatives may request not less than two full business days prior to the
Closing Date, and will be made available to the Representatives for inspection,
checking and packaging at the offices of Wachovia Bank & Trust Company, the
Company's transfer agent, at 301 North Church Street, 2nd Floor, Winston Salem,
North Carolina, not less than one full business day prior to the Closing Date.
(b) On the Closing Date, the Company will sell the
Representatives' Warrants to the Representatives or to their designees (limited
to officers and partners of the Representatives and Underwriters). The
Representatives' Warrants will be in the form of, and in accordance with, the
provisions of the
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Representatives' Warrant Agreement attached as an exhibit to the Registration
Statement, with such changes as the Representatives and the Company shall
approve. The aggregate purchase price for the Representatives' Warrants is $260.
The Representatives' Warrants will be restricted from sale, transfer, assignment
or hypothecation for a period of one year from the Effective Date, except to
officers or partners of the Representatives and Underwriters and members of the
selling group and/or their officers or partners. Payment for the
Representatives' Warrants will be made to the Company by check or checks payable
to its order on the Closing Date against delivery of the certificates
representing the Representatives' Warrants. The certificates representing the
Representatives' Warrants will be in such denominations and such names as the
Representatives may request prior to the Closing Date.
3. Option to Purchase Optional Shares.
(a) For the purposes of covering any overallotments in connection
with the distribution and sale of the Offered Shares as contemplated by the
Prospectus as defined below, the Representatives are hereby granted an option to
purchase for their own accounts, and not as representatives of the Underwriters,
all or any part of the Optional Shares from the Company. The purchase price to
be paid for the Optional Shares will be the same price per Optional Share as the
price per Offered Share set forth in Section 1 hereof. The option granted hereby
may be exercised by the Representatives as to all or any part of the Optional
Shares at any time within 45 days after the Effective Date. The Representatives
will not be under any obligation to purchase any Optional Shares prior to the
exercise of such option.
(b) The option granted hereby may be exercised by the
Representatives by giving oral notice to the Company, which must be confirmed by
a letter, telex or telegraph setting forth the number of Optional Shares to be
purchased, the date and time for delivery of and payment for the Optional Shares
to be purchased and stating that the Optional Shares referred to therein are to
be used for the purpose of covering over-allotments in connection with the
distribution and sale of the Offered Shares. If such confirmed notice is given
prior to the Closing Date, the date set forth therein for such delivery and
payment will not be earlier than either two full business days thereafter or the
Closing Date, whichever occurs later. If such confirmed notice is given on or
after the Closing Date, the date set forth therein for such delivery and payment
will not be earlier than two (2) full business days thereafter. In either event,
the date so set forth will not be more than 15 full business days after the date
of such confirmed notice. The date and time set forth in such confirmed notice
is herein called the "Option Closing Date." Upon exercise of such option, the
Company will become obligated to convey to the
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Representatives, and, subject to the terms and conditions set forth in Section
3(d) hereof, the Representatives will become obligated to purchase, the number
of Optional Shares specified in such confirmed notice.
(c) Payment for any Optional Shares purchased will be made to the
Company by wire transfer against delivery of the Optional Shares purchased to
the Representatives. The certificates representing the Optional Shares to be
delivered will be in such denominations and registered in such names as the
Representatives request not less than two full business days prior to the Option
Closing Date, and will be made available to the Representatives for inspection,
checking and packaging at the aforesaid office of the Company's transfer agent
or correspondent not less than one full business day prior to the Option Closing
Date.
(d) The obligation of the Representatives to purchase and pay for
any of the Optional Shares is subject to the accuracy and completeness (as of
the date hereof and as of the Option Closing Date) of and compliance in all
material respects with the representations and warranties of the Company herein,
to the accuracy and completeness of the statements of the Company or its
officers made in any certificate or other document to be delivered by the
Company pursuant to this Agreement, to the performance in all material respects
by the Company of its obligations hereunder, to the satisfaction by the Company
of the conditions, as of the date hereof and as of the Option Closing Date, set
forth in Section 3(b) hereof, and to the delivery to the Representatives of
opinions, certificates and letters dated the Option Closing Date substantially
similar in scope to those specified in Sections 5 and 6(b), (c), (d) and (e)
hereof, but with each reference to "Offered Shares" and "Closing Date" to be,
respectively, to the Optional Shares and the Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) The Company is a corporation duly organized and validly
existing under the laws of the State of North Carolina, with full power and
authority, corporate and other, to own or lease, as the case may be, and operate
its properties and to conduct its business as described in the Registration
Statement and to execute, deliver and perform this Agreement and the
Representatives' Warrant Agreement and to consummate the transactions
contemplated hereby and thereby. The Company is duly qualified to do business as
a foreign corporation in all jurisdictions wherein such qualification is
necessary except where failure so to qualify would not have a material adverse
effect on the financial condition, results of operations, business or properties
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of the Company. Other than iMagicOnline Corporation ("iMagic"), a corporation
duly organized and validly existing under the laws of the State of North
Carolina and a wholly-owned subsidiary of the Company, Interactive Magic Ltd.
("IML"), a corporation duly organized and validly existing under the laws of the
United Kingdom and a wholly-owned subsidiary of the Company, and Interactive
Magic Gmbh ("IM Gmbh"), a corporation duly organized and validly existing under
the laws of Germany and a wholly-owned subsidiary of IML (collectively, the
"Subsidiaries"), the Company has no subsidiaries and the Company has no equity
interest in any entities other than the Subsidiaries and a 15% interest in
Charybdis Enterprises, Inc.
("CEI").
(b) Each of the Subsidiaries has full power and authority,
corporate and other, necessary to own or lease, as the case may be, and operate
its properties and to conduct its business as described in the Registration
Statement. Each of the Subsidiaries is also duly qualified to do business as a
foreign corporation in all jurisdictions wherein such qualification is
necessary, except where failure to so qualify would not have a material adverse
effect on the financial condition, results of operations, business or properties
of the Company and the Subsidiaries taken as a whole. Except as set forth in the
Prospectus, the Company owns all of the issued and outstanding shares of capital
stock of iMagic and IML and its 15% equity interest in CEI and IML owns all of
the issued and outstanding capital stock of IM Gmbh, free and clear of any
security interests, liens, encumbrances, claims and charges, and all of such
shares have been duly authorized and validly issued and are fully paid and
non-assessable. There are no options or warrants for the purchase of, or other
rights to purchase, or outstanding securities convertible into or exchangeable
for, any capital stock or other securities of any Subsidiary.
(c) This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company, and the
Representatives' Warrant Agreement, when executed and delivered by the Company
on the Closing Date, will be the valid and binding obligation of the Company,
enforceable against the Company in accordance with their respective terms,
except (i) as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification provision may be
limited under the federal and state securities laws and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the discretion of the court before which any proceeding therefor may
be brought. The execution, delivery and performance of this Agreement and the
Representatives' Warrant Agreement by the Company, the consummation
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by the Company of the transactions herein and therein contemplated and the
compliance by the Company with the terms of this Agreement and the
Representatives' Warrant Agreement have been duly authorized by all necessary
corporate action and do not and will not, with or without the giving of notice
or the lapse of time, or both, (i) result in any violation of the Company's or
of any Subsidiary's Articles of Incorporation, Memorandum or Articles of
Association or By-Laws (or similar charter documents); (ii) result in a breach
of or conflict with any of the terms or provisions of, or constitute a default
under, or result in the modification or termination of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or any Subsidiary pursuant
to any indenture, mortgage, note, contract, commitment or other agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any of their respective properties or assets is or
may be bound or affected, in any case, that is material to the Company and the
Subsidiaries, taken as a whole; (iii) violate any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any Subsidiary or
any of their respective properties or business which would materially adversely
affect the Company and the Subsidiaries, taken as a whole; or (iv) have any
effect on any permit, certification, registration, approval, consent, order,
license, franchise or other authorization (collectively, the "Permits")
necessary for the Company or any Subsidiary to own or lease and operate their
respective properties or conduct their respective businesses or the ability of
the Company to make use thereof, which would materially adversely affect the
Company and the Subsidiaries, taken as a whole.
(d) No Permits of any court or governmental agency or body, other
than under the Securities Act of 1933, as amended (the "Act"), the Regulations
(as hereinafter defined) and applicable state securities laws or "Blue Sky"
laws, are required (i) for the valid authorization, issuance, sale and delivery
of the Shares to the Underwriters, and (ii) the consummation by the Company of
the transactions contemplated by this Agreement and the Representatives' Warrant
Agreement.
(e) The conditions for use of a registration statement on Form
SB-2 set forth in the General Instructions to Form SB-2 have been satisfied with
respect to the Company, the transactions contemplated herein and in the
Registration Statement. The Company has prepared in conformity in all material
respects with the requirements of the Act and the rules and regulations (the
"Regulations") of the Securities and Exchange Commission (the "Commission") and
filed with the Commission a registration statement (File No. 333-53755) on Form
SB-2 and has filed one or
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more amendments thereto, covering the registration of the Shares under the Act,
including the related preliminary prospectus or preliminary prospectuses (each
thereof being herein called a "Preliminary Prospectus") and a proposed final
prospectus. Each Preliminary Prospectus was endorsed with the legend required by
Item 501(a)(5) of Regulation S-B of the Regulations and, if applicable, Rule
430A of the Regulations. Such registration statement including any documents
incorporated by reference therein and all financial schedules and exhibits
thereto, as amended at the time it becomes effective, and the final prospectus
included therein are herein, respectively, called the "Registration Statement"
and the "Prospectus," except that, (i) if the prospectus filed by the Company
pursuant to Rule 424(b) of the Regulations differs from the Prospectus, the term
"Prospectus" shall mean the prospectus filed pursuant to Rule 424(b), and (ii)
if the Registration Statement is amended or such Prospectus is supplemented
after the date the Registration Statement is declared effective by the
Commission (the "Effective Date") and prior to the Option Closing Date, the
terms "Registration Statement" and "Prospectus" shall include the Registration
Statement as amended or supplemented.
(f) Neither the Commission nor, to the best of the Company's
knowledge, any state regulatory authority has issued any order preventing or
suspending the use of any Preliminary Prospectus or has instituted or, to the
best of the Company's knowledge, threatened to institute any proceedings with
respect to such an order.
(g) The Registration Statement when it becomes effective, the
Prospectus (and any amendment or supplement thereto) when it is filed with the
Commission pursuant to Rule 424(b), and both documents as of the Closing Date
and the Option Closing Date referred to below, will contain all statements which
are required to be stated therein in accordance with the Act and the Regulations
and will in all material respects conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, on such dates, will 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, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with information furnished in writing to the
Company in connection with the Registration Statement or Prospectus or any
amendment or supplement thereto by the Representatives, or by any Underwriter
through the Representatives, expressly for use therein.
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(h) The Company had at the date or dates indicated in the
Prospectus a duly authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus. The Company will have on the Closing
Date the adjusted stock capitalization set forth therein. Except as set forth in
the Registration Statement or the Prospectus, on the Effective Date and on the
Closing Date, there will be no options to purchase, warrants or other rights to
subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell shares of the Company's capital stock
or any such warrants, convertible securities or obligations which are material
in the aggregate or represent more than an aggregate total of 15,000 shares of
Common Stock. Except as set forth in the Prospectus, no other securities of the
Company have any rights, "demand," "piggyback" or otherwise, to have such
securities registered under the Act.
(i) The descriptions in the Registration Statement and the
Prospectus of contracts and other documents described therein are accurate and
present fairly the information required to be disclosed, and there are no
contracts or other documents required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the Registration Statement
under the Act or the Regulations which have not been so described or filed as
required.
(j) Ernst & Young LLP, the accountants who have certified certain
of the consolidated financial statements filed and to be filed with the
Commission as part of the Registration Statement and the Prospectus, have
informed the Company that they are independent public accountants within the
meaning of the Act and Regulations. The consolidated financial statements and
schedules and the notes thereto filed as part of the Registration Statement and
included in the Prospectus are complete, correct and present fairly the
financial position of the Company as of the dates thereof, and the results of
operations and changes in financial position of the Company for the periods
indicated therein, all in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved except
as otherwise stated in the Registration Statement and the Prospectus. The
selected financial data set forth in the Registration Statement and the
Prospectus present fairly the information shown therein and have been compiled
on a basis consistent with that of the audited and unaudited financial
statements included in the Registration Statement and the Prospectus.
(k) The Company and each Subsidiary has each filed with the
appropriate federal, state and local governmental agencies, and all appropriate
foreign countries and political
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subdivisions thereof, all tax returns, including franchise tax returns, which
are required to be filed or has duly obtained extensions of time for the filing
thereof, other than those tax returns the failure of which to file would not
have a material adverse effect on the Company and the Subsidiaries, taken as a
whole and has paid all taxes shown on such returns and all assessments received
by it to the extent that the same have become due other than those taxes the
failure of which to pay would not have a material adverse effect on the Company
and the Subsidiaries, taken as a whole; and the provisions for income taxes
payable, if any, shown on the consolidated financial statements filed with or as
part of the Registration Statement are sufficient for all accrued and unpaid
foreign and domestic taxes, whether or not disputed, and for all periods to and
including the dates of such consolidated financial statements. Except as
disclosed in writing to the Representatives, neither the Company nor any
Subsidiary has executed or filed with any taxing authority, foreign or domestic,
any agreement extending the period for assessment or collection of any income
taxes and is not a party to any pending action or proceeding by any foreign or
domestic governmental agency for assessment or collection of taxes; and no
claims for assessment or collection of taxes have been asserted against the
Company or any Subsidiary, that would be material to the Company and the
Subsidiaries, taken as a whole.
(l) The outstanding Common Shares and outstanding options and
warrants to purchase Common Shares have been duly authorized and validly issued.
The outstanding Common Shares are fully paid and nonassessable. The outstanding
options and warrants to purchase Common Shares constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms. None of
the outstanding Common Shares or options or warrants to purchase Common Shares
has been issued in violation of the preemptive rights of any shareholder of the
Company. None of the holders of the outstanding Common Shares is subject to
personal liability solely by reason of being such a holder. The offers and sales
of the outstanding Common Shares and outstanding options and warrants to
purchase Common Shares were at all relevant times either registered under the
Act and the applicable state securities or Blue Sky laws or exempt from such
registration requirements. The authorized Common Shares and outstanding options
and warrants to purchase Common Shares conform in all material respects to the
descriptions thereof contained in the Registration Statement and Prospectus.
(m) No securities of the Company have been sold by the Company
within the three years prior to the date hereof, except as disclosed in the
Registration Statement.
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(n) The issuance and sale of the Shares and the Warrant Shares
have been duly authorized and, when the Shares and the Warrant Shares have been
issued and duly delivered against payment therefor as contemplated by this
Agreement and the Representatives' Warrant Agreement, respectively, the Shares
and the Warrant Shares will be validly issued, fully paid and nonassessable, and
the holders thereof will not be subject to personal liability solely by reason
of being such holders. Neither the Shares nor the Warrant Shares will be subject
to preemptive rights of any shareholder of the Company.
(o) The issuance and sale of the Representatives' Warrants have
been duly authorized and, when issued, paid for and delivered as contemplated by
the Representatives' Warrant Agreement, the Representatives' Warrants will
constitute valid and binding obligations of the Company, enforceable as to the
Company in accordance with their terms. The Representatives' Warrants will not
be subject to preemptive rights of any shareholder of the Company. The Warrant
Shares have been duly reserved for issuance upon exercise of the
Representatives' Warrants in accordance with the provisions of the
Representatives' Warrant Agreement. The Representatives' Warrants conform to the
description thereof contained in the Registration Statement and Prospectus.
(p) Neither the Company nor any Subsidiary is in violation of, or
in default under, (i) any term or provision of its Articles of Incorporation,
Memorandum or Articles of Association or By-Laws (or similar charter documents);
(ii) any material term or provision or any financial covenants of any indenture,
mortgage, contract, commitment or other agreement or instrument to which it is a
party or by which it or any of its property or business is or may be bound or
affected; or (iii) any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company, any Subsidiary or any of their respective
properties or business, except for such violations or defaults under clauses
(i), (ii) or (iii) above which, individually or in the aggregate would not have
a material adverse effect on the Company and its Subsidiaries, taken as a whole.
The Company and each Subsidiary owns, possesses or has obtained all governmental
and other (including those obtainable from third parties) Permits necessary to
own or lease, as the case may be, and to operate its properties, whether
tangible or intangible, and to conduct the business and operations of the
Company as presently conducted, and all such Permits are outstanding and in good
standing, and there are no proceedings pending or to the best of the Company's
knowledge, threatened (nor, to the best of the Company's knowledge, is there any
basis therefor) which seek to cancel, terminate or limit such Permits, except in
each case as would not, individually or in the
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aggregate, have a material adverse effect on the Company and the
Subsidiaries, taken as a whole.
(q) Except as set forth in the Prospectus, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries before
any governmental agency, court or tribunal, domestic or foreign, or before any
private arbitration tribunal, pending, or, to the best of the Company's
knowledge, threatened against the Company or any Subsidiary or involving the
Company's or any Subsidiary's properties or business which, if determined
adversely to the Company or any Subsidiary would, individually or in the
aggregate, result in any material adverse change in the financial position,
shareholders' equity, results of operations, properties, business, management or
affairs or business prospects of the Company or which question the validity of
the capital stock of the Company or this Agreement or of any action taken or to
be taken by the Company pursuant to, or in connection with, this Agreement; nor,
to the best of the Company's knowledge, is there any basis for any such claim,
action, suit, proceeding, arbitration, investigation or inquiry. There are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal naming the Company or any Subsidiary and enjoining the Company or
any Subsidiary from taking, or requiring the Company or any Subsidiary to take,
any action, or to which the Company or any Subsidiary or the Company's or any
Subsidiary's properties or business is bound or subject.
(r) Neither the Company nor any of its affiliates has incurred any
liability for any finder's fees or similar payments in connection with the
transactions herein contemplated.
(s) The Company and each of the Subsidiaries each owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, trade secrets, confidential
information, processes and formulations used or proposed to be used in the
conduct of its business as described in the Prospectus (collectively the
"Intangibles"); to the best of the Company's knowledge, neither the Company nor
any Subsidiary has infringed or is infringing upon the rights of others in any
material respect with respect to the Intangibles; and neither the Company nor
any Subsidiary has received any notice of conflict with the asserted rights of
others with respect to the Intangibles which could, singly or in the aggregate,
materially adversely affect its business as presently conducted or the
prospects, financial condition or results of operations of the Company and the
Subsidiaries, taken as a whole, and the Company knows of no basis therefor; and,
to the best of the Company's knowledge, no others have infringed upon the
Intangibles of the Company or any Subsidiary.
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(t) Except as otherwise may be disclosed in the Registration
Statement and the Prospectus, since the respective dates as of which information
is given in the Registration Statement and the Prospectus and the Company's
latest consolidated financial statements, neither the Company nor any Subsidiary
has incurred any material liability or obligation, direct or contingent, or
entered into any material transaction, whether or not incurred in the ordinary
course of business, or sustained any material loss or interference with its
business from fire, storm, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree; and since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there have not been, and prior
to the Closing Date referred to below there will not be, any material changes in
the capital stock or any material increases in the long-term debt of the Company
or any Subsidiary or any material adverse change in or affecting the general
affairs, management, financial condition, shareholders' equity, results of
operations or prospects of the Company or any Subsidiary, other than as set
forth or contemplated in the Prospectus.
(u) Neither the Company nor any Subsidiary owns any real property.
The Company and each Subsidiary each has good title to all personal property
(tangible and intangible) owned by it, free and clear of all security interests,
charges, mortgages, liens, encumbrances and defects, except such as are
described in the Registration Statement and Prospectus or such as do not
materially affect or interfere with the operations of the Company or any
Subsidiary. The leases, licenses or other contracts or instruments under which
the Company and the Subsidiaries lease, hold or are entitled to use any
property, real or personal, are valid, subsisting and enforceable only with such
exceptions as are not material and do not interfere with the use of such
property made, or proposed to be made, by the Company or any Subsidiary, and all
rentals, royalties or other payments, if any, accruing thereunder which became
due prior to the date of this Agreement have been duly paid, and neither the
Company nor any Subsidiary, nor, to the best of the Company's knowledge, any
other party is in default thereunder and, to the best of the Company's
knowledge, no event has occurred which, with the passage of time or the giving
of notice, or both, would constitute a default thereunder. Neither the Company
nor any Subsidiary has received notice of any violation of any applicable law,
ordinance, regulation, order or requirement relating to its owned or leased
properties that would have a material adverse effect on the Company. The Company
and each Subsidiary has adequately insured its properties against loss or damage
by fire or other casualty and maintains, in adequate amounts, such other
insurance as is usually maintained by companies
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engaged in the same or similar businesses located in its geographic
area.
(v) Each contract or other instrument (however characterized or
described) to which the Company or a Subsidiary is a party or by which their
respective properties or businesses are or may be bound or affected and to which
reference is made in the Prospectus has been duly and validly executed, is in
full force and effect in all material respects and is enforceable against the
Company and, to the best of the Company's knowledge, the other parties thereto
in accordance with its terms, and none of such contracts or instruments has been
assigned by the Company or any Subsidiary, and neither the Company nor any
Subsidiary, nor, to the best of the Company's knowledge, any other party is in
default thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the lapse of time or the giving of notice, or both, would
constitute a default thereunder which could materially adversely affect the
Company and the Subsidiaries taken as a whole.
To the best of the Company's knowledge, none of the material
provisions of such contracts or instruments violates any existing applicable
law, rule, regulation, judgment, order or decree of any governmental agency or
court having jurisdiction over the Company or any Subsidiary or any of their
respective assets or businesses.
(w) The employment, consulting, confidentiality and
non-competition agreements between the Company and its officers, employees and
consultants and between the Subsidiaries and their respective officers,
employees and consultants, described in the Registration Statement, are binding
and enforceable obligations upon the respective parties thereto in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to principles of
equity.
(x) Except as set forth in the Prospectus, the Company has no
employee benefit plans (including, without limitation, profit sharing and
welfare benefit plans) or deferred compensation arrangements that are subject to
the provisions of the Employee Retirement Income Security Act of 1974, as
amended.
(y) To the best of the Company's knowledge, no labor disputes
exist between the Company and its employees or any Subsidiary and its employees
or is imminent which could materially adversely affect the Company or any
Subsidiary.
(z) Neither the Company nor any Subsidiary has, directly or
indirectly, at any time (i) made any contributions to
-13-
any candidate for political office, or failed to disclose fully any such
contribution in violation of law or (ii) made any payment to any state, federal
or foreign governmental officer or official, or other person charged with
similar public or quasi-public duties, other than, in each case, payments or
contributions required or allowed by applicable law. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(aa) The Shares have been approved for listing on the Nasdaq
National Market ("Nasdaq").
(ab) The Company has provided to Tenzer Greenblatt LLP, counsel to
the several Underwriters ("Underwriters' Counsel"), all material agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated April 14, 1998.
Any certificate signed by an officer of the Company or by an
officer of a Subsidiary and delivered to the Representatives or to Underwriters'
Counsel shall be deemed to be a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants with the
several Underwriters as follows:
(a) The Company will not at any time, whether before the Effective
Date or thereafter during such period as the Prospectus is required by law to be
delivered in connection with the sales of the Shares by the Representatives or a
dealer, file or publish any amendment or supplement to the Registration
Statement or Prospectus of which the Representatives have not been previously
advised and furnished a copy, or to which the Representatives shall object in
writing.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective and will advise the Representatives
promptly, and, if requested by the Representatives, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the qualification of the
Shares
-14-
for offering or sale in any jurisdiction, or of the initiation of any
proceedings for any of such purposes. The Company will use its best efforts to
prevent the issuance of any such stop order or of any order preventing or
suspending such use and to obtain as soon as possible the lifting thereof, if
any such order is issued.
(c) The Company will deliver to each Underwriter, without charge,
from time to time until the Effective Date, as many copies of each Preliminary
Prospectus as each Underwriter may reasonably request, and the Company hereby
consents to the use of such copies for purposes permitted by the Act. The
Company will deliver to each Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as each Underwriter may
reasonably request. The Company has furnished or will furnish to each of the
Representatives a signed copy of the Registration Statement as originally filed
and of all amendments thereto, whether filed before or after the Registration
Statement becomes effective, a copy of all exhibits filed therewith and a signed
copy of all consents and certificates of experts.
(d) The Company will comply with the Act, the Regulations, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations thereunder so as to permit the continuance of sales of and
dealings in the Offered Shares and in any Optional Shares which may be issued
and sold. If, at any time when a prospectus relating to the Shares is required
to be delivered under the Act, any event occurs as a result of which the
Registration Statement and Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend or
supplement the Registration Statement and Prospectus to comply with the Act or
the regulations thereunder, the Company will promptly file with the Commission,
subject to Section 5(a) hereof, an amendment or supplement which will correct
such statement or omission or which will effect such compliance.
(e) The Company will furnish such proper information as may be
required and otherwise cooperate in qualifying the Shares for offering and sale
under the securities or Blue Sky laws relating to the offering in such
jurisdictions as the Representatives may reasonably designate, provided that no
such qualification will be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
-15-
(f) The Company will make generally available to its security
holders, in the manner specified in Rule 158(b) under the Act, and deliver to
the Representatives and Underwriters' Counsel as soon as practicable and in any
event not later than 45 days after the end of its fiscal quarter in which the
first anniversary date of the effective date of the Registration Statement
occurs, earning statements meeting the requirements of Rule 158(a) under the Act
covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(g) For a period of three years from the Effective Date, the
Company will deliver to the Representatives, on a timely basis (i) a copy of
each report or document, including, without limitation, reports on Forms 8-K,
10-C, 10-K (or 10-KSB) and 10-Q (or 10-QSB) and exhibits thereto, filed or
furnished to the Commission, any securities exchange or the National Association
of Securities Dealers, Inc. (the "NASD") on the date each such report or
document is so filed or furnished; (ii) as soon as practicable, copies of any
reports or communications (financial or other) of the Company mailed to its
security holders; (iii) as soon as practicable, a copy of any Schedule 13D, 13G,
14D-1 or 13E-3 received or prepared by the Company from time to time; (iv) to
the extent publicly available, quarterly statements setting forth such
information regarding the Company's results of operations and financial position
(including balance sheet, profit and loss statements and data regarding backlog)
as is regularly prepared by management of the Company; and (v) such additional
publicly available information concerning the business and financial condition
of the Company as the Representatives may from time to time reasonably request
and which can be prepared or obtained by the Company without unreasonable effort
or expense. The Company will furnish to its shareholders annual reports
containing audited financial statements and such other periodic reports as it
may determine to be appropriate or as may be required by law.
(h) Neither the Company nor any person that controls, is
controlled by or is under common control with the Company will take any action
designed to or which might be reasonably expected to cause or result in the
stabilization or manipulation of the price of the Common Shares.
(i) If the transactions contemplated by this Agreement are
consummated, BlueStone shall retain the $40,000 previously paid to it, and the
Company will pay or cause to be paid the following: all costs and expenses
incident to the performance of the obligations of the Company under this
Agreement, including, but not limited to, the fees and expenses of accountants
and counsel for the Company; the preparation, printing, mailing and filing of
the Registration Statement (including financial
-16-
statements and exhibits), Preliminary Prospectuses and the Prospectus, and any
amendments or supplements thereto; the printing and mailing of the Selected
Dealer Agreement; the issuance and delivery of the Shares to the
Representatives; all taxes, if any, on the issuance of the Shares; the fees,
expenses and other costs of listing the Shares on Nasdaq and of qualifying the
Shares for sale under the "Blue Sky" or securities laws of those states in which
the Shares are to be offered or sold, including the fees and disbursements of
Underwriters' Counsel incurred in connection therewith, and the cost of printing
and mailing the "Blue Sky Survey"; the filing fees incident to securing any
required review by the NASD; the cost of furnishing to the several Underwriters
copies of the Registration Statement, Preliminary Prospectuses and the
Prospectus as herein provided; the costs of placing "tombstone advertisements"
in any publications which may be selected by the Representatives; and all other
costs and expenses incident to the performance of the Company's obligations
hereunder which are not otherwise specifically provided for in this Section
5(i).
In addition, at the Closing Date, the Representatives will deduct
from the payment for the Offered Shares an amount equal to the Representatives'
costs, fees and expenses incurred during the registration process (less the sum
of $40,000 previously paid to BlueStone), including all reasonable out-of-pocket
accountable expenses relating to the transactions contemplated hereby, which
amount will include the fees and expenses of Underwriters' Counsel (other than
those payable by the Company in connection with "Blue Sky" qualifications
referred to in the preceding paragraph) and all of the costs associated with the
marketing and selling of the Offered Shares.
(j) If the transactions contemplated by this Agreement or related
hereto are not consummated because the Company decides not to proceed with the
offering for any reason or if the Representatives decide not to proceed with the
offering because of a breach by the Company of its representations, warranties
or covenants in this Agreement or as a result of material adverse changes in the
affairs of the Company, the Company will reimburse the Representatives for all
of their accountable expenses reasonably incurred in connection with the
offering. If the Representatives decide not to proceed with the offering for any
other reason, the Company will reimburse the Representatives (and the
Representatives will be entitled to retain), for their accountable expenses, up
to the $40,000 previously paid to BlueStone. In no event, however, will the
Representatives, in the event the offering is terminated, be entitled to retain
or receive more than an amount equal to their actual accountable out-of-pocket
expenses.
-17-
(k) The Company intends to apply the net proceeds from the sale of
the Shares for the purposes set forth in the Prospectus.
(l) During the period of nine (9) months following the date
hereof, neither the Company nor any of its officers, directors or
securityholders who have executed lock-up letter agreements with BlueStone
("Affiliated Shareholders") will offer for sale, sell, transfer, pledge or
otherwise dispose of, directly or indirectly, any securities of the Company, in
any manner whatsoever, whether pursuant to Rule 144 of the Regulations or
otherwise, except that the Company may issue Common Shares upon the exercise of
options or warrants outstanding as of the Effective Date or pursuant to the
Company's Employee Stock Purchase Plan, and no holder of registration rights
relating to securities of the Company will execute any such registration rights,
in either case, without the prior written consent of BlueStone. The Company will
deliver to the Representatives the undertakings as of the date hereof of its
officers, directors and Affiliated Shareholders to this effect.
(m) The Company will not file any registration statement relating
to the offer or sale of any of the Company's securities, including any
registration statement on Form S-8, during the nine (9) months following the
date hereof without BlueStone's prior written consent.
(n) The Company maintains and will continue to maintain a system
of internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(o) The Company will use its best efforts to maintain the listing
of the Shares on Nasdaq or another exchange that is mutually agreed upon by the
Company and the Representatives for at least five (5) years from the Effective
Date.
(p) The Company will, concurrently with the Effective Date,
register the class of equity securities of which the Shares are a part under
Section 12(g) of the Exchange Act and the Company will use its best efforts to
maintain the registration for a minimum of five (5) years after the Effective
Date.
-18-
(q) The Company shall retain Wachovia Bank and Trust Company as
its transfer agent for the Common Shares (or such other transfer agent which is
reasonably acceptable to BlueStone), for a period of three (3) years following
the Effective Date. In addition, for a period of three (3) years following the
Effective Date, the Company, at its own expense, shall cause its transfer agent
to provide BlueStone, if so requested in writing, with copies of the Company's
daily transfer sheets and when requested by BlueStone, a current list of the
Company's security holders, including a list of the beneficial owners of
securities held by a depository trust company and other nominees.
(r) The Company hereby agrees, at its sole cost and expense, to
supply and deliver to Underwriters' Counsel, within a reasonable period from the
date hereof, four bound volumes, including the Registration Statement, as
amended or supplemented, all exhibits to the Registration Statement, the
Prospectus and all other underwriting documents.
(s) For a period of three (3) years following the Effective Date,
the Company shall continue to retain Ernst & Young LLP (or such other nationally
recognized accounting firm as is acceptable to BlueStone) as the Company's
independent public accountants.
(t) For a period of three (3) years following the Effective Date,
the Company, at its expense, shall cause its independent certified public
accountants, as described in Section 5(v) above, to read and comment on (but not
audit) the Company's financial statements for each of the first three fiscal
quarters prior to the announcement of quarterly financial information, the
filing of the Company's 10-Q (or 10-QSB) quarterly report and the mailing of
quarterly financial information to shareholders.
(u) For a period of twenty-five (25) days following the Effective
Date, the Company will not issue press releases or engage in any other publicity
without BlueStone's prior written consent, other than normal and customary
releases issued in the ordinary course of the Company's business or those
releases required by law.
(v) For a period of eighteen (18) months following the Effective
Date, the Company will not offer or sell any of its securities, other than the
issuance of Common Shares upon exercise of options and warrants outstanding on
the Effective Date or pursuant to the Company's Employee Stock Purchase Plan at
a discount from the then current market price without the prior written consent
of BlueStone, which consent shall not be unreasonably withheld.
-19-
6. Conditions of the Underwriters' Obligation to Purchase Shares from
the Company. The obligation of the several Underwriters to purchase and pay for
the Offered Shares which they have agreed to purchase from the Company is
subject (as of the date hereof and the Closing Date) to the accuracy of, and the
Company's compliance in all material respects with, the representations and
warranties of the Company herein, to the accuracy of the statements of the
Company and its officers made pursuant hereto, to the performance in all
material respects by the Company or its Subsidiaries of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement will have become effective not
later than 11:00 A.M., New York City time, on the day following the date of this
Agreement, or at such later time or on such later date as the Representatives
may agree to in writing; prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or will be pending or, to
the best of the Representatives' or the Company's knowledge, will be
contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction of
Underwriters' Counsel.
(b) At the time that this Agreement is executed and at the Closing
Date, there will have been delivered to the Representatives a signed opinion of
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., counsel for the
Company ("Company Counsel"), dated as of the date hereof or the Closing Date, as
the case may be (and any other opinions of counsel referred to in such opinion
of Company Counsel or relied upon by Company Counsel in rendering their
opinion), in the form attached to this Agreement as Schedule B.
(c) At the Closing Date, there will have been delivered to the
Representatives a signed opinion of Underwriters' Counsel, dated as of the
Closing Date, to the effect that the opinions delivered pursuant to Section 6(b)
hereof appear on their face to be appropriately responsive to the requirements
of this Agreement, except to the extent waived by the Representatives,
specifying the same, and with respect to such other related matters as the
Representatives may require.
(d) At the Closing Date (i) the Registration Statement and the
Prospectus and any amendments or supplements thereto will contain all material
statements which are required to be stated therein in accordance with the Act
and the Regulations and will conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain
-20-
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, in
light of the circumstances under which they were made, not misleading; (ii)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding would materially adversely affect the business, property,
financial condition or results of operations of the Company and the
Subsidiaries, taken as a whole, other than as set forth in the Registration
Statement and the Prospectus. At the Closing Date, there will be delivered to
the Representatives a certificate signed by the Chairman of the Board or the
President or a Vice President of the Company, dated the Closing Date, evidencing
compliance with the provisions of this Section 6(d) and stating that the
representations and warranties of the Company set forth in Section 4 hereof were
accurate and complete in all material respects when made on the date hereof and
are accurate and complete in all material respects on the Closing Date as if
then made; that the Company has performed all covenants in all material respects
and complied with all conditions required by this Agreement to be performed or
complied with by the Company prior to or as of the Closing Date; and that, as of
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or, to the best of his knowledge, are contemplated or threatened. In
addition, the Representatives will have received such other and further
certificates of officers of the Company as the Representatives or Underwriters'
Counsel may reasonably request.
(e) At the time that this Agreement is executed and at the Closing
Date, the Representatives will have received a signed letter from Ernst & Young
LLP, dated the date such letter is
-21-
to be received by the Representatives and addressed to them, confirming that it
is a firm of independent public accountants within the meaning of the Act and
Regulations and stating that: (i) insofar as reported on by it, in its opinion,
the consolidated financial statements of the Company included in the Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the Act and the applicable Regulations; (ii) on the basis of
procedures and inquiries (not constituting an examination in accordance with
generally accepted auditing standards) consisting of a reading of the unaudited
interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus and the latest available unaudited
interim financial statements of the Company, if more recent than that appearing
in the Registration Statement and Prospectus, inquiries of officers of the
Company responsible for financial and accounting matters as to the transactions
and events subsequent to the date of the latest audited financial statements of
the Company, and a reading of the minutes of meetings of the shareholders, the
Board of Directors of the Company and any committees of the Board of Directors,
as set forth in the minute books of the Company, nothing has come to its
attention which, in its judgment, would indicate that (A) during the period from
the date of the latest financial statements of the Company appearing in the
Registration Statement and Prospectus to a specified date not more than three
business days prior to the date of such letter, there have been any material
decreases in net current assets or net assets as compared with amounts shown in
such financial statements or material decreases in net sales or decreases in
total or per share net income compared with the corresponding period in the
preceding year or any material change in the capitalization or long-term debt of
the Company, except in all cases as set forth in or contemplated by the
Registration Statement and the Prospectus, and (B) the unaudited interim
financial statements of the Company, if any, appearing in the Registration
Statement and the Prospectus, do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the Regulations or
are not fairly presented in conformity with generally accepted accounting
principles and practices on a basis substantially consistent with the audited
financial statements included in the Registration Statement or the Prospectus;
and (iii) it has compared specific dollar amounts, numbers of shares, numerical
data, percentages of revenues and earnings, and other financial information
pertaining to the Company set forth in the Prospectus (with respect to all
dollar amounts, numbers of shares, percentages and other financial information
contained in the Prospectus, to the extent that such amounts, numbers,
percentages and information may be derived from the general accounting records
of the Company, and excluding any questions requiring an interpretation by legal
counsel) with the results obtained from the application of specified readings,
inquiries and other appropriate procedures
-22-
(which procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(f) There shall have been duly tendered to the Representatives
certificates representing the Offered Shares to be sold on the Closing Date.
(g) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of the Offered Shares by the
Underwriters or the sale of the Shares by the Representatives.
(h) No action shall have been taken by the Commission or the NASD
the effect of which would make it improper, at any time prior to the Closing
Date or the Option Closing Date, as the case may be, for any member firm of the
NASD to execute transactions (as principal or as agent) in the Shares, and no
proceedings for the purpose of taking such action shall have been instituted or
shall be pending, or, to the best of the Representatives' or the Company's
knowledge, shall be contemplated by the Commission or the NASD. The Company
represents at the date hereof, and shall represent as of the Closing Date or
Option Closing Date, as the case may be, that it has no knowledge that any such
action is in fact contemplated by the Commission or the NASD.
(i) The Common Shares have been approved for listing on Nasdaq.
(j) All proceedings taken at or prior to the Closing Date or the
Option Closing Date, as the case may be, in connection with the authorization,
issuance and sale of the Shares shall be reasonably satisfactory in form and
substance to the Representatives and to Underwriters' Counsel, and such counsel
shall have been furnished with all such documents, certificates and opinions as
they may reasonably request for the purpose of enabling them to pass upon the
matters referred to in Section 6(c) hereof and in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company, or the compliance by
the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have delivered to the
Underwriters the written undertakings of its officers, directors and security
holders and/or registration rights holders, as the case may be, to the effect of
the matters set forth in Section 5(l).
-23-
If any of the conditions specified in this Section 6 have not been
fulfilled, this Agreement may be terminated by the Representatives on written
notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, including specifically each person that may be substituted for an
Underwriter as provided in Section 10 hereof, each officer, director, partner,
employee and agent of any Underwriter, and each person, if any, who controls any
of the Underwriters within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions in respect thereof), to
which they or any of them may become subject under the Act or under any other
statute or at common law or otherwise, and, except as hereinafter provided, will
reimburse each of the Underwriters and each such person, if any, for any legal
or other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application or other document executed by the Company, or based upon written
information furnished by or on behalf of the Company, filed in any jurisdiction
in order to qualify the Shares under the securities laws thereof (hereinafter
"application"), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, in light of
the circumstances under which they were made, unless such untrue statement or
omission was made in such Registration Statement, Preliminary Prospectus,
Prospectus or application in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by the Underwriter
or any such person through the Underwriter expressly for use therein; provided,
however, that the indemnity agreement contained in this Section 7(a) with
respect to any Preliminary Prospectus will not inure to the benefit of the
Underwriter (or to the benefit of any other person that may be indemnified
pursuant to this Section 7(a)) if (A) the person asserting any such losses,
claims, damages, expenses or liabilities purchased the Shares which are the
subject thereof from such Underwriter or other indemnified person; (B) such
Underwriter or other indemnified person failed to send or give a copy of the
Prospectus to such person at or prior to the written confirmation of the sale of
such Shares to such person; and (C) the Prospectus did not contain any untrue
statement or
-24-
alleged untrue statement or omission or alleged omission giving rise to such
cause, claim, damage, expense or liability.
(b) Each Underwriter (including specifically each person that may
be substituted for an Underwriter as provided in Section 11 hereof) agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement, each employee, each agent
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, from and against any and all
losses, claims, damages, expenses or liabilities, joint or several (and actions
in respect thereof), to which they or any of them may become subject under the
Act or under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse the Company and each such director,
officer, employee, agent or controlling person for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions, whether or not resulting in any liability, insofar as
such losses, claims, damages, expenses, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained (i) in the Registration Statement, in any Preliminary Prospectus
or in the Prospectus (or the Registration Statement or Prospectus as from time
to time amended or supplemented) or (ii) in any application (including any
application for registration of the Shares under state securities or Blue Sky
laws), or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, in light of the
circumstances under which they were made, but only insofar as any such statement
or omission was made in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by such Underwriter,
or by the Representatives on behalf of such Underwriter, expressly for use
therein.
(c) Promptly after receipt of notice of the commencement of any
action in respect of which indemnity may be sought against any indemnifying
party under this Section 7, the indemnified party will notify the indemnifying
party in writing of the commencement thereof, and the indemnifying party will,
subject to the provisions hereinafter stated, assume the defense of such action
(including the employment of counsel satisfactory to the indemnified party and
the payment of expenses) insofar as such action relates to an alleged liability
in respect of which indemnity may be sought against the indemnifying party.
After notice from the indemnifying party of its election to assume the defense
of such claim or action, the indemnifying party shall no longer be liable to the
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof; provided,
-25-
however, that if, in the reasonable judgment of the indemnified party or
parties, it is advisable for the indemnified party or parties to be represented
by separate counsel, the indemnified party or parties shall have the right to
employ a single counsel to represent the indemnified parties who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by the indemnified parties thereof against the indemnifying party, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and the indemnified party
shall have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include both
the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Any party against whom
indemnification may be sought under this Section 7 shall not be liable to
indemnify any person that might otherwise be indemnified pursuant hereto for any
settlement of any action effected without such indemnifying party's consent.
8. Contribution. To provide for just and equitable contribution, if (i)
an indemnified party makes a claim for indemnification pursuant to Section 8
hereof (subject to the limitations thereof) and it is finally determined, by a
judgment, order or decree not subject to further appeal, that such claim for
indemnification may not be enforced, even though this Agreement expressly
provides for indemnification in such case; or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act, or
otherwise, then the Company (including, for this purpose, any contribution made
by or on behalf of any director of the Company, any officer of the Company who
signed the Registration Statement, any employee, any agent and any controlling
person of the Company) as one entity and the Underwriters (including, for this
purpose, any contribution by or on behalf of each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act and each officer, director, partner, employee and agent of any
of the Underwriters) as a second entity, shall contribute to the losses,
liabilities, claims, damages and expenses whatsoever to which any of them may be
subject, so that the Underwriters are responsible for the proportion thereof
equal to the percentage which the underwriting discount per Share set forth on
the cover page of the Prospectus represents of the initial public offering
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price per Share set forth on the cover page of the Prospectus and the Company is
responsible for the remaining portion; provided, however, that if applicable law
does not permit such allocation, then, if applicable law permits, other relevant
equitable considerations such as the relative fault of the Company and the
Underwriters in connection with the facts which resulted in such losses,
liabilities, claims, damages and expenses shall also be considered. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Company or by the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company, on one hand, and the Underwriters, on the other hand, agree that it
would be unjust and inequitable if the respective obligations of the Company and
the Underwriters for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and expenses or
by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 8. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls any of the Underwriters within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee
and agent of any of the Underwriters will have the same rights to contribution
as the Underwriters, and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director, employee and agent of the Company will have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 8. Anything in this Section 8 to the contrary notwithstanding, no party
will be liable for contribution with respect to the settlement of any claim or
action effected without its written consent. This Section 8 is intended to
supersede, to the extent permitted by law, any right to contribution under the
Act or the Exchange Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriters contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company in contained Section 4 of this
Agreement shall remain operative and in full force and effect, regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of the Underwriters, the Company or any of its
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directors and officers or any controlling person referred to in said Sections,
and shall survive the delivery of, and payment for, the Shares.
10. Substitution of Underwriters.
(a) If one or more Underwriters should default in its or their
obligation to purchase and pay for any Offered Shares hereunder and if the
aggregate number of such Offered Shares which all Underwriters so defaulting
have agreed to purchase does not exceed 10% of the total number of the Offered
Shares, the non-defaulting Underwriters will be obligated severally to purchase
and pay for (in addition to the number of Offered Shares set forth opposite
their names in Schedule A attached hereto) the full number of Offered Shares
agreed to be purchased by all defaulting Underwriters, and not so purchased, in
proportion to their respective commitments hereunder. In such event the
Representatives, for the accounts of the several nondefaulting Underwriters, may
take up and pay for all or any part of such additional Offered Shares to be
purchased by each such Underwriter under this Section 10(a), and may postpone
the Closing Date to a time not exceeding three full business days after the
Closing Date determined as provided in Section 2 hereof.
(b) If one or more Underwriters should default in its or their
obligation to purchase and pay for any Offered Shares hereunder and if the
aggregate number of such Offered Shares which all Underwriters so defaulting
have agreed to purchase exceeds 10% of the total number of Offered Shares, or if
one or more Underwriters for any reason permitted hereunder should cancel its or
their obligation to purchase and pay for Offered Shares hereunder, the
non-cancelling and non-defaulting Underwriters (hereinafter called the
"remaining Underwriters") will have the right to purchase such Offered Shares in
such proportion as may be agreed among them at the Closing Date determined as
provided in Section 2 hereof. If the remaining Underwriters do not purchase and
pay for such Offered Shares at such Closing Date, the Closing Date will be
postponed for 24 hours and the remaining Underwriters will have the right to
purchase such Offered Shares, or to substitute another person or persons to
purchase the same, or both, at such postponed Closing Date. If purchasers have
not been found for such Offered Shares by such postponed Closing Date, the
Closing Date will be postponed for a further 24 hours, and the Company will have
the right to substitute another person or persons, reasonably satisfactory to
the Representatives to purchase such Offered Shares at such second postponed
Closing Date. If it shall be arranged for the remaining Underwriters or
substituted underwriters to take up the Firm Shares of the defaulting
Underwriter or Underwriters as provided in this Section, (A) the Company shall
have the right to postpone the time of delivery for a period of not more than
three
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(3) full Business Days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary. If the Company has not found such purchasers for
such Offered Shares by such second postponed Closing Date, then this Agreement
will automatically terminate, and neither the Company nor the remaining
Underwriters will be under any obligation under this Agreement (except that the
Company and the Underwriters will remain liable to the extent provided in
Sections 7 and 8 hereof and the Company will also remain liable to the extent
provided in Section 5(j) hereof). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10(b). Nothing in Section 11 hereof will relieve a defaulting
Underwriter from the liability for its default and nothing in this Section 10(b)
will obligate any Underwriter to purchase or find purchasers for any Offered
Shares in excess of those agreed to be purchased by such Underwriter under the
terms of Section 2 hereof.
11. Termination of Agreement.
(a) The Company, by written or telegraphic notice to the
Representatives, or the Representatives, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriters, after the Registration Statement becomes
effective, release the Offered Shares for public offering. The time when the
Underwriters "release the Offered Shares for public offering" for the purposes
of this Section 11 means the time when the Underwriters release for publication
the first newspaper advertisement, which is subsequently published, relating to
the Offered Shares, or the time when the Underwriters release for delivery to
members of a selling group copies of the Prospectus and an offering letter or an
offering telegram relating to the Offered Shares, whichever will first occur.
(b) This Agreement, including without limitation, the obligation
to purchase the Shares and the obligation to purchase the Optional Shares after
exercise of the option referred to in Section 3 hereof, is subject to
termination by the Underwriters, by written notice given to the Company prior to
delivery of and payment for all the Offered Shares or the Optional Shares, as
the case may be, if, prior to such time, any of the following shall have
occurred: (i) the Company withdraws the Registration Statement from the
Commission or the Company does not or cannot expeditiously proceed with the
public offering; (ii) the representations and warranties in Section 4 hereof are
not
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materially correct or cannot be materially complied with and, in BlueStone's
judgment, the effect of such is so adverse as to make it impracticable for
BlueStone to market the Shares on the terms contemplated in the Prospectus;
(iii) trading in securities generally on the New York Stock Exchange or the
American Stock Exchange will have been suspended; (iv) limited or minimum prices
will have been established on either such Exchange; (v) a banking moratorium
will have been declared either by federal or New York State authorities; (vi)
any other restrictions on transactions in securities materially affecting the
free market for securities or the payment for such securities, including the
Offered Shares or the Optional Shares, will be established by either of such
Exchanges, by the Commission, by any other federal or state agency, by action of
the Congress or by Executive Order; (vii) trading in any securities of the
Company shall have been suspended or halted by any national securities exchange,
the NASD or the Commission; (viii) a materially adverse change in the condition
(financial or otherwise), prospects or obligations of the Company that is not
reflected in the Registration Statement or the Prospectus and which, in
BlueStone's judgement, is so adverse as to make it impracticable for BlueStone
to market the Shares on the terms contemplated in the Prospectus; (ix) the
Company will have sustained a material loss, whether or not insured, by reason
of fire, flood, accident or other calamity that is not reflected in the
Registration Statement or the Prospectus and which, in BlueStone's judgement, is
so adverse as to make it impracticable for BlueStone to market the Shares on the
terms contemplated in the Prospectus; (x) any action has been taken by the
government of the United States or any department or agency thereof which, in
the judgment of the Representatives, has had a material adverse effect upon the
market or potential market for securities in general; or (xi) the market for
securities in general or political, financial or economic conditions will have
so materially adversely changed that, in the judgment of the Representatives, it
will be impracticable to offer for sale, or to enforce contracts made by the
Underwriters for the resale of, the Offered Shares or the Optional Shares, as
the case may be.
(c) If this Agreement is terminated pursuant to Section 6 hereof
or this Section 11 or if the purchases provided for herein are not consummated
because any condition of the Underwriters' obligations hereunder is not
satisfied or because of any refusal, inability or failure on the part of the
Company to comply with any of the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company shall be unable to or does not
perform all of its obligations under this Agreement, the Company will not be
liable to any of the Underwriters for damages on account of loss of anticipated
profits arising out of the transactions covered by this Agreement, but the
Company will remain liable to the extent provided in Sections 5(j), 7, 8 and 9
of this Agreement.
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12. Information Furnished by the Underwriters to the Company. It is
hereby acknowledged and agreed by the parties hereto that for the purposes of
this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and 8
hereof, the only information given by the Underwriters to the Company for use in
the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page 2 with respect to stabilizing the market price of Shares, information in
the paragraph under the caption "Risk Factors - Limited Underwriting Experience"
on page 16, information in the third paragraph under the "Underwriting" caption
on page 56 with respect to concessions and reallowances, the table on page 56
regarding the offering syndicate, and the information in the second and fourth
full paragraphs on page 57 with respect to discretionary accounts and the
determination of the public offering price, the fifth, sixth and seventh full
paragraphs on page 57 with respect to stabilizing the market price of the
Shares, and the first paragraph on page 58 with respect to BlueStone, as such
information appears in any Preliminary Prospectus and in the Prospectus.
13. Notices and Governing Law. All communications hereunder will be in
writing and, except as otherwise provided, will be delivered at, or mailed by
certified mail, return receipt requested, or telecopied to, the following
addresses: if to BlueStone, the Representatives, or the Underwriters, to
BlueStone Capital Partners, L.P., 575 Fifth Avenue, New York, New York 10017,
Facsimile No. (212) 297-5695, with a copy to Tenzer Greenblatt LLP, Attention:
Robert J. Mittman, Esq., 405 Lexington Avenue, New York, New York 10174,
Facsimile No. (212) 885-5001; if to the Company, to Interactive Magic, Inc., 215
Southport Drive, Suite 1000, Morrisville, North Carolina 27560, Attention: J.W.
Stealey, Chairman and Chief Executive Officer, Facsimile No. (919) 462-3081 with
a copy to Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.,
Attention: Gerald F. Roach, Esq., 2500 First Union Capitol Center, Raleigh,
North Carolina 27601, Facsimile No.
(919) 821-6800.
This Agreement shall be deemed to have been made and delivered in New
York City and shall be governed as to validity, interpretation, construction,
effect and in all other respects by the internal laws of the State of New York.
The Company (1) agrees that any legal suit, action or proceeding arising out of
or relating to this Agreement shall be instituted exclusively in New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York, (2) waives any objection which the Company
may have now or hereafter to the venue of any such suit, action or proceeding,
and (3) irrevocably consents to the jurisdiction of the New York State Supreme
Court, County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. The Company further
agrees to accept and acknowledge service of any and all process which may be
served in
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any such suit, action or proceeding in the New York State Supreme Court, County
of New York, or in the United States District Court for the Southern District of
New York and agrees that service of process upon the Company mailed by certified
mail to the Company's address (Attention: President) shall be deemed in every
respect effective service of process upon the Company in any such suit, action
or proceeding.
14. Parties in Interest. This Agreement is made solely for the benefit
of the several Underwriters, the Company and, to the extent expressed, any
person controlling the Company or the Underwriters, each officer, director,
partner, employee and agent of the Underwriters, the directors of the Company,
its officers who have signed the Registration Statement, its employees and
agents and their respective executors, administrators, successors and assigns,
and, no other person will acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" will not include any purchaser of
the Shares from any of the Underwriters, as such purchaser.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
Very truly yours,
INTERACTIVE MAGIC, INC.
By:_____________________________
J.W. Stealey,
Chairman and Chief
Executive Officer
Confirmed and accepted in New York, N.Y., as of the date first above written:
BLUESTONE CAPITAL PARTNERS, L.P.
By: BlueStone Capital Management, Inc.,
General Partner
By:__________________________________
Kerry J. Dukes,
President
ROYCE INVESTMENT GROUP, INC.
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By:__________________________________
Name:
Title:
Acting on behalf of themselves as the Representatives of the several
Underwriters named in Schedule A hereto.
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SCHEDULE A
TO THE UNDERWRITING AGREEMENT
Underwriter Number of Shares
BlueStone Capital Partners, L.P.......
Royce Investment Group, Inc.. . . . . . . . .
Total........................
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