2,000,000 Units, Each
Unit Consisting of Four Shares of
Common Stock and Two Redeemable Warrants
THE PRODUCERS ENTERTAINMENT GROUP LTD.
UNDERWRITING AGREEMENT
New York, New York
, 1996
JOSEPH STEVENS & COMPANY, L.P.
As Representative of the
Several Underwriters listed
on Schedule A hereto
33 Maiden Lane, 8th Floor
New York, New York 10038
Ladies and Gentlemen:
The Producers Entertainment Group Ltd., a Delaware corporation
(the "Company"), confirms its agreement with Joseph Stevens & Company, L.P.
("JSLP") and each of the several underwriters named in Schedule A hereto
(collectively, the "Underwriters", which term shall also include any underwriter
substituted as hereinafter provided in Section 11) for whom JSLP is acting as
representative (in such capacity, JSLP shall hereinafter be referred to as "you"
or the "Representative"), with respect to the sale by the Company and the
purchase by the Representative of 2,000,000 units (the "Units"), each Unit
consisting of four (4) shares of common stock, $0.001 par value (the "Common
Stock") and two (2) redeemable warrants (the "Redeemable Warrants"). Each
Redeemable Warrant is exercisable for one share of Common Stock. The Common
Stock and Redeemable Warrants will be separately tradeable upon issuance and are
hereinafter referred to as the "Firm Units." The Redeemable Warrants are
exercisable commencing ________________, 1996 [the effective date of the
Registration Statement] until _____________, 2001 [60 months from the effective
date of the Registration Statement], unless previously redeemed by the Company,
at an initial exercise price equal to 1.75 per share, subject to adjustment. The
Redeemable Warrants may be redeemed by the Company, in whole, and not in part,
at a redemption price of five cents ($.05) per Redeemable Warrant at any time
commencing ______________, 1997 [12 months after the effective date of the
Registration Statement] on 30 days' prior written notice provided that the
average closing bid price (or sale price) of the Common Stock equals or exceeds
150% of the then exercise price per share
(subject to adjustment) for any twenty (20) trading days within a period of
thirty (30) consecutive trading days ending on the fifth (5th) trading day prior
to the date of the notice of redemption and the Company shall have obtained the
prior written consent of JSLP. Upon the Representative's request, as provided in
Section 2(b) of this Agreement, the Company shall also issue and sell to the
Underwriters up to an additional 300,000 Units for the purpose of covering
over-allotments, if any. Such 300,000 Units are hereinafter collectively
referred to as the "Option Units." The Company also proposes to issue and sell
to the Representative or its designees warrants (the "Representative's
Warrants"), pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement"), for the purchase of an additional 200,000
Units (the "Representative's Units"). The Representative's Units, the shares of
Common Stock and the Redeemable Warrants underlying the Representative's Units
and the shares of Common Stock underlying the Redeemable Warrants underlying the
Representative's Units are hereinafter collectively referred to as the
"Representative's Securities." The shares of Common Stock issuable upon exercise
of the Redeemable Warrants, including the Redeemable Warrants underlying the
Representative's Units, are hereinafter referred to as the "Warrant Shares."
Further, an additional 500,000 Redeemable Warrants (the "Selling Securityholder
Warrants") and 500,000 shares of Common Stock underlying the Selling
Securityholder Warrants (the "Selling Securityholder Shares"), are being
registered for the account of certain selling security holders in connection
with this offering which are not being underwritten by the Underwriters. The
Selling Securityholder Warrants and the Selling Securityholder Shares are
hereinafter collectively referred to as the "Selling Securityholder Securities."
The Firm Units, the Option Units, the Representative's Warrants, the
Representative's Units, the Selling Securityholder Securities and the Warrant
Shares are hereinafter collectively referred to as the "Securities" and are more
fully described in the Registration Statement and the Prospectus referred to
below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and covenants and agrees with, the Representative as
of the date hereof, and as of the Closing Date (hereinafter defined) and the
Option Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and amendments
thereto, on Form SB-2 (Registration No. __________), including any related
preliminary prospectus or prospectuses (each a "Preliminary Prospectus"), for
the registration of the Securities, under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations of the Commission under the Act. The Company will not file
any other amendment to such registration statement which the Representative
shall have objected to in writing after having been furnished with a copy
thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time it becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to, those documents or that information incorporated
by reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430A of the rules and regulations under
the Act), is hereinafter called the "Registration Statement," and the form
2
of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the rules and regulations under the Act is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or threatened. Each of the Preliminary Prospectus and the
Registration Statement and the Prospectus, at the time of filing thereof,
conformed with the requirements of the Act and the Rules and Regulations, and
none of the Preliminary Prospectus, the Registration Statement nor the
Prospectus, at the time of filing thereof, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, the Registration Statement or
the Prospectus. The Company has filed all reports, forms or other documents
required to be filed under the Act and the Exchange Act and the respective Rules
and Regulations thereunder, and all such reports, forms or other documents, when
so filed or as subsequently amended, complied in all material respects with the
Act and the Exchange Act and the respective Rules and Regulations thereunder.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date, if any, and during such longer period as the Prospectus may be required to
be delivered in connection with sales by the Representative or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; and, at and through such dates, neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, 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 in which they were made, not misleading; provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in the Registration Statement or the Prospectus
or any amendment thereof or supplement thereto.
(d) The Company owns one hundred percent (100%) of the issued
and outstanding capital stock of each of Tales of Midnite Productions, Inc.
(formerly known as Helpless Productions, Inc.), TPEG Management, Inc., Plan of
Attack Productions, Inc., In for Life, Inc., DSL Productions, Inc., Out of
Pocket Pictures, Inc., DSL Venture I Acquisition Corp. d/b/a Future Quest, DSL
Venture I, Superstars of Action, Inc., Home Green Home, Inc., and Light and Easy
Cooking, Inc. (collectively, the "Wholly-Owned Subsidiaries"). In addition, the
Company owns 49% of the capital stock of Babylon Productions, Inc. (the
remaining 51%
3
of Babylon Productions, Inc.'s capital stock is owned by Kaleidoscope
Entertainment, Inc., a Canadian corporation) (collectively, the Wholly-Owned
Subsidiaries and Babylon Productions, Inc. are hereinafter referred to as the
"Subsidiaries"). Each of the Company and the Subsidiaries has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, except that each of Light and
Easy Cooking, Inc., DSL Venture I and DSL Venture I Acquisition Corp. d/b/a
Future Quest has been suspended under the laws of its respective jurisdiction of
incorporation. Each of the Company and the Subsidiaries is duly qualified and
licensed and in good standing as a foreign corporation in each jurisdiction in
which their respective ownership or leasing of any properties or the character
of their respective operations require such qualification or licensing. None of
the Company nor any of the Subsidiaries owns, directly or indirectly, an
interest in any other corporation, partnership, trust, joint venture or other
business entity except as set forth in this Section 1(d). Each of the Company
and the Subsidiaries has all requisite power and authority (corporate and
other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), to own or
lease their respective properties and conduct their respective business as
conducted on the date hereof and as described in the Prospectus; each of the
Company and the Subsidiaries is and has been doing business in compliance with
all such authorizations, approvals, orders, licenses, certificates, franchises
and permits and with all federal, state, local and foreign laws, rules and
regulations to which each of them is subject; and none of the Company nor any of
the Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order, license,
certificate, franchise or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company or the Subsidiaries. The disclosure in the
Registration Statement concerning the effects of federal, state, local and
foreign laws, rules and regulations on the Company's and the Subsidiaries'
business as currently conducted and as contemplated are correct in all respects
and do not omit to state 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.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, if any, based upon the
assumptions set forth therein, and none of the Company nor any of the
Subsidiaries is not a party to or bound by any instrument, agreement or other
arrangement providing for any of them to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement, the
Representative's Warrant Agreement and the Warrant Agreement (as defined in
Section 1(ff) hereof of this Agreement) and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company on or
prior to the Closing Date and each Option Closing Date, if any, conform or, when
issued and paid for, will conform, in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of each of the Company and the Subsidiaries have been
duly authorized and validly issued and are fully paid and non-assessable; the
holders
4
thereof have no rights of rescission with respect thereto and are not subject to
personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holder of any security
of the Company or the Subsidiaries or any similar contractual right granted by
the Company or the Subsidiaries. The Securities to be sold by the Company
hereunder and pursuant to the Representative's Warrant Agreement and the Warrant
Agreement are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof and thereof, will be validly
issued, fully paid and non-assessable and conform to the descriptions thereof
contained in the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been duly and validly
taken; and the certificates representing the Securities, when delivered by the
Company, will be in due and proper form. Upon the issuance and delivery pursuant
to the terms hereof, the Warrant Agreement and the Representative's Warrant
Agreement of the Securities to be sold by the Company hereunder and thereunder
to the Underwriters, the Underwriters will acquire good and marketable title to
such Securities, free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
asserted against the Company or any affiliate (within the meaning of the Rules
and Regulations) of the Company.
(f) The audited consolidated financial statements of the
Company and the notes thereto included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
income, changes in stockholders' equity and the results of operations of the
Company at the respective dates and for the respective periods to which they
apply. Such financial statements have been prepared in conformity with generally
accepted accounting principles and the Rules and Regulations, consistently
applied throughout the periods involved. There has been no adverse change or
development involving a material prospective change in the condition, financial
or otherwise, or in the earnings, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the Company or the
Subsidiaries, whether or not arising in the ordinary course of business, since
the date of the financial statements included in the Registration Statement and
the Prospectus; and the outstanding debt, the property, both tangible and
intangible, and the business of the Company and the Subsidiaries conform in all
respects to the descriptions thereof contained in the Registration Statement and
the Prospectus. The financial information set forth in the Prospectus under the
headings "The Company," "Capitalization," "Selected Financial Data" and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" fairly presents, on the basis stated in the Prospectus, the
information set forth therein and such financial information has been derived
from or compiled on a basis consistent with that of the audited consolidated
financial statements included in the Prospectus.
(g) The Company (i) has paid all federal, state, local and
foreign taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986, as amended (the "Code"), and has furnished all information returns
it is required to furnish pursuant to the Code, (ii) has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
any tax deficiency or claims outstanding, proposed or assessed against it.
5
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriters of the
Securities from the Company, (iii) the consummation by the Company of any of its
obligations under this Agreement, the Warrant Agreement, or the Representative's
Warrant Agreement, or (iv) resales of the Securities in connection with the
distribution contemplated hereby.
(i) Each of the Company and the Subsidiaries maintains
insurance policies, including, but not limited to, general liability, property,
personal and product liability insurance, and surety bonds which insure the
Company and the Subsidiaries and their respective employees against such losses
and risks generally insured against by comparable businesses. None of the
Company nor any of the Subsidiaries (i) has failed to give notice or present any
insurance claim with respect to any insurable matter under the appropriate
insurance policy or surety bond in a due and timely manner, (ii) has any
disputes or claims against any underwriter of such insurance policies or surety
bonds, nor has the Company or any Subsidiary failed to pay any premiums due and
payable thereunder, or (iii) has failed to comply with all conditions contained
in such insurance policies and surety bonds. There are no facts or circumstances
under any such insurance policy or surety bond which would relieve any insurer
of its obligation to satisfy in full any valid claim of the Company or any of
the Subsidiaries.
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those pertaining to environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
or any of the Subsidiaries which (i) questions the validity of the capital stock
of the Company or any of the Subsidiaries, this Agreement, the Representative's
Warrant Agreement, the Warrant Agreement or the Consulting Agreement (as defined
in Section 1(gg) hereof) or of any action taken or to be taken by the Company
pursuant to or in connection with this Agreement, the Representative's Warrant
Agreement, the Warrant Agreement or the Consulting Agreement, (ii) is required
to be disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are accurately
summarized in all respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the earnings, prospects, stockholders'
equity, value, operations, properties, business or results of operations of the
Company or any of the Subsidiaries.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this Agreement,
the Representative's Warrant Agreement, the Warrant Agreement and the Consulting
Agreement and to consummate the transactions provided for in such agreements;
and each of this Agreement, the Representative's Warrant Agreement, the Warrant
Agreement and the Consulting Agreement have been duly and properly authorized,
executed and delivered by the Company. Each of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement and the Consulting
Agreement constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of
6
equitable principles in any motion, legal or equitable, and except as
obligations to indemnify or contribute to losses may be limited by applicable
law). None of the Company's issue and sale of the Securities, execution or
delivery of this Agreement, the Representative's Warrant Agreement, the Warrant
Agreement or the Consulting Agreement, its performance hereunder and thereunder,
its consummation of the transactions contemplated herein and therein, or the
conduct of its business as described in the Registration Statement and the
Prospectus and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of the Company
or any of the Subsidiaries pursuant to the terms of (i) the respective
certificates of incorporation or by-laws of the Company or any of the
Subsidiaries, (ii) any license, contract, indenture, mortgage, lease, deed of
trust, voting trust agreement, stockholders' agreement, note, loan or credit
agreement or other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries is or
may be bound or to which their respective properties or assets (tangible or
intangible) are or may be subject, or (iii) any statute, judgment, decree,
order, rule or regulation applicable to any of the Company or the Subsidiaries
of any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over any of the Company or the Subsidiaries or any of their
respective activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any arbitrator, court, regulatory body, administrative agency,
government agency or other body, domestic or foreign, is required for the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, this Agreement, the Representative's Warrant Agreement and the
Warrant Agreement, the performance of this Agreement, the Representative's
Warrant Agreement, the Warrant Agreement and the Consulting Agreement and the
transactions contemplated hereby and thereby, except such as have been obtained
under the Act, state securities laws and the rules of the National Association
of Securities Dealers, Inc. (the "NASD") in connection with the Underwriter's
purchase and distribution of the Securities.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party or by which the
Company or any of the Subsidiaries may be bound or to which their respective
assets, properties or business may be subject have been duly and validly
authorized, executed and delivered by the Company or the applicable Subsidiary,
as the case may be, and constitute legal, valid and binding agreements of the
Company or such Subsidiary, as the case may be, enforceable against the Company
or such Subsidiary, as the case may be, in accordance with their respective
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any motion, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law). The descriptions in the Registration
7
Statement of agreements, contracts and other documents are accurate and fairly
present the information required to be shown with respect thereto by Form SB-2;
and there are no agreements, contracts or other documents which are required by
the Act to be described in the Registration Statement or filed as exhibits to
the Registration Statement which are not described or filed as required; and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, none of the Company
nor any of the Subsidiaries has (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, (ii) entered
into any transaction other than in the ordinary course of business, or (iii)
declared or paid any dividend or made any other distribution on or in respect of
any class of its capital stock; and, subsequent to such dates, and except as may
otherwise be disclosed in the Prospectus, there has not been any change in the
capital stock, debt (long or short term) or liabilities of the Company or any of
the Subsidiaries or any material change in the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company or any of the
Subsidiaries.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, stockholders' agreement, note,
loan or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company is or may be bound or to which the
property or assets (tangible or intangible) of the Company is or may be subject.
(p) Each of the Company and the Subsidiaries has generally
enjoyed a satisfactory employer-employee relationship with their respective
employees and each of the Company and the Subsidiaries is in compliance with all
federal, state, local and foreign laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours. There are no pending investigations involving any of the Company or
the Subsidiaries by the United States Department of Labor or any other
governmental agency responsible for the enforcement of any federal, state, local
or foreign laws, rules and regulations relating to employment. There is no
unfair labor practice charge or complaint against the any of Company or the
Subsidiaries pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving any of the Company or the Subsidiaries, or any predecessor entity,
and none has ever occurred. No representation question exists respecting the
employees of any of the Company or the Subsidiaries, and no collective
bargaining agreement or modification thereof is currently being negotiated by
any of the Company or the Subsidiaries. No grievance or arbitration proceeding
is pending under any expired or existing collective bargaining agreements of the
Company or the Subsidiaries. No labor dispute with the employees of any of the
Company or the Subsidiaries exists or is imminent.
(q) None of the Company nor any of the Subsidiaries maintain,
sponsor or contribute to any program or arrangement that is an "employee pension
benefit plan," an
8
"employee welfare benefit plan" or a "multiemployer plan," as such terms are
defined in Sections 3(2), 3(l) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans").
None of the Company nor any of the Subsidiaries maintain or contribute, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code which could subject the Company or any of the Subsidiary to any
tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply with
Code Section 401(a), stating that such ERISA Plan and the attendant trust are
qualified thereunder. None of the Company nor any of the Subsidiaries has ever
completely or partially withdrawn from a "multiemployer plan."
(r) Neither the Company, any of the Subsidiaries, nor any of
their respective employees, directors, stockholders or affiliates (within the
meaning of the Rules and Regulations), has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act or otherwise, the
stabilization or manipulation of the price of any security of the Company,
whether to facilitate the sale or resale of the Securities or otherwise.
(s) To the best of the Company's knowledge, none of the
trademarks, trade names, service marks, service names, copyrights, patents and
patent applications, and none of the licenses and rights to the foregoing,
presently owned or held by the Company or any of the Subsidiaries are in dispute
or are in conflict with the right of any other person or entity. Each of the
Company and the Subsidiaries (i) owns or has the right to use, free and clear of
all liens, charges, claims, encumbrances, pledges, security interests, defects
or other restrictions or equities of any kind whatsoever, all trademarks, trade
names, service marks, service names, copyrights, patents and patent
applications, and licenses and rights with respect to the foregoing, used in the
conduct of its business as now conducted or proposed to be conducted without
infringing upon or otherwise acting adversely to the right or claimed right of
any person, corporation or other entity under or with respect to any of the
foregoing and (ii) is not obligated or under any liability whatsoever to make
any payments by way of royalties, fees or otherwise to any owner or licensee of,
or other claimant to, any trademark, trade name, service mark, service name,
copyright, patent or patent application except as set forth in the Registration
Statement or the Prospectus. There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental or other proceeding,
domestic or foreign, pending or threatened (or circumstances that may give rise
to the same) against the Company or any of the Subsidiaries which challenges the
exclusive rights of the Company or any of the Subsidiaries with respect to any
trademarks, trade names, service marks, service names, copyrights, patents,
patent applications or licenses or rights to the foregoing used in the conduct
of its business.
(t) Each of the Company and the Subsidiaries owns and has the
unrestricted right to use all trade secrets, know-how (including all unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), inventions, technology, designs, processes,
9
works of authorship, computer programs and technical data and information that
are material to the development, manufacture, operation and sale of all products
and services sold or proposed to be sold by the Company or any of the
Subsidiaries, free and clear of and without violating any right, lien, or claim
of others, including, without limitation, former employers of its employees.
(u) Each of the Company and the Subsidiaries has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property currently used in the conduct of business or stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than liens for taxes not
yet due and payable.
(v) Kellog & Andelson whose reports are filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(w) The holders of at least _____ shares of Common Stock of
the Company, including each director, officer and principal stockholder of the
Company's Common Stock, have executed an agreement (collectively, the "Lock-Up
Agreements") pursuant to which he, she or it has agreed, that for a period
ending upon the earlier of (i) eighteen (18) months following the effective date
of the Registration Statement and (ii) two (2) months after the Representative
and each broker-dealer controlled by any affiliate of the Representative as of
the date of the respective Lock-Up Agreement ("Affiliated Broker-Dealer"), if
any, transfers all of the Representative's Warrants and/or securities issuable
upon exercise of the Representative's Warrants (the "Lock-Up Period"), not to,
directly or indirectly, offer, offer to sell, sell, grant an option for the
purchase or sale of, transfer, assign, pledge, hypothecate or otherwise encumber
(whether pursuant to Rule 144 of the Rules and Regulations or otherwise) any
securities issued or issuable by the Company, whether or not owned by or
registered in the name of such persons, or dispose of any interest therein,
without the prior written consent of the Representative and (ii) for a period
extending twenty-four (24) months following the effective date of the
Registration Statement, as long as the Representative or an Affiliated
Broker-Dealer is acting as a market maker with respect to the Company's
securities that all sales of such securities issued by the Company shall be made
through JSLP in accordance with its customary brokerage policies. The Company
will cause its transfer agent to mark an appropriate legend on the face of stock
certificates representing all of such securities and to place "stop transfer"
orders on the Company's stock ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriters' compensation, as determined by the NASD.
10
(y) The Units, the Common Stock and the Redeemable Warrants
have been approved for quotation on The Nasdaq SmallCap Market ("Nasdaq") and
for listing on the Boston Stock Exchange.
(z) Neither the Company nor any of its Subsidiaries, nor any
of their respective directors, officers, stockholders, employees, agents or any
other person acting on behalf of the Company or any of the Subsidiaries has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or any official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or any other person who was, is or may be in a
position to help or hinder the business of the Company or any of the
Subsidiaries (or assist the Company or any of the Subsidiaries in connection
with any actual or proposed transaction) which (i) might subject the Company or
any of the Subsidiaries or any other such person to any damage or penalty in any
civil, criminal or governmental litigation or proceeding (domestic or foreign),
(ii) if not given in the past, might have had a material and adverse effect on
the condition, financial or otherwise, or the earnings, business affairs,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company or any of the Subsidiaries, or (iii) if not
continued in the future, might materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company or any of the Subsidiaries. Each of the Company's and
the Subsidiaries' internal accounting controls are sufficient to cause the
Company and the Subsidiaries to comply with the Foreign Corrupt Practices Act of
1977, as amended.
(aa) The Company confirms as of the date hereof that each of
the Company and its Subsidiaries is in compliance with all provisions of Section
1 of Laws of Florida, Chapter 92- 198, An Act Relating to Disclosure of Doing
Business with Cuba, and the Company further agrees that if it or any affiliate
commences engaging in business with the government of Cuba or with any person or
affiliate located in Cuba after the date the Registration Statement becomes or
has become effective with the Commission or with the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if the
information reported or incorporated by reference in the Prospectus, if any,
concerning the Company's, or any affiliate's, business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
(bb) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, or any of the Subsidiaries and no
affiliate or associate (as these terms are defined in the Rules and Regulations)
of any of the foregoing persons or entities, has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company or any of the Subsidiaries, or (B) purchases from or
sells or furnishes to the Company or any of the Subsidiaries any goods or
services, or (ii) a beneficial interest in any contract or agreement to which
the Company is a party or by which the Company or any of the Subsidiaries
11
may be bound. Except as set forth in the Prospectus under "Certain
Transactions," there are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company or any of the Subsidiaries and any
officer, director or any person listed in the "Principal Stockholders" section
of the Prospectus or any affiliate or associate of any of the foregoing persons
or entities.
(cc) The minute books of the Company and the Subsidiaries have
been made available to the Representative, contain a complete summary of all
meetings and actions of the directors and stockholders of the Company and the
Subsidiaries since the time of their respective incorporation, and reflect all
transactions referred to in such minutes accurately in all respects.
(dd) Except and to the extent described in the Prospectus, no
holder of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement. Except as set forth in the Prospectus, no person
or entity holds any anti-dilution rights with respect to any securities of the
Company.
(ee) Any certificate signed by any officer of the Company and
delivered to the Representative or to Underwriters' Counsel (as defined in
Section 4(d) herein), shall be deemed a representation and warranty by the
Company to the Representative as to the matters covered thereby.
(ff) The Company has entered into a warrant agreement,
substantially in the form filed as Exhibit ___ to the Registration Statement
(the "Warrant Agreement"), with OTR Stock Transfer Company, in form and
substance satisfactory to the Representative, with respect to the Redeemable
Warrants and providing for the payment of warrant solicitation fees contemplated
by Section 4(x) hereof. The Warrant Agreement has been duly and validly
authorized by the Company and, assuming due execution by the parties thereto
other than the Company, constitutes a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as obligations to
indemnify or contribute to losses may be limited by applicable law).
(gg) The Company has entered into a financial advisory and
consulting agreement substantially in the form filed as Exhibit ____ to the
Registration Statement (the "Consulting Agreement") with the Representative,
with respect to the rendering of consulting services by the Representative to
the Company. The Consulting Agreement provides that the Representative shall be
retained by the Company commencing on the consummation of the proposed public
offering and ending 24 months thereafter, at a monthly retainer of $2,000, all
of which is payable on consummation of the proposed public offering. The
Consulting Agreement has been duly and validly authorized by the Company and
assuming due execution by the parties thereto other than the Company,
constitutes a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms (except as such
12
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law).
(hh) The Company has filed a Form 8-A with the Commission
providing for the registration under the Exchange Act of the Securities and such
Form 8-A has been declared effective by the Commission.
(ii) Each outstanding warrant being converted into a
Redeemable Warrant (each a "Selling Securityholder Warrant") has been
automatically converted into a Redeemable Warrant without any action by the
holder thereof and all of such Redeemable Warrants, as converted and the Selling
Securityholder Shares, have been registered in the Registration Statement.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters, and the Underwriters
agree to purchase from the Company, the Firm Units at a price equal to $____ per
Unit [90% of the initial public offering price].
(b) In addition, on the basis of the representations,
warranties, covenants and agreement, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters to purchase all or any part of the Option Units at a price equal to
$________ per Unit [90% of the initial public offering price]. The option
granted hereby will expire forty-five (45) days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement
if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Units upon notice by the Representative to
the Company setting forth the number of Option Units as to which the
Representative is then exercising the option and the time and date of payment
and delivery for any such Option Units. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representative, but shall not
be later than seven (7) full business days after the exercise of said option,
nor in any event prior to the Closing Date, unless otherwise agreed upon by the
Representative and the Company. Nothing herein contained shall obligate the
Representative to exercise the option granted hereby. No Option Units shall be
delivered unless the Firm Units shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Units shall be made at the offices of the
Representative at 33 Maiden Lane, New York, New York 10038, or at such other
place as shall be agreed upon by the Representative and the Company. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on
_________, 1996 or at such other time and date as shall be agreed upon by the
Representative
13
and the Company, but not less than three (3) nor more than seven (7) full
business days after the effective date of the Registration Statement (such time
and date of payment and delivery being herein called the "Closing Date"). In
addition, in the event that any or all of the Option Units are purchased by the
Representative, payment of the purchase price for, and delivery of certificates
for, such Option Units shall be made at the above mentioned office of the
Representative or at such other place as shall be agreed upon by the
Representative and the Company. Delivery of the certificates for the Firm Units
and the Option Units, if any, shall be made to the Representative against
payment by the Representative of the purchase price for the Firm Units and the
Option Units, if any, to the order of the Company by New York Clearing House
funds. Certificates for the Firm Units and the Option Units, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Representative may
request in writing at least two (2) business days prior to the Closing Date or
the relevant Option Closing Date, as the case may be. The certificates for the
Firm Units and the Option Units, if any, shall be made available to the
Representative at such offices or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
(d) On the Closing Date, the Company shall issue and sell to
the Representative or its designees the Representative's Warrants for an
aggregate purchase price of $.0001 per warrant, which warrants shall entitle the
holders thereof to purchase an aggregate of an additional 200,000 Units. The
Representative's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement at
a price equaling one hundred and twenty percent (120%) of the initial public
offering price of the Units. The Representative's Warrant Agreement and the form
of the certificates for the Representative's Warrant shall be substantially in
the form filed as Exhibit ____ to the Registration Statement. Payment for the
Representative's Warrants shall be made on the Closing Date.
3. Public Offering of the Units. As soon after the
Registration Statement becomes effective as the Representative deems advisable,
the Underwriters shall make a public offering of the Firm Units and such of the
Option Units as the Representative may determine (other than to residents of or
in any jurisdiction in which qualification of the Units is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
public offering price after distribution of the Units has been completed to such
extent as the Representative, in its sole discretion, deems advisable. The
Representative may enter into one or more agreements as the Representative, in
its sole discretion, deems advisable with one or more broker-dealers who shall
act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any
14
amendment to the Registration Statement or supplement to the Prospectus or file
any document under the Act or the Exchange Act before termination of the
offering of the Securities to the public by the Underwriters of which the
Representative shall not previously have been advised and furnished with a copy,
or to which the Representative shall have objected or which is not in compliance
with the Act, the Exchange Act and the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the same in
writing, (i) when the Registration Statement, as amended, becomes effective,
when any post-effective amendment to the Registration Statement becomes
effective and, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding the outcome of which may
result in the suspension of the effectiveness of the Registration Statement or
any order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution of any
proceedings for that purpose, (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the receipt of any comments from the Commission, and (v) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If the
Commission or any state securities regulatory authority shall enter a stop order
or suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) with the Commission, or transmit
the Prospectus by a means reasonably calculated to result in filing the same
with the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations
(or, if applicable and if consented to by the Representative, pursuant to Rule
424(b)(4) of the Rules and Regulations) within the time period specified in Rule
424(b)(1) (or, if applicable and if consented to by the Representative, Rule
424(b)(4)).
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
in connection with the offering of any of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Representative with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the
Representative or Orrick, Herrington & Sutcliffe, its counsel ("Underwriters'
Counsel"), shall object.
(e) The Company shall endeavor in good faith, in cooperation
with the Representative, at or prior to the time the Registration Statement
becomes effective, to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as the
15
Representative may reasonably designate to permit the continuance of sales and
dealings therein for as long as may be necessary to complete the distribution
contemplated hereby, and shall make such applications, file such documents and
furnish such information as may be required for such purpose; provided, however,
the Company shall not be required to qualify as a foreign corporation or file a
general or limited consent to service of process in any such jurisdiction. In
each jurisdiction where such qualification shall be effected, the Company will,
unless the Representative agrees that such action is not at the time necessary
or advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, the Exchange Act and the Rules
and Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If, at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading, or if it is necessary at any time to amend or supplement the
prospectus to comply with the Act, the Company will notify the Representative
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriters' Counsel, and the Company will
furnish to the Representative copies of such amendment or supplement as soon as
available and in such quantities as the Representative may request.
(g) As soon as practicable, but in any event not later than
forty five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof,
the Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings and will deliver to the
Representative:
i) concurrently with furnishing such quarterly reports
to its stockholders statements of income of the Company for
such quarter in the form
16
furnished to the Company's stockholders and certified by the
Company's principal financial and accounting officer;
ii) concurrently with furnishing such annual reports
to its stockholders, a balance sheet of the Company as at the
end of the preceding fiscal year, together with statements of
operations, stockholders' equity and cash flows of the Company
for such fiscal year, accompanied by a copy of the report
thereon of the Company's independent certified public
accountants;
iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with
the Commission, the NASD or any securities exchange;
v) every press release and every material news item or
article of interest to the financial community in respect of
the Company or its affairs which was released or prepared by
or on behalf of the Company; and
vi) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its
business which the Representative may request.
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer and warrant agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar (which may be the same entity as the transfer agent) for the Units,
the Common Stock and the Redeemable Warrants.
(j) The Company will furnish to the Representative, without
charge and at such place as the Representative may designate, copies of each
Preliminary Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (one of which will be signed and will include
all financial statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any prospectus prepared after the effective date
of the Registration Statement, in each case as soon as available and in such
quantities as the Representative may request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representative with originally-executed
copies of duly executed, legally binding and enforceable Lock-Up Agreements
which are in form and substance satisfactory to the Representative. On or before
the Closing Date, the Company shall deliver instructions to its transfer agent
authorizing such transfer agent to place appropriate legends on the certificates
17
representing the securities of the Company subject to the Lock-Up Agreements and
to place appropriate stop transfer orders on the Company's ledgers.
(l) The Company agrees that, for a period of eighteen (18)
months commencing on the effective date of the Registration Statement, and
except as contemplated by this Agreement, it and its present and future
subsidiaries will not, without the prior written consent of the Representative
(i) issue, sell, contract or offer to sell, grant an option for the purchase or
sale of, assign, transfer, pledge, distribute or otherwise dispose of, directly
or indirectly, any shares of capital stock or any option, right or warrant with
respect to any shares of capital stock or any security convertible, exchangeable
or exercisable for capital stock, except pursuant to stock options or warrants
issued by the Company or any other person or entity on the date hereof, or (ii)
file any registration statement for the offer or sale by the Company or any
other person or entity securities issued or to be issued by the Company or any
present or future subsidiaries.
(m) Neither the Company nor any of the Subsidiaries nor any of
their respective officers, directors, stockholders or affiliates (within the
meaning of the Rules and Regulations) will take, directly or indirectly, any
action designed to stabilize or manipulate the price of any securities of the
Company, or which might in the future reasonably be expected to cause or result
in the stabilization or manipulation of the price of any such securities.
(n) The Company shall apply the net proceeds from the sale of
the Securities offered to the public in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(o) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, any Form SR
required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Representative as early
as practicable prior to each of the date hereof, the Closing Date and each
Option Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date hereof, the Closing Date or the relevant Option Closing
Date, as the case may be) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
Section 6(j) hereof.
(q) The Company shall cause the Units, the Common Stock and
the Redeemable Warrants to be quoted on Nasdaq and listed on the Boston Stock
Exchange and, for a period of seven (7) years from the date hereof, use its best
efforts to maintain the Nasdaq quotation and the Boston Stock Exchange listing
of the Units, the Common Stock and the Redeemable Warrants to the extent
outstanding.
18
(r) For a period of five (5) years from the Closing Date, the
Company shall at the request of the Representative, furnish or cause to be
furnished to the Representative and at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Units, the Common Stock and the
Redeemable Warrants and (ii) a list of holders of all of the Company's
securities.
(s) For a period of five (5) years from the Closing Date, the
Company shall, at the Company's sole expense, (i) promptly provide the
Representative, upon any and all requests of the Representative, with a "blue
sky trading survey" for secondary sales of the Company's securities, prepared by
counsel to the Company, and (ii) take all necessary and appropriate actions to
further qualify the Company's securities in all jurisdictions of the United
States in order to permit secondary sales of such securities pursuant to the
"blue sky" laws of those jurisdictions, provided that such jurisdictions do not
require the Company to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than thirty
(30) days after the effective date of the Registration Statement, the Company
agrees to take all necessary and appropriate actions to be included in Standard
and Poor's Corporation Descriptions and Moody's OTC Manual and to continue such
inclusion for a period of not less than seven (7) years.
(u) Without the prior written consent of the Representative,
the Company hereby agrees that it will not, for a period of eighteen (18) months
from the effective date of the Registration Statement, (i) adopt, propose to
adopt or otherwise permit to exist any employee, officer, director, consultant
or compensation plan or arrangement permitting the grant, issue, sale or entry
into any agreement to grant, issue or sell any option, warrant or other contract
right (x) at an exercise price that is less than the greater of fifty (50%) of
the initial public offering price of the Units set forth herein and the fair
market value per share of Common Stock on the date of grant or sale or (y) to
any of its executive officers or directors or to any holder of five percent (5%)
or more of the Common Stock or any holder of five percent (5%) or more of the
Common Stock as the result of the exercise or conversion of equivalent
securities, including, but not limited to options, warrants or other contract
rights and securities convertible, directly or indirectly, into shares of Common
Stock or any affiliate of the foregoing; (ii) permit the maximum number of
shares of Common Stock or other securities of the Company purchasable at any
time pursuant to options, warrants or other contract rights to exceed [________]
shares of Common Stock, excluding the Representative's Warrants and the
Redeemable Warrants; (iii) permit the existence of stock appreciation rights,
phantom options or similar arrangements; or (iv) permit the payment for such
securities with any form of consideration other than cash.
(v) Until the completion of the distribution of the Units to
the public, and during any period during which a prospectus is required to be
delivered, the Company shall not, without the prior written consent of the
Representative, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
19
(w) For a period of five (5) years after the effective date of
the Registration Statement, the Company shall cause one (1) individual selected
by the Representative, subject to the good faith approval of the Company, to be
elected to the Board of Directors of the Company (the "Board"), if requested by
the Representative. In the event the Representative shall not have designated
such individual at the time of any meeting of the Board or such person has not
been elected or is unavailable to serve, the Company shall notify the
Representative of each meeting of the Board. An individual selected by the
Representative shall be permitted to attend all meetings of the Board and to
receive all notices and other correspondence and communications sent by the
Company to members of the Board. The Company shall reimburse the
Representative's designee for his or her out-of-pocket expenses reasonably
incurred in connection with his or her attendance of the Board meetings.
(x) Commencing one year from the date hereof, to pay the
Representative a warrant solicitation fee equal to five percent (5%) of the
exercise price of the Redeemable Warrants, payable on the date of the exercise
thereof on terms provided in the Warrant Agreement. The Company will not solicit
the exercise of the Redeemable Warrants through any solicitation agent other
than the Representative. The Representative will not be entitled to any warrant
solicitation fee unless the Representative provides bona fide services in
connection with any warrant solicitation and the investor designates, in
writing, that the Representative is entitled to such fee.
(y) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 or S-1 (or other appropriate form) for
the registration under the Act of the Representative's Securities.
(z) For a period of twenty four (24) months after the
effective date of the Registration Statement, the Company shall not restate,
amend or alter any term of any written employment, consulting or similar
agreement entered into between the Company and any officer, director or key
employee as of the effective date of the Registration Statement in a manner
which is more favorable to such officer, director or key employee, without the
prior written consent of the Representative.
(aa) The Company will use its best efforts to maintain the
effectiveness of the Registration Statement for a period of five years after the
date hereof.
(bb) The Company agrees that, for a period of three (3) years
beginning with the effective date of the Registration Statement, JSLP shall have
a right of first refusal for all sales of any securities made by the Company or
any of its present or future affiliates or subsidiaries.
(cc) The Company agrees for a period commencing on the date
hereof and ending 18 months after the effective date of the Registration
Statement (i) to pay all cumulative quarterly dividends payable with respect to
the Company's Series A 8-1/2% Convertible Preferred Stock in cash unless (A) the
Company has obtained the prior written consent of the Representative to pay such
dividend in Common Stock or (B) on the date such quarterly
20
dividends are declared, the Company would not be legally able to pay such
dividends in cash, and (ii) to obtain the written consent of the Representative
prior to amending, modifying or supplementing the terms of the Series A 8-1/2%
Convertible Preferred Stock of the Company.
5. Payment of Expenses.
(a) The Company hereby agrees to pay (such payment to be made,
at the discretion of the Representative, on the Closing Date and any Option
Closing Date (to the extent not paid on the Closing Date or a previous Option
Closing Date)) all expenses and fees (other than fees of Underwriters' Counsel)
incident to the performance of the obligations of the Company under this
Agreement, the Representative's Warrant Agreement and the Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage, overnight
delivery or courier charges with respect thereto) of the Registration Statement
and the Prospectus and any amendments and supplements thereto and the printing,
mailing (including the payment of postage, overnight delivery or courier charges
with respect thereto) and delivery of this Agreement, the Representative's
Warrant Agreement, the Warrant Agreement, and agreements with selected dealers,
and related documents, including the cost of all copies thereof and of each
Preliminary Prospectus and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Representative and such dealers as the
Representative may request, in such quantities as the Representative may
request, (iii) the printing, engraving, issuance and delivery of the Securities,
(iv) the qualification of the Securities under state or foreign securities or
"blue sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, and disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including, but not limited to
costs and expenses in connection with "road shows," information meetings and
presentations, bound volumes and prospectus memorabilia and "tombstone"
advertisement expenses, (vi) costs and expenses in connection with due diligence
investigations, including, but not limited to, the fees of any independent
counsel or consultants, (vii) fees and expenses of a transfer and warrant agent
and registrar for the Securities, (viii) applications for assignments of a
rating of the Securities by qualified rating agencies, (ix) the fees payable to
the Commission and the NASD, and (x) the fees and expenses incurred in
connection with the quotation of the Securities on Nasdaq and listing on the
Boston Stock Exchange and any other exchange.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof,
the Company shall reimburse and indemnify the Representative for all of its
actual out-of-pocket expenses, including the fees and disbursements of
Underwriters' Counsel, less any amounts already paid pursuant to Section 5(c)
hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to Section 5(a) hereof, it will pay to the
Representative on the Closing Date by certified or bank cashier's check, or, at
the election of the Representative, by deduction from the
21
proceeds of the offering of the Firm Units, a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds received by the Company from
the sale of the Firm Units, twenty-five thousand dollars ($25,000) of which has
been paid to date by the Company. In the event the Representative elects to
exercise the overallotment option described in Section 2(b) hereof, the Company
further agrees to pay to the Representative on each Option Closing Date, by
certified or bank cashier's check, or, at the Representative's election, by
deduction from the proceeds of the Option Units purchased on such Option Closing
Date, a non-accountable expense allowance equal to three percent (3%) of the
gross proceeds received by the Company from the sale of such Option Units.
6. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any, as
if they had been made on and as of the Closing Date and each Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date and each
Option Closing Date, if any, of the statements of officers of the Company made
pursuant to the provisions hereof; the performance by the Company on and as of
the Closing Date and each Option Closing Date, if any, of its covenants and
obligations hereunder; and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representative,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Units and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representative's opinion, is material, or omits
to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances in which they were made not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Representative's opinion, is material, or omits to state a fact
which, in the Representative's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
22
(c) On or prior to the Closing Date, the Representative shall
have received from Underwriters' Counsel such opinion or opinions with respect
to the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related matters as the
Representative may request and Underwriters' Counsel shall have received such
papers and information as they may request in order to enable them to pass upon
such matters.
(d) On the Closing Date, the Underwriters shall have received
the favorable opinion of Maloney, Gerra, Mehlman & Katz, counsel to the Company,
dated the Closing Date, addressed to the Underwriters, in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
[Need to indicate which opinions will be opined to by Dempsey &
Johnson in Section 6(e) hereof]
i) each of the Company and the Subsidiaries (A) has
been duly organized and is validly existing as a corporation
in good standing under the laws of its jurisdiction of
incorporation, (B) is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the
character of its operations requires such qualification or
licensing, and (C) has all requisite power and authority
(corporate and other) and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or
regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct
its business as described in the Prospectus; each of the
Company and the Subsidiaries is and has been doing business in
compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits obtained by it
from governmental or regulatory officials and agencies and all
federal, state, local and foreign laws, rules and regulations
to which it is subject; and, none of the Company nor any of
the Subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such
authorization, approval, order, license, certificate,
franchise or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would
materially and adversely affect the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity,
value, operations, properties, business or results of
operations of the Company or the Subsidiaries. The disclosure
in the Registration Statement concerning the effects of
federal, state, local and foreign laws, rules and regulations
on the Company's and the Subsidiaries' business as currently
conducted and as contemplated are correct in all respects and
do not omit to state 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;
23
ii) none of the Company nor the Subsidiaries own,
directly or indirectly, an interest in any corporation,
partnership, joint venture, trust or other business entity
except for the Subsidiaries;
iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus
under "Capitalization" and except as set forth in the
Prospectus, none of the Company or any of the Subsidiaries is
not a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this
Agreement, the Representative's Warrant Agreement and the
Warrant Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the
Company conform, or when issued and paid for, will conform, in
all respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. All issued and
outstanding securities of the Company and the Subsidiaries
have been duly authorized and validly issued and are fully
paid and non-assessable; the holders thereof have no rights of
rescission with respect thereto and are not subject to
personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or any of
the Subsidiaries or any similar contractual right granted by
the Company or any of the Subsidiaries. The Securities to be
sold by the Company hereunder and under the Representative's
Warrant Agreement and the Warrant Agreement are not and will
not be subject to any preemptive or other similar rights of
any stockholder, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof and
thereof, will be validly issued, fully paid and non-assessable
and conform to the descriptions thereof contained in the
Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of
the Securities has been duly and validly taken; and the
certificates representing the Securities are in due and proper
form. The Representative's Warrants constitute valid and
binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement, the
Representative's Warrant Agreement and the Warrant Agreement
of the Securities to be sold by the Company hereunder and
thereunder, the Representative will acquire good and
marketable title to such Securities, free and clear of any
lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever
asserted against the Company or any affiliate (within the
meaning of the Rules and Regulations) of the Company. No
transfer tax is payable by or on behalf of the Underwriters in
connection with (A) the issuance by the Company of the
Securities, (B) the purchase by the Underwriters of the
Securities from the Company, (C) the consummation by the
Company of any of its obligations under this Agreement, the
Representative's Warrant Agreement or the Warrant Agreement,
or (D) resales of the Securities in connection with the
distribution contemplated hereby;
24
iv) the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has
been timely made in the appropriate form under Rule 430A, and
no stop order suspending the use of the Preliminary
Prospectus, the Registration Statement or the Prospectus or
any part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending, threatened
or contemplated under the Act;
v) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments
or supplements thereto (other than the financial statements
and schedules and other financial and statistical data
included therein, as to which no opinion need be rendered)
comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
vi) to such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act
to be described in the Registration Statement and the
Prospectus or required to be filed as exhibits to the
Registration Statement (or required to be filed under the
Exchange Act if upon such filing they would be incorporated,
in whole or in part, by reference therein) other than those
described in the Registration Statement and the Prospectus and
filed as exhibits thereto, and the exhibits which have been
filed are correct copies of the documents of which they
purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment
thereto of agreements, contracts and other documents to which
the Company or any of the Subsidiaries is a party or by which
the Company or any of the Subsidiaries is bound are accurate
and fairly represent the information required to be shown by
Form SB-2; (C) there is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental
proceeding (including, without limitation, those pertaining to
environmental or similar matters), domestic or foreign,
pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of,
the Company or any of the Subsidiaries which (I) is required
to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all
respects), or (II) questions the validity of the capital stock
of the Company or any of the Subsidiaries or of this
Agreement, the Representative's Warrant Agreement, the Warrant
Agreement or the Consulting Agreement or of any action taken
or to be taken by the Company pursuant to or in connection
with any of the foregoing; (D) no statute or regulation or
legal or governmental proceeding required to be described in
the Prospectus is not described as required; and (E) there is
no action, suit or proceeding pending or threatened against or
affecting the Company or any of the Subsidiaries before any
court, arbitrator or governmental body, agency or official (or
any basis thereof known to such counsel) in which there is a
reasonable possibility of an adverse decision which may result
in a material adverse change in the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity,
value, operation, properties, business or results
25
of operations of the Company or any of the Subsidiaries taken
as a whole, which could adversely affect the present or
prospective ability of the Company to perform its obligations
under this Agreement, the Representative's Warrant Agreement,
the Warrant Agreement or the Consulting Agreement or which in
any manner draws into question the validity or enforceability
of this Agreement, the Representative's Warrant Agreement, the
Warrant Agreement or the Consulting Agreement;
vii) the Company has full legal right, power and
authority to enter into each of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement and
the Consulting Agreement and to consummate the transactions
provided for herein and therein; and each of this Agreement,
the Representative's Warrant Agreement, the Warrant Agreement
and the Consulting Agreement has been duly authorized,
executed and delivered by the Company. Each of this Agreement,
the Representative's Warrant Agreement, the Warrant Agreement
and the Consulting Agreement, assuming due authorization,
execution and delivery by each other party thereto,
constitutes a legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with
its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting
the enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and
except as obligations to indemnify or contribute to losses may
be limited by applicable law). None of the Company's execution
or delivery of this Agreement, the Representative's Warrant
Agreement, the Warrant Agreement or the Consulting Agreement,
its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the
conduct of the Company's or any of the Subsidiaries' business
as described in the Registration Statement and the Prospectus
and any amendments or supplements thereto, conflicts with or
will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes
or will constitute a default under, or result in the creation
or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of
any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company or any of the Subsidiaries pursuant
to the terms of (A) the certificate of incorporation or
by-laws of the Company or any of the Subsidiaries, (B) any
license, contract, indenture, mortgage, lease, deed of trust,
voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by
which the Company or any of the Subsidiaries is or may be
bound or to which their respective properties or assets
(tangible or intangible) are or may be subject, (C) any
statute applicable to the Company or any of the Subsidiaries
or (D) any judgment, decree, order, rule or regulation
applicable to the Company or any of the Subsidiaries of any
arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without
limitation, those having jurisdiction over
26
environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of the Subsidiaries or
any of their respective activities or properties;
viii) no consent, approval, authorization or order of,
and no filing with, any arbitrator, court, regulatory body,
administrative agency, government agency or other body,
domestic or foreign (other than such as may be required under
"blue sky" laws, as to which no opinion need be rendered), is
required in connection with the issuance of the Securities
pursuant to the Prospectus, the Registration Statement, this
Agreement, the Representative's Warrant Agreement and the
Warrant Agreement, or the performance of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement and
the Consulting Agreement and the transactions contemplated
hereby and thereby;
ix) the properties and business of the Company and the
Subsidiaries conform to the description thereof contained in
the Registration Statement and the Prospectus; and the Company
and the Subsidiaries has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real
and personal property stated in the Prospectus to be owned or
leased by it, in each case free and clear of all liens,
charges, claims, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus and
liens for taxes not yet due and payable;
x) none of the Company nor any of the Subsidiaries is
in breach of, or in default under, any term or provision of
any license, contract, indenture, mortgage, lease, deed of
trust, voting trust agreement, stockholders' agreement, note,
loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries is or may be bound or to which their respective
property or assets (tangible or intangible) are or may be
subject; and none of the Company or any of the Subsidiaries is
in violation of any term or provision of (A) its certificate
of incorporation or by-laws, (B) any authorization, approval,
order, license, certificate, franchise or permit of any
governmental or regulatory official or body, or (C) any
judgement, decree, order, statute, rule or regulation to which
it is subject;
xi) the statements in the Prospectus under "Prospectus
Summary," "Risk Factors," "The Company," "Recent Bridge
Financings," "Concurrent Offering," "Business," "Management,"
"Principal Stockholders," "Selling Securityholders," "Certain
Transactions," "Shares Eligible For Future Sale," and
"Description of Securities" have been reviewed by such
counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects;
27
xii) the Units, the Common Stock and the Redeemable
Warrants have been accepted for quotation on Nasdaq and
listing on the Boston Stock Exchange;
xiii) each of the Company and the Subsidiaries owns or
possesses, free and clear of all liens or encumbrances and
right thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks,
copyrights, service names, tradenames, patents, patent
applications and licenses necessary to conduct their
respective business (including without limitation any such
licenses or rights described in the Prospectus as being owned
or possessed by the Company or any of the Subsidiaries) and
there is no claim or action by any person pertaining to, or
proceeding, pending or threatened, which challenges the
exclusive rights of the Company or any of the Subsidiaries
with respect to any trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and
licenses used in the conduct of the Company's or any of the
Subsidiaries' business (including, without limitation, any
such licenses or rights described in the Prospectus as being
owned or possessed by the Company or any of the Subsidiaries);
xiv) the persons listed under the captions "Principal
Stockholders" and "Selling Securityholders" in the Prospectus
are the respective "beneficial owners" (as such phrase is
defined in Rule 13d-3 under the Exchange Act) of the
securities set forth opposite their respective names
thereunder as and to the extent set forth therein;
xv) except as disclosed in the Prospectus, no person,
corporation, trust, partnership, association or other entity
has the right to include and/or register any securities of the
Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any
security in such registration statement;
xvi) there are no claims, payments, issuances,
arrangements or understandings, whether oral or written, for
services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial
consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances that may affect the
Underwriters' compensation, as determined by the NASD; and
xvii) assuming due execution by the parties thereto, the
Lock-Up Agreements are legal, valid and binding obligations of
the parties thereto, enforceable against such parties and any
subsequent holder of the securities subject thereto in
accordance with their terms.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
28
Registration Statement, the Prospectus and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement or the Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or amendment became
effective, or the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, as of the date of the Preliminary Prospectus and the
Prospectus, and as of the date of such opinion, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading (it being understood that
such counsel need express no opinion with respect to the financial statements
and schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
supplements or amendments thereto).
In rendering such opinion, such counsel may rely (a) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriters'
Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the
applicable laws; and (b) as to matters of fact, to the extent they deem proper,
on certificates and written statements of responsible officers of the Company
and certificates or other written statements of officers of departments of
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel, if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that the
Representative and they are justified in relying thereon. Such opinion shall
also state that the Underwriters' Counsel is entitled to rely thereon. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991) or any comparable state accord.
At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Maloney, Gerra, Mehlman & Katz, counsel
to the Company, dated the relevant Option Closing Date, addressed to the
Underwriters, and in form and substance satisfactory to Underwriters' Counsel
confirming as of the Option Closing Date, the statements made by Maloney, Gerra,
Mehlman & Katz in its opinion delivered on the Closing Date.
(e) On the Closing Date, the Underwriters shall have received
the favorable opinion of Dempsey & Johnson, P.C., counsel to the Company, dated
the Closing Date, addressed to the Underwriters, in substantially the form
attached hereto as Exhibit A and in form and substance satisfactory to
Underwriters' Counsel to the effect that:
[Need to indicate which opinions from Section 6(d) Dempsey & Johnson
will opine to]
29
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement or the Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or amendment became
effective, or the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, as of the date of the Preliminary Prospectus and the
Prospectus, and as of the date of such opinion, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading (it being understood that
such counsel need express no opinion with respect to the financial statements
and schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
supplements or amendments thereto).
In rendering such opinion, such counsel may rely (a) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriters'
Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the
applicable laws; and (b) as to matters of fact, to the extent they deem proper,
on certificates and written statements of responsible officers of the Company
and certificates or other written statements of officers of departments of
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel, if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that the
Representative and they are justified in relying thereon. Such opinion shall
also state that the Underwriters' Counsel is entitled to rely thereon. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991) or any comparable state accord.
At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Dempsey & Johnson, P.C., dated the
relevant Option Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel confirming, as of the Option
Closing Date, the statements made by Dempsey & Johnson, P.C.
in its opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriters' Counsel shall have been furnished with such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon
30
the matters referred to in Section 6(c) hereof, or in order to evidence the
accuracy, completeness or satisfaction of any of the representations, warranties
or conditions of the Company herein contained.
(g) Prior to the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
or the earnings, stockholders' equity, value, operations, properties, business
or results of operations of the Company or any of the Subsidiaries, whether or
not in the ordinary course of business, from the latest dates as of which such
matters are set forth in the Registration Statement and the Prospectus; (ii)
there shall have been no transaction, not in the ordinary course of business,
entered into by the Company or any of the Subsidiaries from the latest date as
of which the financial condition of the Company is set forth in the Registration
Statement and the Prospectus; (iii) none of the Company nor any of the
Subsidiaries shall be in default under any provision of any instrument relating
to any outstanding indebtedness; (iv) none of the Company nor any of the
Subsidiaries shall have issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class and there shall not have been any change in the capital
stock, debt (long or short term) or liabilities or obligations of the Company
(contingent or otherwise) from the latest dates as of which such matters are set
forth in the Registration Statement and the Prospectus; (v) no material amount
of the assets of the Company or any of the Subsidiaries shall have been pledged
or mortgaged, except as set forth in the Registration Statement and the
Prospectus; (vi) no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding, domestic or
foreign, shall be pending or threatened (or circumstances giving rise to same)
against the Company or any of the Subsidiaries or affecting any of their
respective properties or business before or by any court or federal, state or
foreign commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially and adversely affect the condition,
financial or otherwise, or the earnings, stockholders' equity, value,
operations, properties, business or results of operations of the Company or the
Subsidiaries taken as a whole, except as set forth in the Registration Statement
and Prospectus; and (vii) no stop order shall have been issued under the Act
with respect to the Registration Statement and no proceedings therefor shall
have been initiated, threatened or contemplated by the Commission.
(h) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or the relevant Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as
of the Closing Date or the Option Closing Date, as the case
may be, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior
to such Closing Date or Option Closing Date, as the case may
be;
31
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued,
and no proceedings for that purpose have been instituted or
are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto contain all
statements and information required to be included therein,
and none of the Registration Statement, the Prospectus or any
amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any 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 and neither the Preliminary
Prospectus nor any supplement thereto included any untrue
statement of a material fact or omitted to state any 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; and
iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (A) none of the Company nor any of the
Subsidiaries has not incurred any material liabilities or
obligations, direct or contingent; (B) none of the Company nor
any of the Subsidiaries has paid or declared any dividends or
other distributions on its capital stock; (C) none of the
Company nor any of the Subsidiaries has entered into any
transactions not in the ordinary course of business; (D) there
has not been any change in the capital stock or long-term debt
or any increase in the short-term borrowings (other than any
increase in short-term borrowings in the ordinary course of
business) of the Company or any of the Subsidiaries; (E) none
of the Company nor any of the Subsidiaries has sustained any
material loss or damage to their respective property or
assets, whether or not insured; (F) there is no litigation
which is pending or threatened (or circumstances giving rise
to same) against the Company or any of the Subsidiaries or any
affiliate (within the meaning of the Rules and Regulations) of
the foregoing which is required to be set forth in an amended
or supplemented Prospectus which has not been set forth; and
(G) there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been set
forth.
References to the Registration Statement and the Prospectus in this Section 6(h)
are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters and
in form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any,
32
referred to in clause (iii) below) to the Underwriters and Underwriters'
Counsel, from Kellog & Andelson.
i) confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Act and the Rules and Regulations;
ii) stating that it is their opinion that the
consolidated financial statements of the Company included in
the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations and that the Underwriters
may rely upon the opinion of Kellog & Andelson with respect to
such financial statements and supporting schedules included in
the Registration Statement;
iii) stating that, on the basis of a limited review
which included a reading of the latest unaudited interim
consolidated financial statements of the Company, a reading of
the latest available minutes of the stockholders and board of
directors and the various committees of the board of directors
of the Company, consultations with officers and other
employees of the Company responsible for financial and
accounting matters and other specified procedures and
inquiries, nothing has come to their attention which would
lead them to believe that (A) the unaudited consolidated
financial statements and supporting schedules of the Company
included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are
not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial
statements of the Company included in the Registration
Statement, or (B) at a specified date nor more than five (5)
days prior to the effective date of the Registration
Statement, there has been any change in the capital stock or
long-term debt of the Company, or any decrease in the
stockholders' equity or net current assets or net assets of
the Company as compared with amounts shown in the March 31,
1996 balance sheet included in the Registration Statement,
other than as set forth in or contemplated by the Registration
Statement, or, if there was any change or decrease, setting
forth the amount of such change or decrease, and (C) during
the period from March 31, 1996 to a specified date not more
than five (5) days prior to the effective date of the
Registration Statement, there was any decrease in net
revenues, net earnings or net earnings per share of Common
Stock, in each case as compared with the corresponding period
beginning March 31, 1995, other than as set forth in or
contemplated by the Registration Statement, or, if there was
any such decrease, setting forth the amount of such decrease;
iv) setting forth, at a date not later than five (5)
days prior to the effective date of the Registration
Statement, the amount of liabilities of the Company (including
a break-down of commercial paper and notes payable to banks);
33
v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus, in each
case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general
accounting records, including work sheets, 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
(which procedures do not constitute an audit in accordance
with generally accepted auditing standards) set forth in the
letter and found them to be in agreement; and
vi) statements as to such other matters incident to
the transaction contemplated hereby as the Underwriters may
request.
(k) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received from Kellog & Andelson a letter, dated as
of the Closing Date or the relevant Option Closing Date, as the case may be, to
the effect that (i) it reaffirms the statements made in the letter furnished
pursuant to Section 6(j), (ii) if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that Kellog & Andelson has
carried out procedures as specified in clause (v) of Section 6(j) hereof with
respect to certain amounts, percentages and financial information as specified
by the Underwriters and deemed to be a part of the Registration Statement
pursuant to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (v).
(l) The Company shall have received a letter, dated such date,
addressed to the Company, in form and substance satisfactory in all respects to
the Representative, from Kellog & Andelson stating that they have not during the
immediately preceding five (5) year period brought to the attention of the
Company's management any "weakness," as defined in Statement of Auditing
Standard No. 60 "Communication of Internal Control Structure Related Matters
Noted in an Audit," in any of the Company's internal controls.
(m) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Underwriters the appropriate number
of Securities.
(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriters pursuant to Section 4(e) hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(o) On or before the effective date of the Registration
Statement, the Company shall have executed and delivered to the Representative,
the Representative's Warrant Agreement, substantially in the form filed as
Exhibit to the Registration Statement. On or before the Closing Date, the
Company shall have executed and delivered to the Representative the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
34
(p) On or before Closing Date, the Units, the Common Stock and
the Redeemable Warrants shall have been duly approved for quotation on Nasdaq,
subject to official notice of issuance and listing on the Boston Stock Exchange.
(q) On or before Closing Date, there shall have been delivered
to the Representative all of the Lock-Up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
(r) On or before the Closing Date, the Company shall have (i)
executed and delivered to the Representative the Consulting Agreement,
substantially in the form filed as Exhibit ____ to the Registration Statement
and (ii) paid the Representative $48,000 representing the retainer fee pursuant
to the Consulting Agreement.
(s) On or before the effective date of the Registration
Statement, the Company and OTR Stock Transfer Company shall have executed and
delivered to the Representative the Warrant Agreement, substantially in the form
filed as Exhibit to the Registration Statement.
(t) At least two (2) full business days prior to the date
hereof, the Closing Date and each Option Closing Date, if any, the Company shall
have delivered to the Representative the unaudited interim consolidated
financial statements required to be so delivered pursuant to Section 4(p) of
this Agreement.
If any condition to the Representative's or the Underwriters'
obligations hereunder to be fulfilled prior to or at the Closing Date or at any
Option Closing Date, as the case may be, is not so fulfilled, the Representative
may terminate this Agreement or, if the Representative so elects, it may waive
any such conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters (for purposes of this Section 7, "Underwriters" shall include
the officers, directors, partners, employees, agents and counsel of the
Underwriters including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") 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,
proceedings, investigations, inquiries and suits in respect thereof), whatsoever
(including but not limited to any and all costs and expenses whatsoever
reasonably incurred in investigating, preparing or defending against such
action, proceeding, investigation, inquiry or suit commenced or threatened, or
any claim whatsoever), as such are incurred, to which the Underwriter or such
controlling person may become subject under the Act, the Exchange Act or any
other statute or at common law or otherwise or under the laws of foreign
countries, arising out of or based upon (A) any untrue statement or alleged
untrue statement of a material fact contained (i) in any Preliminary Prospectus,
the Registration Statement or the Prospectus (as from time to time amended and
supplemented); (ii) in any post-effective amendment or amendments or any new
registration
35
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities; or (iii) in any application or
other document or written communication (in this Section 7, collectively
referred to as "applications") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
the NASD, Nasdaq or any securities exchange; (B) the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading (in the case of the Prospectus, in
light of the circumstances in which they were made); or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be. The indemnity agreement in
this Section 7(a) shall be in addition to any liability which the Company may
have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of the Act, to the same extent as
the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or the Prospectus or any amendment thereof or
supplement thereto or in any application made in reliance upon, and in strict
conformity with, written information furnished to the Company with respect to
any Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or the Prospectus directly relating to
the transactions effected by the Underwriters in connection with the offering
contemplated hereby. The Company acknowledges that the statements with respect
to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in any Preliminary Prospectus, the Registration Statement or the
Prospectus. The indemnity agreement in this Section 7(b) shall be in addition to
any liability which the Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 (except to the extent that it
has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies
36
an indemnifying party or parties of the commencement thereof, the indemnifying
party or parties will be entitled to participate therein, and to the extent it
or they may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, an indemnified party shall have the right to
employ its own counsel in any such case but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to one or all of the
indemnifying parties (in which event the indemnifying parties shall not have the
right to direct the defense of such action, investigation, inquiry, suit or
proceeding on behalf of the indemnified party or parties), in any of which
events such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action, investigation, inquiry, suit or proceeding or separate but
similar or related actions, investigations, inquiries, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances. An indemnifying party will not, without the prior written consent
of the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party. Anything in this Section 7 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
37
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriters are the indemnified party, the relative benefits received
by the Company, on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Securities (before deducting expenses) bear to the total underwriting
discounts received by the Underwriters hereunder, in each case as set forth in
the table on the cover page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions, investigations, inquiries, suits or
proceedings in respect thereof) referred to in the first (1st) sentence of this
Section 7(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action, claim, investigation, inquiry suit or proceeding.
Notwithstanding the provisions of this Section 7(d), the Underwriters shall not
be required to contribute any amount in excess of the underwriting discount
applicable to the Securities purchased by the Underwriters hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 7(d), each
person, if any, who controls the Company or the Underwriter within the meaning
of the Act, each officer of the Company who has signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company or the Underwriter, as the case may be, subject in
each case to this Section 7(d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit, inquiry,
investigation or proceeding, against such party in respect to which a claim for
contribution may be made against another party or parties under this Section
7(d), notify such party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this Section 7(d), or to the extent that
such party or parties were not adversely affected by such omission.
Notwithstanding anything in this Section 7 to the contrary, no party will be
liable for contribution with respect to the settlement of any action or claim
effected without its written consent. The contribution agreement set forth above
shall be in addition to any liabilities which any indemnifying party may have at
common law or otherwise.
8. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company contained in this Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall be deemed to be
representations, warranties, covenants and agreements at the Closing Date and
each Option Closing Date, if any, and such representations, warranties,
covenants and agreements of the Company, and the respective indemnity and
contribution agreements contained in Section 7 hereof, shall remain operative
and in full force and effect
38
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive the termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters.
9. Effective Date. This Agreement shall become effective at
10:00 a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Representative, in its discretion, shall release the Securities
for sale to the public; provided, however, that the provisions of Sections 5, 7
and 10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Representative of telegrams to
securities dealers releasing such shares for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to Section 10(b) hereof, the Representative shall
have the right to terminate this Agreement: (i) if any domestic or international
event or act or occurrence has materially adversely disrupted, or in the
Representative's opinion will in the immediate future materially adversely
disrupt, the financial markets; or (ii) if any material adverse change in the
financial markets shall have occurred; or (iii) if trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the NASD, the Boston Stock
Exchange, the Commission or any governmental authority having jurisdiction over
such matters; or (iv) if trading of any of the securities of the Company shall
have been suspended, or if any of the securities of the Company shall have been
delisted, on any exchange or in any over-the-counter market; or (v) if the
United States shall have become involved in a war or major hostilities, or if
there shall have been an escalation in an existing war or major hostilities, or
a national emergency shall have been declared in the United States; or (vi) if a
banking moratorium shall have been declared by any state or federal authority;
or (vii) if a moratorium in foreign exchange trading shall have been declared;
or (viii) if the Company shall have sustained a material or substantial loss by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Representative's opinion, make it inadvisable to proceed with the
delivery of the Securities; or (ix) if there shall have occurred any outbreak or
escalation of hostilities or any calamity or crisis or there shall have been
such a material adverse change in the conditions or prospects of the Company, or
if there shall have been such a material adverse change in the general market,
political or economic conditions, in the United States or elsewhere, as in the
Representative's judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities; or (x) if Irwin Meyer shall no
longer serve the Company in his present capacities.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof
the Company shall promptly reimburse and indemnify the Representative for all
its actual out-of-pocket expenses, including the fees and disbursements of
Underwriters' Counsel, less amounts previously paid pursuant to Section 5(c)
hereof. In addition, the Company shall remain liable for all "blue sky" counsel
fees
39
and expenses and "blue sky" filing fees. In addition, the Company shall remain
liable for all "blue sky" counsel fees and expenses and "blue sky" filing fees.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 6, 10(a) and 11 hereof), and whether or not this Agreement
is otherwise carried out, the provisions of Section 5 and Section 7 shall not be
in any way be affected by such election or termination or failure to carry out
the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
Underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the total number of Firm Units to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Units, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Units to be purchased on an Option Closing Date, the Representative
may, at its option, by notice from the Representative to the Company, terminate
the Representative's obligation to purchase Option Units from the Company on
such date) without any liability on the part of any non-defaulting party other
than pursuant to Section 5, Section 7 and Section 10 hereof. No action taken
pursuant to this Section 12 shall relieve the Company from liability, if any, in
respect of such default.
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13. Notices. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Joseph Stevens & Company, L.P., 33 Maiden Lane, 8th Floor, New
York, NY 10038, Attention: Mr. Joseph Sorbara, with a copy to Orrick, Herrington
& Sutcliffe, 666 Fifth Avenue, New York, New York 10103, Attention: Rubi
Finkelstein, Esq. Notices to the Company shall be directed to the Company at The
Producers Entertainment Group Ltd., 9150 Wilshire Boulevard, Suite 205, Beverly
Hills, California 90212, Attention: Irwin Meyer, President, with a copy to
Maloney, Gerra, Mehlman & Katz, Chrysler Building, 405 Lexington Avenue, New
York, New York 10174, Attention: Melvin Katz, Esq.
14. Parties. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Units from the Underwriters shall be deemed to be a
successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the
Representative's Warrant Agreement and the Consulting Agreement constitute the
entire agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof and thereof. This Agreement may not be amended except in a writing signed
by the Representative and the Company.
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If the foregoing correctly sets forth the understanding
between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
THE PRODUCERS ENTERTAINMENT GROUP LTD.
By:
------------------------------------------------
Name: Irwin Meyer
Title: President and Chief Executive Officer
Confirmed and accepted as of the date first above written.
JOSEPH STEVENS & COMPANY, L.P.
As Representative of the
Several Underwriters
By:
----------------------------------------
Name:
Title:
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SCHEDULE A
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Underwriter Firm Units
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Joseph Stevens & Company, L.P................................
- ----------------------------------------------------------------------------
Total............................................... 2,000,000
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