FRONTLINE COMMUNICATIONS CORPORATION
1,000,000 Shares of Common Stock
(Par Value $.01 Per Share)
and
Warrants to Purchase 500,000 Shares of Common Stock
UNDERWRITING AGREEMENT
Rockefeller Securities Group, Inc. , 1997
100 Quentin Roosevelt Blvd.
Suite 502
Garden City, New York 11530
Ladies and Gentlemen:
Frontline Communications Corporation, a Delaware corporation
(the "Company"), proposes to issue and sell to Rockefeller Securities Group,
Inc. (the "Underwriter") an aggregate of one million (1,000,000) shares of
common stock of the Company, par value $.01 per share (the "Offered Shares"),
which Offered Shares are presently authorized but unissued shares of the common
stock, par value $.01 per share (individually a "Common Share" and collectively
the "Common Shares"), of the Company, at a price of Five Dollars ($5.00) per
Offered Share, and five hundred thousand (500,000) Common Share purchase
warrants (the "Offered Warrants"), at a price of Ten Cents ($.10) per Offered
Warrant, entitling the holder of each Offered Warrant to purchase, during the
five (5) year period commencing , 1997, one (1) Common Share, at an exercise
price of $5.50 per share (subject to adjustment in certain circumstances). The
Company shall have the right to call each Offered Warrant for redemption upon
not less than thirty (30) days' written notice at any time after becoming
exercisable at a redemption price of Ten Cents ($.10) per Offered Warrant;
provided that the closing bid quotation of the Common Stock has been at least
150% (currently $8.25) of the then-effective exercise price of the Warrants on
all twenty (20) trading days ending on the third trading day prior to the day on
which the Company gives notice (the "Call Date") and that the Company obtains
the written consent of the Underwriter to such redemption prior to the Call
Date. In addition, the Underwriter, in order to cover over-allotments in the
sale of the Offered Shares and/or Offered Warrants, may purchase an aggregate of
not more than one hundred fifty thousand (150,000) Common Shares (the "Optional
Shares") and/or seventy-five thousand (75,000) Common Share purchase warrants
(the "Optional Warrants") entitling the holder of each Optional Warrant to
purchase one (1) Common Share on the same terms as the Offered Warrants. The
Offered Shares and the Optional Shares are hereinafter sometimes collectively
referred to as the "Shares"; and the Offered Warrants and the Optional Warrants
are hereinafter collectively referred to as the "Warrants." The
Warrants will be issued pursuant to a Warrant Agreement (the "Warrant
Agreement") to be dated as of the Closing Date (as hereinafter defined) by and
among the Company, the Underwriter and Continental Stock Transfer & Trust
Company, as warrant agent (the "Warrant Agent").
The Company also proposes to issue and sell to the Underwriter
for its own account and the accounts of its designees, warrants (the
"Underwriter's Warrants") to purchase up to an aggregate of one hundred thousand
(100,000) Common Shares (collectively, the "Underlying Shares") and/or fifty
thousand (50,000) warrants similar, but not identical to, the Warrants
(collectively, the "Underlying Warrants"), which sale will be consummated in
accordance with the terms and conditions of the form of Underwriter's Warrant
Agreement filed as an exhibit to the Registration Statement (as hereinafter
defined). The Underlying Shares and the Common Shares issuable upon exercise of
the Warrants and the Underlying Warrants are hereinafter sometimes referred to
as the "Warrant Shares". The Shares, the Warrants, the Underwriter's Warrants,
the Underlying Warrants and the Warrant Shares (collectively, the "Securities")
are more fully described in the Registration Statement and the Prospectus, as
defined below.
The Company hereby confirms its agreement with the Underwriter
as follows:
1. Purchase and Sale of Offered Shares and Offered Warrants.
On the basis of the representations and warranties herein contained, but subject
to the terms and conditions herein set forth, the Company hereby agrees to sell
the Offered Shares and Offered Warrants to the Underwriter, and the Underwriter
agrees to purchase the Offered Shares and Offered Warrants from the Company, at
a purchase price of $____ per Offered Share and $___ per Offered Warrant. The
Underwriter plans to offer the Offered Shares and Offered Warrants to the public
at a public offering price of $____ per Offered Share and $___ per Offered
Warrant.
2. Payment and Delivery.
(a) Payment for the Offered Shares and Offered
Warrants will be made to the Company by wire transfer or certified or official
bank check or checks payable to its order in New York Clearing House funds, at
the offices of the Underwriter, 100 Quentin Roosevelt Blvd., Suite 502, Garden
City, New York 11530, against delivery of the Offered Shares and Offered
Warrants to the Underwriter. Such payment and delivery will be made at or about
10:00 A.M., New York City time, on the third business day following the
Effective Date as defined below (the fourth business day following the Effective
Date in the event that trading of the Offered Shares commences on the day
following the Effective Date), the date and time of such payment and delivery
being herein called the "Closing Date." The certificates representing the
Offered Shares and Offered Warrants
-2-
to be delivered will be in such denominations and registered in such names as
the Underwriter may request not less than three full business days prior to the
Closing Date, and will be made available to the Underwriter for inspection,
checking and packaging at the office of the Company's transfer agent or
correspondent in New York City, Continental Stock Transfer & Trust Company, 2
Broadway, New York, New York 10004, not less than one full business day prior to
the Closing Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to its designees. The Underwriter's
Warrants will be in the form of, and in accordance with, the provisions of the
Underwriter's Warrant attached as an exhibit to the Registration Statement. The
aggregate purchase price for the Underwriter's Warrants is One Hundred Dollars
($100.00). The Underwriter's Warrants will be restricted from sale, transfer,
assignment or hypothecation for a period of one (1) year from the Effective
Date, except to officers and partners of the Underwriter and members of the
selling group and/or their officers or partners. Payment for the Underwriter's
Warrants will be made to the Company by check or checks payable to its order on
the Closing Date against delivery of the certificates representing the
Underwriter's Warrants. The certificates representing the Underwriter's Warrants
will be in such denominations and such names as the Underwriter may request
prior to the Closing Date.
3. Option to Purchase Optional Shares and/or Optional
Warrants.
(a) For the purposes of covering any over-allotments
in connection with the distribution and sale of the Offered Shares and Offered
Warrants as contemplated by the Prospectus, the Underwriter is hereby granted an
option to purchase all or any part of the Optional Shares and/or Optional
Warrants from the Company. The purchase price to be paid for the Optional Shares
and Optional Warrants will be the same price per Optional Share and Optional
Warrant as the price per Offered Share or Offered Warrant, as the case may be,
set forth in Section 1 hereof. The option granted hereby may be exercised by the
Underwriter as to all or any part of the Optional Shares and/or the Optional
Warrants at any time within 45 days after the Effective Date. The Underwriter
will not be under any obligation to purchase any Optional Shares or Optional
Warrants prior to the exercise of such option.
-3-
(b) The option granted hereby may be exercised by the
Underwriter by giving oral notice to the Company, which must be confirmed by a
letter, facsimile, telex or telegraph setting forth the number of Optional
Shares and Optional Warrants to be purchased, the date and time for delivery of
and payment for the Optional Shares and Optional Warrants to be purchased and
stating that the Optional Shares and Optional Warrants referred to therein are
to be used for the purpose of covering over-allotments in connection with the
distribution and sale of the Offered Shares and Offered Warrants. If such notice
is given prior to the Closing Date, the date set forth therein for such delivery
and payment will not be earlier than either two full business days thereafter or
the Closing Date, whichever occurs later. If such notice is given on or after
the Closing Date, the date set forth therein for such delivery and payment will
not be earlier than five full business days thereafter. In either event, the
date so set forth will not be more than 15 full business days after the date of
such notice. The date and time set forth in such notice is herein called the
"Option Closing Date." Upon exercise of such option, the Company will become
obligated to convey to the Underwriter, and, subject to the terms and conditions
set forth in Section 3(d) hereof, the Underwriter will become obligated to
purchase, the number of Optional Shares and Optional Warrants specified in such
notice.
(c) Payment for any Optional Shares and Optional
Warrants purchased will be made to the Company by wire transfer or certified or
official bank check or checks payable to its order in New York Clearing House
funds, at the office of the Underwriter, against delivery of the Optional Shares
and Optional Warrants purchased to the Underwriter. The certificates
representing the Optional Shares and Optional Warrants to be delivered will be
in such denominations and registered in such names as the Underwriter requests
not less than two full business days prior to the Option Closing Date, and will
be made available to the Underwriter for inspection, checking and packaging at
the aforesaid office of the Company's transfer agent or correspondent not less
than one full business day prior to the Option Closing Date.
(d) The obligation of the Underwriter to purchase and
pay for any of the Optional Shares or Optional Warrants is subject to the
accuracy and completeness (as of the date hereof and as of the Option Closing
Date) of and compliance in all material respects with the representations and
warranties of the Company herein, to the accuracy and completeness of the
statements of the Company or its officers made in any certificate or other
document to be delivered by the Company pursuant to this Agreement, to the
performance in all material respects by the Company of its obligations
hereunder, to the satisfaction by the Company of the conditions, as of the date
hereof and as of the Option Closing Date, set forth in Section 6 hereof, and to
the delivery to the Underwriter of opinions, certificates and letters
-4-
dated the Option Closing Date substantially similar in scope to those specified
in Section 5, 6(b), (c), (d) and (e) hereof, but with each reference to "Offered
Shares," "Offered Warrants" and "Closing Date" to be, respectively, to the
Optional Shares, Optional Warrants and the Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full corporate power and authority to own or lease and operate its
properties and to conduct its business as described in the Registration
Statement and to execute, deliver and perform this Agreement, the Warrant
Agreement and the Underwriter's Warrant Agreement and to consummate the
transactions contemplated hereby and thereby. The Company is duly qualified to
do business as a foreign corporation in New York, New Jersey and Connecticut.
(b) Each of this Agreement and the consulting
agreement described in Section 5(r) hereof (the "Consulting Agreement") has been
duly executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, and each of the Warrant Agreement and the
Underwriter's Warrant Agreement, when executed and delivered by the Company on
the Closing Date, will be the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms. The
execution, delivery and performance of this Agreement, the Consulting Agreement,
the Warrant Agreement and the Underwriter's Warrant Agreement by the Company,
the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this Agreement,
the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrant
Agreement have been duly authorized by all necessary corporate action and do not
and will not, with or without the giving of notice or the lapse of time, or
both, (i) result in any violation of the Certificates of Incorporation or
By-Laws, each as amended, of the Company; (ii) result in a breach of or conflict
with any of the terms or provisions of, or constitute a default under, or result
in the modification or termination of, or result in the creation or imposition
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of the Company pursuant to any indenture, mortgage, note, contract,
commitment, lease or other agreement or instrument to which the Company is a
party or by which the Company or any of its properties or assets are bound;
(iii) violate any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any of its properties or business; or (iv) have
any effect on any permit, certification, registration, approval,
-5-
consent, order, license, franchise or other authorization (collectively,
"Permits") necessary for the Company to own or lease and operate its properties
and to conduct its business or the ability of the Company to make use thereof,
which, in the case of clauses (ii), (iii) and (iv) of this Section 4(b), would
have a material adverse effect on the financial condition, results of
operations, business or properties of the Company (a "Material Adverse Effect").
(c) No Permit of any court or governmental agency or
body, other than under the Securities Act of 1933, as amended (the "Act"), the
Regulations (as hereinafter defined) and applicable state securities or Blue Sky
laws, is required for the valid authorization, issuance, sale and delivery of
the Shares and Warrants to the Underwriter, and the consummation by the Company
of the transactions contemplated by this Agreement, the Consulting Agreement,
the Warrant Agreement or the Underwriter's Warrant Agreement.
(d) The conditions for use of a registration
statement on Form SB-2 set forth in the General Instructions to Form SB-2 have
been satisfied with respect to the Company, the transactions contemplated herein
and in the Registration Statement. The Company has prepared in conformity in all
material respects with the requirements of the Act and the rules and regulations
(the "Regulations") of the Securities and Exchange Commission (the "Commission")
and filed with the Commission a registration statement (File No. 333-_____) on
Form SB-2 and has filed one or more amendments thereto, covering the
registration of the Securities under the Act, including the related preliminary
prospectus or preliminary prospectuses (each thereof being herein called a
"Preliminary Prospectus") and a proposed final prospectus. Each Preliminary
Prospectus was endorsed with the legend required by Item 501(a)(8) of Regulation
S-B of the Regulations and if applicable, Rule 430A of the Regulations. Such
registration statement including any documents incorporated by reference therein
and all financial schedules and exhibits thereto, as amended at the time it
becomes effective, and the final prospectus included therein are herein,
respectively, called the "Registration Statement" and the "Prospectus," except
that, (i) if the prospectus filed by the Company pursuant to Rule 424(b) of the
Regulations differs from the Prospectus, the term "Prospectus" will also include
the prospectus filed pursuant to Rule 424(b), and (ii) if the Registration
Statement is amended or such Prospectus is supplemented after the effective date
of the Registration Statement (the "Effective Date") and prior to the Option
Closing Date, the terms "Registration Statement" and "Prospectus" shall include
the Registration Statement and such Prospectus as amended or supplemented.
(e) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
-6-
(f) The Registration Statement when it becomes
effective, the Prospectus (and any amendment or supplement thereto) when it is
filed with the Commission pursuant to Rule 424(b), and both documents as of the
Closing Date and the Option Closing Date referred to below, will contain all
statements which are required to be stated therein in accordance with the Act
and the Regulations and will in all material respects conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, on such
dates, will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company in connection with the Registration
Statement or Prospectus or any amendment or supplement thereto by the
Underwriter expressly for use therein.
(g) The Company had at the date or dates indicated
in the Prospectus a duly authorized and outstanding capitalization as set forth
in the Registration Statement and the Prospectus. Based on the assumptions
stated in the Registration Statement and the Prospectus, the Company will have
on the Closing Date the adjusted stock capitalization set forth therein. Except
as set forth in the Registration Statement or the Prospectus, on the Effective
Date and on the Closing Date, there will be no options to purchase, warrants or
other rights to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell shares of the Company's
capital stock or any such warrants, convertible securities or obligations.
Except as set forth in the Prospectus, no holders of any of the Company's
securities has any rights, "demand," "piggyback" or otherwise, to have such
securities registered under the Act.
(h) The descriptions in the Registration Statement
and the Prospectus of contracts and other documents are accurate and present
fairly the information required to be disclosed, and there are no contracts or
other documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(i) BDO Seidman, LLP, the accountants who have
certified certain of the consolidated financial statements filed and to be filed
with the Commission as part of the Registration
-7-
Statement and the Prospectus, are independent public accountants within the
meaning of the Act and Regulations. The consolidated financial statements and
schedules and the notes thereto filed as part of the Registration Statement and
included in the Prospectus are complete, correct and present fairly the
financial position of the Company as of the dates thereof, and the results of
operations and changes in financial position of the Company for the periods
indicated therein, all in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved except
as otherwise stated in the Registration Statement and the Prospectus. The
selected financial data set forth in the Registration Statement and the
Prospectus present fairly the information shown therein and have been compiled
on a basis consistent with that of the audited and unaudited financial
statements included in the Registration Statement and the Prospectus.
(j) The Company has filed with the appropriate
federal, state and local governmental agencies, and all applicable foreign
countries and political subdivisions thereof, all tax returns, including
franchise tax returns, which are required to be filed or has duly obtained
extensions of time for the filing thereof and has paid all taxes shown on such
returns and all assessments received by it to the extent that the same have
become due; and the provisions for income taxes payable, if any, shown on the
consolidated financial statements filed with or as part of the Registration
Statement are sufficient for all accrued and unpaid foreign and domestic taxes,
whether or not disputed, and for all periods to and including the dates of such
consolidated financial statements. Except as disclosed in writing to the
Underwriter, the Company has not executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes and is not a party to any pending action or
proceeding by any foreign or domestic governmental agency for assessment or
collection of taxes; and no claims for assessment or collection of taxes have
been asserted against the Company, the adverse determination of which would have
a Material Adverse Effect.
(k) The outstanding Common Shares, outstanding
options and warrants to purchase Common Shares have been, or upon conversion
will be, as the case may be, duly authorized and validly issued. The outstanding
Common Shares are fully paid and nonassessable. The outstanding options and
warrants to purchase Common Shares constitute the valid and binding obligations
of the Company, enforceable in accordance with their terms, except as
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and general principles of equity and the discretion
of the court before which any proceeding therefor may be brought. None of the
outstanding Common Shares, or options or warrants to purchase Common Shares has
been or will be, as the case may be, issued in violation of
-8-
the preemptive rights of any shareholder of the Company. None of the holders of
the outstanding Common Shares is subject to personal liability solely by reason
of being such a holder. The offers and sales of the outstanding Common Shares,
and outstanding options and warrants to purchase Common Shares were at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky laws or exempt from such registration requirements. The
authorized Common Shares and outstanding options and warrants to purchase Common
Shares conform to the descriptions thereof contained in the Registration
Statement and Prospectus. Except as set forth in the Registration Statement and
the Prospectus, on the Effective Date and the Closing Date, there will be no
outstanding preferred shares, Common Shares, debentures, options or warrants for
the purchase of, or other outstanding rights to purchase, Common Shares or
securities convertible into Common Shares.
(l) No securities of the Company have been sold
by the Company or by or on behalf of, or for the benefit of, any person or
persons controlling, controlled by, or under common control with the Company
within the three years prior to the date hereof, except as disclosed in the
Registration Statement.
(m) The issuance and sale of the Shares and the
Warrant Shares have been duly authorized and, when the Shares and the Warrant
Shares have been issued and duly delivered against payment therefor as
contemplated by this Agreement or by the Warrant Agreement, as the case may be,
the Shares and the Warrant Shares will be validly issued, fully paid and
nonassessable. The holders of the Securities will not be subject to personal
liability solely by reason of being such holders and none of the Securities will
be subject to preemptive rights of any shareholder of the Company.
(n) The issuance and sale of the Warrants, the
Underwriter's Warrants and the Underlying Warrants have been duly authorized
and, when issued, paid for and delivered pursuant to the terms of this Agreement
or the Underwriter's Warrant Agreement, as the case may be, the Warrants, the
Underwriter's Warrants and the Underlying Warrants will constitute valid and
binding obligations of the Company, enforceable as to the Company in accordance
with their terms. The Warrant Shares have been duly reserved for issuance upon
exercise of the Warrants, the Underwriter's Warrants and the Underlying Warrants
in accordance with the provisions of the Warrants, the Underwriter's Warrants
and the Underlying Warrants. The Warrants, Underwriter's Warrants and Underlying
Warrants will conform to the descriptions thereof contained in the Registration
Statement and Prospectus.
(o) The Company is not in violation of, or in
default under, (i) any term or provision of its Certificate of Incorporation or
By-Laws, as amended; (ii) any material term or provision or any financial
covenants of any indenture, mortgage,
-9-
note, contract, commitment, lease or other agreement or instrument to which it
is a party or by which it or any of its property or business is or may be bound
or affected, except for such defaults for which it has received a waiver that is
in full force and effect; or (iii) any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of the
Company's properties or business, which, in the case of clauses (ii) and (iii)
of this Section 4(o), would have a Material Adverse Effect. The Company owns,
possesses or has obtained all governmental and other (including those obtainable
from third parties) Permits necessary to own or lease, as the case may be, and
to operate its properties, whether tangible or intangible, and to conduct any of
the business or operations of the Company as presently conducted and all such
Permits are outstanding and in good standing, and there are no proceedings
pending or, to the best of the Company's knowledge, threatened (nor to the
Company's knowledge is there any basis therefor) seeking to cancel, terminate or
limit such Permits.
(p) Except as set forth in the Prospectus, there
are no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending, or, to the best of
the Company's knowledge, threatened against the Company or involving the
Company's properties or business which, if determined adversely to the Company
would, individually or in the aggregate, result in any material adverse change
in the financial position, shareholders' equity, results of operations,
properties, business, management or affairs or business prospects of the Company
or which question the validity of the capital stock of the Company or this
Agreement or of any action taken or to be taken by the Company pursuant to, or
in connection with, this Agreement; nor, to the best of the Company's knowledge,
is there any basis for any such claim, action, suit, proceeding, arbitration,
investigation or inquiry. There are no outstanding orders, judgments or decrees
of any court, governmental agency or other tribunal naming the Company and
enjoining the Company from taking, or requiring the Company to take, any action,
or to which the Company, or the Company's properties or business, is bound or
subject.
(q) The Company owns or possesses adequate and
enforceable rights to use all trademarks, service marks, copyrights, rights,
trade secrets, confidential information, processes and formulations used or
proposed to be used in the conduct of their businesses as described in the
Prospectus (collectively, the "Intangibles"); to the best of the Company's
knowledge, the Company has not infringed or is infringing upon the rights of
others with respect to the Intangibles; and the Company has not received any
notice that it has or may have infringed or is infringing upon the asserted
rights of others with respect to the Intangibles which could, singly or in the
-10-
aggregate, materially adversely affect its business as presently conducted,
financial condition or results of operations of the Company and the Company
knows of no basis therefor; and, to the best of the Company's knowledge, no
others have infringed upon the Intangibles of the Company.
(r) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus and the
Company's latest financial statements, the Company has not incurred any material
liability or obligation, direct or contingent, or entered into any material
transaction, whether or not in the ordinary course of business, and has not
sustained any material loss or interference with its business from fire, storm,
explosion, flood or other casualty, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree; and since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there have not been, and prior to the Closing Date
referred to below there will not be, any changes in the capital stock or any
material increases in the long-term debt of the Company or any material adverse
change in or affecting the general affairs, management, financial condition,
shareholders' equity, results of operations or prospects of the Company,
otherwise than as set forth or contemplated in the Prospectus.
(s) The Company does not own any real property.
The Company has good title to all personal property (tangible and intangible)
owned by it, free and clear of all security interests, charges, mortgages,
liens, encumbrances and defects, except such as are described in the
Registration Statement and Prospectus or such as do not materially affect the
value or transferability of such property and do not interfere with the use of
such property made, or proposed to be made, by the Company. The leases, licenses
or other contracts or instruments under which the Company leases, holds or is
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do not interfere
with the use of such property made, or proposed to be made, by the Company and
all rentals, royalties or other payments accruing thereunder which became due
prior to the date of this Agreement have been duly paid, and neither the Company
nor, to the best of the Company's knowledge, any other party is in default
thereunder and, to the best of the Company's knowledge, no event has occurred
which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder, in each case which would have a Material
Adverse Effect. The Company has not received notice of any violation of any
applicable law, ordinance, regulation, order or requirement relating to its
owned or leased properties. The Company has insured its properties against loss
or damage by fire or other casualty and maintains, in amounts which it deems, in
good faith, to be adequate, such other insurance including, but not limited to,
liability
-11-
insurance as is usually maintained by companies engaged in the same or similar
businesses located in the geographic areas in which the Company's properties
and/or operations are located.
(t) Each contract or other instrument (however
characterized or described) to which the Company is a party or by which its
properties and business is or may be bound or affected and to which reference is
made in the Prospectus, has been duly and validly executed, is in full force and
effect in all material respects and is enforceable against the parties thereto
in accordance with its terms, and none of such contracts or instruments has been
assigned by the Company, and neither the Company nor, to the best of the
Company's knowledge, any other party, is in default thereunder and, to the best
of the Company's knowledge, no event has occurred which, with the lapse of time
or the giving of notice, or both, would constitute a default thereunder, which,
in each case, would have a Material Adverse Effect.
None of the material provisions of such contracts
or instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company or any of their respective assets or businesses.
(u) The employment and consulting agreements between
the Company and its officers and employees, described in the Registration
Statement, are binding and enforceable obligations upon the respective parties
thereto in accordance with their respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, moratorium or other similar
laws or arrangements affecting creditors' rights generally and subject to
principles of equity.
(v) Except as set forth in the Prospectus, the
Company has no employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements that
are subject to the provisions of the Employee Retirement Income Security Act of
1974.
(w) To the best of the Company's knowledge, no labor
problem exists with any of the Company's employees or is imminent which could
result in a Material Adverse Effect.
(x) The Company has not, directly or indirectly, at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
-12-
(y) The Shares, Warrants and Warrant Shares have been
approved for listing on the Nasdaq SmallCap Market ("NASDAQ").
Any certificate signed by an officer of the Company
and delivered to the Underwriter or to Underwriter's Counsel shall be deemed to
be a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the Underwriter as follows:
(a) The Company will not at any time, whether before
the Effective Date or thereafter during such period as the Prospectus is
required by law to be delivered in connection with the sales of the Shares and
Warrants by the Underwriter or a dealer, file or publish any amendment or
supplement to the Registration Statement or Prospectus of which the Underwriter
has not been previously advised and furnished a copy, or to which the
Underwriter shall reasonably object in writing.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the Underwriter
immediately, and, if requested by the Underwriter, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the qualification of the
Shares and/or the Warrants for offering or sale in any jurisdiction, or of the
initiation of any proceedings for any of such purposes. The Company will use its
best efforts to prevent the issuance of any such stop order or of any order
preventing or suspending such use and to obtain as soon as possible the lifting
thereof, if any such order is issued.
(c) The Company will deliver to the Underwriter,
without charge, from time to time until the Effective Date, as many copies of
each Preliminary Prospectus as the Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to the Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request. The Company has furnished or will furnish to the Underwriter
two signed copies of the Registration Statement as originally filed and of all
amendments thereto, whether filed before or after the Registration Statement
becomes effective, two copies of all exhibits filed therewith and two signed
copies of all consents and certificates of experts.
-13-
(d) The Company will comply with the Act, the
Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder so as to permit the continuance
of sales of and dealings in the Offered Shares and Offered Warrants, in any
Optional Shares and Optional Warrants which may be issued and sold, and in the
Warrant Shares underlying such Warrants. If, at any time when a prospectus
relating to such Securities is required to be delivered under the Act, any event
occurs as a result of which the Registration Statement and Prospectus as then
amended or supplemented would include an untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, or if it shall
be necessary to amend or supplement the Registration Statement and Prospectus to
comply with the Act or the regulations thereunder, the Company will promptly
file with the Commission, subject to Section 5(a) hereof, an amendment or
supplement which will correct such statement or omission or which will effect
such compliance.
(e) The Company will furnish such proper information
as may be required and otherwise cooperate in qualifying the Securities for
offering and sale under the securities or Blue Sky laws relating to the offering
or for sale in such jurisdictions as the Underwriter may reasonably designate,
provided that no such qualification will be required in any jurisdiction where,
solely as a result thereof, the Company would be subject to service of general
process or to taxation or qualification as a foreign corporation doing business
in such jurisdiction.
(f) The Company will make generally available to its
security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Underwriter and Underwriter's Counsel as soon as practicable and
in any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(g) For a period of five years from the Effective
Date, the Company will deliver to the Underwriter and to Underwriter's Counsel
on a timely basis (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K,
-14-
10-C, 10-KSB (or 10-K) and 10-QSB (or 10-Q) and exhibits thereto, filed or
furnished to the Commission, any securities exchange or the National Association
of Securities Dealers, Inc. (the "NASD") on the date each such report or
document is so filed or furnished; (ii) as soon as practicable, copies of any
reports or communications (financial or other) of the Company mailed to its
security holders; and (iii) as soon as practicable, a copy of any Schedule 13D,
13G, 14D-1 or 13E-3 received or prepared by the Company from time to time. The
Company will furnish to its shareholders annual reports containing audited
financial statements and such other periodic reports as it may determine to be
appropriate or as may be required by law.
(h) Neither the Company nor any person that
controls, is controlled by or is under common control with the Company will take
any action designed to or which might be reasonably expected to cause or result
in the stabilization or manipulation of the price of the Shares or Warrants.
(i) If the transactions contemplated by this
Agreement are consummated, the Underwriter shall retain the Forty Thousand
Dollars ($40,000) previously paid to it, and the Company will pay or cause to be
paid the following: all costs and expenses incident to the performance of the
obligations of the Company under this Agreement, including, but not limited to,
the fees and expenses of accountants and counsel for the Company; the
preparation, printing, mailing and filing of the Registration Statement
(including consolidated financial statements and exhibits), Preliminary
Prospectuses and the Prospectus, and any amendments or supplements thereto; the
printing and mailing of the Selected Dealer Agreement; the issuance and delivery
of the Shares and Warrants to the Underwriter; all taxes, if any, on the
issuance of the Shares and Warrants; the fees, expenses and other costs of
qualifying the Shares and Warrants for sale under the Blue Sky or securities
laws of those states in which the Shares and Warrants are to be offered or sold,
the cost of printing and mailing the "Blue Sky Survey" and fees (not to exceed
$25,000) and disbursements of counsel in connection therewith, including those
of such local counsel as may have been retained for such purpose; the filing
fees incident to securing any required review by the NASD; the cost of
furnishing to the Underwriter copies of the Registration Statement, Preliminary
Prospectuses and the Prospectus as herein provided; the costs, up to $10,000, of
placing "tombstone advertisements" in any publications which may be selected by
the Underwriter; and all other costs and expenses incident to the performance of
its obligations hereunder which are not otherwise specifically provided for in
this Section 5(i).
In addition, at the Closing Date or the Option
Closing Date, as the case may be, the Underwriter will deduct from the payment
for the Offered Shares and Offered Warrants or any Optional Shares and/or
Optional Warrants purchased three percent (3%) (less the sum of Forty Thousand
Dollars ($40,000)
-15-
previously paid to the Underwriter) of the gross proceeds of the offering,
including the over-allotment option, as payment for the Underwriter's
non-accountable expense allowance relating to the transactions contemplated
hereby, which amount will include the fees and expenses of Underwriter's
Counsel.
(j) If the transactions contemplated by this
Agreement or related hereto are not consummated because the Company decides not
to proceed with the offering for any reason, or the Underwriter decides not to
proceed with the offering because of a breach by the Company of any
representation, warranty or covenant contained in this Agreement or as a result
of adverse changes in the affairs of the Company, then the Underwriter may
retain only an amount equal to its accountable out-of-pocket expenses up to the
sum of Seventy-Five Thousand Dollars ($75,000) (including the Forty Thousand
Dollars ($40,000) previously paid to it); provided, however, that if the
Underwriter shall terminate this Agreement for any other reason, than the
Company need only reimburse the Underwriter for its actual accountable
out-of-pocket expenses up to a maximum of Fifty Thousand Dollars ($50,000),
inclusive of the Forty Thousand Dollars ($40,000) previously paid to it.
(k) The Company intends to apply the net
proceeds from the sale of the Shares and Warrants for the purposes set forth in
the Prospectus. Except as described in the Prospectus, the Company will not use
any portion of the proceeds derived from the sale of the Shares and Warrants to
repay any indebtedness, without the prior written consent of the Underwriter.
The Company will file with the Commission all required reports on Form S-R in
accordance with the provisions of Rule 463 promulgated under the Act and will
provide a copy of each such report to the Underwriter and its counsel.
(l) During the twelve (12) months following the
date hereof, (i) none of the Company's officers, directors or securityholders
will offer for sale or sell or otherwise dispose of, directly or indirectly, any
securities of the Company, in any manner whatsoever, whether pursuant to Rule
144 of the Regulations or otherwise, and (ii) no holder of registration rights
relating to the securities of the Company (except for the holders of the Bridge
Shares) will exercise any such registration rights, without the prior written
consent of the Underwriter.
(m) The Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the twelve (12) months
following the date hereof without the Underwriter's prior written consent.
(n) The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed
-16-
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary in order to permit preparation of
financial statements in accordance with generally accepted accounting principles
and to maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(o) The Company will use its best efforts to
maintain the listing of the Shares and Warrants on NASDAQ for so long as the
Shares and Warrants are qualified for such listing.
(p) The Company will, concurrently with the
Effective Date, register the class of equity securities of which the Shares are
a part under Section 12(g) of the Exchange Act and the Company will maintain the
registration for a minimum of five (5) years after the Effective Date.
(q) Subject to the sale of the Offered Shares
and Offered Warrants, the Underwriter and its successors will have the right to
designate a non-voting advisor to the Board of Directors of the Company until
the expiration of three (3) years following the Effective Date. If the
Underwriter does not exercise its option to designate a member of or advisor to
the Company's Board of Directors, the Underwriter shall nonetheless have the
right to send a representative (who need not be the same individual from meeting
to meeting) to observe each meeting of the Board of Directors. The Company
agrees to give the Underwriter notice of each such meeting and to provide the
Underwriter with an agenda and minutes of the meeting no later than it gives
such notice and provides such items to the directors.
(r) The Company agrees to employ the Underwriter
or a designee of the Underwriter as a financial consultant on a non-exclusive
basis for a period of two (2) years from the Closing Date, pursuant to a
separate written Consulting Agreement between the Company and the Underwriter
and/or such designee, at an annual rate of Fifty Thousand Dollars ($50,000)
(exclusive of any accountable out-of-pocket expenses), payable in full, in
advance, on the Closing Date. In addition, the Consulting Agreement shall
provide that the Company will pay the Underwriter a finder's fee in the event
that the Underwriter originates a merger, acquisition, joint venture or other
transaction to which the Company is a party. The Company further agrees to
deliver a duly and validly executed copy of said Consulting Agreement, in form
and substance acceptable to the Underwriter, on the Closing Date.
(s) Subject to the provisions of applicable law,
the Underwriter shall be entitled to receive a warrant solicitation fee of five
percent (5%) of the aggregate exercise
-17-
price of the Warrants for each Warrant exercised during the period commencing
one year after the Effective Date; provided, however, that the Underwriter will
not be entitled to receive such compensation in Warrant exercise transactions in
which (i) the market price of the Common Shares at the time of exercise is lower
than the exercise price of the Warrants; (ii) the Warrants are held in any
discretionary account; (iii) disclosure of compensation arrangements is not made
in the Registration Statement and in documents provided to holders of Warrants
at the time of exercise; (iv) the holder thereof has not confirmed in writing
that the Underwriter solicited the exercise of the Warrants; or (v) the
solicitation or exercise of the Warrants was in violation of Regulation M
promulgated under the Exchange Act.
(t) The Company shall retain a transfer agent for the
Common Shares and Warrants, reasonably acceptable to the Underwriter, for a
period of five (5) years from the Effective Date. In addition, for a period of
five (5) years from the Effective Date, the Company, at its own expense, shall
cause such transfer agent to provide the Underwriter, if so requested in
writing, with copies of the Company's daily transfer sheets, and, when requested
by the Underwriter, a current list of the Company's securityholders, including a
list of the beneficial owners of securities held by a depository trust company
and other nominees.
(u) The Company shall, as of the date hereof, have
applied for listing in Standard & Poor's Corporation Records Service (including
annual report information) or Moody's Industrial Manual (Moody's OTC Industrial
Manual not being sufficient for these purposes) and shall use its best efforts
to have the Company listed in such manual and shall maintain such listing for a
period of five (5) years from the Effective Date.
(v) For a period of five (5) years from the Effective
Date, the Company shall continue to retain BDO Seidman, LLP (or another
nationally recognized accounting firm acceptable to the Underwriter) as the
Company's independent public accountants and shall promptly, upon the Company's
receipt thereof, submit to the Underwriter copies of such accountants'
management reports and similar correspondence between such accountants and the
Company.
(w) So long as any Warrants are outstanding, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act as shall
be necessary to enable the sale of the Common Shares underlying the Warrants and
cause a copy of each Prospectus, as then amended, to be delivered to each holder
of record of a Warrant as they request and as otherwise required by law and, to
furnish to the Underwriter and dealers as many copies of each such Prospectus as
the Underwriter or dealer may reasonably request. In addition, for so long as
any Warrant is
-18-
outstanding, the Company will promptly notify the Underwriter of any material
change in the financial condition, business, results of operations or properties
of the Company.
(x) For a period of twenty-five (25) days from the
Effective Date, the Company will not issue press releases or engage in any other
publicity without the Underwriter's prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
(y) For a period of two (2) years from the Effective
Date, the Company will not offer or sell any of its securities pursuant to
Regulation S promulgated under the Act without the prior written consent of the
Underwriter.
(z) For a period of three (3) years from the
Effective Date, the Company will provide to the Underwriter ten day's written
notice prior to any issuance by the Company or its subsidiaries of any equity
securities or securities exchangeable for or convertible into equity securities
of the Company, except for (i) shares of Common Stock issuable upon exercise of
currently outstanding options and warrants or conversion of currently
outstanding convertible securities and (ii) options (and shares issuable upon
exercise of such options) available for future grant pursuant to any stock
option plan in effect on the Effective Date.
(aa) For a period of three (3) years from the
Effective Date, the Company will promptly submit to the Underwriter copies of
accountants' management reports and similar correspondence between the Company's
accountants and the Company.
6. Conditions of the Underwriter's Obligation to Purchase the
Offered Shares and Offered Warrants from the Company. The obligation of the
Underwriter to purchase and pay for the Offered Shares and Offered Warrants
which it has agreed to purchase from the Company is subject (as of the date
hereof and the Closing Date) to the accuracy of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy of the statements of the Company or its officers made pursuant hereto,
to the performance in all material respects by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement will have become
effective not later than 10:00 A.M., New York City time, on the day following
the date of this Agreement, or at such later time or on such later date as the
Underwriter may agree to in writing; prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement will have been issued
and no proceedings for that purpose will have been initiated or will be pending
or, to the best of the Underwriter's or the Company's
-19-
knowledge, will be contemplated by the Commission; and any request on the part
of the Commission for additional information will have been complied with to the
satisfaction of Underwriter's Counsel.
(b) At the Closing Date, there will have been
delivered to the Underwriter signed opinions of Tenzer Greenblatt LLP, counsel
for the Company ("Company Counsel"), dated as of the date hereof or the Closing
Date, as the case may be (and any other opinions of counsel referred to in such
opinion of Company Counsel or relied upon by Company Counsel in rendering their
opinion), reasonably satisfactory to Underwriter's Counsel.
(c) At the Closing Date, there will have been
delivered to the Underwriter a signed opinion of Underwriter's Counsel, dated as
of the Closing Date, to the effect that the opinions delivered pursuant to
Section 6(b) hereof appear on their face to be appropriately responsive to the
requirements of this Agreement, except to the extent waived by the Underwriter,
specifying the same, and with respect to such related matters as the Underwriter
may require.
(d) At the Closing Date (i) the Registration
Statement and the Prospectus and any amendments or supplements thereto will
contain all material statements which are required to be stated therein in
accordance with the Act and the Regulations and will conform in all material
respects to the requirements of the Act and the Regulations, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there will not have been any
material adverse change in the financial condition, results of operations or
general affairs of the Company from that set forth or contemplated in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and the Prospectus indicates might occur after the Effective Date;
(iii) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no material
transaction, contract or agreement entered into by the Company, other than in
the ordinary course of business, which would be required to be set forth in the
Registration Statement and the Prospectus, other than as set forth therein; and
(iv) no action, suit or proceeding at law or in equity will be pending or, to
the best of the Company's knowledge, threatened against the Company which is
required to be set forth in the Registration Statement and the Prospectus, other
than as set forth therein, and no proceedings will be pending or, to the best of
the Company's knowledge, threatened against the Company before or by any
federal, state or other commission, board or
-20-
administrative agency wherein an unfavorable decision, ruling or finding would
materially adversely affect the business, property, financial condition or
results of operations of the Company, other than as set forth in the
Registration Statement and the Prospectus. At the Closing Date, there will be
delivered to the Underwriter a certificate signed by the Chairman of the Board
or the President or a Vice President of the Company, dated the Closing Date,
evidencing compliance with the provisions of this Section 6(d) and stating that
the representations and warranties of the Company set forth in Section 4 hereof
were accurate and complete in all material respects when made on the date hereof
and are accurate and complete in all material respects on the Closing Date as if
then made; that the Company has performed all covenants and complied with all
conditions required by this Agreement to be performed or complied with by the
Company prior to or as of the Closing Date; and that, as of the Closing Date, no
stop order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been initiated or, to the best
of his knowledge, are contemplated or threatened. In addition, the Underwriter
will have received such other and further certificates of officers of the
Company as the Underwriter or Underwriter's Counsel may reasonably request.
(e) At the time that this Agreement is executed
and at the Closing Date, the Underwriter will have received a signed letter from
BDO Seidman, LLP dated the date such letter is to be received by the Underwriter
and addressed to it, confirming that it is a firm of independent public
accountants within the meaning of the Act and Regulations and stating that: (i)
insofar as reported on by them, in their opinion, the consolidated financial
statements of the Company included in the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the Act and the
applicable Regulations; (ii) on the basis of procedures and inquiries (not
constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim consolidated
financial statements of the Company, if any, appearing in the Registration
Statement and the Prospectus and the latest available unaudited interim
consolidated financial statements of the Company, if more recent than that
appearing in the Registration Statement and Prospectus, inquiries of officers of
the Company responsible for financial and accounting matters as to the
transactions and events subsequent to the date of the latest audited
consolidated financial statements of the Company, and a reading of the minutes
of meetings of the shareholders, the Board of Directors of the Company and any
committees of the Board of Directors, as set forth in the minute books of the
Company, nothing has come to their attention which, in their judgment, would
indicate that (A) during the period from the date of the latest consolidated
financial statements of the Company appearing in the Registration Statement and
Prospectus to a specified date not more than three business days prior to the
date of such
-21-
letter, there have been any decreases in net current assets or net assets as
compared with amounts shown in such consolidated financial statements or
decreases in net sales or increases in total or per share net loss compared with
the corresponding period in the preceding year or any change in the
capitalization or long-term debt of the Company, except in all cases as set
forth in or contemplated by the Registration Statement and the Prospectus, and
(B) the unaudited interim consolidated financial statements of the Company, if
any, appearing in the Registration Statement and the Prospectus, do not comply
as to form in all material respects with the applicable accounting requirements
of the Act and the Regulations or are not fairly presented in conformity with
generally accepted accounting principles and practices on a basis substantially
consistent with the audited consolidated financial statements included in the
Registration Statement or the Prospectus; and (iii) they have compared specific
dollar amounts, numbers of shares, numerical data, percentages of revenues and
earnings, and other financial information pertaining to the Company set forth in
the Prospectus (with respect to all dollar amounts, numbers of shares,
percentages and other financial information contained in the Prospectus, to the
extent that such amounts, numbers, percentages and information may be derived
from the general accounting records of the Company, and excluding any questions
requiring an interpretation by legal counsel) with the results obtained from the
application of specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(f) There shall have been duly tendered to the
Underwriter certificates representing the Offered Shares and the Offered
Warrants to be sold on the Closing Date.
(g) The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale
of the Shares and Warrants by the Underwriter.
(h) No action shall have been taken by the
Commission or the NASD the effect of which would make it improper, at any time
prior to the Closing Date or the Option Closing Date, as the case may be, for
any member firm of the NASD to execute transactions (as principal or as agent)
in the Shares or Warrants, and no proceedings for the purpose of taking such
action shall have been instituted or shall be pending, or, to the best of the
Underwriter's or the Company's knowledge, shall be contemplated by the
Commission or the NASD. The Company represents at the date hereof, and shall
represent as of the Closing Date or Option Closing Date, as the case may be,
that it has no knowledge that any such action is in fact contemplated by the
Commission or the NASD.
-22-
(i) All proceedings taken at or prior to the
Closing Date or the Option Closing Date, as the case may be, in connection with
the authorization, issuance and sale of the Shares or Warrants shall be
reasonably satisfactory in form and substance to the Underwriter and to
Underwriter's Counsel.
(j) On or prior to the Effective Date, the
Company will have delivered to the Underwriter the undertakings of its officers,
directors and securityholders, as the case may be, to the effect of the matters
set forth in Sections 5(l) and (q) hereof.
If any of the conditions specified in this Section
6 have not been fulfilled, this Agreement may be terminated by the Underwriter
on notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold
harmless the Underwriter, each officer, director, partner, employee and agent of
the Underwriter, and each person, if any, who controls the Underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement, in any Preliminary Prospectus or in the
Prospectus (or the Registration Statement or Prospectus as from time to time
amended or supplemented) or (ii) in any application or other document executed
by the Company, or based upon written information furnished by or on behalf of
the Company, filed in any jurisdiction in order to qualify the Shares and
Warrants under the securities laws thereof (hereinafter "application"), or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, in light of the circumstances under which
they were made, unless such untrue statement or omission was made in such
Registration Statement, Preliminary Prospectus, Prospectus or application in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by the Underwriter or any such person through
the Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 7(a) with respect to any Preliminary
Prospectus will not inure to the
-23-
benefit of the Underwriter (or to the benefit of any other person that may be
indemnified pursuant to this Section 7(a)) if (A) the person asserting any such
losses, claims, damages, expenses or liabilities purchased the Shares and/or
Warrants which are the subject thereof from the Underwriter or other indemnified
person; (B) the Underwriter or other indemnified person failed to send or give a
copy of the Prospectus to such person at or prior to the written confirmation of
the sale of such Shares and/or Warrants to such person; and (C) the Prospectus
did not contain any untrue statement or alleged untrue statement or omission or
alleged omission giving rise to such cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions in respect thereof), to which they or
any of them may become subject under the Act or under any other statute or at
common law or otherwise, and, except as hereinafter provided, will reimburse the
Company and each such director, officer or controlling person for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application (including any application for registration of the Shares and
Warrants under state securities or Blue Sky laws), or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading, in light of the circumstances under which they were made, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by the Underwriter expressly for use therein.
(c) Promptly after receipt of notice of the
commencement of any action in respect of which indemnity may be sought against
any indemnifying party under this Section 7, the indemnified party will notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party will, subject to the provisions hereinafter stated, assume
the defense of such action (including the employment of counsel reasonably
satisfactory to the indemnified party and the payment of expenses) insofar as
such action relates to an alleged liability in respect of which indemnity may be
sought against the
-24-
indemnifying party. After notice from the indemnifying party of its election to
assume the defense of such claim or action, the indemnifying party shall no
longer be liable to the indemnified party under this Section 7 for any legal or
other expenses subsequently incurred by the indemnified party in connection with
the defense thereof other than reasonable costs of investigation; provided,
however, that if, in the reasonable judgment of the indemnified party or
parties, it is advisable for the indemnified party or parties to be represented
by separate counsel, the indemnified party or parties shall have the right to
employ a single counsel to represent the indemnified parties who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by the indemnified parties thereof against the indemnifying party, in
which event the fees and expenses of such separate counsel shall be borne by the
indemnifying party. Any party against whom indemnification may be sought under
this Section 7 shall not be liable to indemnify any person that might otherwise
be indemnified pursuant hereto for any settlement of any action effected without
such indemnifying party's consent, which consent shall not be unreasonably
withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 7 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii)
any indemnified or indemnifying party seeks contribution under the Act, the
Exchange Act, or otherwise, then the Company (including, for this purpose, any
contribution made by or on behalf of any director of the Company, any officer of
the Company who signed the Registration Statement and any controlling person of
the Company) as one entity and the Underwriter (including, for this purpose, any
contribution by or on behalf of each person, if any, who controls the
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and each officer, director, partner, employee and agent of the
Underwriter) as a second entity, shall contribute to the losses, liabilities,
claims, damages and expenses whatsoever to which any of them may be subject, so
that the Underwriter is responsible for the proportion thereof equal to the
percentage which the underwriting discount per Share and per Warrant set forth
on the cover page of the Prospectus represents of the initial public offering
price per Share and per Warrant set forth on the cover page of the Prospectus
and the Company is responsible for the remaining portion; provided, however,
that if applicable law does not permit such allocation, then, if applicable law
permits, other relevant equitable considerations such as the relative fault of
the Company and the Underwriter in connection with the facts which resulted in
such losses, liabilities, claims, damages and expenses shall also be considered.
The relative fault, in
-25-
the case of an untrue statement, alleged untrue statement, omission or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission or alleged omission relates to information supplied
by the Company or by the Underwriter, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement, alleged statement, omission or alleged omission. The Company and the
Underwriter agree that it would be unjust and inequitable if the respective
obligations of the Company and the Underwriter for contribution were determined
by pro rata or per capita allocation of the aggregate losses, liabilities,
claims, damages and expenses or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 8. No person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) will be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. For purposes of this Section 8, each person,
if any, who controls the Underwriter within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act and each officer, director, partner,
employee and agent of the Underwriter will have the same rights to contribution
as the Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 8 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares and the Warrants.
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to
the Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 10:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the
-26-
Underwriter, after the Registration Statement becomes effective, releases the
Offered Shares and Offered Warrants for public offering. The time when the
Underwriter "releases the Offered Shares and Offered Warrants for public
offering" for the purposes of this Section 10 means the time when the
Underwriter releases for publication the first newspaper advertisement, which is
subsequently published, relating to the Offered Shares and Offered Warrants, or
the time when the Underwriter releases for delivery to members of a selling
group copies of the Prospectus and an offering letter or an offering telegram
relating to the Offered Shares and Offered Warrants, whichever will first occur.
(b) This Agreement, including without limitation, the
obligation to purchase the Offered Shares and the Offered Warrants and the
obligation to purchase the Optional Shares and/or Optional Warrants after
exercise of the option referred to in Section 3 hereof, are subject to
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares and
Offered Warrants or such Optional Shares and Optional Warrants, as the case may
be, if, prior to such time, any of the following shall have occurred: (i) the
Company withdraws the Registration Statement from the Commission or the Company
does not or cannot expeditiously proceed with the public offering; (ii) the
representations and warranties in Section 4 hereof are not materially correct or
cannot be complied with; (iii) trading in securities generally on the New York
Stock Exchange or the American Stock Exchange will have been suspended; (iv)
limited or minimum prices will have been established on either such Exchange;
(v) a banking moratorium will have been declared either by federal or New York
State authorities; (vi) any other restrictions on transactions in securities
materially affecting the free market for securities or the payment for such
securities, including the Offered Shares and Offered Warrants or the Optional
Shares and Optional Warrants, will be established by either of such Exchanges,
by the Commission, by any other federal or state agency, by action of the
Congress or by Executive Order; (vii) trading in any securities of the Company
shall have been suspended or halted by any national securities exchange, the
NASD or the Commission; (viii) there has been a materially adverse change in the
condition (financial or otherwise), prospects or obligations of the Company;
(ix) the Company will have sustained a material loss, whether or not insured, by
reason of fire, flood, accident or other calamity; (x) any action has been taken
by the government of the United States or any department or agency thereof
which, in the judgment of the Underwriter, has had a material adverse effect
upon the market or potential market for securities in general; or (xi) the
market for securities in general or political, financial or economic conditions
will have so materially adversely changed that, in the judgment of the
Underwriter, it will be impracticable to offer for sale, or to enforce contracts
made by the Underwriter for the resale of, the
-27-
Offered Shares and Offered Warrants or the Optional Shares and Offered Warrants,
as the case may be.
(c) If this Agreement is terminated pursuant to
Section 6 hereof or this Section 10 or if the purchases provided for herein are
not consummated because any condition of the Underwriter's obligations hereunder
is not satisfied or because of any refusal, inability or failure on the part of
the Company to comply with any of the terms or to fulfill any of the conditions
of this Agreement, or if for any reason the Company shall be unable to or does
not perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this
Agreement.
11. Information Furnished by the Underwriter to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(g), 7(a), 7(b) and
8 hereof, the only information given by the Underwriter to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
the inside front cover with respect to stabilizing the market price of Shares
and Warrants, the information in the second paragraph of the "Underwriting"
section with respect to concessions and reallowances, and the information in the
penultimate paragraph of the "Underwriting" section with respect to the
determination of the public offering price, as such information appears in any
Preliminary Prospectus and in the Prospectus.
12. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, transmitted by facsimile or
telegraphed to, the following addresses: if to the Underwriter, to Rockefeller
Securities Group, Inc., 100 Quentin Roosevelt Blvd., Suite 502, Garden City, New
York 11530, Attention: Mr. Lee Shapiro, with a copy to Morrison, Cohen, Singer &
Weinstein, LLP, Attention: Robert H. Cohen, Esq.; if to the Company, addressed
to it at Frontline Communications Corporation, One Blue Hill Plaza, 6th Floor,
Pearl River, New York 10965, Attention: Mr. Stephen J. Cole-Hatchard, with a
copy to Tenzer Greenblatt LLP, Attention: Robert J. Mittman, Esq., 405 Lexington
Avenue, New York, New York 10174.
This Agreement shall be deemed to have been made
and delivered in New York City and shall be governed as to validity,
interpretation, construction, effect and in all other respects by the internal
laws of the State of New York. The Company (1) agrees that any legal suit,
action or proceeding
-28-
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction of the
New York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding.
13. Parties in Interest. This Agreement is made solely for the
benefit of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares or
Warrants from the Underwriter, as such purchaser.
14. Counterparts. This Agreement may be executed in
counterparts and each of such counterparts will for all purposes
be deemed to be an original, and such counterparts will together
constitute one and the same instrument.
-29-
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
FRONTLINE COMMUNICATIONS
CORPORATION
By:______________________________
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
ROCKEFELLER SECURITIES GROUP, INC.
By:______________________________
Name:
Title:
-30-