MILLENNIUM SECURITIES CORP.
United Films Distributors, Inc. June 11, 1997
1990 Westwood Boulevard
Penthouse
Los Angeles, California 90025
Re: Proposed Public Offering of United Films Distributors, Inc.
(the Company") Pursuant to a Registration Statement (the
"Registration Statement") under The Securities Act of 1933,
as amended (the "Act")
Gentlemen:
We are pleased to submit this Letter of Intent with respect to a
proposed public offering (the "Offering") by the Company of 800,000 Shares of
its Common Stock (the "Shares"). The Offering price shall be $5.00 per Share, or
such other price as shall be mutually agreed upon by Millennium Securities Corp.
(the "Co-Underwriter") and by the "Lead Underwriter", as defined below, and by
the Company immediately prior to the effective date (the "Effective Date") of
the Registration Statement, based upon a due diligence review of the Company's
business, operations, industry and prospects. This letter states certain
conditions and assumptions upon which the proposed Offering by us and the Lead
Underwriter (collectively the "Underwriters"), as the Underwriters or as
representatives (the "Representative") of several other underwriters is
intended.
It is the Underwriters' intent, immediately prior to the Effective
Date, to enter into a "firm commitment" Underwriting Agreement with the Company
and, upon execution thereof, to immediately commence a bona fide public offering
of the Shares. The Underwriters may, at their discretion, negotiate with other
underwriters who shall be members in good standing of the NASD (as defined
herein) who, acting severally, would contract to purchase as principals,
portions of the Shares directly from the Underwriters. The Underwriting
Agreement shall provide that the Underwriters (or the underwriters if we
determine to act as Representative) shall be committed to take and pay for all
of the Shares, if any are purchased.
You acknowledge that we have advised you that although we have the
ability to co-manage the Offering, we do not have the authority under applicable
regulations to act
as the lead managing underwriter of the Offering. Following execution hereof we
shall enter into an arrangement with an Underwriter in good standing with the
NASD who is authorized to act as managing underwriter, acceptable to you, in
your sole discretion, to act as managing underwriter (the "Lead Underwriter").
The obligation of Co-Underwriter and the Company (except for your obligations
pursuant to paragraphs A and C below) are subject to retention of the Lead
Underwriter, which Millennium will use its reasonable efforts to retain (and
with respect to which efforts the Company will provide its cooperation and
facilitation) prior to filing of Pre-Effective Amendment No. 1 to the
Registration Statement. The provisions hereof applicable to the payment of
compensation to and expenses entering into agreements with Underwriters shall be
the subject of separate allocation arrangements between the Co-Underwriter and
the Lead Underwriter, to be determined in their sole discretion and subject to
applicable laws and regulations; provided however, it is acknowledged that the
compensation payable to the Underwriters' hereunder is the aggregate
compensation to be paid by the Company to the Underwriters, and that the Lead
Underwriter shall agree to the compensation to be paid to the Underwriters as
set forth herein prior to the engagement of such Lead Underwriter.
The Underwriting Agreement and related agreements shall contain such
terms and conditions as are customarily contained in agreements of such
character, including the following:
(A) $50,000.00 (payable upon acceptance of this Agreement) as
an advance against the non-accountable expense provided for below,
which is intended to cover actual out-of-pocket expenses actually
anticipated to be incurred by the Underwriter in connection with the
preparation of this Offering.
(B) There shall be an underwriting discount of 10%. The
proceeds of the Offering shall be used for purposes reasonably
acceptable to the Underwriters, including but not limited to, the
repayment of approximately $2,000,000.00 in indebtedness to certain
promoters of the Company and other creditors of the Company.
(C) The Company will bear all fees, disbursements and expenses
in connection with the proposed Offering, including without limitation,
the Company's legal and accounting fees and disbursements, the costs of
preparing, printing, mailing and delivering the Registration
Statements, prospectus and amendments, post-effective amendments and
supplements thereto, the Underwriting Agreement and related documents
and "Blue Sky" memoranda (all in such quantities as the Underwriters
may require), preparing and printing stock certificates, filing fees
(including the filing fees incurred in registering the Offering with
the National Association of Securities Dealers, Inc. (the "NASD")),
seeking listing of the Shares on such Exchanges as the Underwriters may
suggest, filing fees, costs and expenses (including reasonable fees and
disbursements of counsel) incurred in qualifying the Offering under the
"blue sky" laws of the States specified by the Underwriters, transfer
taxes, transfer agent and registrar fees.
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(D) In order to reimburse those costs, fees and expenses
customarily incurred by an underwriter during the registration process
the Company shall pay to the Underwriters, a nonaccountabie expense
allowance in the amount of 3% of the gross proceeds of the Offering
(including the over-allotment option to the extent actually exercised
by the Underwriters), without deduction for any expenses enumerated in
the next preceding paragraph. The balance shall be paid upon
consummation of the Offering. The sum when paid, shall be
non-refundable and non-accountable until the Underwriting Agreement is
signed, after which time they shall become accountable in accordance
with the terms of the Underwriting Agreement.
(E) For the purpose of covering over-allotments, if any, which
may occur during the distribution and sale of Shares, the Company shall
grant to the Underwriters an option to purchase all or part of an
additional number of Shares as will be equal to 15% of the total number
of Shares initially offered to the public, for a period of 45 days from
the Effective Date (the "Over-Allotment Option"). Such Over-Allotment
shall be exercisable by the Underwriters pursuant to the terms of the
Underwriting Agreement and shall be resold to the public on the same
terms as the Shares initially offered.
(F) The Company and all the stockholders of the Company agree
not to cause a private or public offering of any its Shares in any
manner, including pursuant to Rule 144 under the Act, of shares owned
nominally or beneficially by the Company s officers and directors and
holders of in excess of 10% of the Company's outstanding common stock
after the public offering, for a period of 24 months following the
Effective Date (or such longer period not to exceed 36 months as may be
required by any applicable state blue sky laws) without obtaining prior
approval of the Underwriters (and, if required by applicable blue sky
laws, and the securities commissions in any such states). The Company
shall cause such persons to execute an agreement with the Underwriters
in form and substance satisfactory to the Underwriters and our counsel
regarding such restrictions.
(G) The Company shall retain as its lawyers, a firm expert in
securities laws matters acceptable to the Underwriters, such as
Richman, Lawrence, Mann, Greene, Chizever, Friedman & Phillips which
shall have the responsibility for drafting the Registration Statement.
The Company shall also retain independent certified public accountants
acceptable to the Underwriters. Such accounting firm shall have the
responsibility for reviewing financial statements and schedules to be
included in the Registration Statement, shall certify such financial
statements and schedules which are required to be audited and included
in the Registration Statement and shall provide certain "comfort" with
respect thereto and with respect to financial and other information
included therein as is usual and common in initial public offerings.
(H) The Company shall apply to have its common stock approved
for quotation on the so called "OTC Bulletin Board," to be effective on
the Effective Date.
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(I) Concurrently with the delivery of the Underwriting
Agreement, the Company shall provide the Underwriters with an opinion
of counsel reasonably satisfactory to the Underwriters and their
counsel, in form and substance customary in initial public offerings.
(L) If the sale of Shares is completed:
(1) The Company will engage the Underwriters as its
investment banker for a period of 12 months on the first day
of the month following the Closing Date, at an aggregate
monthly fee of $5,000.00 for the first eight months and $6,000
for the ninth month for a total of $46,000 (exclusive of any
accountable out-of-pocket expenses). In addition, the
consulting agreement (or separate M&A agreement) shall provide
that the Company will pay the Underwriters a finder s fee in
the event that we originate, and the Company accepts, within 3
years of the Closing Date, a merger, acquisition, joint
venture or other transaction to which the Company is a party
in an amount equal to 5% of the first $5,000,000.00, 4% of the
next $5,000,000.00 and 3% of the excess, if any, over
$10,000,000.00 of the consideration received or paid to the
other party by the Company in any such transactions.
(2) During the two year period following the Effective
Date, the Underwriters shall have the right to purchase for
the Underwriters' own accounts or to sell for the account of
the Company s officers and directors any securities sold
pursuant to Rule 144 under the Act by the officers and
directors of the Company. Each of the officers and directors
(the ' 144 Seller") will agree to consult with the
Underwriters with regard to any such sales and will offer to
the Underwriters the exclusive opportunity to purchase or sell
such securities on terms at least favorable to the 144 Sellers
as they can secure elsewhere. If the Underwriters fail to
accept in writing any such proposal for sale by the 144
Sellers within S business days after receipt of a copy of the
proposal, the Underwriters shall be deemed to have released
any claim or right with respect to any such sales contained in
the proposal. If, thereafter, the proposal is modified in any
material respect, the 144 Sellers shall adopt the procedure
set forth in this paragraph with respect to the original
proposal.
(3) By the Effective Date, the Company shall have
registered its Common Stock with the SEC under the provisions
of Section 12(b) of the Securities of 1934 and will use its
best efforts to maintain such registration in effect for a
period of three years from the Effective Date.
(4) The Company shall retain a transfer agent
acceptable to the Underwriters for the Shares, for a period of
three years following the Effective Date. At the Underwriters'
request, the Company shall provide the Underwriters with
copies of the Company's daily stock transfer sheets from
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such transfer agent and from the Depository Trust Company, at
the Company's sole cost and expense.
(5) For a period of three years from the Effective
Date, the Company will provide to the Underwriters, on a
timely basis, quarterly statements setting forth such
information regarding the Company's results of operations and
financial position (including balance sheet, profit and loss
statements) as is regularly prepared by management of the
Company and filed with the SEC.
(M) Prior to the filing of the Registration Statement, the
Company will provide: (i) documentation to the Underwriter to
substantiate that no less than $2,000,000.00 in equity has been paid
into the Company; and (ii) documentation to the Underwriter to
substantiate that the capitalization of the Company is in accordance
with the foregoing subparagraph (i) and prior to the Offering there
shall be 3,000,000 shares outstanding. Prior to the filing of
Pre-Effective Amendment No. 1 to the Registration Statement the Company
will provide the Underwriters with satisfactory results of a UCC lien
and title search effected in all appropriate jurisdictions, showing
that Company's assets, including its intellectual properties, if any,
are unencumbered except to the extent set forth in the financial
statements for the year ended July 31, 1996.
(N) Commencing on the date hereof and continuing for a period
prescribed by Rule 174 promulgated under the Securities Act of 1933, as
amended, the Company will not issue a press release or engage in other
publicity without prior written notification to us.
The Underwriters reserve the right, in their sole discretion, to reduce
any item of the Underwriters' compensation or adjust for the benefit of the
Company the terms thereof as specified herein in the event that a determination
should be made by the NASD and/or the securities department of any jurisdiction
to which the Offering is submitted to the effect that the Underwriters'
aggregate compensation is excessive or that the terms thereof require
adjustment. Any such reduction or adjustment shall not effect any other terms or
provisions of this Letter of Intent.
The Company represents and warrants to the Underwriters that it is not
obligated to pay a finder's fee to anyone in connection with the introduction of
the Company to the Underwriters and that it has not paid or delivered any
monies, securities or other compensation to any member of the NASD or to any
affiliate of such a member during the prior 12 months.
It is understood that his letter is merely a letter and statement of
intent and not a legally binding agreement except as to matters set forth in
paragraphs (A) and (C) above, and that if this Letter of Intent should be
terminated by either party, and/or if the Underwriting Agreement shall not be
entered into, for whatever cause, then the Company shall only be obligated to
pay to the Underwriters the advance of non-accountable expenses
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as set forth in paragraph (A) above, and any additional actual costs as set
forth in paragraph (C) above actually incurred by the Underwriter in excess of
the amount previously paid by the Company pursuant to paragraph (A) above.
Except as otherwise expressly set forth herein neither the Company nor
the Underwriters will be under any obligation to the other until the Company and
the Underwriters have executed and delivered the Underwriting Agreement. It is
understood that, except as otherwise expressly indicated herein, this letter is
merely a statement of intent and any legal obligations between the parties shall
be deemed in existence only if, as and when the Underwriting Agreement is
executed and delivered.
This letter shall be deemed to have been made and delivered in New York
City and shall be governed as to its validity, interpretation, construction,
effect and in all other respects by the laws of the State of New York. The
Company and the Underwriters (i) agree that any legal suit, action or proceeding
arising out or relating to this letter shall be instituted exclusively in New
York State Supreme Court, County of New York or in the United States District
Court of the Southern District of New York; (ii) waives any objection to venue
or inconvenient forum of any such suit, action or proceeding; and (iii)
irrevocably consents to the jurisdiction of the New York State Supreme Court,
County of New York or in the United States District Court of the Southern
District of New York in any such suit, action or proceeding. The Company and the
Underwriters further accept 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 of the Southern District of New York and agree that service of process
upon it mailed by certified mail, return receipt requested, to its address shall
be deemed in every respect effective service of process upon it in any such
suit, action or proceeding.
Any notice, election or demand given or made pursuant hereto shall be
given or made in writing and signed by the sending party or its attorney, and
shall be deemed given when: (i) personally delivered; (ii) one business
following delivery to a reputable courier service, or (iii) two days following
the day when sent concurrently with such mailing, in all cases to the respective
party at its address given above, with copies to counsel.
If the foregoing correctly sets forth your understanding with respect
to the proposed Offering on behalf of the Company, please so confirm by signing
and returning one copy of this letter, whereupon we will instruct our counsel to
cooperate with counsel for the Company in the preparation of the appropriate
Registration Statement under the Act, the Underwriting Agreement and other
related documents so as to expedite the successful consummation of the Offering.
This Agreement supersedes any and all prior agreements between the
parties hereto respecting the subject matter hereof, may be amended only in
writing and shall be binding upon our respective legal representatives and
assigns.
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This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
Very truly yours,
MILLENNIUM SECURITIES CORP.
By: /s/ Richard A. Sitomer
---------------------------
Richard A. Sitomer
Chief Executive Officer
Accepted & Agreed to:
UNITED FILM DISTRIBUTORS, INC.
By: /s/ Harry Shuster
--------------------------
Harry Shuster
Chairman of the Board
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