Exhibit 1.1
1,325,000 COMMON SHARES
DAG MEDIA, INC.
UNDERWRITING AGREEMENT
__________, 1999
Paulson Investment Company, Inc.
Redwine & Company, Inc.
As Representatives of the
Several Underwriters
c/o Paulson Investment Company, Inc.
811 SW Naito Parkway
Portland, Oregon 97204
Gentlemen:
DAG Media, Inc., a New York corporation (the "Company"), proposes to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as Representatives (the "Representatives") an aggregate
of 1,250,000 of its common shares, $.001 par value (the "Common Shares"), and
Assaf Ran (the "Selling Shareholder") proposes to sell to the Underwriters an
aggregate of 75,000 Common Shares. The respective amounts of the Common Shares
to be so purchased by the several Underwriters ("Firm Shares") are set forth
opposite their names in Schedule I hereto. The Company also proposes to grant to
the Underwriters an option to purchase in the aggregate up to 198,750 additional
Shares (the "Option Shares"), as set forth below. The offer and sale of the Firm
Shares and the Option Shares pursuant to this Agreement is referred to as the
"Offering."
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement for yourselves as Representatives and on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I. The Firm Shares
and the Option Shares (to the extent the aforementioned option is exercised) are
herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDER.
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form SB-2 (File No. 333-74203) with respect
to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, has been filed with the
Commission and is accurate in all material respects. Copies of such registration
statement, including any amendments thereto, the preliminary prospectuses
(meeting the requirements of the Rules and Regulations) contained therein and
the exhibits, financial statements and schedules, as finally amended and
revised, have heretofore been delivered by the Company to you. Such registration
statement, together with any registration statement filed by the Company
pursuant to Rule 462(b) of the Act, herein referred to as the "Registration
Statement," which shall be deemed to include all information omitted therefrom
in reliance upon Rule 430A and contained in the Prospectus referred to below,
has become effective under the Act and no post-effective amendment to the
Registration Statement has been filed as of the date of this Agreement.
"Prospectus" means (a) the form of prospectus first filed with the Commission
pursuant to Rule 424(b) or (b) the last preliminary prospectus included in the
Registration Statement filed prior to the time it becomes effective or filed
pursuant to Rule 424(a) under the Act that is delivered by the Company to the
Underwriters for delivery to purchasers of the Shares, together with the term
sheet or abbreviated term sheet filed with the Commission pursuant to Rule
424(b)(7) under the Act if required thereunder. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of New York, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. Except as described in the
Prospectus, the Company does not own and never has owned a controlling interest
in any corporation or other business entity that has or ever has had any
material assets, liabilities or operations. The Company is duly qualified to
transact business in all jurisdictions in which the conduct of its business
requires such qualification.
(iii) The outstanding Common Shares of the Company, including all Firm
Shares to be sold by the Selling Shareholder, have been duly authorized and
validly issued and are fully paid and non-assessable and have been issued and
sold by the Company in compliance in all material respects with applicable
securities laws; the Common Shares
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have been duly authorized and when issued and paid for as contemplated herein
will be validly issued, fully paid and non-assessable; and no preemptive rights
of shareholders exist with respect to any security of the Company or the issue
and sale thereof. Neither the filing of the Registration Statement nor the
offering or sale of the Shares as contemplated by this Agreement gives rise to
any rights, other than those which have been waived or satisfied, for or
relating to the registration of any Common Shares or other securities of the
Company.
(iv) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct. The Common Shares conform to the description
thereof contained in the Registration Statement. The form of certificates for
the Common Shares conforms to the corporate law of the jurisdiction of the
Company's incorporation.
(v) The Commission has not issued an order preventing or suspending the use
of any Prospectus relating to the proposed offering of the Shares and has not
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform, to the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information in the section of the Prospectus entitled "Underwriting" and any
other information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(vi) The financial statements of the Company, together with related notes
and schedules as set forth in the Registration Statement, present fairly the
financial position and the results of operations and cash flows of the Company
at the indicated dates and for the indicated periods. Such financial statements
and related schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods involved,
except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data of the Company included in the Registration Statement
present fairly the information shown therein and such data have been compiled on
a basis consistent with the financial statements presented therein and the books
and records of the Company.
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(vii) Arthur Andersen LLP, who have audited certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending
or, to the knowledge of the Company, threatened against the Company before any
court or administrative agency or otherwise which if determined adversely to the
Company might result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
(ix) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as described in
the Registration Statement) hereinabove described, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except those reflected in such
financial statements (or as described in the Registration Statement) or which
are not material in amount. The Company occupies its leased properties (except
its New Jersey sales office) under valid and binding leases conforming in all
material respects to the description thereof set forth in the Registration
Statement.
(x) The Company has filed all federal, state, local and
foreign income tax returns which it has been required to file prior to the date
hereof and has paid all taxes indicated by said returns and all assessments
received by it to the extent that such taxes have become due and are not being
contested in good faith. All material tax liabilities have been adequately
provided for in the financial statements of the Company.
(xi) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company, whether or not occurring in the
ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company, other than transactions in the ordinary course of business and
changes and transactions described in the Registration Statement, as it may be
amended or supplemented. The Company has no material contingent obligations
which are not disclosed in the Company's financial statements included in the
Registration Statement or elsewhere in the Prospectus.
(xii) The Company is not, nor, with the giving of notice or
lapse of time or both, will it be, in violation of or in default under its
certificate of incorporation or bylaws or under any agreement, lease, contract,
indenture or other instrument or obligation
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to which it is a party or by which it, or any of its properties, is bound and
which default is of material significance in respect of the condition, financial
or otherwise of the Company or the business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company. The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated and the fulfillment of the terms hereof
will not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Company is a party, or of the
certificate of incorporation or bylaws of the Company or any order, rule or
regulation applicable to the Company of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(xiv) The Company holds all material trademarks, trade names,
copyrights, trade secrets and licenses of any of the foregoing (collectively,
"Intellectual Property Rights") that are necessary for the conduct of its
business; the Company holds no patents or patent rights and no such rights are
necessary for the conduct of its business. There is no claim pending or, to the
best knowledge of the Company, threatened against the Company alleging any
infringement of Intellectual Property Rights, or any violation of the terms of
any license relating to Intellectual Property Rights, nor does the Company know
of any basis for any such claim, except a trademark infringement action
threatened by Publishing Group, Inc. The Company knows of no material
infringement by others of Intellectual Property Rights owned by or licensed to
the Company. The Company has obtained, is in compliance in all material respects
with and maintains in full force and effect all material licenses, certificates,
permits, orders or other, similar authorizations granted or issued by any
governmental agency (collectively, "Government Permits") required to conduct its
business as it is presently conducted. All applications for additional
Government Permits described in the Prospectus as having been made by the
Company have been properly and effectively made in accordance with the
applicable laws and regulations with respect thereto and such applications
constitute, in the best judgment of the Company's management, those reasonably
required to have been made in order to carry out the Company's business plan as
described in the Prospectus. No proceeding to revoke, limit or otherwise
materially change any Government Permit has been commenced or, to the Company's
best knowledge, is threatened against the Company or any supplier to the Company
with respect to materials supplied to the Company, and the Company has no reason
to anticipate that any such
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proceeding will be commenced against the Company or any such supplier. Except as
disclosed or contemplated in the Prospectus, the Company has no reason to
believe that any pending application for a Government Permit will be denied or
limited in a manner inconsistent with the Company's business plan as described
in the Prospectus.
(xv) The Company is in all material respects in compliance
with all applicable Environmental Laws. The Company has no knowledge of any
past, present or, as anticipated by the Company, future events, conditions,
activities, investigation, studies, plans or proposals that (i) would interfere
with or prevent compliance with any Environmental Law by the Company or (ii)
could reasonably be expected to give rise to any common law or other liability,
or otherwise form the basis of a claim, action, suit, proceeding, hearing or
investigation, involving the Company and related in any way to Hazardous
Substances or Environmental Laws. Except for the prudent and safe use and
management of Hazardous Substances in the ordinary course of the Company's
business, (i) no Hazardous Substance is or has been used, treated, stored,
generated, manufactured or otherwise handled on or at any Facility and (ii) to
the Company's best knowledge, no Hazardous Substance has otherwise come to be
located in, on or under any Facility. No Hazardous Substances are stored at any
Facility except in quantities necessary to satisfy the reasonably anticipated
use or consumption by the Company. No litigation, claim, proceeding or
governmental investigation is pending regarding any environmental matter for
which the Company has been served or otherwise notified or, to the knowledge of
the Company threatened or asserted against the Company, or the officers or
directors of the Company in their capacities as such, or any Facility or the
Company's business. There are no orders, judgments or decrees of any court or of
any governmental agency or instrumentality under any Environmental Law which
specifically apply to the Company, any Facility or any of the Company's
operations. The Company has not received from a governmental authority or other
person (1) any notice that it is a potentially responsible person for any
Contaminated site or (2) any request for information about a site alleged to be
Contaminated or regarding the disposal of Hazardous Substances. There is no
litigation or proceeding against any other person by the Company regarding any
environmental matter. The Company has disclosed in the Prospectus or made
available to the Underwriters and their counsel true, complete and correct
copies of any reports, studies, investigations, audits, analysis, tests or
monitoring in the possession of or initiated by the Company pertaining to any
environmental matter relating to the Company, its past or present operations or
any Facility.
For the purposes of the foregoing paragraph, "Environmental Laws" means
any applicable federal, state or local statute, regulation, code, rule,
ordinance, order, judgment, decree, injunction or common law pertaining in any
way to the protection of human health or the environment, including without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Toxic Substances
Control Act, the Clean Air Act, the Federal Water Pollution Control Act and any
similar or comparable state or local law; "Hazardous Substance" means any
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hazardous, toxic, radioactive or infectious substance, material or waste as
defined, listed or regulated under any Environmental Law; "Contaminated" means
the actual existence on or under any real property of Hazardous Substances, if
the existence of such Hazardous Substances triggers a requirement to perform any
investigatory, remedial, removal or other response action under any
Environmental Laws or if such response action legally could be required by any
governmental authority; "Facility" means any property currently owned, leased or
occupied by the Company.
(xvi) Neither the Company, nor to the Company's best
knowledge, any of its affiliates, has taken or intends to take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Common Shares to facilitate the sale or resale
of the Shares.
(xvii) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940, as amended (the
"1940 Act"), and the rules and regulations of the Commission thereunder.
(xviii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity 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.
(xix) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties and as is customary for companies engaged in
similar industries.
(xx) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Section 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
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(xxi) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"), whichever
date is later, or if the information reported or incorporated by reference in
the Prospectus, if any, concerning the Company's business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
(xxii) The Company is in material compliance with all laws,
rules, regulations, orders of any court or administrative agency, operating
licenses or other requirements imposed by any governmental body applicable to
it, including, without limitation, all applicable laws, rules, regulations,
licenses or other governmental standards applicable to the industry in which the
Company operates; and the conduct of the business of the Company, as described
in the Prospectus, will not cause the Company to be in violation of any such
requirements.
(xxiii) The Representatives' Warrants (as defined in Paragraph
(d) of Section 2 hereof) have been authorized for issuance to the
Representatives and will, when issued, possess rights, privileges, and
characteristics as represented in the most recent form of Representatives'
Warrants filed as an exhibit to the Registration Statement; the securities to be
issued upon exercise of the Representatives' Warrants, when issued and delivered
against payment therefor in accordance with the terms of the Representatives'
Warrants, will be duly and validly issued, fully paid, nonassessable and free of
preemptive rights, and all corporate action required to be taken for the
authorization and issuance of the Representatives' Warrants, and the securities
to be issued upon their exercise, have been validly and sufficiently taken.
(xxiv) Except as disclosed in the Prospectus, neither the
Company nor any of its officers, directors or affiliates have caused any person,
other than the Underwriters, to be entitled to reimbursement of any kind,
including, without limitation, any compensation that would be includable as
underwriter compensation under the NASD's Corporate Financing Rule with respect
to the offering of the Shares, as a result of the consummation of such offering
based on any activity of such person as a finder, agent, broker, investment
adviser or other financial service provider.
(b) The Selling Shareholder represents and warrants to each of
the Underwriters as follows:
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(i) The Selling Shareholder now has and at the
Closing Date will have good and marketable title to the Firm Shares to be sold
by the Selling Shareholder, free and clear of any liens, encumbrances, equities
and claims, and full right, power and authority to effect the sale and delivery
of such Firm Shares; and upon the delivery of, against payment for, such Firm
Shares pursuant to this Agreement, the Underwriters will acquire good and
marketable title thereto, free and clear of any liens, encumbrances, equities
and claims.
(ii) The Selling Shareholder has full right, power
and authority to execute and deliver this Agreement and the Custody Agreement
(as defined in Section 1(b)(v)) and to perform his obligations under such
agreements. The execution and delivery of this Agreement and consummation by the
Selling Shareholder of the transactions herein contemplated and the fulfillment
by the Selling Shareholder of the terms hereof will note require any consent,
approval, authorization, or other order of any court, regulatory body,
administrative agency of other governmental body (except as may be required
under the Act, state securities laws or Blue Sky laws) and will not result in a
breach of any of the terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Selling Shareholder is a party, or of any order, rule or regulation applicable
to the Selling Shareholder of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(iii) The Selling Shareholder has not taken, directly
or indirectly, any action designed to, or which has constituted, or which might
reasonably be expected to cause or result in the stabilization or manipulation
of the price of the Common Shares and, other than as permitted by the Act, the
Selling Shareholder will not distribute any prospectus or other offering
material in connection with the offering of the Shares.
(iv) Without having undertaken to determine
independently the accuracy or completeness of either the representations and
warranties of the Company contained herein or the information contained in the
Registration Statement, the Selling Shareholder has no reason to believe that
the representations and warranties of the Company contained in this Section 1
are not true, correct and compete, is familiar with the Registration Statement
and has no knowledge of any material fact, condition or information not
disclosed in the Registration Statement which has adversely affected, or may
adversely affect, the business of the Company and the sale of the Firm Shares by
the Selling Shareholder pursuant hereto is not prompted by any information
concerning the Company or any of its subsidiaries which is not set forth in the
Registration Statement. The information pertaining to the Selling Shareholder in
the Prospectus is true, correct and complete.
(v) Certificates in negotiable form for the Firm
Shares to be sold hereunder by the Selling Shareholder have been placed in
custody with Morse, Zelnick, Rose & Lander, L.L.P., as custodian ("Custodian"),
pursuant to a custody agreement
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executed by the Selling Shareholder for delivery of all Shares to be sold
hereunder by the Selling Shareholder (the "Custody Agreement"). The Selling
Shareholder specifically agrees that the Shares represented by the certificates
held in custody for the Selling Shareholder under the Custody Agreement are
subject to the interests of the Representatives, that the arrangements made by
the Selling Shareholder for such custody are irrevocable, and that the
obligations of the Selling Shareholder hereunder shall not be terminable by any
act or deed of the Selling Shareholder (or by any other person, firm or
corporation including the Company, the Custodian or the Representatives) or by
operation of law (including the death of the Selling Shareholder) or by the
occurrence of any other event or events, except as set forth in the Custody
Agreement. If any such event should occur prior to the delivery to the
Representatives of the Firm Shares to be sold by the Selling Shareholder
hereunder, certificates for such Firm Shares shall be delivered by the Custodian
in accordance with the terms and conditions of this Agreement as if such event
had not occurred, regardless of whether or not the Custodian shall have received
notice of such death, incapacity or other event. The Custodian is authorized to
receive and acknowledge receipt of the proceeds of sale of such Firm Shares held
by it against delivery of such Firm Shares.
(vi) No consent, approval, authorization or order of
any court or governmental agency or body is required for the consummation by the
Selling Shareholder of the transactions contemplated herein, except such as may
have been obtained under the Act and from the NASD and such as may be required
under the Blue Sky Laws of any jurisdiction in connection with the purchase and
distribution of the Firm Shares by the Underwriters and such other approvals as
have been obtained.
(vii) Neither the sale of the Firm Shares being sold
by the Selling Shareholder nor the consummation of any other of the transactions
contemplated herein by the Selling Shareholder or the fulfillment of the terms
hereof by the Selling Shareholder will conflict with, result in breach of, or
constitute a default under, the terms of any indenture or other agreement or
instrument to which the Selling Shareholder is a party or bound, or any order or
regulation applicable to the Selling Shareholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction over
the Selling Shareholder.
(viii) In respect of any statements in or omissions
from the Registration Statement or the Prospectus or any amendment or supplement
thereto made in reliance upon and in conformity with information furnished in
writing to the Company by the Selling Shareholder specifically for use in
connection with the preparation thereof, the Selling Shareholder hereby makes
the same representations and warranties to each Underwriter as the Company makes
to such Underwriter under paragraph (a)(vi) of this Section.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
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(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth, the
Company and the Selling Shareholder agrees to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at a price of
$______ per Share, the number of Firm Shares set forth opposite the name of each
Underwriter in Schedule I hereof, subject to adjustments in accordance with
Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be
made in New York Clearing House funds and, at the option of the Representatives,
by certified or bank cashier's checks drawn to the order of the Company or bank
wire to an account specified by the Company against either uncertificated
delivery of the Firm Shares or of certificates therefor (which delivery, if
certificated, shall take place in such location in New York, New York as may be
specified by the Representatives) to the Representatives for the several
accounts of the Underwriters. Such payment is to be made at the offices of
Paulson Investment Company, Inc. ("Paulson") at the address set forth on the
first page of this Agreement, or at such other place as you and the Company
shall designate, at 7:00 a.m., Pacific time, on the third business day after the
date of this Agreement or at such other time and date not later than five
business days after as you and the Company shall agree upon, such time and date
being herein referred to as the "Closing Date." (As used herein, "business day"
means a day on which the New York Stock Exchange is open for trading and on
which banks in New York are open for business and not permitted by law or
executive order to be closed.) Except to the extent uncertificated Firm Shares
are delivered at closing, the certificates for the Firm Shares will be delivered
in such denominations and in such registrations as the Representatives request
in writing not later than the second full business day prior to the Closing
Date, and will be made available for inspection by the Representatives at least
one business day prior to the Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Representatives to purchase
the Option Shares at the price per Share as set forth in the first paragraph of
this Section 2. The option granted hereby may be exercised in whole or in part
by giving written notice (i) at any time before the Closing Date and (ii) only
once thereafter within 45 days after the date of this Agreement, by the
Representatives to the Company setting forth the number of Option Shares as to
which the Representatives are exercising the option, the names and denominations
in which the Option Shares are to be registered and the time and date at which
certificates representing such Shares are to be delivered. The time and date at
which certificates for Option Shares are to be delivered shall be determined by
the Representatives but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The option
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with respect to the Option Shares granted hereunder may be exercised only to
cover over-allotments in the sale of the Firm Shares by the Underwriters. The
Representatives may cancel such option at any time prior to its expiration by
giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be made
on the Option Closing Date in New York Clearing House funds and, at the option
of the Representatives, by certified or bank cashier's check drawn to the order
of the Company for the Option Shares to be sold by the Company or bank wire to
an account specified by the Company against either uncertificated delivery of
the Option Shares or of delivery of certificates therefor(which delivery, if
certificated, shall take place in such location in New York, New York as may be
specified by the Representatives) to the Representatives for the several
accounts of the Underwriters.
(d) In addition to the sums payable to the Representatives as
provided elsewhere herein, the Representatives shall be entitled to receive at
the Closing, for itself alone and not as Representatives of the Underwriters, as
additional compensation for their services, a purchase warrant (the
"Representatives' Warrant") for the purchase of up to 132,500 Shares at a price
of $_____ per Share, upon the terms and subject to adjustment and conversion as
described in the form of Representatives' Warrant filed as an exhibit to the
Registration Statement.
(e) If on the Closing Date the Selling Shareholder fails to
sell the Firm Shares which the Selling Shareholder has agreed to sell on such a
date, the Company agrees that it will sell or arrange for the sale of that
number of Common Shares to the Representatives which represents the Firm Shares
which the Selling Shareholder has failed to so sell.
(f) The Selling Shareholder will pay all applicable state
transfer taxes, if any, involved in the transfer to the several Underwriters of
the Firm Shares to be purchased by them from the Selling Shareholder, and the
respective Underwriters will pay any additional stock transfer taxes involved in
further transfers.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the public at
the initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 2(c) hereof, the Representatives will offer
them to the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares in
accordance with an Agreement
12
Among Underwriters entered into by you and the several other Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDER.
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (1) use its reasonable best efforts to
cause the Registration Statement to become effective or, if the procedure in
Rule 430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus
in a form approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A of the Rules and Regulations, and (2) not file any amendment to the
Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a copy
or to which the Representatives shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations.
(ii) The Company will advise the Representatives promptly
(1) when the Registration Statement or any post-effective amendment thereto
shall have become effective, (2) of receipt of any comments from the Commission,
(3) of any request of the Commission for amendment of the Registration Statement
or for supplement to the Prospectus or for any additional information, and (4)
of the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the use of the Prospectus or of the institution
of any proceedings for that purpose. The Company will use its reasonable best
efforts to prevent the issuance of any such stop order preventing or suspending
the use of the Prospectus and to obtain as soon as possible the lifting thereof,
if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order
13
of, the Representatives during the period when delivery of a Prospectus is
required under the Act, as many copies of the Prospectus in final form, or as
thereafter amended or supplemented, as the Representatives may reasonably
request. The Company will deliver to the Representatives at or before the
Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) The Company will comply with the Act and the Rules and Regulations, and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or, if
it is necessary at any time to amend or supplement the Prospectus to comply with
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with the law.
(vi) The Company will make generally available to its security holders, as
soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earnings statement
(which need not be audited) covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which earnings
statement shall satisfy the requirements of Section 11(a) of the Act and Rule
158 of the Rules and Regulations and will advise you in writing when such
statement has been so made available.
(vii) The Company will, for a period of five years from the Closing Date,
deliver to the Representatives copies of annual reports and copies of all other
documents, reports and information furnished by the Company to its Shareholders
or filed with any securities exchange pursuant to the requirements of such
exchange or with the Commission pursuant to the Act or the Exchange Act. The
Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements. The Company's
obligation hereunder to deliver documents permitted to be filed with the
Commission electronically through the EDGAR system shall be satisfied by such
electronic filing.
14
(viii) No offering, sale, short sale or other disposition of any Common
Shares or other securities convertible into or exchangeable or exercisable for
Common Shares or derivatives of Common Shares (or agreement for such) will be
made for a period of one year after the date of this Agreement, directly or
indirectly, by the Company otherwise than hereunder or with the prior written
consent of the Representatives, which consent will not be unreasonably withheld.
(ix) The Company will use its reasonable best efforts to list the Common
Shares, subject to notice of their issuance, on The Nasdaq Stock Market.
(x) The Company has caused each officer and director and each person who
owns, beneficially or of record, 5% or more of the Common Shares outstanding
immediately prior to this offering (the "Insiders") to furnish to you, on or
prior to the date of this Agreement, a letter or letters, in form and substance
satisfactory to you, pursuant to which, except as permitted in the agreement,
without prior written consent they will not sell or otherwise dispose of equity
securities of the Company for a period of one year following the Effective Date
and for a period of two years from the Effective Date they will provide us with
prior notice of any sales of equity securities of the Company pursuant to Rule
144 or other similar rule.
(xi) The Company shall apply the net proceeds of its sale of the Shares as
set forth in the Prospectus and shall file such reports with the Commission with
respect to the sale of the Shares and the application of the proceeds therefrom
as may be required in accordance with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use the proceeds received
by the Company from its sale of the Shares in such a manner as would require the
Company or any of the subsidiaries to register as an investment company under
the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Common
Shares.
(xiv) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
(b) The Selling Shareholder covenants and agrees with the several
Underwriters that:
(i) In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
15
1983 with respect to the transactions herein contemplated, the Selling
Shareholder agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
(ii) The Selling Shareholder shall not take, directly or indirectly,
any action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
(iii) On the Closing Date, the Selling Shareholder shall apply the
net proceeds of the sale of his Shares to satisfy any and all loans or other
indebtedness owed by him to the Company as of the Closing Date, including any
principal and accrued interest.
5. COSTS AND EXPENSES.
(a) Paulson shall be entitled to receive from the Company, for itself
alone and not as a Representative of the Underwriters, a nonaccountable expense
allowance equal to 3% of the aggregate public offering price of Shares sold by
the Company to the Underwriters in connection with the Offering. Paulson shall
be entitled to withhold this allowance on the Closing Date (less the $35,000
advance against such amount that has been paid by the Company) with respect to
Shares delivered by the Company on the Closing Date and to require the Company
to make payment of this allowance on the Option Closing Date with respect to
Shares delivered by the Company on the Option Closing Date.
(b) Paulson shall also be entitled to receive from the Selling
Shareholder, for itself and not as a Representative of the Underwriters, a
nonaccountable expense allowance equal to 3% of the aggregate public offering
price of Shares sold by the Selling Shareholder to the Underwriters in
connection with the Offering. Paulson shall be entitled to withhold this
allowance on the Closing Date with respect to Shares delivered by the Selling
Shareholder on the Closing Date.
(c) In addition to the payment described in Paragraph (a) of this
Section 5, the Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company and the Selling Shareholder under
this Agreement, including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements of counsel
for the Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the NASDAQ Stock Market Listing Application,
the Blue Sky Survey and any supplements or amendments thereto; the filing fees
of the Commission; the filing fees incident to securing any required review by
16
the NASD of the terms of the sale of the Shares; the Listing Fee of The Nasdaq
Stock Market; reasonable costs of a due diligence investigation of the
principals of the Company by a firm acceptable to the Representatives; and the
expenses, including the fees and disbursements of counsel for the Underwriters,
incurred in connection with the qualification of the Shares under state
securities or Blue Sky laws. Any transfer taxes imposed on the sale of the
Shares to the several Underwriters will be paid by the Company, but the Selling
Shareholder shall be responsible for transfer taxes arising from his pro-rata
shares being sold under this Agreement. Additionally, the Selling Shareholder
shall be responsible for the registration fee of the Securities and Exchange
Commission and for the Blue Sky filing fees attributable to the shares being
sold by him as well as for his pro rata share of the underwriting discount and
expense allowance. To the extent, if at all, that the Selling Shareholder
engages special legal counsel to represent him in connection with this offer,
the fees and expenses of such counsel shall be borne by the Selling Shareholder.
If the Offering is not consummated for any reason except knowing, material
misrepresentation by the Company or the Selling Shareholder or if the Company
chooses, for whatever reason, not to proceed with the Offering within the stated
price range, then the Company is obligated to cover the Representatives'
additional actual, out of pocket expenses, only up to the $35,000 previously
paid. If the Offering is not consummated due to any knowing, material
misrepresentation by the Company or the Selling Shareholder or the Company
chooses, for whatever reason, not to proceed with the Offering within the stated
price range, the Representatives will be entitled, upon presentation of a
written accounting therefor in reasonable detail (but without the need to
include the underlying statements or evidence of payment), to prompt
reimbursement of up to $75,000 (including the $35,000 previously paid) of
actual, out of pocket expenses related to the Offering, including but not
limited to fees and expenses of the Representatives' legal counsel, travel
expenses and the fees and expenses of outside experts, if any, retained to
assist the Representatives with due diligence.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties of the
Company and Selling Shareholder contained herein, and to the performance by the
Company and Selling Shareholder of their covenants and obligations hereunder and
to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from
17
time to time, shall have been issued and no proceedings for that purpose shall
have been taken or, to the knowledge of the Company, shall be contemplated by
the Commission and no injunction, restraining order, or order of any nature by a
federal or state court of competent jurisdiction shall have been issued as of
the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Morse, Zelnick, Rose &
Lander, LLP, counsel for the Company and the Selling Shareholder, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of New York, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification, or in which the failure to qualify would
have a materially adverse effect upon the business of the Company.
(ii) The Company has authorized and outstanding capital stock as set forth
under the caption "Capitalization" in the Prospectus; the authorized Common
Shares have been duly authorized; the outstanding Common Shares have been duly
authorized and validly issued and are fully paid and non-assessable; all of the
securities of the Company conform to the description thereof contained in the
Prospectus; the certificates for the Common Shares, assuming they are in the
form filed with the Commission, are in due and proper form; the Common Shares to
be sold by the Company and the Selling Shareholder pursuant to this Agreement,
including Common Shares to be sold as a part of the Option Shares, have been
duly authorized and, upon issuance and delivery thereof as contemplated in this
Agreement and the Registration Statement, will be validly issued, fully paid and
non-assessable; no preemptive rights of Shareholders exist with respect to any
of the Common Shares or the issuance or sale thereof pursuant to any applicable
statute or the provisions of the Company's certificate of incorporation or
bylaws or, pursuant to any contractual obligation. The Representatives' Warrants
have been authorized for issuance to the Representatives and will, when issued,
possess rights, privileges, and characteristics as represented in the most
recent form of the Representatives' Warrants filed as an exhibit to the
Registration Statement; the securities to be issued upon exercise of the
Representatives' Warrants, when issued and delivered against payment therefor in
accordance with the terms of the Representatives' Warrants, will be duly and
validly issued, fully paid, nonassessable and free of preemptive rights, and all
corporate action required to be taken for the authorization and issuance of the
Representatives' Warrants and the securities to be issued upon their exercise
has been validly and sufficiently taken.
(iii) Except as described in or contemplated by the Prospectus,
18
there are no outstanding securities of the Company convertible or exchangeable
into or evidencing the right to purchase or subscribe for any shares of capital
stock of the Company and there are no outstanding or authorized options,
warrants or rights of any character obligating the Company to issue any shares
of its capital stock or any securities convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of such stock; and
except as described in the Prospectus, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
Common Shares or other securities of the Company.
(iv) The Registration Statement has become effective under the Act and no
stop order proceedings with respect thereto have been instituted or are pending
or, to such counsel's knowledge, threatened under the Act.
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related schedules therein).
(vi) The statements under the captions "Shares Eligible for Future Sale"
and "Description of Capital Stock" in the Prospectus and in Item 24 of the
Registration Statement, insofar as such statements constitute a summary of
documents referred to therein or matters of law, fairly summarize in all
material respects the information called for with respect to such documents and
matters.
(vii) No contracts or documents required to be filed as exhibits to the
Registration Statement or described in the Registration Statement or the
Prospectus which are not so filed or described as required, and such contracts
and documents as are summarized in the Registration Statement or the Prospectus
are fairly summarized in all material respects.
(viii) To counsel's knowledge, there are no material legal or governmental
proceedings pending or threatened against the Company, except a trademark
infringement action threatened by Publishing Group, Inc.
(ix) The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated do not and will not conflict with or result
in a breach of any of the terms or provisions of, or constitute a default under,
the certificate of incorporation or bylaws of the Company, or any agreement or
instrument
19
known to such counsel to which the Company is a party or by which the Company
may be bound.
(x) This Agreement has been duly authorized, executed and delivered by the
Company and the Selling Shareholder.
(xi) No approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other governmental body
is necessary in connection with the execution and delivery of this Agreement by
the Company or the Selling Shareholder and the consummation of the transactions
herein contemplated (other than as may be required by the NASD or as required by
state securities and Blue Sky laws as to which such counsel need express no
opinion) except such as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
(xiii) The Custody Agreement executed and delivered by the Selling
Shareholder is valid and binding and enforceable against such Shareholder in
accordance with its terms.
(xiv) The Underwriters (assuming that they are bona fide purchasers within
the meaning of the Uniform Commercial Code) have acquired good and marketable
title to the Firm Shares being sold by the Selling Shareholder on the Closing
Date free and clear of all liens, encumbrances, equities and claims.
(xv) On the effective date thereof as described in the Prospectus, the
Exchange (as described in the Prospectus) was consummated in accordance with the
applicable provisions of the New York Business Corporation Law, and each of the
parties thereto had all requisite authority (including all necessary shareholder
and board of director approvals) to enter into and consummate the Exchange.
In rendering such opinion, such counsel may rely as to matters governed by
the laws of states other than New York or federal laws on local counsel in such
jurisdictions, provided that in each case such counsel shall state that they
believe that they and the Underwriters are justified in relying on such other
counsel. In addition to the matters set forth above, the opinion of Morse,
Zelnick, Rose & Lander, LLP, shall also include a statement to the effect that
nothing has come to the attention of such counsel that has caused them to
believe that (i) the Registration Statement, at the time it became effective
under the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and as
of the Closing Date or the Option Closing
20
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements, in
the light of the circumstances under which they are made, not misleading (except
that such counsel need express no view as to financial statements, schedules and
statistical information therein).
(c) The Representatives shall have received from Weiss,
Jensen, Ellis & Howard, counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, substantially to
the effect specified in subparagraphs (i), (iv) and (v) of Paragraph (b) of this
Section 6. In rendering such opinion Weiss, Jensen, Ellis & Howard may rely as
to all matters governed other than by the laws of the state of Oregon or federal
laws on the opinion of counsel referred to in Paragraph (b) of this Section 6.
In addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
that has caused them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (ii) the Prospectus, or any supplement thereto, on the date
it was filed pursuant to the Rules and Regulations and as of the Closing Date or
the Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact, necessary in order to make
the statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Weiss, Jensen, Ellis & Howard may state that their belief is based
upon the procedures set forth therein, but is without independent check and
verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Weiss, Jensen, Ellis & Howard a memorandum or summary, in form
and substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares under the
state securities or Blue Sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
(e) The Representatives, on behalf of the several
Underwriters, shall have received, on each of the date hereof, the Closing Date
and the Option Closing
21
Date, as the case may be, a letter dated the date hereof, the Closing Date or
the Option Closing Date, as the case may be, in form and substance satisfactory
to the Representatives, of Arthur Andersen LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating that in their opinion the
financial statements and schedules examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations and containing such other statements and information as are
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the Act and no
stop order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for such purpose have been taken or are, to his or
her knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained in Section
1 hereof are true and correct as of the Closing Date or the Option Closing Date,
as the case may be;
(iii) All filings required to have been made pursuant to Rule 424 or Rule
430A under the Act have been made;
(iv) He or she has carefully examined the Registration Statement and the
Prospectus and, in his or her opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and Prospectus did not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth in a
supplement to or an amendment of the Prospectus which has not been so set forth
in such supplement or amendment; and
(v) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, there has not been any material adverse
change or any development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company or the earnings,
business, management,
22
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company, whether or not arising in the ordinary course of
business.
(g) The Company and the Selling Shareholder shall have
furnished to the Representatives such further certificates and documents
confirming the representations and warranties, covenants and conditions
contained herein and related matters as the Representatives may reasonably have
requested.
(h) The Common Shares have been approved for designation on
The Nasdaq Stock Market upon notice of issuance.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representatives and to Weiss,
Jensen, Ellis & Howard, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company and the Selling Shareholder of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Company, the Selling Shareholder and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion
of the Shares required to be delivered as and when specified in this Agreement
are subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company and the Selling Shareholder jointly and
severally agree to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of the Act, against any
losses, claims, damages or liabilities to which such Underwriter or any such
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon:
23
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus or
Prospectus (including, but not limited to the section entitled
"Underwriting"), or any amendment or supplement thereto, or
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse each Underwriter and each such controlling person
upon demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Shares, whether or not such Underwriter or controlling person is a party to any
action or proceeding; provided, however, that the Company and the Selling
Shareholder will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus or Prospectus
(including, but not limited to the section entitled "Underwriting"), or any
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, each person, if any, who controls the Company
within the meaning of the Act, and the Selling Shareholder against any losses,
claims, damages or liabilities to which the Company, the Selling Shareholder or
any such director, officer or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company, any such director, officer or controlling person or the
Selling Shareholder in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding; provided, however, that each
Underwriter will be liable in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
24
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event:
(i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel;
(ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them; or
(iii) the indemnifying party shall have failed to assume the defense and
employ counsel acceptable to the indemnified party within a reasonable period of
time after notice of commencement of the action.
It is understood that the indemnifying party shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in the case
of parties indemnified pursuant to Section 8(a) and by the Company in the case
of parties indemnified pursuant to Section 8(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
25
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Shareholder on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company on the one hand and the Underwriters
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, (or actions or proceedings in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Shareholder on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Shareholder bears to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Selling Shareholder on the one hand or the Underwriters on the other and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Selling Shareholder and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 8(d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 8(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any
26
amount in excess of the underwriting discounts and commissions applicable to the
Shares purchased by such Underwriter, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this Section 8
hereby consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of:
(i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Company, the Selling
Shareholder, its directors or officers or any persons controlling the Company;
(ii) acceptance of any Shares and payment therefor
hereunder; and
(iii) any termination of this Agreement.
A successor to any Underwriter, to the Selling Shareholder, or to the
Company, its directors or officers, or any person controlling the Company, shall
be entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or the
Selling Shareholder), you, as Representatives of the Underwriters, shall use
your reasonable efforts to procure within 36 hours thereafter
27
one or more of the other Underwriters, or any others, to purchase from the
Company and the Selling Shareholder such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of Shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of Firm Shares or Option Shares, as the case may be, with
respect to which such default shall occur equals or exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company or of the Selling Shareholder except to the
extent provided in Section 8 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or
Option Closing Date, as the case may be, may be postponed for such period, not
exceeding seven days, as you, as Representatives, may determine in order that
the required changes in the Registration Statement or in the Prospectus or in
any other documents or arrangements may be effected. The term "Underwriter"
includes any person substituted for a defaulting Underwriter. Any action taken
under this Section 9 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to Paulson
Investment Company, Inc., 811 SW Naito Boulevard, Portland, Oregon 97204,
Attention: Chester L.F. Paulson; with a copy to Weiss, Jensen, Ellis & Howard,
2300 U.S. Bancorp Tower, 111 Fifth Avenue, Portland, Oregon 97204, Attention:
Mark A. von Bergen; if to the Company or the Selling Shareholder, to DAG Media,
Inc., 125-10 Queens Boulevard, Kew Gardens, NY 11415; with a copy to Morse
Zelnick, Rose & Lander, LLP, 450 Park Ave., New York, NY 10022, Attention:
Stephen A. Zelnick, Esq.
11. TERMINATION.
This Agreement may be terminated by you by notice to the
Company and to
28
the Selling Shareholder as follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and its subsidiaries taken as
a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
its subsidiaries taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or material change in economic or political conditions if the effect of such
outbreak, escalation, declaration, emergency, calamity, crisis or material
change on the financial markets of the United States would, in your reasonable
judgment, make it impracticable to market the Shares or to enforce contracts for
the sale of the Shares, (iii) the Dow Jones Industrial Average shall have fallen
by 15 percent or more from its closing price on the day immediately preceding
the date that the Registration Statement is declared effective by the
Commission, (iv) suspension of trading in securities generally on the New York
Stock Exchange or the American Stock Exchange or limitation on prices (other
than limitations on hours or numbers of days of trading) for securities on
either such Exchange, (v) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects or
may materially and adversely affect the business or operations of the Company,
(vi) declaration of a banking moratorium by United States or New York State
authorities, (vii) any downgrading in the rating of the Company's debt
securities by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Exchange Act); (viii) the
suspension of trading of the Common Shares by the Commission on The Nasdaq Stock
Market or (ix) the taking of any action by any governmental body or agency in
respect of its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company, the Selling Shareholder and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder.
29
No purchaser of any of the Shares from any Underwriter shall be deemed a
successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company, the Selling Shareholder and the Underwriters
acknowledge and agree that the only information furnished or to be furnished by
any Underwriter to the Company for inclusion in any Prospectus or the
Registration Statement consists of the information set forth in the last
paragraph on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-B under the Act
and the information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the state of Oregon. All disputes relating to this
Underwriting Agreement shall be adjudicated before a court located in Multnomah
County, Oregon to the exclusion of all other courts that might have
jurisdiction.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Shareholder and the several Underwriters in accordance with its terms.
30
Very truly yours,
DAG MEDIA, INC.
By:
---------------------------------
Assaf Ran
Chief Executive Officer
-------------------------------------
Assaf Ran
Selling Shareholder
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.
PAULSON INVESTMENT COMPANY, INC.
REDWINE & COMPANY, INC.
As Representatives of the several
Underwriters listed on Schedule I
By: PAULSON INVESTMENT COMPANY, INC.
By:
Authorized Officer
SCHEDULE I
SCHEDULE OF UNDERWRITERS
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
- --------------------------------------------- ---------------
Paulson Investment Company, Inc.
Redwine & Company, Inc.
TOTAL: 1,325,0000
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