EXHIBIT 1.1
____________ Shares
CDNOW, INC.
Common Stock
UNDERWRITING AGREEMENT
___________, 1998
BT ALEX. XXXXX INCORPORATED
NATIONSBANC XXXXXXXXXX SECURITIES, INC.
As Representatives of the several Underwriters
named in Schedule A hereto
c/o BT Alex. Xxxxx Incorporated
0 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Dear Sirs:
1. INTRODUCTORY. CDnow, Inc., a Pennsylvania corporation (the
"Company"), proposes to sell to the several underwriters named in Schedule A
hereto (the "Underwriters," or, each, an "Underwriter"), an aggregate of
_____________ shares of Common Stock, no par value share (the "Common Stock"),
of the Company. The aggregate of ____________ shares so proposed to be sold is
hereinafter referred to as the "Firm Stock". At the Underwriters' option, the
selling stockholders named in Schedule B hereto (the "Selling Stockholders")
propose to sell to the Underwriters up to an additional _________ shares of
Common Stock and the Company proposes to sell to the Underwriters up to an
additional ________ shares of Common Stock (collectively, the"Option Stock").
The Firm Stock and the Option Stock are hereinafter collectively referred to as
the "Stock". BT Alex. Xxxxx Incorporated ("Alex. Xxxxx") and the other
Representatives are acting as representatives of the several Underwriters and in
such capacity are hereinafter referred to as the "Representatives".
2. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the several Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-
41241), with respect to the Stock, including any prospectuses included
therein, copies of which have heretofore been delivered to you, has been
prepared by the Company
and has been filed under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder; one or more preeffective amendments to such registration
statement, including an amended preeffective prospectus, copies of which
filings have heretofore been delivered to you, have also been so prepared
and filed. Such registration statement at the time which it became or
becomes effective is referred to hereinafter as the "Registration
Statement". If it is contemplated, at the time this Agreement is executed,
that a post-effective amendment to the Registration Statement will be filed
and must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement means
the Registration Statement as amended by said post-effective amendment. The
term "Registration Statement" as used in this Agreement shall also include
any registration statement relating to the Stock, in the form in which it
is filed, that is filed and declared effective pursuant to Rule 462(b)
under the Securities Act. The term "Prospectus" as used in this Agreement
means the prospectus in the form included in the Registration Statement,
or, if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Securities Act and such
information is included in a prospectus filed with the Commission pursuant
to Rule 424(b) under the Securities Act, the term "Prospectus" as used in
this Agreement means the prospectus in the form included in the
Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant
to Rule 424(b). The term "Preeffective Prospectus" as used in this
Agreement means the prospectus subject to completion in the form included
in the Registration Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such prospectus shall
have been amended from time to time prior to the date of the Prospectus.
(ii) The Commission has not issued or, to the knowledge
of the Company, threatened to issue any order preventing or suspending the
use of any Preeffective Prospectus, and, at the time when it became or
becomes effective, the Registration Statement conformed or will conform in
all material respects to the requirements of the Securities Act. If the
Registration Statement was declared effective prior to the execution and
delivery of this Agreement, on the date the Registration Statement was
declared effective, the Registration Statement conformed in all material
respects with the requirements of the Securities Act and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading and, at the time of the filing
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of the Prospectus pursuant to Rule 424(b), the Prospectus will conform in
all material respects to the requirements of the Securities Act and will
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are
made, not misleading. If the Registration Statement is declared effective
subsequent to the execution and delivery of this Agreement, on the date the
Registration Statement becomes effective, the Registration Statement and
the Prospectus will conform in all material respects to the requirements of
the Securities Act, and on the date the Registration Statement is declared
effective, neither the Registration Statement nor the Prospectus will
include any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the foregoing
representations, warranties and agreements shall not apply to information
contained in or omitted from the Registration Statement or the Prospectus
or any amendment or supplement thereto in reliance upon, and in conformity
with, written information furnished to the Company by or on behalf of any
Underwriter, directly or through you, specifically for use in the
preparation thereof; there is no permit, lease, contract, agreement or
document required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement which
is not described or filed therein as required; and all descriptions of any
such permits, leases, contracts, agreements or documents contained in the
Registration Statement fairly presents in all material respects the
information called for by the Securities Act and the Rules and Regulations
with respect to such permits, leases, contracts, agreements or documents
and fairly summarize in all material respects the matters referred to
therein.
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus, neither the Company
nor any of its subsidiaries has incurred any material liabilities or
obligations, direct or contingent, not in the ordinary course of business,
nor entered into any material transactions not in the ordinary course of
business, and there has not been any material adverse change in the
condition (financial or otherwise), properties, business affairs,
management, business prospects or results of operations of the Company and
its subsidiaries considered as a whole, or any change in the capital stock
(other than pursuant to the exercise of outstanding stock options or
warrants) of the Company and its subsidiaries which is material to the
Company and its subsidiaries considered as a whole.
(iv) The financial statements, together with the related
notes and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present in all material respects, on the
basis stated in the Registration Statement, the financial position and the
results of operations and cash flows of the Company at the respective dates
or for the respective periods therein specified. Such statements and
related notes and schedules have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis except as may
be set forth in the
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Prospectus. The selected financial and statistical data set forth in the
Prospectus under the captions "Selected Financial And Operating Data"
are in conformity with the Rules and Regulations. The pro forma financial
information included in the Registration Statement and the Prospectus has
been prepared in accordance with the applicable published rules and
regulations of the Commission with respect to pro forma financial
information and the assumptions used in preparing such information are
reasonable.
(v) Xxxxxx Xxxxxxxx LLP, who has expressed its opinion
on the audited financial statements and related schedules included in the
Registration Statement and the Prospectus, are independent public
accountants as required by the Securities Act and the Rules and
Regulations.
(vi) The Company has and each of its subsidiaries has
been duly organized and is validly existing and in good standing (validly
subsisting with respect to the Company) as a corporation under the laws of
its jurisdiction of incorporation, with corporate power and corporate
authority to own or lease its properties and to conduct its businesses as
described in the Prospectus; except as described in the Prospectus, the
Company is and each of its subsidiaries is in possession of and operating
in compliance with all material grants, authorizations, licenses, permits,
easements, consents, certificates and orders required for the conduct of
their respective businesses, all of which are, to the Company's knowledge,
valid and in full force and effect; and, except as described in the
Prospectus, the Company is and each of its subsidiaries is duly qualified
to do business and in good standing as a foreign corporation in all other
jurisdictions where its ownership or leasing of properties or the conduct
of its businesses requires such qualification, except where the failure to
be so qualified and in good standing would not have a material adverse
effect on the Company and its subsidiaries taken as a whole (a "Material
Adverse Effect"). The Company has and each of its subsidiaries has all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public regulatory or
governmental agencies and bodies to own, lease and operate their respective
properties and conduct their respective businesses as now being conducted
and as described in the Registration Statement and the Prospectus except
where the failure to have any such consent, approval, authorization, order,
registration, qualification, license and permit would not have a Material
Adverse Effect, and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a materially
burdensome restriction not adequately disclosed in the Registration
Statement and the Prospectus. The Company owns 100% of the capital stock of
CDnow Investments, Inc and CDnow Trademarks, Inc., in each case, free and
clear of any liens, encumbrances, equities or claims. Other than the
ownership of not more than 5% of the securities of any publicly traded
corporation, the Company does not directly or indirectly own or control any
other corporations or entities.
(vii) The Company's authorized and outstanding capital
stock is on the date hereof, and will be on the Closing Dates (as defined
below), as set forth under
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the heading "Capitalization" in the Prospectus; the outstanding shares of
common stock (including the outstanding shares of Stock) of the Company
conform to the description thereof in the Prospectus and have been duly
authorized and validly issued and are fully paid and nonassessable; have
been duly authorized for quotation on the Nasdaq National Market, subject
to official notice of issuance; have been issued in compliance with all
federal and state securities laws; and have not been issued in violation of
(other than violations subsequently cured and waived) or subject to any
preemptive rights or similar rights to subscribe for or purchase
securities. Except as disclosed in and or contemplated by the Prospectus,
neither the Company nor its subsidiaries have outstanding any options or
warrants to purchase, or any preemptive rights or other rights to subscribe
for or to purchase any securities or obligations convertible into capital
stock, or any contracts or commitments to issue or sell shares of its
capital stock or any such options, rights, convertible securities or
obligations. The description of the options or other rights granted or
exercised under the Company's 1996 Equity Compensation Plan (the "Plan") or
other arrangements as set forth in the Prospectus, fairly present in all
material respects the information required to be shown with respect to such
options and rights. All outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued, and
are fully paid and non-assessable.
(viii) The shares of Stock to be issued and sold by the
Company to the Underwriters hereunder have been duly authorized and, when
issued and delivered against payment therefor as provided herein, will be
validly issued, fully paid and nonassessable and free of any preemptive or
similar rights and will conform to the description thereof in the
Prospectus.
(ix) Except as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any of
its subsidiaries or affiliates is a party or of which any property of the
Company or any subsidiary or affiliate is subject, that are required to be
described in the Registration Statement or the Prospectus that are not so
described. Neither the Company nor any of its subsidiaries is a party or
subject to the provisions of any material injunction, judgment, decree or
order of any court, regulatory body or other governmental agency or body
that is not described in the Prospectus.
(x) The execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions herein
contemplated by the Company will not result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, note agreement or other material
agreement or instrument to which the Company or any of its subsidiaries is
a party or by which it or any of them or any of their properties is or may
be bound, the Articles of Incorporation or By-laws of the Company or any of
its subsidiaries, or any law, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of its properties or will result in the
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creation of a materially burdensome lien on any of the properties of the
Company or any of its subsidiaries.
(xi) No consent, approval, authorization or order of any
court or governmental agency or body or self-regulatory body is required
for the consummation by the Company of the transactions contemplated by
this Agreement, except such as may be required by the Commission or the
National Association of Securities Dealers, Inc. (the "NASD") or under the
securities or "Blue Sky" laws of any jurisdiction in connection with the
purchase and distribution of the Stock by the Underwriters.
(xii) The Company has the full corporate power and
corporate authority to enter into this Agreement and to perform its
obligations hereunder (including to issue, sell and deliver the Stock), and
this Agreement has been duly and validly authorized, executed and delivered
by the Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that rights to indemnity and contribution hereunder may be limited
by federal or state securities laws or the public policy underlying such
laws and except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally, or by general equitable principles
regardless of whether considered in a proceeding at law or in equity.
(xiii) Subject to such qualifications as are set forth in
the Prospectus, the Company is and its subsidiaries are in all material
respects in compliance with, and are currently conducting their businesses
in conformity with, all applicable federal, state, local and foreign laws,
rules and regulations of each court or governmental agency or body having
jurisdiction over the Company and its subsidiaries except where the failure
to be in compliance or to so conduct their businesses would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; to the knowledge of the Company, except as set forth in the
Registration Statement and the Prospectus, no prospective change in any of
such federal or state laws, rules or regulations has been adopted which,
when made effective, would have a material adverse effect on the operations
of the Company and its subsidiaries.
(xiv) The Company and its subsidiaries have filed all
necessary federal, state, local and foreign income, payroll, franchise and
other tax returns and have paid all taxes shown as due thereon or with
respect to any of their properties, except for those taxes (i) for which
the Company has established adequate reserves in its financial statements
or (ii) that, in the aggregate, the Company's failure to pay would not have
a Material Adverse Effect.
(xv) No person or entity has the right to require
registration of shares of Common Stock or other securities of the Company
because of the filing or effectiveness of the Registration Statement,
except for persons and entities who have expressly waived such right or who
have been given proper notice and have failed to
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exercise such right within the time or times required under the terms and
conditions of such right.
(xvi) Neither the Company nor, to its knowledge, any of
its officers, directors or affiliates has taken or will take, directly or
indirectly, any action designed or intended to stabilize or manipulate the
price of any security of the Company, or which caused or resulted in, or
which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of the Company.
(xvii) Except as described in the Prospectus, the Company
and its subsidiaries own, possess or have a valid right to use all
trademarks, trademark registrations, service marks, service xxxx
registrations, tradenames, copyrights, licenses, inventions, trade secrets
and rights described in the Prospectus as being owned by them or any of
them or necessary for the conduct of their respective businesses. To the
Company's knowledge, except as described in the Prospectus, no claim has
been made against the Company or its subsidiaries alleging the infringement
by the Company or its subsidiaries of any patent, trademark, service xxxx,
tradename, copyright, trade secret, license in or other intellectual
property right or franchise right of any person. Except as set forth in the
Prospectus, (including, without limitation, uncertainties relating to
making content available in Germany and the possibility that distributors
in foreign countries may seek to enjoin the sale of music-related items by
an Internet retailer) the Company's business as now conducted and as
proposed to be conducted does not and, to its knowledge, will not infringe
or conflict with any patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses or other intellectual property or
franchise right of any person.
(xviii) The Company and its subsidiaries have performed
all material obligations required to be performed by them under any
indenture, mortgage, deed of trust, note agreement or other material
agreement or instrument to which they are a party or by which they or any
of their properties may be bound, and neither the Company nor any of its
subsidiaries nor, to the Company's knowledge, any other party to such
indenture, mortgage, deed of trust, note agreement or other agreement or
instrument is in default under or in breach of any such obligations which
default or breach would reasonably be expected to have a material adverse
effect on the Company and its subsidiaries taken as a whole. Neither the
Company nor any of its subsidiaries has received any notice of such default
or breach.
(xix) The Company is not involved in any labor dispute
nor to the Company's knowledge is any such dispute threatened. The Company
is not aware that (A) any executive, key employee or significant group of
employees of the Company or any subsidiary plans to terminate employment
with the Company or any such subsidiary or (B) any such executive or key
employee is subject to any noncompete, nondisclosure, confidentiality,
employment, consulting or similar agreement that would be violated by the
present or proposed business activities of the Company and its
subsidiaries. Neither the Company nor any subsidiary has or expects to have
any liability for any prohibited transaction or funding deficiency or any
complete or partial withdrawal liability with
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respect to any pension, profit sharing or other plan which is subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
to which the Company or any subsidiary makes or ever has made a
contribution and in which any employee of the Company or any subsidiary is
or has ever been a participant. With respect to such plans, the Company and
each subsidiary are in compliance in all material respects with all
applicable provisions of ERISA.
(xx) The real property and buildings held under lease
by the Company and its subsidiaries are held by them under valid and
binding leases with such exceptions as would not have a material adverse
effect on the Company and its subsidiaries considered as a whole or as are
described in the Prospectus.
(xxi) Other than as contemplated by this Agreement,
there is no broker, finder or other party that is entitled to receive from
the Company any brokerage or finder's fee or other fee or commission as a
result of any of the transactions contemplated by this Agreement.
(xxii) The inventory of the Company and its subsidiaries
is in fit and merchantable condition and can be sold in the ordinary course
of business at the carrying value of such inventory, as shown on the
Company's consolidated financial statements, subject, however, to pricing
reductions in the ordinary course of business.
(xxiii) The Company and each of its subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary 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.
(xxiv) To the Company's knowledge, neither the Company
nor any of its subsidiaries nor any employee or agent of the Company or any
of its subsidiaries has made any payment of funds of the Company or any of
its subsidiaries or received or retained any funds in violation of any law,
rule or regulation, which payment, receipt or retention of funds is of a
character required to be disclosed in the Prospectus.
(xxv) Neither the Company nor any of its subsidiaries is
an "investment company" as such term is defined in the Investment Company
Act of 1940, as amended.
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(b) REPRESENTATIONS AND WARRANTIES AND AGREEMENTS OF THE
SELLING STOCKHOLDERS. Each Selling Stockholder severally represents and warrants
to the several Underwriters that such Selling Stockholder:
(i) Now has, and on the Option Closing Date (as
hereinafter defined) will have, valid title to the Stock to be sold by such
Selling Stockholder, free and clear of any Adverse Claim within the
meaning of the Uniform Commercial Code as in effect in the Commonwealth of
Pennsylvania ("Adverse Claim") and has full legal right and capacity to
enter into this Agreement, the Power of Attorney and the Custody Agreement
(each as hereinafter defined).
(ii) Now has, and on the Option Closing Date will have,
upon delivery of and payment for each share of Stock being sold by such
Selling Stockholder hereunder, full legal right and capacity required by
law to sell, transfer, assign and deliver such shares, and no consent,
approval, authorization or order of any court or governmental agency or
body or self-regulatory body is required for the consummation by such
Selling Shareholder of the transactions contemplated by this Agreement,
except such as may be required by the Commission or the National
Association of Securities Dealers, Inc. (the "NASD") or under the
securities or "Blue Sky" laws of any jurisdiction in connection with the
purchase and distribution of the Stock by the Underwriters; and, upon
delivery and payment for such shares as contemplated hereby, the several
Underwriters will acquire valid title to such shares, free and clear of any
Adverse Claim.
(iii) Has duly executed and delivered a power of
attorney in substantially the form heretofore delivered to the
Representatives (the "Power of Attorney"), appointing Xxxxx Xxxx and Xxxx
Xxxxxxx, and each of them, as attorney-in-fact (the "Attorneys-in-fact")
with authority to execute and deliver this Agreement on behalf of such
Selling Stockholder, to authorize the delivery of the shares of Stock to be
sold by such Selling Stockholder hereunder and otherwise to act on behalf
of such Selling Stockholder in connection with the transactions
contemplated by this Agreement.
(iv) Has duly executed and delivered a custody
agreement in substantially the form heretofore delivered to the
Representatives (the "Custody Agreement"), with StockTrans, Inc., as
custodian (the "Custodian"), pursuant to which certificates in negotiable
form for the shares of Stock to be sold by such Selling Stockholder
hereunder have been placed in custody for delivery under this Agreement.
(v) Has, by execution and delivery of each of this
Agreement, the Power of Attorney and the Custody Agreement, created valid
and binding obligations of such Selling Stockholder, enforceable against
such Selling Stockholder in accordance with its terms, except to the extent
that rights to indemnity and contribution hereunder may be limited by
federal or state securities laws or the public policy underlying such laws
and except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, moratorium or similar laws
affecting creditors' rights generally,
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or by general equitable principles regardless of whether considered in a
proceeding at law or in equity.
(vi) The performance of this Agreement, the Custody
Agreement and the Power of Attorney, and the consummation of the
transactions contemplated hereby and thereby will not result in a breach or
violation by such Selling Stockholder of any of the terms or provisions of,
or constitute a default by such Selling Stockholder under, any indenture,
mortgage, deed of trust, trust, loan agreement, lease, franchise, license
or other material agreement or material instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder or any of its
properties is bound, or any judgment of any court or governmental agency or
body applicable to such Selling Stockholder or any of its properties, or to
such Selling Stockholder's knowledge, any statute, decree, order, rule or
regulation of any court or governmental agency or body applicable to such
Selling Stockholder or any of his properties.
(vii) The information pertaining to such Selling
Stockholder under the caption "Principal and Selling Stockholders" in the
Prospectus fairly presents in all material respects the information called
for by Item 507 of Regulation S-K of the Rules and Regulations with respect
to such Selling Stockholder.
(viii) Such Selling Stockholder has not taken and will
not take, 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 Stock of the
Company and, other than as permitted by the Securities Act, the Selling
Stockholder will not distribute any prospectus or other offering material
in connection with the offering of the Shares.
Each Selling Stockholder agrees that the shares of Stock
represented by the certificates held in custody under the Custody Agreement are
for coupled with and subject to the interests of the Underwriters, the Company
and the other Selling Stockholders hereunder, and that the arrangement for such
custody and the appointment of the Attorneys-in-fact are to that extent
irrevocable other than as set forth in the Power of Attorney and the Custody
Agreement; that the obligations of such Selling Stockholder hereunder shall not
be terminated by operation of law, whether by the death or incapacity of such
Selling Stockholder, or any other event, that if such Selling Stockholder should
die or become incapacitated or any other such event occurs, before the delivery
of the Stock hereunder, certificates for the Stock to be sold by such Selling
Stockholder shall be delivered on behalf of such Selling Stockholder in
accordance with the terms and conditions of this Agreement and the Custody
Agreement, and action taken by the Attorneys-in-fact or any of them under the
Power of Attorney shall be as valid as if such death, incapacity or other such
event had not occurred, whether or not the Custodian, the Attorneys-in-fact or
any of them shall have notice of such death, incapacity or such other
event.
3. PURCHASE BY, AND SALE AND DELIVERY TO, UNDERWRITERS--CLOSING
DATES. The Company agrees to sell to the Underwriters the Firm Stock on the
basis
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of the representations, warranties, covenants and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase the Firm Stock from
the Company; the number of shares of Firm Stock to be purchased by each
Underwriter being set opposite its name in Schedule A, subject to adjustment in
accordance with Section 12 hereof.
The purchase price per share to be paid by the Underwriters to the
Company will be $_________ per share (the "Purchase Price").
The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company not later than
the second full business day preceding the First Closing Date (as defined below)
against payment of the aggregate Purchase Price therefor by wire transfer of
same-day funds, payable to the order of the Company, all, as selected by Alex.
Xxxxx, at the offices of (x) Alex. Xxxxx, Baltimore, Maryland or (y) Xxxxxx,
Xxxxx & Bockius LLP, Philadelphia, Pennsylvania. The time and date of the
delivery and closing shall be at 10:00 A.M., Baltimore Time), on ________, 1998.
The time and date of such payment and delivery are herein referred to as the
"First Closing Date". The First Closing Date and the location of delivery of,
and the form of payment for, the Firm Stock may be varied by agreement among the
Company and Alex. Xxxxx. The First Closing Date may be postponed pursuant to
the provisions of Section 12.
The Company shall make the certificates for the Stock available to the
Representatives for examination on behalf of the Underwriters not later than
10:00 A.M., Baltimore Time, on the business day preceding the First Closing Date
at the offices of (x) Alex. Xxxxx, Baltimore, Maryland or (y) Xxxxxx, Xxxxx &
Bockius LLP, Philadelphia, Pennsylvania, as selected by Alex. Xxxxx.
It is understood that Alex. Xxxxx or the other Representatives,
individually and not as Representatives of the several Underwriters, may (but
shall not be obligated to) make payment to the Company and the Selling
Stockholders on behalf of any Underwriter or Underwriters, for the Stock to be
purchased by such Underwriter or Underwriters. Any such payment by Alex. Xxxxx
or the other Representative shall not relieve such Underwriter or Underwriters
from any of its or their other obligations hereunder.
The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price as set forth in the
Prospectus as soon after the effectiveness of the Registration Statement as in
their judgment is advisable. The Representatives shall promptly advise the
Company of the making of the initial public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Selling Stockholders and the Company hereby grant to the Underwriters an option
to purchase, severally and not jointly, up to the aggregate number of shares of
Option Stock set forth opposite each Selling Stockholder's
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name on Schedule B hereto, plus up to an aggregate of __________ shares from the
Company, for an aggregate of up to ___________ shares. The price per share to be
paid for the Option Stock shall be the Purchase Price. The option granted hereby
may be exercised as to all or any part of the Option Stock at any time prior to
or after the First Closing Date (with notice of such exercise to be made at
least two (2) business days prior to the closing date of the sale of the Option
Stock), but may not be exercised more than once and such exercise must occur not
more than thirty (30) days subsequent to the effective date of this Agreement.
No Option Stock shall be sold and delivered unless the Firm Stock previously has
been, or simultaneously is, sold and delivered. The right to purchase the Option
Stock or any portion thereof may be surrendered and terminated at any time upon
notice by the Underwriters to the Company and the Selling Stockholders.
The option granted hereby may be exercised by the Underwriters by
giving written notice from Alex. Xxxxx to the Company and the Selling
Stockholders setting forth the number of shares of the Option Stock to be
purchased by them and the date and time for delivery of and payment for the
Option Stock. Each date and time for delivery of and payment for the Option
Stock (which may be the First Closing Date, but not earlier) is herein called
the "Option Closing Date" and shall in no event be earlier than two (2) business
days nor later than ten (10) business days after written notice is given. (The
Option Closing Date and the First Closing Date are herein called the "Closing
Dates".) All purchases of Option Stock from the Company and the Selling
Stockholders shall be made in the same proportion as the number of shares of
Option Stock set forth opposite the Company's and such Selling Stockholder's
name on Schedule B hereto bears to the total number of shares of Option Stock
set forth on Schedule B. Option Stock shall be purchased for the account of
each Underwriter in the same proportion as the number of shares of Firm Stock
set forth opposite such Underwriter's name in Schedule A hereto bears to the
total number of shares of Firm Stock (subject to adjustment by the Underwriters
to eliminate odd lots). Upon exercise of the option by the Underwriters, the
Company and the Selling Stockholders shall sell to the Underwriters the number
of shares of Option Stock set forth in the written notice of exercise and the
Underwriters agree, severally and not jointly, and subject to the terms and
conditions herein set forth, to purchase the number of such shares determined as
aforesaid.
The Company and the Selling Stockholders will deliver the Option Stock
to the Underwriters (in the form of definitive certificates, issued in such
names and in such denominations as the Representatives may direct by notice in
writing to the Company and the Selling Stockholders no later than the second
full business day preceding the Option Closing Date, against payment of the
aggregate Purchase Price therefor by wire transfer of same-day funds, payable as
directed by the Company and the Custodian (or such Selling Stockholder, as the
case may be), all at the offices of (x) Alex. Xxxxx, Baltimore, Maryland or (y)
Xxxxxx, Xxxxx & Bockius LLP, Philadelphia, Pennsylvania, as selected by Alex.
Xxxxx. The Company and the Selling Stockholders shall make the certificates for
the Option Stock available to the Underwriters for examination not later than
10:00 A.M., Baltimore Time, on the business day preceding the Option Closing
Date at the offices of (x) Alex. Xxxxx, Baltimore, Maryland or (y) Xxxxxx, Xxxxx
& Bockius LLP, Philadelphia, Pennsylvania, as selected by Alex. Xxxxx. The
Option Closing Date and the location of delivery of, and the form of payment
for, the Option Stock may be varied by agreement among the Company, the Selling
Stockholders and Alex. Xxxxx. The Option Closing Date may be postponed pursuant
to the provisions of Section 12.
-12-
If on the Closing Date, any Selling Stockholder fails to sell the
Option Stock which such Selling Stockholder has agreed to sell on such date as
set forth in Schedule B hereto, the Company agrees that it will sell or arrange
for the sale of that number of shares of Common Stock to the Underwriters which
represents Option Stock which such Selling Stockholder has failed to so sell, as
set forth in Schedule B hereto, or such lesser number as may be requested by the
Representatives.
4. COVENANTS AND AGREEMENTS OF THE COMPANY AND THE SELLING
STOCKHOLDERS. The Company covenants and agrees with the several Underwriters
that:
(a) The Company will (i) if the Company and the Representatives
have determined not to proceed pursuant to Rule 430A, use its reasonable
commercial efforts to cause the Registration Statement to become effective, (ii)
if the Company and the Representatives have determined to proceed pursuant to
Rule 430A, use its reasonable commercial efforts to comply with the provisions
of and make all requisite filings with the Commission pursuant to Rule 430A and
Rule 424 of the Rules and Regulations and (iii) if the Company and the
Representatives have determined to deliver Prospectuses pursuant to Rule 434 of
the Rules and Regulations, to use its reasonable commercial efforts to comply
with all the applicable provisions thereof. The Company will advise the
Representatives promptly as to the time at which the Registration Statement
becomes effective, if it has not yet become effective, will advise the
Representatives promptly of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose, and in the event of the institution of such
proceedings, will use its reasonable commercial efforts to prevent the issuance
of any such stop order and to obtain as soon as is reasonably practicable the
lifting thereof, if issued. The Company will advise the Representatives promptly
of the receipt of any comments of the Commission or any request by the
Commission for any amendment of or supplement to the Registration Statement or
the Prospectus or for additional information and will not at any time file any
amendment to the Registration Statement or supplement to the Prospectus which
shall not previously have been submitted to the Representatives a reasonable
time prior to the proposed filing thereof or to which the Representatives shall
reasonably object in writing within a reasonable time or which is not in
compliance with the Securities Act and the Rules and Regulations.
(b) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be delivered
under the Securities Act any event relating to or affecting the Company or any
of its subsidiaries occurs as a result of which the Prospectus or any other
prospectus as then in effect would include an untrue statement of a material
fact, or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to comply
with the Securities Act, the Company will promptly notify the Representatives
thereof and will prepare an amended or supplemented prospectus which will
correct such statement or omission; and in case any Underwriter is required to
deliver a prospectus relating to the Stock nine (9) months or more after the
effective date of the Registration
-13-
Statement, the Company upon the request of the Representatives and at the
expense of such Underwriter will prepare promptly such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Securities Act.
(c) The Company will deliver to the Representatives, at or
before the First Closing Date, 4 signed copies of the Registration Statement, as
originally filed with the Commission, and all amendments thereto including all
financial statements and exhibits thereto, and will deliver to the
Representatives such number of copies of the Registration Statement, including
such financial statements but without exhibits, and all amendments thereto, as
the Representatives may reasonably request. The Company will deliver or mail to
or upon the reasonable order of the Representatives, from time to time until the
effective date of the Registration Statement, as many copies of the Preeffective
Prospectus as the Representatives may reasonably request. The Company will
deliver or mail to or upon the reasonable order of the Representatives on the
date of the initial public offering, and thereafter from time to time during the
period when delivery of a prospectus relating to the Stock is required under the
Securities Act, as many copies of the Prospectus, in final form or as thereafter
amended or supplemented as the Representatives may reasonably request; provided,
however, that the expense of the preparation and delivery of any prospectus
required for use nine (9) months or more after the effective date of the
Registration Statement shall be borne by the Underwriters on whose behalf such
request is made.
(d) The Company will make generally available to its
stockholders as soon as practicable, but not later than fifteen (15) months
after the effective date of the Registration Statement, an earnings statement
which will be in reasonable detail (but which need not be audited) and which
will comply with Section 11(a) of the Securities Act, covering a period of at
least twelve (12) months beginning after the date upon which the Registration
Statement was declared effective.
(e) The Company will cooperate with the Representatives to
enable the Stock to be registered or qualified for offering and sale by the
Underwriters and by dealers under the securities laws of such jurisdictions in
the United States as the Representatives may designate and at the request of the
Representatives will make such applications and furnish such consents to service
of process or other documents as may be required of it as the issuer of the
Stock for that purpose; provided, however, that the Company shall not be
required to qualify to do business, to file a general consent to service of
process or subject itself to taxation in any such jurisdiction where it is not
now so subject nor shall the Company or any stockholder of the Company be
required to escrow or forfeit any shares that they currently hold. The Company
will advise the Representatives promptly after the Company becomes aware of the
suspension of the qualifications or registration of (or any such exception
relating to) the Common Stock of the Company for offering, sale or trading in
any jurisdiction or of any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any orders suspending such
qualifications, registration or exception, the Company will, with the
cooperation of the Representatives (which the Representatives covenant to
provide), use its reasonable commercial efforts to obtain the withdrawal hereof.
-14-
(f) The Company will furnish to its stockholders annual reports
containing financial statements certified by independent public accountants.
During the period of five (5) years from the date hereof, the Company will
deliver to the Representatives and, upon request, to each of the other
Underwriters, as soon as they are available, copies of each annual report of the
Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
accountants and will deliver to the Representatives, (i) as soon as they are
available, copies of any other reports or communication (financial or other)
which the Company shall make available to any of its stockholders generally as
such and (ii) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission, or the NASD or any
national securities exchange. Similar reports shall be furnished for all
subsidiaries whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Rules and Regulations.
(g) The Company has received approval for listing the Stock,
subject to official notice of issuance, on the Nasdaq National Market.
(h) The Company will maintain a transfer agent and a registrar
(if required by its jurisdiction of incorporation) for its Common Stock.
(i) The Company will not offer, sell, assign, transfer,
encumber, contract to sell, grant an option to purchase or otherwise dispose of
any shares of Common Stock, securities convertible into or exercisable or
exchangeable for Common Stock or other derivative securities whose value is
derived form the value of the Common Stock during the 180 days following the
date of the Prospectus, other than the Company's sale of Common Stock hereunder
and the Company's issuance of Common Stock upon the exercise of warrants and of
stock options which are presently outstanding and described in the Prospectus or
pursuant to employee benefit plans described in the Prospectus.
(j) Except to the extent arising from conditions beyond the
control of the Company, the Company will apply the net proceeds from the sale of
the Stock as set forth in the description under "Use of Proceeds" in the
Prospectus.
(k) The Company will supply you with copies of all
correspondence to and from, and all documents issued to and by, the Commission
in connection with the registration of the Stock under the Securities Act.
(l) Prior to the Closing Dates the Company will furnish to you,
as soon as they have been prepared, copies of any unaudited interim consolidated
financial statements of the Company and its subsidiaries for any periods
subsequent to the periods covered by the financial statements appearing in the
Registration Statement and the Prospectus.
-15-
(m) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Stock in such a manner as would
require the Company to register as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act").
(n) 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.
Each of the Selling Stockholders covenants and agrees with the
several Underwriters that:
(i) Without the prior written consent of Alex. Xxxxx, he
will not, directly or indirectly (a) offer, sell, pledge, contract to sell
(including any short sale), grant any option to purchase or otherwise
dispose of any shares of common stock of the Company ("Shares") which may
be deemed to be beneficially owned by him on the date hereof in accordance
with the rules and regulations of the Securities and Exchange Commission
and Shares which may be issued to him upon exercise of a stock option or
warrant owned by him other than Shares purchased in the open market, or (b)
enter into any Hedging Transaction (as defined below) relating to such
Shares (each of the foregoing classes (a) and (b) are hereinafter referred
to as a "Disposition") for a period of 180 days after the effective date of
the Registration Statement (the "Lock-Up Period"). The foregoing
restriction is expressly intended to preclude each Selling Stockholder from
engaging in any Hedging Transaction or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition by him
during the Lock-Up Period even if the securities would be disposed of by
someone other than him. "Hedging Transaction" means any short sale (whether
or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from the Shares;
provided that the exercise of an option or warrant to purchase Shares or
the conversion of any convertible securities into Shares shall not be a
Hedging Transaction. Notwithstanding the foregoing, a Selling Stockholder
may transfer by gift, will or intestacy any or all of the Shares
beneficially owned by him; provided, however, that in any such case it
shall be a condition to the transfer that the transferee execute an
agreement stating that the transferee is receiving and holding such Shares
subject to the provisions of this Section 4(i), and there shall be no
further transfer of such Shares except in accordance with the terms of this
Section 4(i).
(ii) Each of the Selling Stockholders agrees to deliver
to you prior to or at the Closing Date a properly completed and executed
United States Treasury Department Form W-8 or W-9, as applicable.
-16-
(iii) Such Selling Stockholder will not take, directly or
indirectly, any action designed to cause or result in, or that might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any securities of the Company.
5. PAYMENT OF EXPENSES.
(a) The Company will pay (directly or by reimbursement) all
costs, expenses and fees incident to the performance of the Company and the
Selling Stockholders under this Agreement, including the following: the fees and
expenses of the Company's independent public accountants; the fees and
disbursements of counsel for the Company and the Selling Stockholders (except as
expressly provided below with respect to counsel to be paid for by the Selling
Stockholders and except as provided in Sections 4(b) and (c) hereof); the filing
fees of the Commission; the costs of preparing stock certificates (including
printing and engraving costs); all fees and expenses of the registrar and
transfer agent for the Common Stock; all necessary transfer and other stamp
taxes in connection with the issuance and sale of the Stock by the Company to
the Underwriters hereunder; the cost of printing and delivering to, or as
requested by, the Underwriters copies of the Registration Statement, Preliminary
Prospectus, Prospectus and any supplements or amendments thereto except as
provided in Sections 4(b) and (c) hereof; the NASD filing fees incident to
securing any required review by the NASD of the terms of the sale of the Stock;
the listing fee of the Nasdaq National Market; and the expenses, including the
reasonable and ordinary fees and disbursements of counsel for the Underwriters
incurred in connection with review by the NASD of the terms of the sale of the
Stock and exemptions from qualifying or registering (or obtaining qualification
or registration of) all or any part of the Stock for offer or sale under the
Blue Sky or other securities laws of such jurisdictions within the United States
as the Representatives may designate. To the extent, if at all, that any Selling
Stockholder engages special legal counsel to represent such Selling Stockholder
in connection with this offering, the fees and expenses of such counsel shall be
borne by such Selling Stockholder. The Company shall not, however, be required
to pay for any of the Underwriters' expenses (other than the fees ordinary
incident to securing any required review by the NASD and those related to
qualification under state securities or "blue sky" laws), except as provided in
Section 11 hereof.
(b) Each Selling Stockholder will pay (directly or by
reimbursement) all fees and expenses incident to the performance of such Selling
Stockholder's obligations under this Agreement which are not otherwise
specifically provided for herein, including but not limited to any fees and
expenses of counsel for such Selling Stockholder, and all transfer, stamp and
other taxes incident to the sale and delivery of the Stock to be sold by such
Selling Stockholder to the Underwriters hereunder.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and each Selling Stockholder, severally and not
jointly, agree to indemnify and hold harmless each Underwriter and each person,
if any, who controls such Underwriter within the meaning of the Securities Act
and the respective officers, directors, partners, employees, representatives and
agents of each of such Underwriter
-17-
(collectively, the "Underwriter Indemnified Parties" and, each, an "Underwriter
Indemnified Party"), against any losses, claims, damages, liabilities or
expenses (including, except as set forth below with respect to counsel fees, the
reasonable cost of investigating and defending against any claims therefor and
counsel fees incurred in connection therewith) which may be based upon the
Securities Act, or any other statute or at common law, on the ground or alleged
ground that any Preeffective Prospectus, the Registration Statement or the
Prospectus (or the Registration Statement or the Prospectus as amended or
supplemented) includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, unless such statement or omission was made in reliance upon, and
in conformity with, written information furnished to the Company or any
subsidiary by any Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof; provided, however, that neither
the Company nor any Selling Stockholder will be liable to any Underwriter
Indemnified Party with respect to any loss, claim, damage, expense or liability
arising out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission to state a material fact in the Preeffective
Prospectus which is corrected in the Prospectus if the person asserting such
loss, claim, damage, expense or liability was not sent or given a copy of the
Prospectus at or prior to the written confirmation of the sale of Stock to such
person. In no event shall the liability of any Selling Stockholder to the
Underwriter Indemnified Parties under this Agreement (including, without
limitation, liabilities arising with respect to such Selling Stockholder's
representations hereunder) exceed the proceeds, net of underwriting discounts
and commissions, received by such Selling Stockholder from the Underwriters in
the offering of the stock and net of any damages that the Selling Stockholder
was otherwise required to pay by reason of such untrue or allegedly untrue
statement or omission. The Company or such Selling Stockholder will be entitled
to participate at its own expense in the defense or, if the Company so elects,
the Company will be entitled to assume the defense of any suit brought to
enforce any such liability, but if the Company elects to assume the defense,
such defense shall be conducted by counsel chosen by it. In the event the
Company elects to assume the defense of any such suit and retain such counsel,
any Underwriter Indemnified Parties, defendant or defendants in the suit, may
retain additional counsel but shall bear the fees and expenses of such counsel
unless (i) the Company shall have specifically authorized the retaining of such
counsel or (ii) the parties to such suit include any such Underwriter
Indemnified Parties, and the Company and such Underwriter Indemnified Parties
have been advised by counsel to the Underwriters that one or more legal defenses
may be available to it or them which may not be available to the Company, in
which case the Company shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such counsel. It
is understood that the Company Indemnified Parties and Stockholder Indemnified
Parties shall not, collectively 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 Underwriter Indemnified Parties.
The Company and the Selling Stockholders against whom indemnity may be sought
shall not be liable to indemnify any person for any settlement of any such claim
effected without the consent of the Company or such Selling Stockholder, as
applicable. In no case is the Company or any Selling Stockholder to be liable
with respect to any claims made against any Underwriter Indemnified Party
against whom the action is brought unless such Indemnified Party shall have
notified the
-18-
Company and the Selling Stockholders in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon the Underwriter Indemnified Party, but failure
to notify the Company and the Selling Stockholders of such claim shall not
relieve them from any liability which they may have to any Underwriter
Indemnified Party otherwise then on account of its indemnity agreement contained
in this paragraph. This indemnity agreement is not exclusive and will be in
addition to any liability which the Company or any Selling Stockholder might
otherwise have.
(b) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each person
named as a prospective director in the Registration Statement, each of its
officers who have signed the Registration Statement and each person, if any, who
controls the Company within the meaning of the Securities Act (collectively, the
"Company Indemnified Parties") and the Selling Stockholders and each person, if
any, who controls any Selling Stockholder within the meaning of the Securities
Act (collectively, the "Stockholder Indemnified Parties"), against any losses,
claims, damages, liabilities or expenses (including, except as set forth below
with respect to counsel fees, the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in connection therewith),
joint or several, which arise out of or are based in whole or in part upon the
Securities Act, the Exchange Act or any other federal, state, local or foreign
statute or regulation, or at common law, on the ground or alleged ground that
any Preeffective Prospectus, the Registration Statement or the Prospectus (or
the Registration Statement or the Prospectus, as amended or supplemented)
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading,
but only insofar as any such statement or omission was made in reliance upon,
and in conformity with, written information furnished to the Company by such
Underwriter, directly or through the Representatives, specifically for use in
the preparation thereof; provided, however, that in no case is such Underwriter
to be liable with respect to any claims made against any Company Indemnified
Party or Stockholder Indemnified Party against whom the action is brought unless
such Company Indemnified Party or Stockholder Indemnified Party shall have
notified such Underwriter in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon the Company Indemnified Party or Stockholder Indemnified
Party, but failure to notify such Underwriter of such claim shall not relieve it
from any liability which it may have to any Company Indemnified Party or
Stockholder Indemnified Party otherwise than on account of its indemnity
agreement contained in this paragraph. Such Underwriter shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but, if such
Underwriter elects to assume the defense, such defense shall be conducted by
counsel chosen by it. In the event that any Underwriter elects to assume the
defense of any such suit and retain such counsel, the Company Indemnified
Parties or Stockholder Indemnified Parties and any other Underwriter or
Underwriters or controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained by
them, respectively, unless (i) the Underwriters shall have specifically
authorized the retaining of such counsel or (ii) the parties to such suit
includes any such Company Indemnified Parties or Selling Stockholder Indemnified
Parties and the Underwriters, and the
-19-
Underwriters or such Company Indemnified Parties have been advised by counsel to
the Company (in the case of the Company Indemnified Parties) or the Selling
Stockholders (in the case of the Selling Stockholder Indemnified Parties) that
one or more legal defenses may be available to it or them which may not be
available to the Underwriters, in which case the Underwriters shall not be
entitled to assume the defense of such suit notwithstanding their obligation to
bear the fees and expenses of such counsel. It is understood that the
Underwriter Indemnified Parties 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 Company Indemnified Parties
and Stockholder Indemnified Parties. The Underwriter against whom indemnity may
be sought shall not be liable to indemnify any person for any settlement of any
such claim effected without such Underwriter's consent. This indemnity agreement
is not exclusive and will be in addition to any liability which such Underwriter
might otherwise have and shall not limit any rights or remedies which may
otherwise be available at law or in equity to any Company Indemnified Party or
Stockholder Indemnified Party.
(c) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand, and the Underwriters on the other, from the
offering of the Stock. 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 and the Selling Stockholders on the
one hand and the underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), as well as any the relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders 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 Stockholders bear 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, the Selling Stockholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contribution 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. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to above shall
be deemed to include any legal or
-20-
other expenses reasonably incurred by such indemnified party in connection with
investigating, defending, settling or compromising any such claim.
Notwithstanding the provisions of this subsection (c), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the shares of the Stock underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission and no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(d) Notwithstanding anything in this Agreement to the contrary, (i)
no Selling Stockholder shall be required to make any payment to any Underwriter
Indemnified Party under this Section 6 or on account of the breach of any
representation, warranty, covenant or agreement set forth in this Agreement
unless Option Stock is purchased from such Selling Stockholder by the
Underwriters; (ii) the liability of any Selling Stockholder to the Underwriter
Indemnified Parties pursuant to this Section 6 or as a result of the breach of
any representation, warranty, covenant or agreement of such Selling Stockholder
set forth in this Agreement shall be limited to the proceeds received by such
Selling Stockholder from the Underwriters in the offering of the Stock, net of
underwriting discounts and commissions, and net of any damages the Selling
Stockholder has otherwise been required to pay by reason of any untrue or
alleged untrue statement in any Preeffective Prospectus, the Registration
Statement or the Prospectus, or by reason of any omission or alleged omission
therefrom, (iii) no Selling Stockholder shall be required by this Section 6 to
make any payment to any Underwriter Indemnified Party until such time as such
Underwriter Indemnified Party has asserted a claim for such payment against the
Company and such claim cannot be satisfied by the Company in accordance with the
provisions of this Section 6.
7. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Selling
Stockholders, the Company or any of their officers or directors or any
controlling persons, and shall survive delivery of and payment for the Stock,
provided that the indemnities, covenants, agreements, representations,
warranties and other statements of the Selling Stockholders shall terminate if
the Option has not been exercised.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective
obligations of the several Underwriters hereunder shall be subject to the
accuracy, in all material respects at and (except as otherwise stated herein) as
of the date hereof and at and as of the Closing Dates (except that
representations and warranties qualified by materiality shall be true and
correct in all respects), of the representations and warranties made herein by
the Company and the Selling Stockholders, and to compliance in all respects at
and as of the Closing Dates by the
-21-
Company and the Selling Stockholders with their covenants and agreements herein
contained, and to the following additional conditions:
(a) The Registration Statement, if not heretofore effective, shall
have become effective and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
initiated or, to the knowledge of the Company or the Representatives, shall be
threatened by the Commission, and any request for additional information on the
part of the Commission (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of the Representatives. Any filings of the Prospectus, or any
supplement thereto, required pursuant to Rule 424(b) or Rule 434 of the Rules
and Regulations, shall have been made in the manner and within the time period
required by Rule 424(b) and Rule 434 of the Rules and Regulations, as the case
may be.
(b) Neither the Registration Statement nor the Prospectus, or any
amendment or supplement thereto, shall contain an untrue statement of fact which
in the reasonable opinion of counsel to the Representatives is material or omits
to state a fact which in the reasonable opinion of counsel to the
Representatives is material, required to be stated therein or necessary to make
the statements therein not misleading.
(c) At the time of execution of this Agreement, the Representatives
shall have received from Xxxxxx Xxxxxxxx LLP, independent certified public
accountants, a letter, dated the date hereof, in form and substance satisfactory
to the Representatives.
(d) The Representatives shall have received from Xxxxxx Xxxxxxxx LLP,
independent certified public accountants, a letter, dated the Closing Dates, to
the effect that such accountants reaffirm, as of the Closing Dates, and as
though made on the Closing Dates, the statements made in the letter furnished by
such accountants pursuant to paragraph (c) of this Section 8.
(e) The Representatives shall have received from Xxxxxx Xxxxx &
Bockius LLP, counsel for the Company, an opinion, dated the Closing Dates, to
the effect set forth in Exhibit I hereto.
(f) The Representatives shall have received from Xxxxxx Xxxxx &
Xxxxxxx LLP, counsel for Xxxxx and Xxxxxxx Xxxx, an opinion dated the Closing
Dates to the effect set forth in Exhibit II hereto.
(g) The Representatives shall have received from Xxxxxxxx Xxxxxxxx
Xxxxx & Xxxxx LLP, counsel for the Underwriters, their opinion or opinions dated
the Closing Dates with respect to the incorporation of the Company, the validity
of the Stock, the Registration Statement and the Prospectus and such other
related matters as Alex. Xxxxx may reasonably request, and the Company and the
Selling Stockholders shall have furnished to such counsel such
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documents as they may reasonably request for the purpose of enabling them to
pass upon such matters.
(h) The Representatives shall have received a certificate, dated the
Closing Dates, of the Company signed on its behalf by the president and the
chief financial officer of the Company in which such officers shall state to the
effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the knowledge of the
signers, no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act;
(ii) as of the date of such certificate, the Prospectuses, as
amended or supplemented through such date, does not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(iii) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except as
set forth or contemplated in the Prospectus, neither the Company nor any of
its subsidiaries has incurred any material liabilities or obligations,
direct or contingent not in the ordinary course of business, nor entered
into any material transactions not in the ordinary course of business and
there has not been any material adverse change in the condition (financial
or otherwise), properties, business affairs, management, business prospects
or results of operations of the Company and its subsidiaries considered as
a whole, or any change in the capital stock (other than pursuant to the
exercise of outstanding stock options or warrants and conversion of
preferred stock) of the Company and its subsidiaries which is material to
the Company and its subsidiaries considered as a whole;
(iv) The representations and warranties of the Company in this
Agreement are true and correct in all material respects (except that
representations and warranties qualified by materiality shall be true and
correct in all respects) at and as of the Closing Dates, and the Company
has complied in all material respects with all the agreements and performed
or satisfied all the conditions on its part to be performed or satisfied at
or prior to the Closing Dates.
(i) The Representatives shall have received a certificate or
certificates, dated the Closing Dates, of each Selling Stockholder to the effect
that as of the Closing Dates such Selling Stockholder's representations and
warranties in this Agreement are true and correct in all material respects as if
made on and as of the Closing Dates (except that representations and warranties
qualified by materiality shall be true and correct in all respects), and that he
has performed in all material respects all his obligations and satisfied all the
conditions on such Selling Stockholder's part to be performed or satisfied at or
prior to the Closing Dates.
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(j) Each officer, director and employee of the Company and each of
the Selling Stockholders has furnished to you, on or prior to the date of this
agreement, a letter or letters (the "Lock-up Letters") in the substantially the
form attached as Exhibit C hereto.
(k) The Nasdaq National Market shall have approved the Stock for
inclusion, subject only to official notice of issuance.
All opinions, certificates, letters and other documents will be in compliance
with the provisions hereunder only if they are satisfactory in form and
substance to the Representatives in their reasonable judgment. The Company will
furnish to the Representatives conformed copies of such opinions, certificates,
letters and other documents as the Representatives shall reasonably request. If
any of the conditions hereinabove provided for in this Section shall not have
been satisfied when and as required by this Agreement unless such failure to
satisfy results from any default or omission on the part of any Underwriter,
this Agreement may be terminated by the Representatives by notifying the Company
of such termination in writing or by telegram at or prior to the First Closing
Date, but Alex. Xxxxx shall be entitled to waive any of such conditions.
9. EFFECTIVE DATE. This Agreement shall become effective
immediately.
10. TERMINATION. This Agreement may be terminated by the
Representatives by notice to the Company and the Selling Stockholders (i) if at
or prior to the First Closing Date trading in securities on any of the New York
Stock Exchange or Nasdaq National Market, shall have been suspended or minimum
or maximum prices shall have been established on any such exchange or market, or
a banking moratorium shall have been declared by New York State or United States
authorities; (ii) trading of any securities of the Company shall have been
suspended on any exchange or on the Nasdaq National Market; (iii) if following
the date of this Agreement and prior to the First Closing Date there shall have
been (A) an outbreak or escalation of hostilities between the United States and
any foreign power or of any other insurrection or armed conflict involving the
United States or (B) any material adverse change in financial markets or any
calamity or crisis which, in the reasonable judgment of the Representatives,
make it impractical or inadvisable to offer or sell the Firm Stock on the terms
contemplated by the Prospectus; (iv) if there shall have been any development or
prospective development involving particularly the business or properties or
securities of the Company or any of its subsidiaries or the transactions
contemplated by this Agreement, which is material and adverse and in the
reasonable judgment of the Representatives, makes it impracticable or
inadvisable to offer or deliver the Firm Stock on the terms contemplated by the
Prospectus; or (v) pursuant to Section 8.
11. REIMBURSEMENT OF UNDERWRITERS. Notwithstanding any other
provisions hereof, if this Agreement shall be terminated by the Representatives
under Section 8 or Section 10 (other than a termination due to any failure,
refusal or inability by the Company or any Selling Stockholder to perform any
covenant or satisfy any condition of this Agreement on their part to be
performed or satisfied which is due to the default or omission of any
Underwriter or any Selling Stockholder), the Company will bear and pay the
expenses specified in Section 5
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hereof and, in addition to its obligations pursuant to Section 6 hereof, the
Company will reimburse the reasonable out-of-pocket expenses of the several
Underwriters (including reasonable fees and disbursements of counsel for the
Underwriters) incurred in connection with this Agreement and the proposed
purchase of the Stock, and promptly upon demand the Company will pay such
amounts to you as Representatives; provided, that the Company shall not in any
event be liable to any of the several Underwriters for damages on account of
loss of anticipated profits from the sale by them of the Stock.
12. SUBSTITUTION OF UNDERWRITERS. If on the First Closing Date any
Underwriter or Underwriters shall default in its or their obligations to
purchase shares of Stock hereunder (otherwise than by reason of default on the
part of the Company or the Selling Stockholders), you, as Representatives of the
Underwriters, shall use your reasonable commercial efforts to procure within 48
hours thereafter one or more of the other Underwriters, or any others, to
purchase from the Company such amounts as may be agreed upon and upon the terms
set forth herein, the shares of Stock which the defaulting Underwriter or
Underwriters failed to purchase. If during such 48 hours you, as such
Representatives, shall not have procured such other Underwriters, or any others,
to purchase the shares of Stock agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of shares which
such defaulting Underwriter or Underwriters agreed but failed to purchase does
not exceed ten percent (10%) of the total number of shares underwritten, the
other Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the shares of Stock which such
defaulting Underwriter or Underwriters agreed but failed to purchase, or (b) if
the aggregate number of shares of Stock with respect to which such default or
defaults occur is more than ten percent (10%) of the total number of shares
underwritten, the Company or you, as the Representatives of the Underwriters,
will have the right, by written notice given within the next 48-hour period to
the parties to this Agreement, to terminate this Agreement without liability on
the part of the non-defaulting Underwriters or the Company and the Selling
Stockholders.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company and
the Selling Stockholders shall have the right to postpone the Closing Dates for
a period of not more than five (5) full business days in order that the Company
and the Selling Stockholders may effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of shares to be
purchased by the remaining Underwriters or substituted Underwriters shall be
taken as the basis of their underwriting obligation for all purposes of this
Agreement. The term "Underwriter" herein includes any person or entity
substituted for a defaulting underwriter hereunder. Nothing herein contained
shall relieve any defaulting Underwriter of its liability to the Company, the
Selling Stockholders or the other Underwriters for damages occasioned by its
default hereunder. Any termination of this Agreement pursuant to this Section
12 shall be without liability on the part of any non-defaulting Underwriter, the
Selling Stockholders or the Company, except for the provisions of Section 6.
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13. NOTICES. All communications hereunder shall be in writing and,
(i) if sent to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as the Representatives c/o BT Alex. Xxxxx Incorporated at 0
Xxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000, Attention: Xxx X. Xxxxxxx, Principal,
with copies to BT Alex. Xxxxx Incorporated, 0 Xxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx
00000, Attention: General Counsel and Xxxx X. Xxxxxxxx, Esquire, Xxxxxxxx
Xxxxxxxx Xxxxx & Xxxxx LLP, 0000 Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxxxxxx,
Xxxxxxxxxxxx 00000, except that notices given to an Underwriter pursuant to
Section 6 hereof shall be sent to such Underwriter at the address furnished by
the Representatives and (ii) if sent to the Company or any Selling Stockholder,
shall be mailed, delivered or telegraphed and confirmed c/o CDnow, Inc., 000 Xxx
Xxxx Xxxx, Xxxxx 000, Xxxxxxxxxx, Xxxxxxxxxxxx 00000, Attention: Xxxxx Xxxx.
14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and the Selling Stockholders
and their respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company and the Selling
Stockholders contained in this Agreement shall also be for the benefit of the
person or persons, if any, who control any Underwriter or Underwriters within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and the indemnities of the several Underwriters shall also be for the
benefit of each director of the Company, each of its officers who has signed the
Registration Statement and the person or persons, if any, who control the
Company or any Selling Stockholders within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act.
15. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland without giving
effect to the choice of law principles thereof.
16. AUTHORITY OF THE REPRESENTATIVES. In connection with this
Agreement, you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by you, as Representatives, or individually as
a Representative, will be binding on all the Underwriters; and any action taken
under this Agreement by any of the Attorneys-in-fact will be binding on the
Selling Stockholders.
17. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) thereto as are necessary to make it
valid and enforceable.
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18. GENERAL. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and the
Representatives.
The Company, the Selling Stockholders 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-K under the Exchange Act and the
information under the caption "Underwriting" in the Prospectus.
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 Stock under
this Agreement; provided, that if the Underwriters do not exercise their option
to purchase the Option Stock within the time period set forth in this Agreement
for such exercise, the reimbursement, indemnification and contribution
agreements and the representations, warranties and covenants of the Selling
Stockholders in this Agreement shall be void ab initio and have no force or
-- ------
effect.
19. COUNTERPARTS. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Stockholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-fact to
take such action.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
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CDNOW, INC.
By:
------------------------------
[ ]
SELLING STOCKHOLDERS LISTED
IN SCHEDULE B
By:
------------------------------
Attorney-in-fact
By:
------------------------------
Attorney-in-fact
Acting on his own behalf and on behalf
of the Selling Stockholders listed in
Schedule B.
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Accepted and delivered
as of the date first above
written.
By: BT ALEX. XXXXX INCORPORATED
NATIONSBANC XXXXXXXXXX SECURITIES, INC.
Acting on their own behalf
and as Representatives of several
Underwriters referred to in the
foregoing Agreement.
By:
-------------------------
Title:
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SCHEDULE A
Number of Shares of
Name Firm Stock to be Purchased
---- --------------------------
BT Alex. Xxxxx Incorporated
NationsBanc Xxxxxxxxxx Securities, Inc.
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SCHEDULE B
Number of shares
of Option Stock
Seller to be sold
------ ----------------
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EXHIBIT C
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EXHIBIT II
MATTERS TO BE COVERED IN OPINION
OF COUNSEL TO THE SELLING STOCKHOLDERS**
1. To the knowledge of such counsel, _____________________________
(the "Selling Stockholder") has valid title to the Stock to be sold by such
Selling Stockholder, free and clear of any adverse claim within the meaning of
the Uniform Commercial Code as in force in the Commonwealth of Pennsylvania and
has the legal right and capacity to enter into the Underwriting Agreement, the
Power of Attorney and the Custody Agreement.
2. No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Selling
Stockholder of the transactions contemplated by the Underwriting Agreement
(except such as may be required by the securities or "Blue Sky" laws of any
jurisdiction as to which such counsel need express no opinion) in connection
with the purchase and distribution of the Stock by the Underwriters except such
as have been obtained or made, specifying the same.
3. Each of the Underwriting Agreement, the Power of Attorney and the
Custody Agreement has been executed and delivered by or on behalf of such
Selling Stockholder, and are enforceable against such Selling Stockholder in
accordance with its terms, except to the extent that rights to indemnity
hereunder may be limited by federal or state securities laws or the public
policy underlying such laws.
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