ON STAGE ENTERTAINMENT, INC.
1,400,000 Shares of Common Stock
(Par Value $.01 Per Share)
and
Warrants to Purchase 1,400,000 Shares of Common Stock
UNDERWRITING AGREEMENT
Whale Securities Co., L.P. _______________, 1997
000 Xxxxx Xxx
Xxx Xxxx, Xxx Xxxx 00000
Dear Sirs:
On Stage Entertainment, Inc. a Nevada corporation (the
"Company"), proposes to issue and sell to Whale Securities Co., L.P. (the
"Underwriter") an aggregate of One Million Four Hundred Thousand (1,400,000)
shares (the "Offered Shares") of the common stock, par value $.01 per share, of
the Company (the "Common Stock"), which Offered Shares are presently authorized
but unissued shares of Common Stock (individually, a "Common Share" and
collectively the "Common Shares"), and One Million Four Hundred Thousand
(1,400,000) Common Share purchase warrants (individually, an "Offered Warrant"
and collectively the "Offered Warrants"), entitling the holder of each Offered
Warrant to purchase, at any time, commencing _________, 1998 (or such earlier
date as to which the Underwriter consents) until _________, 2002, one (1) Common
Share, at an exercise price of Five Dollars Fifty Cents ($5.50) (subject to
adjustment in certain circumstances). The Company shall have the right to call
each Offered Warrant for redemption upon not less than thirty (30) days' written
notice at any time commencing twelve (12) months from the Effective Date (as
hereinafter defined) at a redemption price of Ten Cents ($.10) per Offered
Warrant; provided, that the closing bid quotation of the Common Stock on all
twenty (20) of the trading days ending on the third trading day prior to the day
on which the Company gives notice (the "Call Date") of redemption has been at
least 150% (currently $8.25, subject to adjustment) of the then effective
exercise price of the Warrants and the Company obtains the written consent of
the Underwriter with respect to such redemption prior to the Call Date. In
addition, the Underwriter, in order to cover over-allotments in the sale of the
Offered Shares and/or Offered Warrants, may purchase up to an aggregate of Two
Hundred Ten Thousand (210,000) Common Shares (the "Optional Shares") and/or Two
Hundred Ten Thousand (210,000) Common Share purchase warrants (the "Optional
Warrants") entitling the holder of each Optional
Warrant to purchase one (1) Common Share on the same terms as the Offered
Warrants. The Offered Shares and the Optional Shares are hereinafter sometimes
collectively referred to as the "Shares"; and the Offered Warrants and the
Optional Warrants are hereinafter sometimes collectively referred to as the
"Warrants." The Warrants will be issued pursuant to a Warrant Agreement (the
"Warrant Agreement") to be dated as of the Closing Date (as hereinafter defined)
by and among the Company, the Underwriter and American Stock Transfer & Trust
Company, as warrant agent (the "Warrant Agent").
The Company also proposes to issue and sell to the
Underwriter, for its own account and the accounts of its designees, warrants
(the "Underwriter's Warrants") to purchase up to an aggregate of One Hundred
Fourteen Thousand Five Hundred (114,500) Common Shares (collectively, the
"Underlying Shares") and/or One Hundred Forty Thousand (140,000) warrants
similar but not identical to the Warrants (collectively, the "Underlying
Warrants"), which sale will be consummated in accordance with the terms and
conditions of the form of Underwriter's Warrant Agreement filed as an exhibit to
the Registration Statement (as hereinafter defined). The Underlying Shares, the
Common Shares issuable upon exercise of the Warrants and the Common Shares
issuable upon exercise of the Underlying Warrants are hereinafter sometimes
referred to as the "Warrant Shares". The Shares, the Warrants, the Underwriter's
Warrants, the Underlying Warrants and the Warrant Shares (collectively, the
"Securities") are more fully described in the Registration Statement and the
Prospectus, as defined below.
The Company hereby confirms its agreement with the Underwriter
as follows:
1. Purchase and Sale of Offered Shares and Offered Warrants.
On the basis of the representations and warranties herein contained, but subject
to the terms and conditions herein set forth, the Company hereby agrees to sell
the Offered Shares and Offered Warrants to the Underwriter, and the Underwriter
agrees to purchase the Offered Shares and Offered Warrants from the Company, at
a purchase price of $4.50 per Offered Share and $.09 per Offered Warrant. The
Underwriter plans to offer the Offered Shares and Offered Warrants to the public
at a public offering price of $5.00 per Offered Share and $.10 per Offered
Warrant.
2. Payment and Delivery.
(a) Payment for the Offered Shares and Offered Warrants
will be made to the Company by wire transfer or certified or official bank check
or checks payable to its order in New York Clearing House funds, at the offices
of the Underwriter, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, against delivery
of the Offered Shares and Offered Warrants to the
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Underwriter. Such payment and delivery will be made at 10:00 A.M., New York City
time, on the third business day following the Effective Date (the fourth
business day following the Effective Date in the event that trading of the
Offered Shares and Offered Warrants commences on the day following the Effective
Date), the date and time of such payment and delivery being herein called the
"Closing Date." The certificates representing the Offered Shares and Offered
Warrants to be delivered will be in such denominations and registered in such
names as the Underwriter may request not less than two full business days prior
to the Closing Date, and will be made available to the Underwriter for
inspection, checking and packaging at the office of the Company's transfer agent
or correspondent in New York City, American Stock Transfer & Trust Company, 00
Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 not less than one full business day prior
to the Closing Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the Underwriter's designees,
limited to officers and partners of the Underwriter and/or members of the
selling group and/or their officers, directors or partners (collectively, the
"Underwriter's Designees"). The Underwriter's Warrants will be in the form of,
and in accordance with, the provisions of the Underwriter's Warrant Agreement
attached as an exhibit to the Registration Statement. The aggregate purchase
price for the Underwriter's Warrants is One Hundred Twenty-Eight Dollars and
Fifty Cents ($128.50). The Underwriter's Warrants will be restricted from sale,
transfer, assignment or hypothecation for a period of one (1) year from the
Effective Date, except to the Underwriter's Designees. Payment for the
Underwriter's Warrants will be made to the Company by check or checks payable to
its order on the Closing Date against delivery of the certificates representing
the Underwriter's Warrants. The certificates representing the Underwriter's
Warrants will be in such denominations and such names as the Underwriter may
request prior to the Closing Date.
3. Option to Purchase Optional Shares and/or Optional
Warrants.
(a) For the purposes of covering any over- allotments in
connection with the distribution and sale of the Offered Shares and Offered
Warrants as contemplated by the Prospectus, the Underwriter is hereby granted an
option to purchase all or any part of the Optional Shares and/or Optional
Warrants from the Company. The purchase price to be paid for the Optional Shares
and Optional Warrants will be the same price per Optional Share and Optional
Warrant as the price per Offered Share or Offered Warrant, as the case may be,
set forth in Section 1 hereof. The option granted hereby may be exercised by the
Underwriter as to all or any part of the Optional Shares and/or the Optional
Warrants at any time within 45 days after the Effective Date. The Underwriter
will not be under any obligation
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to purchase any Optional Shares or Optional Warrants prior to the exercise of
such option.
(b) The option granted hereby may be exercised by the
Underwriter by giving oral notice to the Company, which must be confirmed by a
letter, telex or telegraph setting forth the number of Optional Shares and
Optional Warrants to be purchased, the date and time for delivery of and payment
for the Optional Shares and Optional Warrants to be purchased and stating that
the Optional Shares and Optional Warrants referred to therein are to be used for
the purpose of covering over-allotments in connection with the distribution and
sale of the Offered Shares and Offered Warrants. If such notice is given prior
to the Closing Date, the date set forth therein for such delivery and payment
will not be earlier than either two full business days thereafter or the Closing
Date, whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two full business days thereafter. In either event, the date so set
forth will not be more than 15 full business days after the date of such notice.
The date and time set forth in such notice is herein called the "Option Closing
Date." Upon exercise of such option through the Underwriter's delivery of the
aforementioned notice, the Company will become obligated to convey to the
Underwriter, and, subject to the terms and conditions set forth in Section 3(d)
hereof, the Underwriter will become obligated to purchase, the number of
Optional Shares and Optional Warrants specified in such notice.
(c) Payment for any Optional Shares and Optional Warrants
purchased will be made to the Company by wire transfer or certified or official
bank check or checks payable to its order in New York Clearing House funds, at
the office of the Underwriter, against delivery of the Optional Shares and
Optional Warrants purchased to the Underwriter. The certificates representing
the Optional Shares and Optional Warrants to be delivered will be in such
denominations and registered in such names as the Underwriter requests not less
than two full business days prior to the Option Closing Date, and will be made
available to the Underwriter for inspection, checking and packaging at the
aforesaid office of the Company's transfer agent or correspondent not less than
one full business day prior to the Option Closing Date.
(d) The obligation of the Underwriter to purchase and pay
for any of the Optional Shares or Optional Warrants is subject to the accuracy
and completeness (as of the date hereof and as of the Option Closing Date) of
and compliance in all material respects with the representations and warranties
of the Company herein, to the accuracy and completeness of the statements of the
Company or its officers made in any certificate or other document to be
delivered by the Company pursuant to this Agreement, to the performance in all
material respects by the Company of its obligations hereunder, and to the
delivery to the
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Underwriter of opinions, certificates and letters dated the Option Closing Date
substantially similar in scope to those specified in Sections 5 and 6 hereof,
but with each reference to "Offered Shares," "Offered Warrants" and "Closing
Date" to be, respectively, to the Optional Shares, Optional Warrants and the
Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada, with full
corporate power and authority to own or lease, as the case may be, and operate
its properties and to conduct its business as described in the Registration
Statement and to execute, deliver and perform this Agreement, the Warrant
Agreement and the Underwriter's Warrant Agreement and to consummate the
transactions contemplated hereby and thereby. The Company has no subsidiaries
other than Legends in Concert, Inc., a corporation duly organized and validly
existing under the laws of the State of Nevada, On Stage Marketing, Inc., a
corporation duly organized and validly existing under the laws of the State of
Nevada, and Interactive Events, Inc., a corporation duly organized and validly
existing under the laws of the State of Georgia (together, the "Subsidiaries").
The Company owns all of the issued and outstanding shares of capital stock of
each Subsidiary, free and clear of all liens, security interests and other
encumbrances of any nature whatsoever, except as set forth in the Registration
Statement, and all of such shares have been duly authorized and validly issued
and are fully paid and nonassessable. Other than the Subsidiaries, the Company
has no equity interests in any entity. Unless the context otherwise requires,
all references to the "Company" in this Agreement shall include the
Subsidiaries. Each of the Company and each Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary and where failure so to qualify could
have a material adverse effect on the financial condition, results of
operations, business or properties of the Company or any Subsidiary. Each of the
Subsidiaries has full corporate power and authority to own or lease, as the case
may be, and operate its properties and to conduct its business as described in
the Registration Statement.
There are no options or warrants for the purchase of, or other
rights to purchase, or outstanding securities convertible into or exchangeable
for, any capital stock or other securities of any Subsidiary.
(b) This Agreement has been duly executed and delivered by
the Company and constitutes the valid and binding obligation of the Company, and
each of the Warrant Agreement and
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the Underwriter's Warrant Agreement, when executed and delivered by the Company
on the Closing Date, will be the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
subject, as to enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of creditors
generally and the discretion of courts in granting equitable remedies and except
that enforceability of the indemnification provisions set forth in Section 7
hereof and the contribution provisions set forth in Section 8 hereof may be
limited by the federal securities laws or public policy underlying such laws.
The execution, delivery and performance of this Agreement, the Warrant Agreement
and the Underwriter's Warrant Agreement by the Company, the consummation by the
Company of the transactions herein and therein contemplated and the compliance
by the Company with the terms of this Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement have been duly authorized by all necessary
corporate action and do not and will not, with or without the giving of notice
or the lapse of time, or both, (i) result in any violation of the Certificate of
Incorporation, Articles of Incorporation or By-Laws, as the case may be, each as
amended, of the Company or any Subsidiary; (ii) result in a breach of or
conflict with any of the terms or provisions of, or constitute a default under,
or result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary pursuant to any indenture,
mortgage, note, contract, commitment or other agreement or instrument to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties or assets are or may be bound
or affected; (iii) violate any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any of their
respective properties or business; or (iv) have any material adverse effect on
any permit, certification, registration, approval, consent, order, license,
franchise or other authorization (collectively, "Permits") necessary for the
Company or any Subsidiary to own or lease and operate their respective
properties and to conduct their respective businesses or the ability of the
Company to make use thereof.
(c) No Permits of any court or governmental agency or body,
other than under the Securities Act of 1933, as amended (the "Act"), the
Regulations (as hereinafter defined) and applicable state securities or Blue Sky
laws, are required for (i) the valid authorization, issuance, sale and delivery
of the Shares and Warrants to the Underwriter, or (ii) the consummation by the
Company of the transactions contemplated by this Agreement, the Warrant
Agreement or the Underwriter's Warrant Agreement.
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(d) The conditions for use of a registration statement on
Form SB-2 set forth in the General Instructions to Form SB-2 have been satisfied
with respect to the Company and the transactions contemplated in the
Registration Statement. The Company has prepared in conformity with the
requirements of the Act and the rules and regulations (the "Regulations") of the
Securities and Exchange Commission (the "Commission") and filed with the
Commission a registration statement (File No. 333-24681) on Form SB-2 and has
filed one or more amendments thereto, covering the registration of the
Securities under the Act, including the related preliminary prospectus or
preliminary prospectuses (each thereof being herein called a "Preliminary
Prospectus") and a proposed final prospectus. Each Preliminary Prospectus was
endorsed with the legend required by Item 501(a)(5) of Regulation S-B of the
Regulations and, if applicable, Rule 430A of the Regulations. Such registration
statement including any documents incorporated by reference therein and all
financial schedules and exhibits thereto, as amended at the time it becomes
effective, and the final prospectus included therein are herein, respectively,
called the "Registration Statement" and the "Prospectus," except that, (i) if
the prospectus filed by the Company pursuant to Rule 424(b) of the Regulations
differs from the Prospectus, the term "Prospectus" will also include the
prospectus filed pursuant to Rule 424(b), and (ii) if the Registration Statement
is amended or such Prospectus is supplemented after the date the Registration
Statement is declared effective by the Commission (the "Effective Date") and
prior to the Option Closing Date, the terms "Registration Statement" and
"Prospectus" shall include the Registration Statement as amended or
supplemented.
(e) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
(f) The Registration Statement when it becomes effective,
the Prospectus (and any amendment or supplement thereto) when it is filed with
the Commission pursuant to Rule 424(b), and both documents as of the Closing
Date and the Option Closing Date, will contain all statements which are required
to be stated therein in accordance with the Act and the Regulations and will in
all material respects conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, on such dates, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in
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conformity with information furnished in writing to the Company in connection
with the Registration Statement or Prospectus or any amendment or supplement
thereto by the Underwriter expressly for use therein.
(g) The Company had at the date or dates indicated in the
Prospectus a duly authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus under the captions "Capitalization"
and "Description of Securities." Based on the assumptions stated in the
Registration Statement and the Prospectus, the Company will have on the Closing
Date the adjusted stock capitalization set forth therein. Except as set forth in
the Registration Statement or the Prospectus, on the Effective Date and on the
Closing Date, there will be no options to purchase, warrants or other rights to
subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell shares of the Company's capital stock
or any such warrants, convertible securities or obligations. Except as set forth
in the Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act.
(h) The descriptions in the Registration State- ment and
the Prospectus of contracts and other documents are accurate and present fairly
the information required to be disclosed, and there are no contracts or other
documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(i) BDO Xxxxxxx, LLP, the accountants who have certified
certain of the financial statements filed and to be filed with the Commission as
part of the Registration Statement and the Prospectus, are independent public
accountants within the meaning of the Act and Regulations. The financial
statements and schedules and the notes thereto filed as part of the Registration
Statement and included in the Prospectus are complete, correct and present
fairly the financial position of the Company as of the dates thereof, and the
results of operations and changes in financial position of the Company for the
periods indicated therein, all in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved except
as otherwise stated in the Registration Statement and the Prospectus. The
selected financial data set forth in the Registration Statement and the
Prospectus present fairly the information shown therein and have been compiled
on a basis consistent with that of the audited and unaudited financial
statements included in the Registration Statement and the Prospectus.
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(j) The Company and each Subsidiary has filed with the
appropriate federal, state and local governmental agencies, and all appropriate
foreign countries and political subdivisions thereof, all tax returns, including
franchise tax returns, which are required to be filed or has duly obtained
extensions of time for the filing thereof and has paid all taxes shown on such
returns and all assessments received by it to the extent that the same have
become due; and the provisions for income taxes payable, if any, shown on the
consolidated financial statements filed with or as part of the Registration
Statement are sufficient for all accrued and unpaid foreign and domestic taxes,
whether or not disputed, and for all periods to and including the dates of such
consolidated financial statements. Except as disclosed in writing to the
Underwriter, neither the Company nor any Subsidiary has executed or filed with
any taxing authority, foreign or domestic, any agreement extending the period
for assessment or collection of any income taxes and is not a party to any
pending action or proceeding by any foreign or domestic governmental agency for
assessment or collection of taxes; and no claims for assessment or collection of
taxes have been asserted against the Company or any Subsidiary.
(k) The outstanding Common Shares and outstanding options
and warrants to purchase Common Shares have been duly authorized and validly
issued. The outstanding Common Shares are fully paid and nonassessable. The
outstanding options and warrants to purchase Common Shares constitute the valid
and binding obligations of the Company, enforceable in accordance with their
terms. None of the outstanding Common Shares or options or warrants to purchase
Common Shares has been issued in violation of the preemptive rights of any
shareholder of the Company. None of the holders of the outstanding Common Shares
is subject to personal liability solely by reason of being such a holder. The
offers and sales of the outstanding Common Shares and outstanding options and
warrants to purchase Common Shares were at all relevant times either registered
under the Act and the applicable state securities or Blue Sky laws or exempt
from such registration requirements. The authorized Common Shares and
outstanding options and warrants to purchase Common Shares conform to the
descriptions thereof contained in the Registration Statement and Prospectus.
Except as set forth in the Registration Statement and the Prospectus, on the
Effective Date and the Closing Date, there will be no outstanding options or
warrants for the purchase of, or other outstanding rights to purchase, Common
Shares or securities convertible into Common Shares.
(l) No securities of the Company have been sold by the
Company or by or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common control with the Company within the
three years prior to the date hereof, except as disclosed in the Registration
Statement.
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(m) The issuance and sale of the Shares and the Warrant
Shares have been duly authorized and, when the Shares and the Warrant Shares
have been issued and duly delivered against payment therefor as contemplated by
this Agreement, the Underwriter's Warrant Agreement or the Warrant Agreement, as
the case may be, the Shares and the Warrant Shares will be validly issued, fully
paid and nonassessable. The holders of the Securities will not be subject to
personal liability solely by reason of being such holders and none of the
Securities will be subject to preemptive rights of any shareholder of the
Company.
(n) The issuance and sale of the Warrants, the
Underwriter's Warrants and the Underlying Warrants have been duly authorized
and, when issued, paid for and delivered pursuant to the terms of this
Agreement, the Underwriter's Warrant Agreement or the Warrant Agreement, as the
case may be, the Warrants, the Underwriter's Warrants and the Underlying
Warrants will constitute valid and binding obligations of the Company,
enforceable as to the Company in accordance with their terms. The Warrant Shares
have been duly reserved for issuance upon exercise of the Warrants, the
Underwriter's Warrants and the Underlying Warrants in accordance with the
provisions of the Warrant Agreement and the Underwriter's Warrant Agreement. The
Warrants, Underwriter's Warrants and Underlying Warrants will conform to the
descriptions thereof contained in the Registration Statement and the Prospectus.
(o) Neither The Company nor any Subsidiary is in violation
of, or in default under, (i) any term or provision of its Certificate of
Incorporation, Articles of Incorporation or By-Laws, as the case may be, each as
amended; (ii) any material term or provision or any financial covenants of any
indenture, mortgage, contract, commitment or other agreement or instrument to
which it is a party or by which it or any of its property or business is or may
be bound or affected; or (iii) any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any of the
Company's or any Subsidiary's properties or business. Each of the Company and
each Subsidiary owns, possesses or has obtained all governmental and other
Permits necessary to own or lease, as the case may be, and to operate its
properties and to conduct its business and operations as presently conducted.
All such Permits are outstanding and in good standing, and there are no
proceedings pending or, to the best of the Company's knowledge, threatened (nor,
to the best of the Company's knowledge, is there any basis therefor), which
seeking to cancel, terminate or limit such Permits.
(p) Except as set forth in the Prospectus, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, domestic or foreign, or
before any private
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arbitration tribunal, pending, or, to the best of the Company's knowledge,
threatened against the Company or any Subsidiary or involving the Company's or
any Subsidiary's properties or business which, if determined adversely to the
Company or any Subsidiary, would, individually or in the aggregate, result in
any material adverse change in the financial position, stockholders' equity,
results of operations, properties, business, management or affairs or business
prospects of the Company or any Subsidiary or which question the validity of the
capital stock of the Company or this Agreement or of any action taken or to be
taken by the Company pursuant to, or in connection with, this Agreement; nor, to
the best of the Company's knowledge, is there any basis for any such claim,
action, suit, proceeding, arbitration, investigation or inquiry. There are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal naming the Company or any Subsidiary and enjoining the Company or
any Subsidiary from taking, or requiring the Company or any Subsidiary to take,
any action, or to which the Company or any Subsidiary, or any of their
respective properties or businesses are bound or subject, which would be
material to the Company or any Subsidiary.
(q) Other than payments to the Underwriter, neither the
Company nor any of its affiliates has incurred any liability for any finder's
fees or similar payments in connection with the transactions herein
contemplated.
(r) Each of the Company and each of the Subsidiaries owns
or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, rights, trade secrets,
confidential information, processes and formulations used or proposed to be used
in the conduct of their businesses as described in the Prospectus (collectively
the "Intangibles"); except as disclosed in the Prospectus, to the best of the
Company's knowledge, neither the Company nor any Subsidiary has infringed nor is
infringing upon the rights of others with respect to the Intangibles; and
neither the Company nor any Subsidiary has received any notice of conflict with
the asserted rights of others with respect to the Intangibles which could,
singly or in the aggregate, materially adversely affect its business as
presently conducted or the prospects, financial condition or results of
operations of the Company or any Subsidiary, and the Company knows of no basis
therefor; and, to the best of the Company's knowledge, no others have infringed
upon the Intangibles of the Company or any Subsidiary.
(s) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and the Company's latest
financial statements, neither the Company nor any Subsidiary has incurred any
material liability or obligation, direct or contingent, or entered into any
material transaction, whether or not incurred in the ordinary
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course of business, and has not sustained any material loss or interference with
its business from fire, storm, explosion, flood or other casualty, whether or
not covered by insurance, or from any labor dispute or court or governmental
action, order or decree; and since the respective dates as of which information
is given in the Registration Statement and the Prospectus, there have not been,
and prior to the Closing Date there will not be, except as disclosed in the
Prospectus, any changes in the capital stock or any material increases in the
long-term debt of the Company or any material adverse change in or affecting the
general affairs, management, financial condition, stockholders' equity, results
of operations or prospects of the Company or any Subsidiary, otherwise than as
set forth or contemplated in the Prospectus.
(t) Each of the Company and each Subsidiary has good title
in fee simple to all real property and material personal property (tangible and
intangible) owned by it, free and clear of all security interests, charges,
mortgages, liens, encumbrances and defects, except such as are described in the
Registration Statement and Prospectus or such as do not materially affect the
value or transferability of such property and do not interfere with the use of
such property made, or proposed to be made, by the Company or any Subsidiary.
The leases, licenses or other contracts or instruments under which the Company
and each Subsidiary leases, holds or is entitled to use any property, real or
personal, are valid, subsisting and enforceable only with such exceptions as are
not material and do not interfere with the use of such property made, or
proposed to be made, by the Company or any Subsidiary, and all rentals,
royalties or other payments accruing thereunder which became due prior to the
date of this Agreement have been duly paid, and neither the Company nor any
Subsidiary, nor, to the best of the Company's knowledge, any other party is in
default thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder. Neither the Company any Subsidiary has received
notice of any violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties. Each of the Company and
each Subsidiary has adequately insured its properties against loss or damage by
fire or other casualty and maintains, in adequate amounts, such other insurance
as is usually maintained by companies engaged in the same or similar businesses.
(u) Each contract or other instrument (however
characterized or described) to which the Company or any Subsidiary is a party or
by which their properties or businesses is or may be bound or affected and to
which reference is made in the Prospectus has been duly and validly executed by
the Company or any Subsidiary and, assuming that such contracts or other
instruments have been properly executed by parties other than the Company or any
Subsidiary, is in full force and effect in all
-12-
material respects and is enforceable against the parties thereto in accordance
with its terms, subject, as to enforceability of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and none of such contracts or instruments has been assigned by the
Company or any Subsidiary, and neither the Company nor any Subsidiary, nor, to
the best of the Company's knowledge, any other party, is in default thereunder
and, to the best of the Company's knowledge, no event has occurred which, with
the lapse of time or the giving of notice, or both, would constitute a default
thereunder.
None of the material provisions of such contracts or
instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company or any Subsidiary or any of their respective assets or businesses.
(v) The employment, consulting, confidentiality and
non-competition agreements between the Company and between each Subsidiary and
its officers, employees and consultants, described in the Registration
Statement, are binding and enforceable obligations upon the respective parties
thereto in accordance with their respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, moratorium or other similar
laws or arrangements affecting creditors' rights generally and subject to
principles of equity.
(w) Except as set forth in the Prospectus, the Company has
no employee benefit plans (including, without limitation, profit sharing and
welfare benefit plans) or deferred compensation arrangements that are subject to
the provisions of the Employee Retirement Income Security Act of 1974.
(x) To the best of the Company's knowledge, no labor
problem exists with any of the Company's or any Subsidi- ary's employees or is
imminent which could materially adversely affect the Company or any Subsidiary.
(y) The Company has not, directly or indirectly, at any
time (i) made any contributions to any candidate for political office, or failed
to disclose fully any such contribution in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
-13-
(z) The Shares and Warrants have been approved for listing
on the Nasdaq SmallCap Market of the National Association of Securities Dealers,
Inc. ("NASDAQ").
(aa) The Company has provided Xxxxxx Xxxxxxxxxx LLP,
counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated December 30, 1997.
Any certificate signed by an officer of the Company or of
any Subsidiary and delivered to the Underwriter or to Underwriter's Counsel
shall be deemed to be a representation and warranty by the Company to the
Underwriter as to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the Underwriter as follows:
(a) The Company will not at any time, whether before the
Effective Date or thereafter during such period as the Prospectus is required by
law to be delivered in connection with the sales of the Shares and Warrants by
the Underwriter or a dealer, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Underwriter has not been
previously advised and furnished a copy, or to which the Underwriter shall
object in writing.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective and will advise the Underwriter
immediately, and, if requested by the Underwriter, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the qualification of the
Shares and/or the Warrants for offering or sale in any jurisdiction, or of the
initiation of any proceedings for any of such purposes. The Company will use its
best efforts to prevent the issuance of any such stop order or of any order
preventing or suspending such use and to obtain as soon as possible the lifting
thereof, if any such order is issued.
(c) The Company will deliver to the Underwriter, without
charge, from time to time until the Effective Date, as many copies of each
Preliminary Prospectus as the Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will
-14-
deliver to the Underwriter, without charge, as soon as the Registration
Statement becomes effective, and thereafter from time to time as requested, such
number of copies of the Prospectus (as supplemented, if the Company makes any
supplements to the Prospectus) as the Underwriter may reasonably request. The
Company has furnished or will furnish to the Underwriter one signed copy of the
Registration Statement as originally filed and of all amendments thereto,
whether filed before or after the Registration Statement becomes effective, two
copies of all exhibits filed therewith and one signed copy of all consents and
certificates of experts.
(d) The Company will comply with the Act, the Regulations,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder so as to permit the continuance of sales of and
dealings in the Offered Shares and Offered Warrants, in any Optional Shares and
Optional Warrants which may be issued and sold, and in the Warrant Shares
underlying such Warrants. If, at any time when a prospectus relating to any of
the Securities is required to be delivered under the Act, any event occurs as a
result of which the Registration Statement and Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it shall be
necessary to amend or supplement the Registration Statement and Prospectus to
comply with the Act or the regulations thereunder, the Company will promptly
file with the Commission, subject to Section 5(a) hereof, an amendment or
supplement which will correct such statement or omission or which will effect
such compliance.
(e) The Company will furnish such proper informa- tion as
may be required and otherwise cooperate in qualifying the Securities for
offering and sale under the securities or Blue Sky laws relating to the offering
in such jurisdictions as the Underwriter may reasonably designate, provided that
no such qualification will be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) The Company will make generally available to its
security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Underwriter and Underwriter's Counsel as soon as practicable and
in any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
-15-
(g) For a period of five years from the Effective Date, the
Company will deliver to the Underwriter and to Underwriter's Counsel on a timely
basis (i) a copy of each report or document, including, without limitation,
reports on Forms 8-K, 10-C, 10-K (or 10-KSB) and 10-Q (or 10-QSB) and exhibits
thereto, filed or furnished to the Commission, any securities exchange or the
National Association of Securities Dealers, Inc. (the " NASD") on the date each
such report or document is so filed or furnished; (ii) as soon as practicable,
copies of any reports or communications (financial or other) of the Company
mailed to its security holders; (iii) as soon as practicable, a copy of any
Schedule 13D, 13G, 14D-1 or 13E-3 received or prepared by the Company from time
to time; (iv) monthly statements setting forth such information regarding the
Company's results of operations and financial position (including balance sheet,
profit and loss statements and data regarding outstanding purchase orders) as is
regularly prepared by management of the Company; and (v) such additional
information concerning the business and financial condition of the Company as
the Underwriter may from time to time reasonably request and which can be
prepared or obtained by the Company without unreasonable effort or expense. The
Company will furnish to its stockholders annual reports containing audited
financial statements and such other periodic reports as it may determine to be
appropriate or as may be required by law.
(h) Neither the Company nor any person that controls, is
controlled by or is under common control with the Company will take any action
designed to or which might be reasonably expected to cause or result in the
stabilization or manipulation of the price of the Common Shares or Warrants.
(i) If the transactions contemplated by this Agreement are
consummated, the Underwriter shall retain the $50,000 previously paid to it, and
the Company will pay or cause to be paid the following: all costs and expenses
incident to the performance of the obligations of the Company under this
Agreement, including, but not limited to, the fees and expenses of accountants
and counsel for the Company; the preparation, printing, mailing and filing of
the Registration Statement (including financial statements and exhibits),
Preliminary Prospectuses and the Prospectus, and any amendments or supplements
thereto; the printing and mailing of the Selected Dealer Agreement; the issuance
and delivery of the Shares and Warrants to the Underwriter; all taxes, if any,
on the issuance of the Shares and Warrants; the fees, expenses and other costs
of qualifying the Shares and Warrants for sale under the Blue Sky or securities
laws of those states in which the Shares and Warrants are to be offered or sold,
including the fees and disbursements of Underwriter's Counsel in connection
therewith, and including those of such local counsel as may have been retained
for such purpose; the cost of printing and mailing the "Blue Sky Survey;" and
the filing fees incident to securing any required review by the NASD and either
the Boston Stock Exchange or Pacific Stock Exchange;
-16-
the cost of furnishing to the Underwriter copies of the Registration Statement,
Preliminary Prospectuses and the Prospectus as herein provided; the costs of
placing "tombstone advertisements" in any publications which may be selected by
the Underwriter; and all other costs and expenses incident to the performance of
the Company's obligations hereunder which are not otherwise specifically
provided for in this Section 5(i).
In addition, at the Closing Date or the Option Closing
Date, as the case may be, the Underwriter will deduct from the payment for the
Offered Shares and Offered Warrants or any Optional Shares and/or Optional
Warrants purchased three percent (3%) of the gross proceeds of the offering
(less the sum of $50,000 previously paid to the Underwriter), as payment for the
Underwriter's nonaccountable expense allowance relating to the transactions
contemplated hereby, which amount will include the fees and expenses of
Underwriter's Counsel (other than the fees and expenses of Underwriter's Counsel
relating to Blue Sky qualifications and registrations, which, as provided for
above, shall be in addition to the three percent (3%) nonaccountable expense
allowance and shall be payable directly by the Company to Underwriter's Counsel
on or prior to the Closing Date).
(j) If the transactions contemplated by this Agreement or
related hereto are not consummated because the Company decides not to proceed
with the offering for any reason or because the Underwriter decides not to
proceed with the offering as a result of a breach by the Company of its
representations, warranties or covenants in the Agreement or as a result of
adverse changes in the affairs of the Company, then the Company will be
obligated to reimburse the Underwriter for its accountable out-of-pocket
expenses up to the sum of $75,000, inclusive of $50,000 previously paid to the
Underwriter by the Company. In all cases other than those set forth in the
preceding sentence, if the Company or the Underwriter decide not to proceed with
the offering, the Company will only be obligated to reimburse the Underwriter
for its accountable out-of-pocket expenses up to $50,000, and inclusive of,
$50,000 previously paid to the Underwriter by the Company. In no event, however,
will the Underwriter, in the event the offering is terminated, be entitled to
retain or receive more than an amount equal to its actual accountable
out-of-pocket expenses.
(k) The Company intends to apply the net proceeds from the
sale of the Shares and Warrants for the purposes set forth in the Prospectus. No
portion of the net proceeds from the sale of the Shares and Warrants will be
used to repay any indebtedness, except that the Company may use a portion of the
net proceeds to repay the [$1,000,000] principal amount Bridge Notes and the
$750,000 DYDX Note (each as defined in the Prospectus), plus accrued and unpaid
interest on such notes. The Company will file with the Commission all required
reports on Form S-R in accordance with the provisions of Rule 463
-17-
promulgated under the Act and will provide a copy of each such report to the
Underwriter and its counsel.
(l) During the period of twelve (12) months from the date
hereof, (i) the Company will not, and will use its best efforts to ensure that
none of the Company's officers, directors or security holders will, offer for
sale or sell, pledge, hypothecate or otherwise dispose of, directly or
indirectly, any securities of the Company, in any manner whatsoever, whether
pursuant to Rule 144 of the Regulations or otherwise, and (ii) the Company will
use its best efforts to ensure that no holder of registration rights relating to
any securities of the Company will exercise any such registration rights, in
either case, without the prior written consent of the Underwriter, except to the
extent and as provided for in the Prospectus under "Description of Securities -
Registration Rights" and the ninth paragraph of "Underwriting." In addition,
notwithstanding anything else contained herein, Xx. Xxxx Xxxxxx xxx sell up to
50,000 shares of Common Stock owned by him, pursuant to Rule 144, in the event
the Company achieves pre-tax earnings (after original issue discount, interest
expense and compensation charges) for the year ended December 31, 1997 of
$1,850,000, as determined by the Company's independent auditors in connection
with their audit of the Company's financial statements for such year and in
accordance with generally accepted accounting principles.
(m) Except as set forth in the Prospectus under
"Description of Securities - Registration Rights", the Company will not file any
registration statement relating to the offer or sale of any of the Company's
securities, including any registration statement on Form S-8, during the twelve
(12) months following the Effective Date, without the Underwriter's prior
written consent.
(n) The Company maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(o) The Company will use its best efforts to maintain the
listing of the Shares and Warrants on NASDAQ and, if so qualified, list the
Shares and Warrants, and maintain such listing for so long as qualified, on the
Nasdaq National Market System.
-18-
(p) The Company will, concurrently with the Effective Date,
register the class of equity securities of which the Shares are a part under
Section 12(g) of the Exchange Act and the Company will maintain such
registration for a minimum of five (5) years from the Effective Date.
(q) Subject to the sale of the Offered Shares and Offered
Warrants, the Underwriter and its successors will have the right to designate a
nominee for election, at its or their option, either as a member of or a
non-voting advisor to the Board of Directors of the Company, and the Company
will use its best efforts to cause such nominee to be elected and continued in
office as a director of the Company or as such advisor until the expiration of
three (3) years from the Effective Date. Each of the Company's current officers,
directors and stockholders has agreed to vote all of the Common Shares owned by
such person or entity so as to elect and continue in office such nominee of the
Underwriter. Following the election of such nominee as a director or advisor,
such person shall receive no more or less compensation than is paid to other
non-officer directors of the Company for attendance at meetings of the Board of
Directors of the Company and shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings including, but not limited
to, food, lodging and transportation. The Company agrees to indemnify and hold
such director or advisor harmless, to the maximum extent permitted by law,
against any and all claims, actions, awards and judgments arising out of his
service as a director or advisor and, in the event the Company maintains a
liability insurance policy affording coverage for the acts of its officers and
directors, to include such director or advisor as an insured under such policy.
The rights and benefits of such indemnification and the benefits of such
insurance shall, to the extent possible, extend to the Underwriter insofar as it
may be or may be alleged to be responsible for such director or advisor.
If the Underwriter does not exercise its option to
designate a member of or advisor to the Company's Board of Directors, the
Underwriter shall nonetheless have the right to send a representative, at the
Underwriter's expense (who need not be the same individual from meeting to
meeting), to observe each meeting of the Board of Directors. The Company agrees
to give the Underwriter notice of each such meeting and to provide the
Underwriter with an agenda and minutes of the meeting no later than it gives
such notice and provides such items to the directors.
(r) Subject to the provisions of applicable law, the
Underwriter shall be entitled to receive a warrant solicitation fee of five
percent (5%) of the aggregate exercise price of the Warrants for each Warrant
exercised during the period commencing one year after the Effective Date;
provided, however, that the Underwriter will not be entitled to receive
-19-
such compensation in Warrant exercise transactions in which (i) the market price
of the Common Shares at the time of exercise is lower than the exercise price of
the Warrants; (ii) the Warrants are held in any discretionary account; (iii)
disclosure of compensation arrangements is not made in the Registration
Statement and in documents provided to holders of Warrants at the time of
exercise; (iv) the holder thereof has not confirmed in writing that the
Underwriter solicited the exercise of the Warrants; or (v) the solicitation or
exercise of the Warrants was in violation of Regulation M promulgated under the
Exchange Act.
(s) The Company shall retain a transfer agent for the
Common Shares and Warrants, reasonably acceptable to the Underwriter, for a
period of five (5) years from the Effective Date. In addition, for a period of
five (5) years from the Effective Date, the Company, at its own expense, shall
cause such transfer agent to provide the Underwriter with copies of the
Company's daily transfer sheets, and, when requested by the Underwriter, a
current list of the Company's security holders, including a list of the
beneficial owners of securities held by a depository trust company and other
nominees.
(t) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to the Underwriter and Underwriter's Counsel,
within a reasonable period from the date hereof, four bound volumes, including
the Registration Statement, as amended or supplemented, all exhibits to the
Registration Statement, the Prospectus and all other underwriting documents.
(u) The Company shall, as of the date hereof, have applied
for listing in Standard & Poor's Corporation Records Service (including annual
report information) or Xxxxx'x Industrial Manual (Xxxxx'x OTC Industrial Manual
not being sufficient for these purposes) and shall use its best efforts to have
the Company listed in such manual and shall maintain such listing for a period
of five (5) years from the Effective Date.
(v) For a period of five (5) years from the Effective Date,
the Company shall provide the Underwriter, on a not less than annual basis, with
internal forecasts setting forth projected results of operations for each
quarterly and annual period in the two (2) fiscal years following the respective
dates of such forecasts. Such forecasts shall be provided to the Underwriter
more frequently than annually if prepared more frequently by management, and
revised forecasts shall be prepared and provided to the Underwriter when
required to reflect more current information, revised assumptions or actual
results that differ materially from those set forth in the forecasts.
(w) For a period of five (5) years from the Effective Date,
or until such earlier time as the Common Shares and Warrants are listed on the
New York Stock Exchange or the American Stock Exchange, the Company shall cause
its legal
-20-
counsel to provide the Underwriter with a list, to be updated at least annually,
of those states in which the Common Shares and Warrants may be traded in
non-issuer transactions under the Blue Sky laws of the 50 states.
(x) For a period of five (5) years from the Effective Date,
the Company shall continue to retain BDO Xxxxxxx, LLP (or such other nationally
recognized accounting firm as is reasonably acceptable to the Underwriter) as
the Company's independent public accountants.
(y) For a period of five (5) years from the Effective Date,
the Company, at its expense, shall cause its then independent certified public
accountants, as described in Section 5(x) above, to review (but not audit) the
Company's financial statements for each of the first three fiscal quarters prior
to the announcement of quarterly financial information, the filing of the
Company's 10-Q (or 10-QSB) quarterly report (or other equivalent report) and the
mailing of quarterly financial information to stockholders.
(z) So long as any Warrants are outstanding, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act as shall
be necessary to enable the sale of the Common Shares underlying the Warrants and
cause a copy of each Prospectus, as then amended, to be delivered to each holder
of record of a Warrant as they request and as otherwise required by law and, to
furnish to the Underwriter and dealers as many copies of each such Prospectus as
the Underwriter or dealer may reasonably request. In addition, for so long as
any Warrant is outstanding, the Company will promptly notify the Underwriter of
any material change in the financial condition, business, results of operations
or properties of the Company.
(aa) For a period of twenty-five (25) days from the
Effective Date, the Company will not issue press releases or engage in any other
publicity without the Underwriter's prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
(ab) As per the employment agreements entered into between
the Company and each of Messrs. Xxxxxx, Hope and Xxxxx, dated as of February 1,
1997 and described in the Prospectus, the Company will not increase the salary
paid to any of Messrs. Xxxxxx, Hope and Sidhu prior to February 1, 1998, April
14, 1997 and July 31, 1997, respectively (the "First Increase Dates"), nor,
commencing as of the First Increase Dates, more than 10% per year prior to the
expiration of their employment agreements on May 31, 2000, without the prior
written consent of the Underwriter. In addition, the Company will not grant
bonuses (i) to any of its executive officers for the year
-21-
ended December 31, 1996, except Xxxxx Xxxx who may receive a bonus for such year
in accordance with the terms of his February 1, 1997 employment agreement, or
(ii) to any of its executive officers for the years ended December 31, 1997,
1998 or 1999, without the Underwriter's prior written consent, unless the
Company achieves pre-tax earnings after original issue discount, interest
expense and compensation charges ("Pre-Tax Earnings") for such years of
$1,850,000, $5,000,000 and $8,700,000, respectively, as determined by the
Company's independent auditors in connection with their audit of the Company's
financial statements for such year and in accordance with generally accepted
accounting principles, in which case, the Company may grant bonuses to its
executive officers (other than Xx. Xxxxxx), for each of such years in which the
respective Pre-Tax Earnings target is achieved, equal in the aggregate
(including bonuses granted to Mr. Xxxx) of up to 5% of the respective year's
Pre-Tax Earnings.
(ac) For a period of five (5) years from the Effective
Date, the Company will promptly submit to the Underwriter copies of accountant's
management reports and similar correspondence between the Company's accountants
and the Company.
(ad) For a period of three (3) years from the Effective
Date, the Company will not offer or sell any of its securities pursuant to
Regulation S promulgated under the Act without the prior written consent of the
Underwriter.
(ae) For a period of five (5) years from the Effective
Date, the Company will provide to the Underwriter ten day's written notice prior
to any issuance by the Company or its subsidiaries of any equity securities or
securities exchangeable for or convertible into equity securities of the
Company, except for (i) shares of Common Stock issuable upon exercise of
currently outstanding options and warrants or conversion of currently
outstanding convertible securities and (ii) options available for future grant
pursuant to any stock option plan in effect on the Effective Date and the
issuance of shares of Common Stock upon the exercise of such options.
(af) Prior to the Effective Date and for a period of three
(3) years thereafter, the Company will retain a financial public relations firm
reasonably acceptable to the Underwriter.
(ag) For a period of three (3) years, (i) the number of
members constituting the entire Board of Directors shall not exceed seven (7),
(ii) the composition of the Board of Directors shall be satisfactory to the
Underwriter, (iii) a majority of the Board of Directors shall be independent
persons, not otherwise affiliated with the Company, and (iv) meetings of the
Board of Directors shall be held at least quarterly.
-22-
(ah) For a period of three (3) years from the Effective
Date, the Company will hold a shareholder's meeting at least once per annum.
(ai) Upon the Effective Date, the Company will have
obtained Director's and Officer's insurance naming the Underwriter as an
additional insured party in an amount equal to $2,500,000, and the Company will
maintain such insurance coverage for a period of three (3) years from the
Closing Date.
(aj) In the future, without the prior written consent of
the Underwriter, the Company will not advance any monies to Xx. Xxxx X. Xxxxxx
and, other than up to $220,000 aggregate amount of indebtedness (including
principal and interest) incurred by Xx. Xxxxxx during the period commencing as
of January 1, 1997 and ending as of the date of this Agreement, will not forgive
any indebtedness incurred by Xx. Xxxxxx.
6. Conditions of the Underwriter's Obligation to Purchase the
Offered Shares and Offered Warrants from the Company. The obligation of the
Underwriter to purchase and pay for the Offered Shares and Offered Warrants
which it has agreed to purchase from the Company is subject (as of the date
hereof and the Closing Date) to the accuracy of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy of the statements of the Company or its officers made pursuant hereto,
to the performance in all material respects by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement will have become effective
not later than __ .M., New York City time, on the day following the date of this
Agreement, or at such later time or on such later date as the Underwriter may
agree to in writing; prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or will be pending or, to
the best of the Underwriter's or the Company's knowledge, will be contemplated
by the Commission; and any request on the part of the Commission for additional
information will have been complied with to the satisfaction of Underwriter's
Counsel.
(b) At the time that this Agreement is executed and at the
Closing Date, there will have been delivered to the Underwriter signed opinions
of Xxxxxx Xxxxx & Xxxxxxx LLP, Xxxxx Xxxxx, Esq. and Xxxxx & Tratos, counsels
for the Company (together, "Company Counsels"), dated as of the date hereof or
the Closing Date, as the case may be (and any other opinions of counsel referred
to in such opinions of Company Counsels or relied upon by Company Counsels in
rendering their opinion), reasonably satisfactory to Underwriter's Counsel, to
the effect that:
-23-
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada,
with full corporate power and authority, and with all Permits necessary, to own
or lease, as the case may be, and operate its properties and to conduct its
business as described in the Registration Statement. To the best of Company
Counsels' knowledge, the Company has no subsidiaries other than Legends in
Concert, Inc., a corporation duly incorporated and validly existing under the
laws of the State of Nevada, On Stage Marketing, Inc., a corporation duly
incorporated and validly existing under the laws of the State of Nevada, and
Interactive Events, Inc., a corporation duly incorporated and validly existing
under the laws of the State of Georgia (together, the "Subsidiaries"). To the
best of Company Counsels' knowledge, the Company owns all of the capital stock
of each Subsidiary, free and clear of all liens, security interests and other
encumbrances of any nature whatsoever, except as set forth in the Registration
Statement. To the best of Company Counsels' knowledge, other than the
Subsidiaries, the Company has no equity interests in any other entity. Unless
the context otherwise requires, all references to the "Company" in this
Agreement shall include the Subsidiaries. Each of the Company and each
Subsidiary is duly qualified to do business as a foreign corporation and is in
good standing in all jurisdictions set forth on Schedule A hereto. Each of the
Subsidiaries has full corporate power and authority, with all Permits, to own or
lease, as the case may be, and operate its properties and to conduct its
business as described in the Registration Statement.
(ii) The Company has full corporate power and authority
to execute, deliver and perform this Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance of this Agreement,
the Warrant Agreement and the Underwriter's Warrant Agreement by the Company,
the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this Agreement,
the Warrant Agreement and the Underwriter's Warrant Agreement have been duly
authorized by all necessary corporate action, and this Agreement has been duly
executed and delivered by the Company. This Agreement is (assuming for the
purposes of this opinion that it is valid and binding upon the other party
thereto), and each of the Warrant Agreement, the Underwriter's Warrant
Agreement, when executed and delivered by the Company on the Closing Date, will
be, valid and binding obligations of the Company, enforceable in accordance with
their respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification provisions set
forth in Section 8 hereof and the contribution provisions set forth in Section 9
hereof may be limited by the federal securities laws or public policy underlying
such laws.
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(iii) The execution, delivery and performance of this
Agreement, the Warrant Agreement and the Underwriter's Warrant Agreement by the
Company, the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this Agreement,
the Warrant Agreement and the Underwriter's Warrant Agreement do not, and will
not, with or without the giving of notice or the lapse of time, or both, (A)
result in a violation of the Certificate of Incorporation, Articles of
Incorporation or By-Laws, as the case may be, each as amended, of the Company or
any Subsidiary, (B) to the best of Company Counsels' knowledge, result in a
breach of or conflict with any terms or provisions of, or constitute a default
under, or result in the modification or termination of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or any Subsidiary pursuant
to any indenture, mortgage, note, contract, commitment or other material
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any of the Company's or any Subsidiary's
properties or assets are or may be bound or affected; (C) violate any existing
applicable law, rule or regulation to which the Company is subject, (D) to the
best of Company Counsels' knowledge, violate any judgment, order or decree of
any governmental agency or court, domestic or foreign, having jurisdiction over
the Company or any Subsidiary or any of the Company's or any Subsidiary's
properties or business; or (E) to the best of Company Counsels' knowledge have
any effect on any Permit necessary for the Company or any Subsidiary to own or
lease, as the case may be, and operate their respective properties or conduct
their businesses or the ability of the Company or any Subsidiary to make use
thereof.
(iv) To the best of Company Counsels' knowledge, no
Permits of any court or governmental agency or body (other than under the Act,
the Regulations and applicable state securities or Blue Sky laws) are required
on the part of the Company under any law, rule or regulation that Company
Counsels, exercising customary professional due diligence, would reasonably
recognize as being applicable to the Company or the transactions contemplated by
this Agreement for the valid authorization, issuance, sale and delivery of the
Shares and Warrants or the Underwriter's Warrants to the Underwriter, and the
consummation by the Company of the transactions contemplated by this Agreement,
the Warrant Agreement or the Underwriter's Warrant Agreement.
(v) The Registration Statement has become effective
under the Act; to the best of Company Counsels' knowledge, no stop order
suspending the effectiveness of the
-25-
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending, threatened or contemplated under the Act or
applicable state securities laws.
(vi) The Registration Statement and the Prospectus, as
of the Effective Date, and each amendment or supplement thereto as of its
effective or issue date (except for the financial statements and other financial
data included therein or omitted therefrom, as to which Company Counsels need
not express an opinion) comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration Statement
and the Prospectus of statutes, regulations, government classifications,
contracts and other documents (including opinions of such counsel); and the
response to Item 13 of Form SB-2 have been reviewed by Company Counsels, and,
based upon such review, are accurate in all material respects and present fairly
the information required to be disclosed, and there are no material statutes,
regulations or government classifications, or, to the best of Company Counsels'
knowledge, material contracts or documents, of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement, which are not so described or filed as
required.
To the best of Company Counsel's knowledge, none of the
material provisions of the contracts or instruments described above violates any
existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court having jurisdiction over the Company or any
Subsidiary or any of their assets or businesses.
(viii) The outstanding Common Shares and outstanding
options and warrants to purchase Common Shares have been duly authorized and
validly issued. The outstanding Common Shares are fully paid and nonassessable.
The outstanding options and warrants to purchase Common Shares constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms. None of the outstanding Common Shares or options or warrants to
purchase Common Shares has been issued in violation of any statutory preemptive
rights, any preemptive rights set forth in the Company's or any Subsidiary's
Articles of Incorporation, Certificate of Incorporation or By-Laws, as the case
may be, or to the best of Company Counsels' knowledge, any contractual
preemptive rights of any shareholder of the Company. None of the holders of the
outstanding Common Shares is subject to personal liability solely by reason of
being such a holder.
-26-
To the best of Company Counsels' knowledge, the offers and sales of the
outstanding Common Shares and outstanding options and warrants to purchase
Common Shares were at all relevant times either registered under the Act and the
applicable state securities or Blue Sky laws or exempt from such registration
requirements. The authorized Common Shares and outstanding options and warrants
to purchase Common Shares conform to the descriptions thereof contained in the
Registration Statement and Prospectus. To the best of Company Counsels'
knowledge, except as set forth in the Prospectus, no holders of any of the
Company's securities has any rights, "demand", "piggyback" or otherwise, to have
such securities registered under the Act.
(ix) The issuance and sale of the Shares and the
Warrant Shares have been duly authorized and, when the Shares and the Warrant
Shares have been issued and duly delivered against payment therefor as
contemplated by this Agreement, the Underwriter's Warrant Agreement or the
Warrant Agreement, as the case may be, the Shares and the Warrant Shares will be
validly issued, fully paid and nonassessable, and the holders thereof will not
be subject to personal liability solely by reason of being such holders. Neither
the Shares nor the Warrant Shares are subject to statutory preemptive rights,
any preemptive rights set forth in the Company's or any Subsidiary's Articles of
Incorporation, Certificate of Incorporation or By-Laws, as the case may be, or,
to the best of Company Counsels' knowledge, any contractual preemptive rights of
any shareholder of the Company. The certificates representing the Securities are
in proper legal form.
(x) The issuance and sale of the War- rants, the
Underwriter's Warrants and the Underlying Warrants have been duly authorized
and, when paid for, issued and delivered pursuant to the terms of this
Agreement, the Underwriter's Warrant Agreement and the Warrant Agreement, as the
case may be, the Warrants, the Underwriter's Warrants and the Underlying
Warrants will constitute the valid and binding obligations of the Company,
enforceable in accordance with their terms, to issue and sell the Warrant Shares
and/or Underlying Warrants. The Warrant Shares have been duly reserved for
issuance upon exercise of the Underwriter's Warrants and the Warrants in
accordance with the provisions of the Underwriter's Warrant Agreement and the
Warrant Agreement, as the case may be. The Warrants, Underwriter's Warrants and
Underlying Warrants conform to the descriptions thereof contained in the
Registration Statement and Prospectus.
(xi) Upon delivery of the Offered Shares and Offered
Warrants to the Underwriter against full payment therefor as provided in this
Agreement, the Underwriter (assuming
-27-
it is a bona fide purchaser within the meaning of the Uniform Commercial Code)
will acquire good title to the Offered Shares and Offered Warrants, free and
clear of all liens, encumbrances, equities, security interests and claims.
(xii) Assuming that the Underwriter exer- cises the
over-allotment option to purchase any of the Optional Shares and Offered
Warrants and makes full payment therefor in accordance with the terms of this
Agreement, upon delivery of the Optional Shares and Optional Warrants so
purchased to the Underwriter hereunder, the Underwriter (assuming it is a bona
fide purchaser within the meaning of the Uniform Commercial Code) will acquire
good title to such Optional Shares and Optional Warrants, free and clear of any
liens, encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsels' knowledge,
there are no claims, actions, suits, proceedings, arbitrations, investigations
or inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company or any Subsidiary, or involving its or any Subsidiary's
properties or business, other than as described in the Prospectus, such
description being accurate, and other than litigation incident to the kind of
business conducted by the Company which, individually and in the aggregate, is
not material.
(xiv) The Company and each Subsidiary each owns or
possesses adequate and enforceable rights to use all trademarks and service
marks used or proposed to be used in the conduct of its business as described in
the Prospectus (collectively the "Intangibles"). To the best of Company
Counsels' knowledge, the Company does not own any patents nor does it have any
application for patents pending. Company Counsels have not received any notice,
and to the best of Company Counsels' knowledge, neither the Company nor any
Subsidiary has received any notice, to the effect that the Company or any
Subsidiary has infringed, or is infringing upon, the patents, patent
applications, trademarks, servicemarks, copyrights, trade secrets, confidential
information, processes and formulations of others, except as described in the
Prospectus.
(xv) Company Counsels have participated in reviews and
discussions in connection with the preparation of the Registration Statement and
the Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsels deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data
-28-
contained therein, as to which Company Counsels need not express an opinion), on
the Effective Date, contained any untrue statement of a material fact required
to be stated therein or omitted 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, or that (B) the
Prospectus (except as to the financial statements and other financial data
contained therein, as to which Company Counsels need not express an opinion)
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Each counsel giving an
opinion must give the opinion set forth in this Section 6(b)(xv) as to the
subject matter of its opinion.
In rendering its opinion pursuant to this Section 6(b),
Company Counsels may rely upon the certificates of government officials and
officers of the Company as to matters of fact, provided that any such Company
Counsel shall state that they have no reason to believe, and do not believe,
that they are not justified in relying upon such opinions or such certificates
of government officials and officers of the Company as to matters of fact, as
the case may be.
The opinion letters delivered pursuant to this Section 6(b)
shall state that any opinion given therein qualified by the phrase "to the best
of our knowledge" is being given by such Company Counsel after due investigation
of the matters therein discussed.
(c) At the Closing Date, there will have been delivered to
the Underwriter a signed opinion of Underwriter's Counsel, dated as of the
Closing Date, to the effect that the opinions delivered pursuant to Section 6(b)
hereof appear on their face to be appropriately responsive to the requirements
of this Agreement, except to the extent waived by the Underwriter, specifying
the same, and with respect to such related matters as the Underwriter may
require.
(d) At the Closing Date (i) the Registration Statement and
the Prospectus and any amendments or supplements thereto will contain all
material statements which are required to be stated therein in accordance with
the Act and the Regulations and will conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; (ii)
since
-29-
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding would materially adversely affect the business, property,
financial condition or results of operations of the Company, other than as set
forth in the Registration Statement and the Prospectus. At the Closing Date,
there will be delivered to the Underwriter a certificate signed by the Chairman
of the Board or the President or a Vice President of the Company, dated the
Closing Date, evidencing compliance with the provisions of this Section 6(d) and
stating that the representations and warranties of the Company set forth in
Section 4 hereof were accurate and complete in all material respects when made
on the date hereof and are accurate and complete in all material respects on the
Closing Date as if then made; that the Company has performed all covenants and
complied with all conditions required by this Agreement to be performed or
complied with by the Company prior to or as of the Closing Date; and that, as of
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or, to the best of his knowledge, are contemplated or threatened. In
addition, the Underwriter will have received such other and further certificates
of officers of the Company as the Underwriter or Underwriter's Counsel may
reasonably request.
(e) At the time that this Agreement is executed and at the
Closing Date, the Underwriter will have received a signed letter from BDO
Xxxxxxx, LLP, dated the date such letter is to be received by the Underwriter
and addressed to it, confirming that it is a firm of independent public
accountants within the meaning of the Act and Regulations and stating that:
-30-
(i) insofar as reported on by them, in their opinion, the financial statements
of the Company included in the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act and the
applicable Regulations; (ii) on the basis of procedures and inquiries (not
constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim financial statements
of the Company appearing in the Registration Statement and the Prospectus and
the latest available unaudited interim financial statements of the Company, if
more recent than that appearing in the Registration Statement and Prospectus,
inquiries of officers of the Company responsible for financial and accounting
matters as to the transactions and events subsequent to the date of the latest
audited financial statements of the Company, and a reading of the minutes of
meetings of the stockholders, the Board of Directors of the Company and any
committees of the Board of Directors, as set forth in the minute books of the
Company, nothing has come to their attention which, in their judgment, would
indicate that (A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three business days prior to the date of such
letter, there have been any decreases in net current assets or net assets as
compared with amounts shown in such financial statements or decreases in net
sales or decreases [increases] in total or per share net income [loss] compared
with the corresponding period in the preceding year or any change in the
capitalization or long-term debt of the Company, except in all cases as set
forth in or contemplated by the Registration Statement and the Prospectus, and
(B) the unaudited interim financial statements of the Company, if any, appearing
in the Registration Statement and the Prospectus, do not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Regulations or are not fairly presented in conformity with generally
accepted accounting principles and practices on a basis substantially consistent
with the audited financial statements included in the Registration Statement or
the Prospectus; and (iii) they have compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance
-31-
with generally accepted auditing standards) set forth in the letter, and found
them to be in agreement.
(f) There shall have been duly tendered to the Underwriter
certificates representing the Offered Shares and the Offered Warrants to be sold
on the Closing Date.
(g) The NASD shall have indicated that it has no objection
to the underwriting arrangements pertaining to the sale of the Shares and
Warrants by the Underwriter.
(h) No action shall have been taken by the Commission or
the NASD the effect of which would make it improper, at any time prior to the
Closing Date or the Option Closing Date, as the case may be, for any member firm
of the NASD to execute transactions (as principal or as agent) in the Shares or
Warrants, and no proceedings for the purpose of taking such action shall have
been instituted or shall be pending, or, to the best of the Underwriter's or the
Company's knowledge, shall be contemplated by the Commission or the NASD. The
Company represents at the date hereof, and shall represent as of the Closing
Date or Option Closing Date, as the case may be, that it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD.
(i) The Company meets the current and any existing and
proposed criteria for inclusion of the Shares and Warrants in NASDAQ.
(j) All proceedings taken at or prior to the Closing Date
or the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares or Warrants shall be reasonably
satisfactory in form and substance to the Underwriter and to Underwriter's
Counsel, and such counsel shall have been furnished with all such documents,
certificates and opinions as they may request for the purpose of enabling them
to pass upon the matters referred to in Section 6(c) hereof and in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements of the Company, the performance of any covenants of the Company,
or the compliance by the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have delivered
to the Underwriter the written undertakings of its officers, directors and
security holders and/or registration rights holders, as the case may be, to the
effect of the matters set forth in Sections 5(l) and (q).
-32-
If any of the conditions specified in this Section 6 have not
been fulfilled, this Agreement may be terminated by the Underwriter on notice to
the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, each officer, director, partner, employee and agent of the
Underwriter, and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement, in any Preliminary Prospectus or in the
Prospectus (or the Registration Statement or Prospectus as from time to time
amended or supplemented) or (ii) in any application or other document executed
by the Company, or based upon written information furnished by or on behalf of
the Company, filed in any jurisdiction in order to qualify the Shares and
Warrants under the securities laws thereof (hereinafter "application"), or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, in light of the circumstances under which
they were made, unless such untrue statement or omission was made in such
Registration Statement, Preliminary Prospectus, Prospectus or application in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by the Underwriter or any such person through
the Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 7(a) with respect to any Preliminary
Prospectus will not inure to the benefit of the Underwriter (or to the benefit
of any other person that may be indemnified pursuant to this Section 7(a)) if
(A) the person asserting any such losses, claims, damages, expenses or
liabilities purchased the Shares and/or Warrants which are the subject thereof
from the Underwriter or other indemnified person; (B) the Underwriter or other
indemnified person failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Shares and/or
Warrants to such person; and (C) the Prospectus did not contain any untrue
-33-
statement or alleged untrue statement or omission or alleged omission giving
rise to such cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Company and
each such director, officer or controlling person for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application (including any application for registration of the Shares and
Warrants under state securities or Blue Sky laws), or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading, in light of the circumstances under which they were made, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by the Underwriter expressly for use therein.
(c) Promptly after receipt of notice of the commencement of
any action in respect of which indemnity may be sought against any indemnifying
party under this Section 7, the indemnified party will notify the indemnifying
party in writing of the commencement thereof, and the indemnifying party will,
subject to the provisions hereinafter stated, assume the defense of such action
(including the employment of counsel satisfactory to the indemnified party and
the payment of expenses) insofar as such action relates to an alleged liability
in respect of which indemnity may be sought against the indemnifying party.
After notice from the indemnifying party of its election to assume the defense
of such claim or action, the indemnifying party shall no longer be liable to the
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
if, in the reasonable judgment of the indemnified party or parties, it is
advisable for the indemnified party or parties to be represented by separate
counsel, the indemnified party or
-34-
parties shall have the right to employ a single counsel to represent the
indemnified parties who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the indemnified parties thereof
against the indemnifying party, in which event the fees and expenses of such
separate counsel shall be borne by the indemnifying party. Any party against
whom indemnification may be sought under this Section 7 shall not be liable to
indemnify any person that might otherwise be indemnified pursuant hereto for any
settlement of any action effected without such indemnifying party's consent,
which consent shall not be unreasonably withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 7 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including, for this purpose, any
contribution made by or on behalf of any director of the Company, any officer of
the Company who signed the Registration Statement and any controlling person of
the Company) and the Underwriter (including, for this purpose, any contribution
by or on behalf of each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee and agent of the Underwriter) as a second
entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, so that the Underwriter
is responsible for the proportion thereof equal to the percentage which the
underwriting discount per Share and per Warrant set forth on the cover page of
the Prospectus represents of the initial public offering price per Share and per
Warrant set forth on the cover page of the Prospectus and the Company is
responsible for the remaining portion; provided, however, that if applicable law
does not permit such allocation, then, if applicable law permits, other relevant
equitable considerations such as the relative fault of the Company and the
Underwriter in connection with the facts which resulted in such losses,
liabilities, claims, damages and expenses shall also be considered. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Company or by the Underwriter, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company and the Underwriter agree that it would be unjust and inequitable if the
respective obligations of the Company and the Underwriter for contribution were
determined by pro rata or per
-35-
capita allocation of the aggregate losses, liabilities, claims, damages and
expenses or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 8. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls the Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee
and agent of the Underwriter will have the same rights to contribution as the
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 9 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 9 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares and the Warrants.
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to the
Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Shares and Offered Warrants for public offering.
The time when the Underwriter "releases the Offered Shares and Offered Warrants
for public offering" for the purposes of this Section 11 means the time when the
Underwriter releases for publication the first newspaper advertisement, which is
subsequently published, relating to the Offered Shares and Offered Warrants, or
the time when the Underwriter releases for delivery to members of a selling
group copies of the Prospectus
-36-
and an offering letter or an offering telegram relating to the Offered Shares
and Offered Warrants, whichever will first occur.
(b) This Agreement, including without limitation, the
obligation to purchase the Offered Shares and the Offered Warrants and the
obligation to purchase the Optional Shares and/or Optional Warrants after
exercise of the option referred to in Section 3 hereof, are subject to
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares and
Offered Warrants or such Optional Shares and Optional Warrants, as the case may
be, if, prior to such time, any of the following shall have occurred: (i) the
Company withdraws the Registration Statement from the Commission or the Company
does not or cannot expeditiously proceed with the public offering; (ii) the
representations and warranties in Section 4 hereof are not materially correct or
cannot be complied with; (iii) trading in securities generally on the New York
Stock Exchange or the American Stock Exchange will have been suspended; (iv)
limited or minimum prices will have been established on either such Exchange;
(v) a banking moratorium will have been declared either by federal or New York
State authorities; (vi) any other restrictions on transactions in securities
materially affecting the free market for securities or the payment for such
securities, including the Offered Shares and Offered Warrants or the Optional
Shares and Optional Warrants, will be established by either of such Exchanges,
by the Commission, by any other federal or state agency, by action of the
Congress or by Executive Order; (vii) trading in any securities of the Company
shall have been suspended or halted by any national securities exchange, the
NASD or the Commission; (viii) there has been a materially adverse change in the
condition (financial or otherwise), prospects or obligations of the Company;
(ix) the Company will have sustained a material loss, whether or not insured, by
reason of fire, flood, accident or other calamity; (x) any action has been taken
by the government of the United States or any department or agency thereof
which, in the judgment of the Underwriter, has had a material adverse effect
upon the market or potential market for securities in general; or (xi) the
market for securities in general or political, financial or economic conditions
will have so materially adversely changed that, in the judgment of the
Underwriter, it will be impracticable to offer for sale, or to enforce contracts
made by the Underwriter for the resale of, the Offered Shares and Offered
Warrants or the Optional Shares and Offered Warrants, as the case may be.
(c) If this Agreement is terminated pursuant to Section 6
hereof or this Section 10 or if the purchases provided for herein are not
consummated because any condition of the Underwriter's obligations hereunder is
not satisfied or because
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of any refusal, inability or failure on the part of the Company to comply with
any of the terms or to fulfill any of the conditions of this Agreement, or if
for any reason the Company shall be unable to or does not perform all of its
obligations under this Agreement, the Company will not be liable to the
Underwriter for damages on account of loss of anticipated profits arising out of
the transactions covered by this Agreement, but the Company will remain liable
to the extent provided in Sections 5(j), 7, 8 and 9 of this Agreement.
11. Information Furnished by the Underwriter to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and
8 hereof, the only information given by the Underwriter to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Shares and Warrants, the
information in the __ paragraph on page __ with respect to concessions and
reallowances, and the information in the ___ paragraph on page ___ with respect
to the determination of the public offering price, as such information appears
in any Preliminary Prospectus and in the Prospectus.
12. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Underwriter, to Whale Securities Co., L.P., 000
Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xx. Xxxxxxx X. Xxxxxxx, with
a copy to Xxxxxx, Xxxxxxxxxx LLP, Attention: Xxxxxx X. Xxxxxxx, Esq., 000
Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000; if to the Company, addressed to it
at 0000 Xxxx Xxxxx Xxxxx #0, Xxx Xxxxx, Xxxxxx 00000, Attention: Xxxx X. Xxxxxx,
Chairman, with a copy to Xxxxxx, Xxxxx & Xxxxxxx, LLP, 0000 Xxx Xxxxx Xxxxxx,
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000, Attention: Xxxxx X. XxXxxxxx, Xx., Esq.
This Agreement shall be deemed to have been made and delivered
in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction of
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the New York State Supreme Court, County of New York, and the United States
District Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding.
13. Parties in Interest. This Agreement is made solely for the
benefit of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares or
Warrants from the Underwriter, as such purchaser.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
ON STAGE ENTERTAINMENT, INC.
By:_________________________
Name:
Title:
Confirmed and accepted
in New York, N.Y., as of the date
first above written:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:_______________________________________________
Name:
Title:
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