EXHIBIT 1.1
Frontline Communications Corporation
Xxx Xxxx Xxxx Xxxxx, 0xx Xxxxx
Xxxxx Xxxxx, Xxx Xxxx 00000
UNDERWRITING AGREEMENT
----------------------
Xxxxxx Xxxx Securities, Inc. _________, 1998
000 X. Xxxxxxxx Xxxx Xxxx
Xxxxx 000
Xxxx Xxxxx, XX 00000
Gentlemen:
Frontline Communications Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell to Xxxxxx Xxxx Securities, Inc. ("Xxxxxx
Xxxx" or the "Representative") and to each of the other underwriters named in
Schedule I hereto (the "Underwriters"), for each of whom you are acting as
Representative the following securities: (i) 1,500,000 shares of Common Stock at
a public offering price of $4.00 per share; and (ii) 1,500,000 Common Stock
Purchase Warrants (the "Warrants") at a public offering price of $.10 per
Warrant. Each Warrant shall entitle the holder thereof to purchase one share of
Common Stock for a period of four and one-half years commencing six months from
the Effective Date (as hereinafter defined) at a purchase price of $4.80 per
share. Commencing 13 months from the Effective Date, the Company may redeem the
Warrants at any time upon notice of not less than 30 days, at a price of $.10
per warrant, provided that the closing bid quotation of the Common Stock on all
20 trading days ending on the third day prior to the day on which the Company
gives notice, has been at least 150% of the then effective exercise price of the
Warrants and the Company obtains the prior written approval of the
Representative. The Warrant holders shall have the right to exercise their
Warrants until the close of the date fixed for their redemption. The date the
Registration Statement with respect to the Securities is declared effective by
the Commission is hereinafter referred to as the "Effective Date." The 1,500,000
shares of Common Stock and the 1,500,000 Warrants are hereinafter sometimes
referred to as the "Firm Common Stock," and the "Firm Warrants," respectively.
The Firm Common Stock, and the Firm Warrants are sometimes hereinafter referred
to as the "Firm Securities." Upon the request of the Representative, and as
provided in Section 3 hereof, the Company will also issue and sell to the
Underwriters up to a maximum of an additional 225,000 shares of Common Stock,
and 225,000 Warrants for the purpose of covering over-allotments. Such
additional shares of Common Stock and Warrants are hereinafter sometimes
referred to as the "Optional Common Stock" and the "Optional Warrants,"
respectively. The Optional Common Stock and Optional Warrants are sometimes
hereinafter referred to as the "Optional Securities." Both the Firm Securities
and the Optional Securities are sometimes collectively referred to herein as the
"Securities." All of the securities which are the subject of this Agreement are
more fully described in the
Prospectus of the Company described below. In the event that the Representative
does not form an underwriting group but decides to act as the sole Underwriter,
then all references to Xxxxxx Xxxx Securities, Inc. herein as Representative
shall be deemed to be to it as such sole Underwriter and Section 14 hereof shall
be deemed deleted in its entirety.
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representative deems advisable after
the Registration Statement hereinafter referred to becomes effective. The
Company hereby confirms its agreement with the Representative and the other
Underwriters as follows:
SECTION 1. Description of Securities. The Company's authorized and
outstanding capitalization when the public offering of securities contemplated
hereby is permitted to commence, under the Securities Act of 1933, as amended
(the "Act"), and at the Closing Date (hereinafter defined) and the terms of the
Warrants will be as set forth in the Prospectus (hereinafter defined).
SECTION 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to, and agrees with, the Underwriters as follows:
(a) A Registration Statement on Form SB-2 and amendments
thereto (No. 333-34115) with respect to the Securities, including a form of
prospectus relating thereto, copies of which have been previously delivered to
you, has been prepared by the Company in conformity with the requirements of the
Act, and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, and has been
filed with the Commission under the Act. The Company, subject to the provisions
of Section 6(a) hereof, may file one or more amendments to such Registration
Statement and Prospectus. The Underwriters will receive copies of each such
amendment.
The date on which such Registration Statement is
declared effective under the Act and the public offering of the Securities as
contemplated by this Agreement is therefore authorized to commence, is herein
called the "Effective Date." The Registration Statement and Prospectus, as
finally amended and revised immediately prior to the Effective Date, are herein
called respectively the "Registration Statement" and the "Prospectus." If,
however, a prospectus is filed by the Company pursuant to Rule 424(b) of the
Rules and Regulations which differs from the Prospectus, the term "Prospectus"
shall also include the prospectus filed pursuant to Rule 424(b).
(b) The Registration Statement (and Prospectus), at the time
it becomes effective under the Act, (as thereafter amended or as supplemented if
the Company shall have filed with the Commission an amendment or supplement),
and, with respect to all such documents, on the Closing Date (hereinafter
defined), will in all material respects comply with the provisions of the Act
and the Rules and Regulations, and will not contain an untrue statement of a
material fact and will not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the
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circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subsection (b)
shall extend to the Underwriters in respect of any statements in or omissions
from the Registration Statement and/or the Prospectus, based upon information
furnished in writing to the Company by the Underwriters specifically for use in
connection with the preparation thereof.
(c) The Company has been duly incorporated and is now, and on
the Closing Date will be, validly existing as a corporation in good standing
under the laws of the State of Delaware, having all required corporate power and
authority to own its properties and conduct its business as described in the
Prospectus. The Company is now, and on the Closing Date will be, duly qualified
to do business as a foreign corporation in good standing in all of the
jurisdictions in which it conducts its business or the character or location of
its properties requires such qualifications except where the failure to so
qualify would not materially adversely affect the Company's business, properties
or financial condition. The Company has no subsidiaries, except as are set forth
in the Prospectus.
(d) The financial statements of the Company (audited and
unaudited) included in the Registration Statement and Prospectus present fairly
the financial position and results of operations and changes in financial
condition of the Company at the respective dates and for the respective periods
to which they apply; and such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently applied
throughout the periods involved, and are in accordance with the books and
records of the Company.
(e) BDO Xxxxxxx LLP, independent public accountants, who have
given their report on certain financial statements which are included as a part
of the Registration Statement and the Prospectus are independent public
accountants as required under the Act and the Rules and Regulations.
(f) Subsequent to the respective dates as of which information
is given in the Prospectus and prior to the Closing Date and, except as set
forth in or contemplated in the Prospectus, (i) the Company has not incurred,
nor will it incur, any material liabilities or obligations, direct or
contingent, nor has it, nor will it have entered into any material transactions,
in each case not in the ordinary course of business; (ii) there has not been,
and will not have been, any material change in the Company's Certificate of
Incorporation or in its capital stock or funded debt; and (iii) there has not
been, and will not have been, any material adverse change in the business, net
worth or properties or condition (financial or otherwise) of the Company whether
or not arising from transactions in the ordinary course of business.
(g) Except as otherwise set forth in the Prospectus, the real
and personal properties of the Company as shown in the Prospectus and
Registration Statement to be owned by the Company are owned by the Company by
good and marketable title free and clear of all liens and encumbrances, except
those (i) specifically referred to in the Prospectus, which do not materially
adversely affect the use or value of such assets, (ii)
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for current taxes not now due, or (iii) are held by the Company by valid leases,
none of which is in default. Except as disclosed in the Prospectus and
Registration Statement, the Company in all material respects has full right and
licenses, permits and governmental authorizations required to maintain and
operate its business and properties as the same are now operated and, to its
best knowledge, none of the activities or business of the Company is in material
violation of, or causes the Company to violate any laws, ordinances and
regulations applicable thereto, the violation of which would have a material
adverse impact on the condition (financial or otherwise), business, properties
or net worth of the Company.
(h) The Company has no material contingent obligations, nor
are its properties or business subject to any material risks, which may be
reasonably anticipated, which are not disclosed in the Prospectus.
(i) Except as disclosed in the Prospectus and Registration
Statement, there are no material actions, suits or proceedings at law or in
equity of a material nature pending, or to the Company's knowledge, threatened
against the Company which are not adequately covered by insurance, which might
result in a material adverse change in the condition (financial or otherwise),
properties or net worth of the Company, and there are no proceedings pending or,
to the knowledge of the Company, threatened against the Company before or by any
Federal or State Commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, properties or net worth or financial
condition or income of the Company, which are not disclosed in the Prospectus.
(j) All of the outstanding shares of Common Stock are duly
authorized and validly issued and outstanding, fully paid, non-assessable, and
do not have any and were not issued in violation of any preemptive rights. All
of the Common Stock as described in the Prospectus when paid for shall be duly
authorized and validly issued and outstanding, fully paid, non-assessable, and
will not have any and will not be issued in violation of any preemptive rights.
The Common Stock issuable upon exercise of the Warrants when issued and paid for
in accordance with the Warrant Agreement shall be duly authorized and validly
issued and outstanding, fully paid, non-assessable, and will not have any and
will not be issued in violation of any preemptive rights. The Common Stock and
Warrants will be delivered in accordance with this Agreement and the Warrant
Agreement filed as Exhibit 4.2 to the Registration Statement between the Company
and American Securities Transfer & Trust Company, 0000 Xxxxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxx 00000. The Underwriters will receive good and marketable title to the
Securities purchased by them from the Company, free and clear of all liens,
encumbrances, claims, security interests, restrictions, stockholders' agreements
and voting trusts whatsoever. Except as set forth in the Prospectus, there are
no outstanding convertible preferred stock, options, warrants, or other rights,
providing for the issuance of, and no commitments, plans or arrangements to
issue, any shares of any class of capital stock of the Company, or any security
convertible into, or exchangeable for, any shares of any class of capital stock
of the Company. All of the Securities of the Company to which this Agreement
relates conform to the statements relating to them that are contained in the
Registration Statement and Prospectus.
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(k) The certificate or certificates required to be furnished
to the Underwriters pursuant to the provisions of Section 11 hereof will be true
and correct.
(l) The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary corporate action and it is a
valid and binding obligation of the Company, enforceable against it in
accordance with its terms except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws pertaining to
creditors rights generally.
(m) Except as disclosed in the Prospectus, no default exists,
and no event has occurred which, with notice or lapse of time, or both, would
constitute a default in the due performance and observance of any material term,
covenant or condition by the Company or any other party, of any material
indenture, mortgage, deed of trust, note or any other material agreement or
instrument to which the Company is a party or by which it or its business or its
properties may be bound or affected, except as disclosed in the Prospectus. The
Company has full power and lawful authority to authorize, issue and sell the
Securities to be sold by it hereunder on the terms and conditions set forth
herein and in the Registration Statement and in the Prospectus. No consent,
approval, authorization or other order of any regulatory authority is required
for such authorization, issue or sale, except as may be required under the Act
or State securities laws. The execution and delivery of this Agreement, the
consummation of the transactions herein contemplated, and compliance with the
terms hereof will not conflict with, or constitute a default under any
indenture, mortgage, deed of trust, note or any other agreement or instrument to
which the Company is now a party or by which it or its business or its
properties may be bound or materially affected; the Certificate of Incorporation
and any amendments thereto; the by-laws of the Company, as amended; or to the
best knowledge of the Company, any law, order, rule or regulation, writ,
injunction or decree of any government, governmental instrumentality, or court,
domestic or foreign, having jurisdiction over the Company or its business or
properties.
(n) No officer or director of the Company has taken, and each
officer and director has agreed that he will not take, directly or indirectly,
any action designed to stabilize or manipulate the price of the Common Stock or
the Warrants in the open market following the Closing Date or any other type of
action designed to, or that may reasonably be expected to cause or result in
such stabilization or manipulation, or that may reasonably be expected to
facilitate the initial sale, or resale, of any of the securities which are the
subject of this Agreement.
(o) The Warrants to purchase Common Stock to be issued at
closing to the Representative (the Representative's Stock Warrants") and the
Warrants to purchase Warrants to be issued at closing to the Representative (the
"Representative's Warrants," which together with the Representative's Stock
Warrants are collectively hereinafter referred to as the "Representative's
Securities") will be, when issued and paid for, duly and validly authorized and
executed by the Company and will constitute valid and binding obligations of the
Company, legally enforceable in accordance with their terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization,
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moratorium or other laws pertaining to creditors rights generally), and the
Company will have duly authorized, reserved and set aside the shares of its
Common Stock issuable upon exercise of the Representative's Securities and
underlying Warrants, and such stock, when issued and paid for upon exercise of
the Representative's Securities and underlying Warrants in accordance with the
provisions of the Warrant Agreement will be duly authorized and validly issued,
fully-paid and non-assessable.
(p) The Company represents that it paid $10,000 to Xxxxx
Xxxxxxx, Inc. and $15,000 to Xxxxxx Xxxxxxx Ltd. (net of any refunds of money)
as disclosed in the Underwriting section of the Prospectus and that no other
monies have been paid to any other broker/dealers registered with the NASD in
connection with this Registration Statement or any other matter during the
period commencing February 21, 1996 to the date hereof.
(q) All of the aforesaid representations, agreements, and
warranties shall survive delivery of, and payment for, the Securities.
SECTION 3. Issuance, Sale and Delivery of the Firm Securities, the
Optional Securities and the Representative's Warrants.
(a) Upon the basis of the representations, warranties,
covenants and agreements of the Company herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the several
Underwriters, and the Underwriters, severally and not jointly, agree to purchase
from the Company, the number of the Firm Securities set forth opposite the
respective names of the Underwriters in Schedule I hereto, plus any additional
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 14 hereof.
The purchase price of the Common Stock and Warrants
to be paid by the several Underwriters shall be $3.60 and $.09, respectively
(the initial public offering price less a ten percent discount).
In addition, and upon the same basis, subject to the
same terms and conditions, the Company hereby grants to you individually and not
as Representative an option to purchase, but only for the purpose of covering
over-allotments, upon not less than two days' notice from you, the Optional
Securities, or any portion thereof, at the same price per share of Common Stock,
and/or Warrant as that set forth in the preceding paragraph. Notwithstanding
anything contained herein to the contrary, you individually and not as
Representative are entitled to purchase all or any part of the Optional
Securities and are not obligated to offer the Optional Securities to the other
Underwriters. The Optional Securities may be exercised at any time, and from
time to time, thereafter within a period of 45 calendar days following the
Effective Date. The time(s) and date(s) (if any) so designated for delivery and
payment for the Optional Securities shall be set forth in the notice to the
Company. Such dates are herein defined as the Additional Closing Date(s).
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(b) Payment for the Firm Securities shall be made by certified
or official bank checks in New York Clearing House funds, payable to the order
of the Company, at the offices of the Representative at 000 X. Xxxxxxxx Xxxx
Xxxx, Xxxxx 000, Xxxx Xxxxx, XX 00000, or its clearing agent, or at such other
place as shall be agreed upon by the Representative and the Company, upon
delivery of the Firm Securities to the Representative for the respective
accounts of the Underwriters. In making payment to the Company, the
Representative may first deduct all sums due to it for the balance of the
non-accountable expense allowance and under the Financial Consulting Agreement
(as hereinafter defined). Such delivery and payment shall be made at 9:30 A.M.,
New York City Time on the third business day which may be extended by the
Representative to not later than the fifth business day following the Effective
Date (unless postponed in accordance with the provisions of Section 14 hereof)
or at such other time as shall be agreed upon by the Representative and the
Company. The time and date of such delivery and payment are hereby defined as
the Closing Date. It is understood that each Underwriter has authorized the
Representative, for the account of such Underwriter, to accept delivery of,
receipt for, and make payment of the purchase price for, the Firm Securities
which it has agreed to purchase. You, individually, and not as Representative
may (but shall not be obligated to) make payment of the purchase price for the
Firm Securities to be purchased by any Underwriter whose check shall not have
been received by the Closing Date, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from its obligations hereunder.
(c) Payment for the Optional Securities shall be made at the
offices of the Representative at 000 Xxxxxxxx Xxxx Xxxx, Xxxxx 000, Xxxx Xxxxx,
XX 00000, or its clearing agent or at such other place as shall be designated by
the Representative, in accordance with the notice delivered pursuant to Section
3(a) which shall be no later than five business days from the expiration of the
forty-five day option period.
(d) Certificates for the Firm Securities and for the Optional
Securities shall be registered in such name or names and in such authorized
denominations as the Representative may request in writing at least two business
days prior to the Closing Date, and the Additional Closing Date(s) (if any). The
Company shall permit the Representative to examine and package said certificates
for delivery at least one full business day prior to the Closing Date and prior
to the Additional Closing Date(s). The Company shall not be obligated to sell or
deliver any of the Firm Securities except upon tender of payment by the
Underwriters for all of the Firm Securities agreed to be purchased by them
hereunder. The Representative, however, shall have the sole discretion to
determine the number of Optional Securities, if any, to be purchased.
(e) At the time of making payment for the Firm Securities, the
Company also hereby agrees to sell to the Representative, Representative's Stock
Warrants to purchase 150,000 shares of Common Stock at any time on or after
Effective Time until five years from the Effective Time, and Representative's
Warrants to purchase 150,000 Warrants at an aggregate purchase price of $100.
The Representative's Stock Warrants will be exercisable at a price of $6.00 per
share. The Representative's Warrants shall be immediately exercisable on or
after the Effective Date at a price of $.15 per Warrant until
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five years from the Effective Time, but in no event after the Termination Date
of the public Warrants. The Warrants underlying the Representative's Warrants
shall be identical in all respects to the Warrants sold to the public except
that the underlying Warrants shall be exercisable at 150% of the then effective
exercise price of the public Warrants. From the Effective Date and until one (1)
year thereafter, such Representative Securities and underlying securities may be
transferred only to officers or partners of the Representative and selling group
members and their officers or partners.
SECTION 4. Public Offering. The several Underwriters agree, subject to
the terms and provisions of this Agreement, to offer the Common Stock, and
Warrants to the public as soon as practicable after the Effective Date, at the
initial offering price of $4.00 and $.10, respectively and upon the terms
described in the Prospectus. The Representative may, from time to time, decrease
the public offering price, after the initial public offering, to such extent as
the Representative may determine, however, such decreases will not affect the
price payable to the Company hereunder.
SECTION 5. Registration Statement and Prospectus. The Company will
furnish the Representative, without charge, two signed copies of the
Registration Statement and of each amendment thereto, including all exhibits
thereto and such amount of conformed copies of the Registration Statement and
Amendments as may be reasonably requested by the Representative for distribution
to each of the Underwriters and Selected Dealers.
The Company will furnish, at its expense, as many printed
copies of a Preliminary Prospectus and of the Prospectus as the Representative
may request for the purposes contemplated by this Agreement. If, while the
Prospectus is required to be delivered under the Act or the Rules and
Regulations, any event known to the Company relating to or affecting the Company
shall occur which should be set forth in a supplement to or an amendment of the
Prospectus in order to comply with the Act (or other applicable law) or with the
Rules and Regulations, the Company will forthwith prepare, furnish and deliver
to the Representative and to each of the other Underwriters and to others whose
names and addresses are designated by the Representative, in each case at the
Company's expense, a reasonable number of copies of such supplement or
supplements to or amendment or amendments of, the Prospectus.
The Company authorizes the Underwriters and the selected
dealers, if any, in connection with the distribution of the Securities and all
dealers to whom any of the Securities may be sold by the Underwriters, or by any
Selected Dealer, to use the Prospectus, as from time to time amended or
supplemented, in connection with the offering and sale of the Securities and in
accordance with the applicable provisions of the Act and the applicable Rules
and Regulations and applicable State Securities Laws.
SECTION 6. Covenants of the Company. The Company covenants and agrees
with each Underwriter that:
(a) After the date hereof, the Company will not at any time,
whether before or after the Effective Date, file any amendment to the
Registration Statement or the
8
Prospectus, or any supplement to the Prospectus, of which the Representative
shall not previously have been advised and furnished with a copy, or to which
the Representative or the Underwriters' counsel, shall have reasonably objected
in writing on the ground that it is not in compliance with the Act or the Rules
and Regulations.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective as promptly as reasonably practicable
and will advise the Representative, (i) when the Registration Statement shall
have become effective and when any amendment thereto shall have become
effective, and when any amendment of or supplement to the Prospectus shall be
filed with the Commission, (ii) when the Commission shall make request or
suggestion for any amendment to the Registration Statement or the Prospectus or
for additional information and the nature and substance thereof, and (iii) of
the issuance by the Commission of an order suspending the effectiveness of the
Registration Statement or of the initiation of any proceedings for that purpose,
and will use every reasonable effort to prevent the issuance of such an order,
or if such an order shall be issued, to obtain the withdrawal thereof at the
earliest possible moment.
(c) The Company will prepare and file with the Commission,
promptly upon the request of the Representative, such amendments, or supplements
to the Registration Statement or Prospectus, in form and substance satisfactory
to counsel to the Company, as in the reasonable opinion of Xxxxxx Xxxxx P.C., as
counsel to the Underwriters, may be necessary or advisable in connection with
the offering or distribution of the Securities, and will use its best efforts to
cause the same to become effective as promptly as possible.
(d) The Company will, at its expense, when and as requested by
the Representative, supply all necessary documents, exhibits and information,
and execute all such applications, instruments and papers as may be required or
desirable, in the opinion of the Underwriters' counsel; to qualify the
Securities or such part thereof as the Representative may determine, for sale
under the so-called "Blue Sky" Laws of such states as the Representative shall
designate, and to continue such qualification in effect so long as required for
the purposes of the distribution of the Securities, provided, however, that the
Company shall not be required to qualify as a foreign corporation or to file a
consent to service of process in any state in any action other than one arising
out of the offering or sale of the Securities.
(e) The Company will, at its own expense, file and provide,
and continue to file and provide, such reports, financial statements and other
information as may be required by the Commission, or the proper public bodies of
the States in which the Securities may be qualified for sale, for so long as
required by applicable law, rule or regulation and will provide the
Representative with copies of all such registrations, filings and reports on a
timely basis.
(f) During the period of five years from the Effective Date,
the Company will deliver to the Underwriter a copy of each annual report of the
Company, and will
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deliver to the Underwriter (i) within 50 days after the end of each of the
Company's first three quarter-yearly fiscal periods, a balance sheet of the
Company as at the end of such quarter-yearly period, together with a statement
of its income and a statement of changes in its cash flow for such period (Form
10-QSB), all in reasonable detail, signed by its principal financial or
accounting officer, (ii) within 105 days after the end of each fiscal year, a
balance sheet of the Company as at the end of such fiscal year, together with a
statement of its income and statement of changes in cash flow for such fiscal
year (Form 10-KSB), such balance sheet and statement of cash flow for such
fiscal year to be in complete detail and to be accompanied by a certificate or
report of independent public accountants, (who may be the regular accountants
for the Company), (iii) as soon as available a copy of every other report
(financial or other) mailed to the shareholders, and (iv) as soon as available a
copy of every report and financial statement furnished to or filed with the
Commission or with any securities exchange pursuant to requirements by or
agreement with such exchange or the Commission pursuant to the Securities
Exchange Act of 1934, as amended, or any regulations of the Commission
thereunder. If the Company has one or more active subsidiaries, the financial
statements required by (i) and (ii) above shall be furnished on a consolidated
basis in respect of the Company and its subsidiaries. Separate financial
statements shall be furnished for each subsidiary, the accounts of which are not
so consolidated. The financial statements referred to in (ii) shall also be
furnished to all of the shareholders of the Company as soon as practicable after
the 105 days referred to therein.
(g) The Company represents that with respect to the
Securities, it will prepare and file a Registration Statement with the
Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended, prior to the Effective Date with a request that such Registration
Statement will become effective on the first day following the Effective Date.
The Company understands that, to register, it must prepare and file with the
Securities and Exchange Commission a General Form of Registration of Securities
(Form 8-A or Form 10). In addition, the Company agrees to qualify its Securities
for listing on the NASDAQ System Small-Cap Issues on the Effective Date and will
take all necessary and appropriate action so that the Securities continue to be
listed for trading in the NASDAQ System Small-Cap Issues for at least ten years
from the Effective Date provided the Company otherwise complies with the
prevailing maintenance requirements of NASDAQ System Small-Cap. In addition, at
such time as the Company qualifies for listing its securities on the National
Market System of NASDAQ, the Company will take all steps necessary to have the
Company's Securities thereof listed on the National Market System of NASDAQ in
lieu of listing as Small-Cap Issues. The Company shall comply with all periodic
reporting and proxy solicitation requirements imposed by the Commission pursuant
to the 1934 Act, and shall promptly furnish you with copies of all material
filed with the Commission pursuant to the 1934 Act or otherwise furnished to
shareholders of the Company.
(h) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than 15 months after the
Effective Date, an earnings statement of the Company (which need not be audited)
in reasonable detail,
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covering a period of at least twelve months beginning after the Effective Date,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Act.
(i) The Company shall, on the Effective Date, apply for
listing in Standard and Poor's Corporation Records (requesting coverage in the
Daily News Supplement) and Standard & Poor's Monthly Stock Guide and shall use
its best efforts to have the Company listed in such reports for a period of not
less than ten (10) years from the Closing Date.
(j) For a period of five years from the Effective Date, the
Representative shall receive notice of any regular or special meetings of the
Company's Board of Directors concurrently with the sending of such notice to the
Company's directors and shall have the right to have a representative attend
such meeting (other than executive or closed meetings or portions thereof) as an
observer.
(k) The Company shall employ the services of BDO Xxxxxxx LLP
or such other auditing firm acceptable to the Representative in connection with
the preparation of the financial statements required to be included in the
Registration Statement and shall continue to appoint such auditors or such other
auditors as are reasonably acceptable to the Representative for a period of five
(5) years following the Effective Date of the Registration Statement. The
Company shall appoint American Securities Transfer and Trust Company as transfer
agent for the Shares and as Warrant Agent for the Warrants.
(l) Xxxxxx Xxxxxxxx (40,000), Xxxxx Xxxx-Xxxxxxxx (64,000) and
the Rough Group (196,000), the holders of the warrants to purchase 300,000
shares issued in December 1997, have agreed that the Warrants are exercisable at
$5.00 per share and contain no registration rights.
(m) Within ninety (90) days subsequent to the Effective Date,
the Company will furnish "Key Man" Life Insurance in the amount of $1,000,000
each on the lives of Xxxxxxx X. Xxxx-Xxxxxxxx, Xxxxx Xxxxxxxx and Xxxxxxx
Olbermann with the Company as the beneficiary thereof and the Company shall pay
the annual premiums, therefore, for a period of not less than five years from
the Effective Date.
(n) The Company will for a period of five years at its
expense, shall cause its regularly engaged independent certified public
accountants to examine (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's Form 10-QSB
quarterly report and the mailing of quarterly financial information to security
holders.
(o) For a period of two years after the date of this
Prospectus, the Company shall not file a Registration Statement on Form S-8 or
any other appopriate form to register shares underlying the Company's Stock
Option Plan without the prior written consent of the Representative.
(p) Until such time as the securities of the Company are
listed on the New York Stock Exchange, the American Stock Exchange, or the
NASDAQ/NMS; the Company
11
shall cause its legal counsel or an independent firm acceptable to the
Representative to provide the Representative with a survey, to be updated at
least semi-annually, of those states in which the securities of the Company may
be traded in non-issuer transactions under the Blue Sky laws of the states and
the basis for such authority. The first such survey shall be delivered by
Company's counsel at closing; the second such survey shall be delivered by
Company's counsel within five business days of publication of the Company in
Standard & Poor's Corporation Records and, thereafter, on a semi-annual basis on
April 30 and October 31 of each year.
(q) As soon as practicable after the Closing Date, the Company
will deliver to the Representative and its counsel a total of three bound
volumes of copies of all documents relating to the public offering which is the
subject of this Agreement.
(r) The Company will at its cost for a period of five years
after the Effective Date: (i) Distribute an annual report to all stockholders
setting forth tjhe results of operations and the financial position of the
Company; and (ii) Furnish the Representative at the Company's sole cost with a
duplicate copy of the daily transfer sheets prepared by the Transfer Agent, copy
of the weekly sheets prepared by Depository Trust Company and a duplicate copy
of a list of stockholders.
(s) From the proceeds of the offering, the Company shall
repurchase all but 24,480 (post-reverse) shares of Common Stock presently owned
by Xxxxxxx Xxxx for a sum not to exceed $275,000. The resale of Mr. Char's
remaining 24,480 shares of Common Stock shall be subject to the lock-up
provisions set forth in paragraph 17 herein.
SECTION 7. Expenses of the Company.
------------------------
(a) The Company shall be responsible for and shall bear all expenses
directly and necessarily incurred in connection with the proposed financing,
including: (i) the preparation, printing and filing of the Registration
Statement and amendments thereto, including NASD and SEC filing fees,
preliminary and final Prospectus and the printing of the Underwriting Agreement,
the Agreement Among the Underwriters and the Selected Dealers' Agreement, a Blue
Sky Memorandum and material to be circulated to the Undersriters by us; (ii)
the issuance and delivery of certificates representing the Securities, including
original issue and transfer taxes, if any; (iii) the qualifications of the
Company's Securities (covered by the "firm commitment" offering) under State
Securities or Blue Sky Laws, including counsel fees of Xxxxxx Xxxxx P.C.
relating thereto in the sum of Thirty-Five ($35,000) Dollars ($10,000 of which
has been paid, together with appropriate state filing fees) plus disbursements
relating to, but not limited to, long-distance telephone calls, photocopying,
messengers, excess postage, overnight mail and courier services; (iv) the fees
and disbursements of counsel for the Company and the accountants for the
Company;
12
(v) costs of qualifying the Securities for listing on NASDAQ and (vi) post
closing tombstone advertisements not to exceed $12,000. Upon the commencement of
the necessary state Blue Sky filings by our counsel, the Company shall supply
him at his request, all necessary state filing fees.
(b) In addition, the Company shall bear each of the following costs:
(I) investigative reports (such as Xxxxxx'x Reports) of the Company's executive
officers, directors and principal stockholders, as well as travel and other
reasonable due diligence expenses in the aggregate, including without
limitation, informational meetings and presentations in connection with the
offering; and (ii) otherwise unreimbursed postage, including mailing of
preliminary and final prospectuses incurred by or on behalf of the
Representative and the Underwriters in preparation for, or in connection with
the offering and sale and distribution of the Securities on an accountable
basis.
SECTION 8. Payment of Underwriters' Expenses.
----------------------------------
On the Closing Date and Additional Closing Date(s)
(if any) the Company will pay to you an expense allowance equal to three (3%)
percent of the total gross proceeds derived from the public offering
contemplated by this Agreement, $15,000 of which has been paid in advance to the
Representative, for the fees and disbursements of counsel to the Underwriters
and for costs of otherwise unreimbursed advertising, traveling, postage,
telephone and telegraph expenses and other miscellaneous expenses incurred by or
on behalf of the Representative and the Underwriters in preparation for, or in
connection with the offering and sale and distribution of the Securities; and
you shall not be obligated to account to the Company for such disbursements and
expenses. Further, in the event that this Agreement is terminated pursuant to
Section 12 hereof, the Company will be obligated to reimburse the Representative
on an accountable basis for its reasonable out-of-pocket expenses incurred in
connection hereunder, less any amounts previously advanced.
SECTION 9. Indemnification.
----------------
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters, and each person who controls each of the Underwriters within
the meaning of Section 15 of the Act, from and against any and all losses,
claims, damages, expenses, or liabilities, joint or several, to which they or
any of them may become subject under the Act or any other statute or at common
law or otherwise, and to reimburse persons indemnified as above for any
reasonable legal or other expense (including the cost of any investigation and
preparation) incurred by them (as incurred), or any of them, in connection with
investigating, defending against or appearing as a third party witness in
connection with any claim or litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, liabilities, expenses or
litigation arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented, if amended or supplemented), or in any
"Blue Sky" application, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
13
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading; provided, however, that
the indemnity agreement contained in this subsection (a) shall not apply to
amounts paid in settlement of any such claims or litigation if such settlement
is effected without the consent of the Company, nor shall it apply to the
Underwriters or any person controlling the Underwriters in respect of any such
losses, claims, damages, expenses, liabilities or litigation arising out of, or
based upon, any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was made in reliance
upon and in conformity with written information furnished in writing to the
Company by such Underwriter, or on its behalf, specifically for use in
connection with the preparation of the Registration Statement or the Prospectus
or any such amendment thereof or supplement thereto or any such blue sky
application and further provided, however, that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any untrue
statement, alleged untrue statement, omission or alleged omission made in any
Preliminary Prospectus but eliminated or remedied in the Prospectus, such
indemnity agreement shall not inure to the benefit of the Underwriters (or the
benefit of any person who controls such Underwriter) if a copy of the Prospectus
was not sent or given to such person with or prior to the confirmation of the
sale of such securities to such person.
(b) Each of the Underwriters severally agrees, in the same
manner and to the same extent as set forth in subsection (a) above, to indemnify
and hold harmless the Company, each of the directors and 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, with respect to any
statement in or omission from the Registration Statement, or the Prospectus (as
amended or as supplemented, if amended or supplemented), or in any "Blue Sky"
application, if such statement or omission was made in reliance upon and in
conformity with written information furnished in writing to the Company by such
Underwriter, or on its behalf, specifically for use in connection with the
preparation of the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto, or any such application. An Underwriter
shall not be liable for amounts paid in settlement of any such claim or
litigation if such settlement was effected without its consent.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any claim asserted against it and of any action commenced
against it in respect of which indemnity may be sought hereunder. The omission
to so notify an indemnifying party shall relieve such party of its obligation to
indemnify pursuant to this Agreement, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, subject to the provisions
herein stated, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 9 for any
14
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. The indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party or (ii) the defendants in any
such action include both the indemnified and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party or parties), it being understood, however,
that the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
indemnified party which firm shall be designated in writing by the indemnified
party.
(d) The respective indemnity agreements between the
Underwriters and the Company contained in subsections (a) and (b) above, and the
representations and warranties of the Company set forth in Section 2 hereof or
elsewhere in this Agreement, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of the Underwriters
or by or on behalf of any controlling person of the Underwriters or the Company
or any such officer or director or any controlling person of the Company, and
shall survive the delivery of the Securities. Any successor of the Company, or
of the Underwriters, or of any controlling person of the Underwriters or the
Company, as the case may be, shall be entitled to the benefit of such respective
indemnity agreements.
(e) In order to provide for just and equitable contribution
under the Act in any case in which (i) any person entitled to indemnification
under this Section 9 makes claim for indemnification pursuant hereto but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 9, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, expenses or liabilities to
which they may be subject (after any contribution from others) in such
proportions so that the Underwriters are responsible in the aggregate for the
proportion of such losses, claims, damages or labilities represented by the
percentage that the underwriting discounts and commissions appearing on the
cover page of the Prospectus bears to the public offering price appearing
15
thereon, and the Company is responsible for the remaining portion; provided,
that, in any such case, no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Within twenty days after receipt by any party to
this Agreement (or its representative) of notice of the commencement of any
action, suit or proceeding, such party will, if a claim for contribution in
respect thereof is to be made against another party (the "contributing party"),
notify the contributing party, in writing, of the commencement thereof, but the
omission so to notify the contributing party will not relieve it from any
liability which it may have to any other party other than for contribution
hereunder. In case any such action, suit or proceeding is brought against any
party, and such party so notifies a contributing party or his or its
representative of the commencement thereof within the aforesaid twenty days, the
contributing party will be entitled to participate therein with the notifying
party and any other contributing party similarly notified. Any such contributing
party shall not be liable to any party seeking contribution on account of any
settlement of any claim, action or proceeding effected by such party seeking
contribution without the written consent of such contributing party. The
contribution provisions contained in this Section 9 are in addition to any other
rights or remedies which either party hereto may have with respect to the other
or hereunder.
SECTION 10. Effectiveness of Agreement. This Agreement shall become
effective (i) at 10:00 A.M., New York Time, on the first full business day after
the Effective Date, or (ii) at the time of the initial public offering by the
Underwriters of the Securities whichever shall first occur. The time of the
initial public offering by the Underwriters of the Securities for the purposes
of this Section 10, shall mean the time, after the Registration Statement
becomes effective, of the release by the Representative for publication of the
first newspaper advertisement which is subsequently published relating to the
Securities, or the time, after the Registration Statement becomes effective,
when the Securities are first released by the Representative for offering by the
Underwriters or dealers by letter or telegram, whichever shall first occur. The
Representative agrees to notify the Company immediately after it shall have
taken any action, by release or otherwise, whereby this Agreement shall have
become effective. This Agreement shall, nevertheless, become effective at such
time earlier than the time specified above, after the Effective Date, as the
Representative may determine by notice to the Company.
SECTION 11. Conditions of the Underwriters' Obligations. The
obligations of the several Underwriters to purchase and pay for the Securities
which the Underwriters have agreed to purchase hereunder are subject to: the
accuracy, as of the date hereof and as of the Closing Dates of all of the
representations and warranties of the Company contained in this Agreement; the
Company's compliance with, or performance of, all of its covenants, undertakings
and agreements contained in this Agreement that are required to be complied with
or performed on or prior to each of the Closing Dates and to the following
additional conditions:
16
(a) On or prior to the Closing Date, no order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or be pending or, to the
knowledge of the Company, shall be threatened by the Commission; any request for
additional information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of the Commission; and neither the Registration
Statement nor any amendment thereto shall have been filed to which counsel to
the Underwriters shall have reasonably objected, in writing.
(b) The Representative shall not have disclosed in writing to
the Company that the Registration Statement or Prospectus or any amendment or
supplement thereto contains an untrue statement of a fact which, in the opinion
of counsel to the Underwriters, is material, or omits to state a fact which, in
the opinion of such counsel, is material and is required to be stated therein,
or is necessary to make the statements therein not misleading.
(c) Between the date hereof and the Closing Date, the Company
shall not have sustained any loss on account of fire, explosion, flood,
accident, calamity or other such cause, of such character as materially
adversely affects its business or property, whether or not such loss is covered
by insurance.
(d) Between the date hereof and the Closing Date, there shall
be no litigation instituted or threatened against the Company, and there shall
be no proceeding instituted or threatened against the Company before or by any
federal or state commission, regulatory body or administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the business, licenses, permits,
operations or financial condition or income of the Company.
(e) Except as contemplated herein or as set forth in the
Registration Statement and Prospectus, during the period subsequent to the
Effective Date and prior to the Closing Date, (A) the Company shall have
conducted its business in the usual and ordinary manner as the same was being
conducted on the date of the filing of the initial Registration Statement and
(B) except in the ordinary course of its business, the Company shall not have
incurred any material liabilities or obligations (direct or contingent), or
disposed of any of its assets, or entered into any material transaction, and (C)
the Company shall not have suffered or experienced any material adverse change
in its business, affairs or in its condition, financial or otherwise. On the
Closing Date, the capital stock and surplus accounts of the Company shall be
substantially as great as at its last financial report without considering the
proceeds from the sale of the Securities except to the extent that any decrease
is disclosed in or contemplated by the Prospectus.
(f) The authorization of the Common Stock and Warrants, the
Registration Statement, the Prospectus and all corporate proceedings and other
legal matters incident thereto and to this Agreement, shall be reasonably
satisfactory in all respects to counsel to the Underwriters.
17
(g) The Company shall have furnished to the Representative the
opinions, dated the Closing Date, and Additional Closing Date(s), addressed to
you, of its counsel that:
(i) The Company has been duly incorporated and is a
validly existing corporation in good standing under the laws of the State of
Delaware with full corporate power and authority to own and operate its
properties and to carry on its business as set forth in the Registration
Statement and Prospectus; it has authorized and outstanding capital as set forth
in the Registration Statement and Prospectus; and the Company is duly licensed
or qualified as a foreign corporation in all jurisdictions in which by reason of
maintaining an office in such jurisdiction or by owning or leasing real property
in such jurisdiction it is required to be so licensed or qualified except where
failure to be so qualified or licensed would have no material adverse effect.
(ii) All of the outstanding shares of Common Stock
are duly and validly issued and outstanding, fully paid, and non-assessable, and
do not have any, and were not issued in violation of any, preemptive rights. The
Company will have duly authorized, reserved and set aside shares of Common Stock
issuable upon exercise of the Warrants and any other outstanding options or
warrants and when issued in accordance with such terms contained in the
Prospectus, will be duly and validly authorized and issued, fully paid and
non-assessable.
(iii) All of the Securities of the Company to which
this Agreement relates conform to the statements relating to them that are
contained in the Registration Statement and Prospectus (excluding financial
statements).
(iv) The Underwriters against payment therefor, will
receive good and marketable title to the Securities purchased by them from the
Company in accordance with the terms and provisions of this Agreement.
(v) To the best of the knowledge of such counsel,
except as set forth in the Prospectus, there are no outstanding options,
warrants, or other rights, providing for the issuance of, and, no commitments,
plans or arrangements to issue, any shares of any class of capital stock of the
Company, or any security convertible into, or exchangeable for, any shares of
any class of capital stock of the Company.
(vi) To the best of such counsel's knowledge, no
consents, approvals, authorizations or orders of agencies, officers or other
regulatory authorities are necessary for the valid authorization, issue or sale
of the Securities hereunder, except such as may be required under the Act or
state securities or Blue Sky Laws.
(vii) The Registration Statement has become
effective under the Act and, to the best of the knowledge of such counsel, no
order suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and the Registration Statement and Prospectus, and
each amendment thereof and supplement thereto, comply as to form
18
in all material respects with the requirements of the Act and the Rules and
Regulations (except that no opinion need be expressed as to financial statements
and financial data contained in the Registration Statement or Prospectus), and
in the course of the preparation of the Registration Statement, nothing has come
to the attention of said counsel to cause them to believe that either the
Registration Statement or the Prospectus or any such amendment or supplement
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; and such counsel is familiar with all contracts referred to in
the Registration Statement or in the Prospectus and such contracts are
sufficiently summarized or disclosed therein, or filed as exhibits thereto, as
required, and such counsel does not know of any other contracts required to be
summarized or disclosed or filed; and such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company is a party,
or in which property of the Company is the subject, of a character required to
be disclosed in the Registration Statement or the Prospectus which are not
disclosed and properly described therein.
(viii) The Representative's Securities to be issued
to the Representative hereunder will be, when issued against payment therefor
duly and validly authorized and executed by the Company and will constitute
valid and binding obligations of the Company, legally enforceable in accordance
with their terms (except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally), and the Company will have duly
authorized, reserved and set aside the shares of its Common Stock issuable upon
exercise of the Representative's Securities and Underlying Warrants, and such
stock, when issued and paid for upon exercise of the Representative's Securities
and Underlying Warrants in accordance with the provisions thereof, will be duly
and validly authorized and issued, fully-paid and non-assessable.
(ix) The Company holds by valid lease, its
properties as shown in the Prospectus, and is in all material respects complying
with all laws, ordinances and regulations applicable thereto.
(x) This Agreement has been duly authorized and
executed by the Company and is a valid and binding agreement of the Company.
(xi) To the best of the knowledge of such counsel,
no default exists, and no event has occurred which, with notice or lapse of
time, or both, would constitute a default in the due performance and observance
of any material term, covenant or condition by the Company or any other party,
of any indenture, mortgage, deed of trust, note or any other agreement or
instrument known to counsel to which the Company is a party or by which it or
its business or its properties may be bound or affected, except as disclosed in
the Prospectus. The Company has full power and lawful authority to authorize,
issue and sell the Securities on the terms and conditions set forth herein and
in the Registration Statement and in the Prospectus. No consent, approval,
authorization or other order of any regulatory authority is required for such
authorization, issue or sale, except as may be required under the Act or State
securities laws. The execution and delivery of this
19
Agreement, the consummation of the transactions herein contemplated, and
compliance with the terms hereof will not conflict with, or constitute a default
under any indenture, mortgage, deed or trust, note or any other agreement or
instrument known to counsel to which the Company is now a party or by which it
or its business or its properties may be bound or affected; the Articles of
Incorporation and any amendments thereto; the by-laws of the Company; or any
law, order, rule or regulation, writ, injunction or decree of any government,
governmental instrumentality, or court, domestic or foreign, having jurisdiction
over the Company or its business or properties known to counsel.
(xii)To the best of the knowledge of such counsel,
there are no material actions, suits or proceedings at law or in equity of a
material nature pending or to such counsel's knowledge threatened against the
Company which are not adequately covered by insurance and there are no
proceedings pending, or to the knowledge of such counsel threatened, against the
Company before or by any Federal or State Commission, regulatory body, or
administrative agency or other governmental body, wherein an unfavorable ruling,
decision or finding would materially adversely affect the business, business
prospects, franchise, licenses, permits, operation or financial condition or
income of the Company, which are not disclosed in the Prospectus.
(xiii) The description of any statutes, regulations
and laws, applicable to the Company's business contained in the Registration
Statements, is in all respects true and correct.
Such opinion shall also cover such other matters incident to
the transactions contemplated by this Agreement as the Representative shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact.
(h) The Company shall have furnished to the Representative
certificates of the President or Chairman of the Board and the Secretary of the
Company, dated as of the Closing Date, and Additional Closing Date(s), to the
effect that:
(i) Each of the representations and warranties of
the Company contained in Section 2 hereof are true and correct in all material
respects at and as of such Closing Date, and the Company has performed or
complied with all of its agreements, covenants and undertakings contained in
this Agreement and has performed or satisfied all the conditions contained in
this Agreement on its part to be performed or satisfied at the Closing Date;
(ii) The Registration Statement has become effective
and no order suspending the effectiveness of the Registration Statement has been
issued, and, to the best of the knowledge of the respective signers, no
proceeding for that purpose has been initiated or is threatened by the
Commission;
(iii) The respective signers have each carefully
examined the Registration Statement and the Prospectus and any amendments and
supplements
20
thereto, and to the best of their knowledge the Registration Statement and the
Prospectus and any amendments and supplements thereto and all statements
contained therein are true and correct in all material respects, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth except changes which the
Registration Statement and Prospectus indicate might occur.
(iv) Except as set forth or contemplated in the
Registration Statement and Prospectus, since the respective dates as of which,
or periods for which, information is given in the Registration Statement and
Prospectus and prior to the date of such certificate (A) there has not been any
material adverse change, financial or otherwise, in the business, business
prospects, earnings, general affairs or condition (financial or otherwise), of
the Company (in each case whether or not arising in the ordinary course of
business), and (B) the Company has not incurred any liabilities, direct or
contingent, or entered into any transactions, otherwise than in the ordinary
course of business other than as referred to in the Registration Statement or
Prospectus and except changes which the Registration Statement and Prospectus
indicate might occur.
(i) The Company shall have furnished to the Representative on
the Closing Date, such other certificates, additional to those specifically
mentioned herein, as the Representative may have reasonably requested, as to:
the accuracy and completeness of any statement in the Registration Statement or
the Prospectus, or in any amendment or supplement thereto; the representations
and warranties of the Company herein; the performance by the Company of its
obligations hereunder; or the fulfillment of the conditions concurrent and
precedent to the obligations of the Underwriters hereunder, which are required
to be performed or fulfilled on or prior to the Closing Date.
(j) At the time this Agreement is executed, and on the Closing
Date you shall have received a letter BDO Xxxxxxx LLP, addressed to the
Representative, as Representative of the Underwriters, and dated, respectively,
as of the date of this Agreement and as of the Closing Date and Additional
Closing Date as the case may be (based upon information not more than five
business days prior to such Effective Date, Closing Date and Additional Closing
Date as the case may be), in form and substance reasonably satisfactory to the
Representative, to the effect that:
(i) They are independent public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations of the Commission;
(ii) In their opinion, the financial statements and
related schedules of the Company included in the Registration Statement and
Prospectus and covered by their reports comply as to form in all material
respects with the applicable accounting
21
requirements of the Act and the published Rules and Regulations of the
Commission issued thereunder;
(iii) On the basis of limited procedures, not
constituting an audit, including a review of the latest interim unaudited
financial statements of the Company on the basis specified by the American
Institute of Certified Public Accountants for a review of interim financial
information, a reading of the minutes of meetings of the boards of directors,
and stockholders of the Company, inquiries of officials of the Company
responsible for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their attention
which caused them to believe:
(A) that at the date of the latest balance sheet
read by them and at a subsequent specified date not more than five business days
prior to the date of such letter, there was any change in the capital stock or
increase in long-term debt of the Company as compared with amounts shown in the
most recent balance sheet included in the Prospectus, except for changes which
the Prospectus discloses have occurred or may occur or which are described in
such letter;
(B) that at the date of the latest balance sheet
read by them and at a subsequent specified date not more than five business days
prior to the date of such letter, there were any decreases, as compared with
amounts shown in the most recent balance sheet included in the Prospectus, in
total assets, net current assets or stockholder's equity of the Company except
for decreases which the Prospectus discloses have occurred or may occur or which
are described in such letter; or
(C) that for the period from the date of the most
recent financial statements in the Registration Statement to a subsequent
specified date not more than five business days prior to the date of such
letter, there were any decreases, as compared with the corresponding period of
the preceding year, in gross profit or the total or per share amounts of net
income of the Company except for decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter.
(iv) In addition to the audit referred to in their
report included in the Registration Statement and the Prospectus and the limited
procedures referred to in clause (iii) above, they have carried out certain
specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information which are derived from the
general accounting records of the Company which appear in the Prospectus under
the captions "Summary Financial Data," "Capitalization", "Management",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Certain Transactions", Summary of Financial Data", "Dilution" and
"Risk Factors," as well as such other financial information as may be specified
by the Representative, and that they have compared such amounts, percentages and
financial information with the accounting records of the Company and have found
them to be in agreement.
22
All the opinions, letters, certificates and evidence
mentioned above or elsewhere in this Agreement shall be deemed to be in
compliance with the provisions hereof only if they are in form and substance
reasonably satisfactory to counsel to the Representative, whose approval shall
not be unreasonably withheld, conditioned or delayed.
If any of the conditions specified in this Section
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, this Agreement and all obligations of the Underwriters hereunder may
be terminated and canceled by the Representative by notifying the Company of
such termination and cancellation in writing or by telegram at any time prior
to, or on, the Closing Date and any such termination and cancellation shall be
without liability of any party hereto to any other party, except with respect to
the provisions of Sections 7 and 8 hereof. The Representative may, of course,
waive, in writing, any conditions which have not been fulfilled or extend the
time for their fulfillment.
SECTION 12. Termination.
------------
(a) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time before it becomes
effective pursuant to Section 10.
(b) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company, at any time after it becomes
effective, in the event that the Company, after notice from the Representative
and an opportunity to cure, shall have failed or been unable to comply with any
of the terms, conditions or provisions of this Agreement on the part of the
Company to be performed, complied with or fulfilled within the respective times
herein provided for, including without limitation Section 6(g) hereof, unless
compliance therewith or performance or satisfaction thereof shall have been
expressly waived by the Representative in writing. This Agreement may also be
terminated if (i) qualifications are received or provided by the Company's
independent public accountants or attorneys to the effect of either difficulties
in furnishing certifications as to material items including, without limitation,
information contained within the footnotes to the financial statements, or as
affecting matters incident to the issuance and sale of the securities
contemplated or as to corporate proceedings or other matters or (ii) there is
any action, suit or proceeding, threatened or pending, at law or equity against
the Company, or by any Federal, State or other commission, board or agency
wherein any unfavorable result or decision could materially adversely affect the
business, property, or financial condition of the Company which was not
disclosed in the Prospectus.
(c) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time after it becomes
effective, if the offering of, or the sale of, or the payment for, or the
delivery of, the Securities is rendered impracticable or inadvisable because (i)
additional material governmental restriction, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the
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New York Stock Exchange or trading in securities generally on such exchange
shall have been suspended or a general banking moratorium shall have been
established by Federal or New York State authorities or (ii) a war or other
national calamity shall have occurred involving the United States or (iii) the
condition of the market for securities in general shall have materially and
adversely changed, or (iv) the condition of the Company or its business or
business prospects is materially affected so that it would be undesirable,
impractical or inadvisable to proceed with, or consummate, this Agreement or the
public offering of the Securities.
(d) Any termination of this Agreement pursuant to this Section
12 shall be without liability of any character (including, but not limited to,
loss of anticipated profits or consequential damages) on the part of any party
hereto, except that the Company shall remain obligated to pay the costs and
expenses provided to be paid by it specified in Sections 6, 7 and 8, to the
extent therein provided. In addition, the Representative shall account to the
Company for any advance and shall reimburse the Company for any portion of the
advance not expended for actual out-of-pocket expenses.
SECTION 13. Finder. The Company and the Underwriters mutually represent
that they know of no person who rendered any service in connection with the
introduction of the Company to the Underwriters and that they know of no claim
by anyone for a "finder's fee" or similar type of fee, in connection with the
public offering which is the subject of this Agreement. Each party hereby
indemnifies the other against any such claims by any person known to it, and not
known to the other party hereto, who shall claim to have rendered services in
connection with the introduction of the Company to the Underwriters and/or to
have such a claim.
SECTION 14. Substitution of Underwriters.
-----------------------------
(a) If one or more Underwriters default in its or their
obligations to purchase and pay for Securities hereunder and if the aggregate
amount of such Securities which all Underwriters so defaulting have agreed to
purchase does not exceed 10% of the aggregate number of Securities constituting
the Securities, the non-defaulting Underwriters shall have the right and shall
be obligated severally to purchase and pay for (in addition to the Securities
set forth opposite their names in Schedule I) the full amount of the Securities
agreed to be purchased by all such defaulting Underwriters and not so purchased,
in proportion to their respective commitments hereunder. In such event the
Representative, for the accounts of the several non-defaulting Underwriters, may
take up and pay for all or any part of such additional Securities to be
purchased by each such Underwriter under this subsection (a), and may postpone
the Closing Date to a time not exceeding seven full business days; or
(b) If one or more Underwriters (other than the
Representative) default in its or their obligations to purchase and pay for the
Securities hereunder and if the aggregate amount of such Securities which all
Underwriters so defaulting shall have agreed to purchase shall exceed 10% of the
aggregate number of Securities or if one or more Underwriters for any reason
permitted hereunder cancel its or their obligations to
24
purchase and pay for Securities hereunder, the non-canceling and non-defaulting
Underwriters (hereinafter called the "Remaining Underwriters") shall have the
right, but shall not be obligated to purchase such Securities in such proportion
as may be agreed among them, at the Closing Date. If the Remaining Underwriters
do not purchase and pay for such Securities at such Closing Date, the Closing
Date shall be postponed for 24 hours and the remaining Underwriters shall have
the right to purchase such Securities, or to substitute another person or
persons to purchase the same or both, at such postponed Closing Date. If
purchasers shall not have been found for such Securities by such postponed
Closing Date, the Closing Date shall be postponed for a further 24 hours and the
Company shall have the right to substitute another person or persons,
satisfactory to you to purchase such Securities at such second postponed Closing
Date. If the Company shall not have found such purchasers for such Securities by
such second postponed Closing Date, then this Agreement shall automatically
terminate and neither the Company nor the remaining Underwriters (including the
Representative) shall be under any obligation under this Agreement (except that
the Company shall remain liable to the extent provided in Paragraph 7 hereof).
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 14. Nothing in this
subparagraph (b) will relieve a defaulting Underwriter from its liability, if
any, to the other Underwriters for damages occasioned by its default hereunder
(and such damages shall be deemed to include, without limitation, all expenses
reasonably incurred by each Underwriter in connection with the proposed purchase
and sale of the Securities) or obligate any Underwriter to purchase or find
purchasers for any Securities in excess of those agreed to be purchased by such
Underwriter under the terms of Sections 3 and 14 hereof.
Notwithstanding anything contained herein to the contrary, no
provisions of this Section 14 or any other section of this Underwriting
Agreement are intended to permit an Underwriter to terminate its obligation to
purchase the Firm Securities (as such term is defined in this Underwriting
Agreement) from the Company based upon: (i) the occurrence of non-material
events affecting the Company or the securities market or (ii) the inability to
market the securities.
SECTION 15. Registration of the Representative's Securities and/or the
Underlying Securities. The Company agrees that it will, upon request by any 50%
Holder (as defined below) within the period commencing on the Effective Date,
and for a period of five years thereafter, on one occasion only at the Company's
sole expense, cause the Representative's Securities and/or the underlying
securities issuable upon exercise of the Representative's Securities, to be the
subject of a post-effective amendment, or a new Registration Statement, if
appropriate (hereinafter referred to as the "demand Registration Statement"), so
as to enable the Representative and/or its assigns to offer publicly the
Representative's Securities and/or the underlying securities. The Company agrees
to register such securities expeditiously and, where possible, within forty-five
(45) business days after receipt of such requests. The Company agrees to use its
"best efforts" to cause the post-effective amendment, or new Registration
Statement to become effective and for a period of nine (9) months thereafter to
reflect in the post-effective amendment or the new Registration Statement,
financial statements which are prepared in accordance with
25
Section 10(a)(3) of the Act and any facts or events arising which, individually
or in the aggregate, represent a fundamental and/or material change in the
information set forth in such post-effective amendment or new Registration
Statement. The holders of the Representative's Securities may demand
registration without exercising such Warrants and, in fact, are never required
to exercise same. The term "50% Holder" as used in this section shall mean the
registered holder of at least a majority of the Representative's Securities
and/or the underlying securities. (The registration rights provided herein apply
to the Representative's Securities in their entirety and do not provide a
separate demand registration right per security.)
The Company understands and agrees that if, at any
time within the period commencing on the Effective Date and ending seven years
after the Effective Date, it should file a registration statement with the
Commission pursuant to the Act, regardless of whether some of the holders of the
Representative's Warrants and underlying securities shall have theretofore
availed themselves of the right above provided, the Company, at its own expense,
will offer to said holders the opportunity to register such securities. This
paragraph is not applicable to a Registration Statement filed by the Company
with the Commission on Form S-8 or any other inappropriate form.
In addition to the rights above provided, the
Company will cooperate with the then holders of the Representative's Securities
and underlying securities in preparing and signing a Registration Statement, on
one occasion only in addition to the Registration Statements discussed above,
required in order to sell or transfer the aforesaid Representative's Securities
and underlying securities and will supply all information required therefor, but
such additional Registration Statement shall be at the then holders' cost and
expense unless the Company elects to register additional shares of the Company's
Shares in which case the cost and expense of such Registration Statement will be
prorated between the Company and the holders of the Representative's Securities
and underlying securities according to the aggregate sales price of the
securities being issued. The holders of the Representative's Securities may
include such Warrants in any such filing without exercising the Representative's
Securities, and in fact, are never required to exercise same.
SECTION 16. Other Agreements.
-----------------
(a) On the Effective Date, the Company will enter into an agreement
retaining the Representative as a financial consultant pursuant to which the
Representative shall receive a consulting fee in an amount equal to $141,450 for
services for two (2) years from the Effective Date, payable in full in advance
on the Closing Date, which shall include, but not be limited to, advising the
Company in connection with possible acquisition opportunities, advising the
Company regarding shareholder relations including the preparation of the annual
report and other releases, assisting in long-term financial planning, advice in
connection with corporate re-organizations and expansion and capital structure,
and other financial assistance.
26
(b) Commencing twelve months after the Effective Date, the Company will
pay the Representative as its Warrant solicitation agent an amount equal to five
percent (5%) of the aggregate exercise price of each Warrant exercised of which
a portion may be allowed to the dealer who solicited the exercise (which may
also be the Representative); provided: (1) the market price of the Common Stock
on the date the Warrant was exercised was greater than the Warrant exercise
price on that date; (2) exercise of the Warrant was solicited by a member of the
NASD and the NASD member is designated in writing by the Warrant holder; (3) the
Warrant was not held in a discretionary account; (4) disclosure of compensation
arrangements was made both at the time of the offering and at the time of
exercise of the Warrant; and (5) the solicitation of the exercise of the Warrant
was not in violation of Regulation M promulgated under the Securities Exchange
Act of 1934. The Company agrees to pay over to the Representative any fees due
it within five business days after receipt by the Company of Warrant proceeds.
Within ten (10) days of the last day of each month commencing one year from the
Effective Date, the Company will instruct the Warrant Agent to notify the
Representative of each Warrant certificate which has been properly completed and
delivered for exercise by holders of Warrants during each such month. The
Company will instruct the Transfer Agent that the Representative may at any time
during business hours, at its expense, examine the records of the Company and
the Warrant Agent which relate to the exercise of the Warrants. It is understood
that this agreement is on an exclusive basis to solicit the exercise of the
Warrants and that the Company may not engage other broker-dealers to solicit the
exercise of Warrants without the consent of Xxxxxx Xxxx Securities, Inc. It is
understood that no solicitation fee will be paid where the Warrant exercise was
not solicited by Xxxxxx Xxxx Securities, Inc. or another member of the NASD.
27
SECTION 17. Restriction on Securities The Company's officers,
directors and all of the Company's security holders, other than the holders of
shares purchased pursuant to the Company's private placement in May 1997, have
agreed not to sell or otherwise dispose of any securities of the Company
beneficially owned by them for a period of at least twelve months from the
Effective Date, without the prior written consent of the Representative. The
holders of 160,000 shares issued in the private placement have agreed not to
sell such shares for a period of six months from the Effective Date. Messrs.
Xxxxxxxx, Olbermann, Xxxx-Xxxxxxxx and Char have agreed not to sell or otherwise
dispose of any securities of the Company (other than the Company's repurchase of
231,520 shares held by Xx. Xxxx at the Closing Date) beneficially owned by them
until such time as the Company achieves $1.9 million in pre-tax earnings, but in
no event sooner than two years after the Effective Date. An appropriate legend
shall be marked on the face of stock certificates representing all of such
securities.
SECTION 18. Notice. Except as otherwise expressly provided in
this Agreement, (A) whenever notice is required by the provisions hereof to be
given to the Company, such notice shall be given in writing, by certified mail,
return receipt requested, addressed to the Company at the address set forth
herein on the first page, copy to Xxxxxx Xxxxxxxxxx LLP, The Chrysler building,
000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, XX 00000, Att: xxxxxx Xxxxxxx, Esq.; and (B)
whenever notice is required by the provisions hereof to be given to the
Underwriters, such notice shall be in writing addressed to the Representative at
Xxxxxx Xxxx Securities, Inc. at the address set forth herein on the first page
copy to Xxxxxx Xxxxx, Esq., Xxxxxx Xxxxx P.C., Suite 420, 000 Xxxxx Xxxx Xxxx,
Xxxxx Xxxx, XX 00000. Any party may change the address for notices to be sent by
giving written notice to the other persons.
SECTION 19. Representations and Agreements to Survive
Delivery. Except as the context otherwise requires, all representations,
warranties, covenants, and agreements contained in this Agreement shall be
deemed to be representations, warranties, covenants, and agreements as at the
date hereof and as at the Closing Date and the Additional Closing Date(s), and
all representations, warranties, covenants, and agreements of the several
Underwriters and the Company, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any of the
Underwriters or any of their controlling persons, and shall survive any
termination of this Agreement (whensoever made) and/or delivery of the Firm
Shares and the Optional Shares to the several Underwriters.
SECTION 21. Miscellaneous. This Agreement is made solely for the
benefit of the Underwriters and the Company and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successor" or the term "successors and assigns" as
used in this Agreement shall not include any purchaser, as such, of any of the
Shares.
This Agreement shall not be assignable by any party without
the other party's prior written consent. This Agreement shall be binding upon,
and shall inure to the benefit of, our respective successors and permitted
assigns. The foregoing represents the
28
sole and entire agreement between us with respect to the subject matter hereof
and supersedes any prior agreements between us with respect thereto. This
Agreement may not be modified, amended or waived except by a written instrument
signed by the party to be charged. The validity, interpretation and construction
of this Agreement, and of each part hereof, shall be governed by the internal
laws of the State of New York, without giving effect to the conflict of laws
provisions thereof.
This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall be deemed to be one and the same instrument.
If a party signs this Agreement and transmits an electronic
facsimile of the signature page to the other party, the party who receives the
transmission may rely upon the electronic facsimile as a signed original of this
Agreement.
If the foregoing is in accordance with your understanding
of our agreement, kindly sign and return to us a counterpart hereof, whereupon
this instrument along with all counterparts will become a binding agreement
between the Company and the Underwriters in accordance with its terms.
Very truly yours,
FRONTLINE COMMUNICATIONS
CORPORATION
By:________________________
(Authorized Officer)
CONFIRMED AND ACCEPTED, as of
the date first above written:
XXXXXX XXXX SECURITIES, INC,
By________________________________
(Authorized Officer)
For itself and as the Representative of the
other Underwriters named in Schedule I hereto.
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SCHEDULE I
================================================================================
Underwriter Firm Securities to be Purchased
--------------------------------------------------------------------------------
Number of
Common Number of
Shares Warrants
--------------------------------------------------------------------------------
Xxxxxx Xxxx Securities, Inc.
Total 1,500,000 1,500,000
30
