INTERACTIVE MAGIC, INC.
__________ Shares of Common Stock
(Par Value $.10 per share)
UNDERWRITING AGREEMENT
New York, New York
_______, 1998
Blue Stone Capital Partners, X.X.
Xxxxxx, Xxxxx Xxxxx Incorporated
as Representatives of the
Several Underwriters named
in Schedule A hereto
c/o BlueStone Capital Partners, L.P.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Dear Sirs:
Interactive Magic, Inc., a North Carolina corporation (the
"Company"), proposes to issue and sell to the underwriters (the "Underwriters")
named in Schedule A to this Underwriting Agreement (the "Agreement"), for whom
BlueStone Capital Partners, L.P. ("BlueStone") and Xxxxxx, Xxxxx Xxxxx
Incorporated are acting as representatives (hereinafter sometimes referred to
together as the "Representatives"), two million eight hundred thousand
(2,800,000) shares of common stock, par value $.10 per share (the "Offered
Shares"), which Offered Shares are presently authorized but unissued shares of
the common stock, par value $.10 per share (individually a "Common Share" and
collectively the "Common Shares"), of the Company. In addition, the
Representatives, in order to cover over-allotments in the sale of the Offered
Shares, may purchase from the Company, for their own accounts, up to an
aggregate of four hundred twenty thousand (420,000) Common Shares (the "Optional
Shares"; the Offered Shares and the Optional Shares are hereinafter sometimes
collectively referred to as the "Shares"). The Shares are described in the
Registration Statement, as defined below. The Company also proposes to issue and
sell to the Representatives for their own accounts and/or the accounts of their
designees, warrants to purchase an aggregate of two hundred eight thousand
(280,000) Common Shares (the "Warrant Shares") at an exercise price of $_____
per Warrant Share (the "Representatives' Warrants"), which sale will be
consummated in accordance with the terms and conditions of the form of
Representatives' Warrant Agreement filed as an exhibit to the Registration
Statement.
The Representatives hereby warrant to the Company that they
have been authorized by each of the Underwriters to enter into this Underwriting
Agreement on their behalf and to act for them in the manner herein provided. The
Company hereby confirms its respective agreements with the Representatives and
each of the Underwriters, on whose behalf the Representatives are signing this
Agreement, as follows:
1. Purchase and Sale of Offered Shares. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company hereby agrees to sell the Offered
Shares to the Underwriters, severally, and each Underwriter agrees severally and
not jointly, to purchase from the Company, at a purchase price of $______ per
share, the number of Offered Shares set forth opposite the name of such
Underwriter in Schedule A attached hereto, plus any additional Offered Shares
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof. The Underwriters plan to offer the Offered
Shares to the public at a public offering price of $_____ per share.
2. Payment and Delivery.
(a) Payment for the Offered Shares will be made to
the Company by wire transfer against delivery of the Offered Shares to the
Representatives. Such payment and delivery will be made at 10:00 A.M. New York
City time, on the third business day following the Effective Date (the fourth
business day following the Effective Date in the event that trading of the
Offered Shares commences on the day following the Effective Date), the date and
time of such payment and delivery being herein called the "Closing Date." The
certificates representing the Offered Shares to be delivered will be in such
denominations and registered in such names as the Representatives may request
not less than two full business days prior to the Closing Date, and will be made
available to the Representatives for inspection, checking and packaging at the
offices of _______________________________________, the Company's transfer
agent, at ________________________________ not less than one full business day
prior to the Closing Date.
(b) On the Closing Date, the Company will sell the
Representatives' Warrants to the Representatives or to their designees (limited
to officers and partners of the Representatives and Underwriters). The
Representatives' Warrants will be in the form of, and in accordance with, the
provisions of the Representatives' Warrant Agreement attached as an exhibit to
the Registration Statement, with such changes as the Representatives shall
approve. The aggregate purchase price for the Representatives' Warrants is
$_____. The Representatives' Warrants will be restricted from sale, transfer,
assignment or hypothecation for a period of one year from the Effective Date,
except to officers or partners of the Representatives and Underwriters and
members of the selling group and/or their officers or partners.
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Payment for the Representatives' Warrants will be made to the Company by check
or checks payable to its order on the Closing Date against delivery of the
certificates representing the Representatives' Warrants. The certificates
representing the Representatives' Warrants will be in such denominations and
such names as the Representatives may request prior to the Closing Date.
3. Option to Purchase Optional Shares.
(a) For the purposes of covering any overallotments
in connection with the distribution and sale of the Offered Shares as
contemplated by the Prospectus as defined below, the Representatives are hereby
granted an option to purchase for their own accounts, and not as representatives
of the Underwriters, all or any part of the Optional Shares from the Company.
The purchase price to be paid for the Optional Shares will be the same price per
Optional Share as the price per Offered Share set forth in Section 1 hereof. The
option granted hereby may be exercised by the Representatives as to all or any
part of the Optional Shares at any time within 45 days after the Effective Date.
The Representatives will not be under any obligation to purchase any Optional
Shares prior to the exercise of such option.
(b) The option granted hereby may be exercised by the
Representatives by giving oral notice to the Company, which must be confirmed by
a letter, telex or telegraph setting forth the number of Optional Shares to be
purchased, the date and time for delivery of and payment for the Optional Shares
to be purchased and stating that the Optional Shares referred to therein are to
be used for the purpose of covering over-allotments in connection with the
distribution and sale of the Offered Shares. If such notice is given prior to
the Closing Date, the date set forth therein for such delivery and payment will
not be earlier than either two full business days thereafter or the Closing
Date, whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two (2) full business days thereafter. In either event, the date so
set forth will not be more than 15 full business days after the date of such
notice. The date and time set forth in such notice is herein called the "Option
Closing Date." Upon exercise of such option, the Company will become obligated
to convey to the Representatives, and, subject to the terms and conditions set
forth in Section 3(d) hereof, the Representatives will become obligated to
purchase, the number of Optional Shares specified in such notice.
(c) Payment for any Optional Shares purchased will be
made to the Company by wire transfer against delivery of the Optional Shares
purchased to the Representatives. The certificates representing the Optional
Shares to be delivered will be in such denominations and registered in such
names as the Representatives request not less than two full business days prior
to the Option Closing Date, and will be made available to the Representatives
for
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inspection, checking and packaging at the aforesaid office of the Company's
transfer agent or correspondent not less than one full business day prior to the
Option Closing Date.
(d) The obligation of the Representatives to
purchase and pay for any of the Optional Shares is subject to the accuracy and
completeness (as of the date hereof and as of the Option Closing Date) of and
compliance in all material respects with the representations and warranties of
the Company herein, to the accuracy and completeness of the statements of the
Company or its officers made in any certificate or other document to be
delivered by the Company pursuant to this Agreement, to the performance in all
material respects by the Company of its obligations hereunder, to the
satisfaction by the Company of the conditions, as of the date hereof and as of
the Option Closing Date, set forth in Section 3(b) hereof, and to the delivery
to the Representatives of opinions, certificates and letters dated the Option
Closing Date substantially similar in scope to those specified in Sections 5 and
6(b), (c), (d) and (e) hereof, but with each reference to "Offered Shares" and
"Closing Date" to be, respectively, to the Optional Shares and the Option
Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of North
Carolina, with full power and authority, corporate and other, to own or lease,
as the case may be, and operate its properties and to conduct its business as
described in the Registration Statement and to execute, deliver and perform this
Agreement and the Representatives' Warrant Agreement and to consummate the
transactions contemplated hereby and thereby. The Company is duly qualified to
do business as a foreign corporation and is in good standing in all
jurisdictions wherein such qualification is necessary and failure so to qualify
could have a material adverse effect on the financial condition, results of
operations, business or properties of the Company. Other than iMagicOnline
("iMagic"), a corporation duly organized, validly existing and in good standing
under the laws of the State of North Carolina, Interactive Magic Ltd. ("IML"), a
corporation duly organized, validly existing and in good standing under the laws
of the United Kingdom, and Interactive Magic Gmbh ("IM Gmbh"), a corporation
duly organized, validly existing and in good standing under the laws of Germany,
each a wholly-owned subsidiary of the Company (collectively, the
"Subsidiaries"), the Company has no subsidiaries and the Company has no equity
interest in any entities other than the Subsidiaries.
(b) Each of the Subsidiaries has full power and
authority, corporate and other, and all Permits (defined hereafter)
necessary to own or lease, as the case may be, and operate its
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properties and to conduct its business as described in the Registration
Statement. Each of the Subsidiaries is also duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure to so qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of the Company or any Subsidiary. The Company owns all of the issued
and outstanding shares of capital stock of each Subsidiary, free and clear of
any security interests, liens, encumbrances, claims and charges, and all of such
shares have been duly authorized and validly issued and are fully paid and
non-assessable. There are no options or warrants for the purchase of, or other
rights to purchase, or outstanding securities convertible into or exchangeable
for, any capital stock or other securities of any Subsidiary.
(c) This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, and the Representatives' Warrant Agreement, when executed and delivered
by the Company on the Closing Date, will be the valid and binding obligation of
the Company, enforceable against the Company in accordance with their respective
terms. The execution, delivery and performance of this Agreement and the
Representatives' Warrant Agreement by the Company, the consummation by the
Company of the transactions herein and therein contemplated and the compliance
by the Company with the terms of this Agreement and the Representatives' Warrant
Agreement have been duly authorized by all necessary corporate action and do not
and will not, with or without the giving of notice or the lapse of time, or
both, (i) result in any violation of the Company's or of any Subsidiary's
Articles of Incorporation, Memorandum or Articles of Association or By-Laws (or
similar charter documents); (ii) result in a breach of or conflict with any of
the terms or provisions of, or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company or any Subsidiary pursuant to any indenture, mortgage,
note, contract, commitment or other agreement or instrument to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary or any of
their respective properties or assets is or may be bound or affected; (iii)
violate any existing applicable law, rule, regulation, judgment, order or decree
of any governmental agency or court, domestic or foreign, having jurisdiction
over the Company or any Subsidiary or any of their respective properties or
business; or (iv) have any effect on any permit, certification, registration,
approval, consent, order, license, franchise or other authorization
(collectively, the "Permits") necessary for the Company or any Subsidiary to own
or lease and operate their respective properties or conduct their respective
businesses or the ability of the Company to make use thereof.
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(d) No Permits of any court or governmental agency or
body, other than under the Securities Act of 1933, as amended (the "Act"), the
Regulations (as hereinafter defined) and applicable state securities or Blue Sky
laws, are required (i) for the valid authorization, issuance, sale and delivery
of the Shares to the Underwriters, and (ii) the consummation by the Company of
the transactions contemplated by this Agreement and the Representatives' Warrant
Agreement.
(e) The conditions for use of a registration
statement on Form SB-2 set forth in the General Instructions to Form SB-2 have
been satisfied with respect to the Company, the transactions contemplated herein
and in the Registration Statement. The Company has prepared in conformity with
the requirements of the Act and the rules and regulations (the "Regulations") of
the Securities and Exchange Commission (the "Commission") and filed with the
Commission a registration statement (File No. 333-______) on Form SB-2 and has
filed one or more amendments thereto, covering the registration of the Shares
under the Act, including the related preliminary prospectus or preliminary
prospectuses (each thereof being herein called a "Preliminary Prospectus") and a
proposed final prospectus. Each Preliminary Prospectus was endorsed with the
legend required by Item 501(a)(5) of Regulation S-B of the Regulations and, if
applicable, Rule 430A of the Regulations. Such registration statement including
any documents incorporated by reference therein and all financial schedules and
exhibits thereto, as amended at the time it becomes effective, and the final
prospectus included therein are herein, respectively, called the "Registration
Statement" and the "Prospectus," except that, (i) if the prospectus filed by the
Company pursuant to Rule 424(b) of the Regulations differs from the Prospectus,
the term "Prospectus" shall mean the prospectus filed pursuant to Rule 424(b),
and (ii) if the Registration Statement is amended or such Prospectus is
supplemented after the date the Registration Statement is declared effective by
the Commission (the "Effective Date") and prior to the Option Closing Date, the
terms "Registration Statement" and "Prospectus" shall include the Registration
Statement as amended or supplemented.
(f) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
(g) The Registration Statement when it becomes
effective, the Prospectus (and any amendment or supplement thereto) when it is
filed with the Commission pursuant to Rule 424(b), and both documents as of the
Closing Date and the Option Closing Date referred to below, will contain all
statements which are required to be stated therein in accordance with the Act
and the Regulations and will in all material respects conform to the
requirements of
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the Act and the Regulations, and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, on such dates, will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company in connection with the Registration Statement or Prospectus or any
amendment or supplement thereto by the Representatives, or by any Underwriter
through the Representatives, expressly for use therein.
(h) The Company had at the date or dates indicated in
the Prospectus a duly authorized and outstanding capitalization as set forth in
the Registration Statement and the Prospectus. The Company will have on the
Closing Date the adjusted stock capitalization set forth therein. Except as set
forth in the Registration Statement or the Prospectus, on the Effective Date and
on the Closing Date, there will be no options to purchase, warrants or other
rights to subscribe for, or any securities or obligations convertible into, or
any contracts or commitments to issue or sell shares of the Company's capital
stock or any such warrants, convertible securities or obligations. Except as set
forth in the Prospectus, no holder of any of the Company's securities has any
rights, "demand," "piggyback" or otherwise, to have such securities registered
under the Act.
(i) The descriptions in the Registration Statement
and the Prospectus of contracts and other documents are accurate and present
fairly the information required to be disclosed, and there are no contracts or
other documents required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(j) Ernst & Young LLP, the accountants who have
certified certain of the consolidated financial statements filed and to be filed
with the Commission as part of the Registration Statement and the Prospectus,
are independent public accountants within the meaning of the Act and
Regulations. The consolidated financial statements and schedules and the notes
thereto filed as part of the Registration Statement and included in the
Prospectus are complete, correct and present fairly the financial position of
the Company as of the dates thereof, and the results of operations and changes
in financial position of the Company for the periods indicated therein, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved except as otherwise stated in the
Registration Statement and the Prospectus. The selected financial data set forth
in the Registration Statement and the Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that of the
audited and unaudited financial
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statements included in the Registration Statement and the
Prospectus.
(k) The Company and each Subsidiary has each filed
with the appropriate federal, state and local governmental agencies, and all
appropriate foreign countries and political subdivisions thereof, all tax
returns, including franchise tax returns, which are required to be filed or has
duly obtained extensions of time for the filing thereof and has paid all taxes
shown on such returns and all assessments received by it to the extent that the
same have become due; and the provisions for income taxes payable, if any, shown
on the consolidated financial statements filed with or as part of the
Registration Statement are sufficient for all accrued and unpaid foreign and
domestic taxes, whether or not disputed, and for all periods to and including
the dates of such consolidated financial statements. Except as disclosed in
writing to the Representatives, neither the Company nor any Subsidiary has
executed or filed with any taxing authority, foreign or domestic, any agreement
extending the period for assessment or collection of any income taxes and is not
a party to any pending action or proceeding by any foreign or domestic
governmental agency for assessment or collection of taxes; and no claims for
assessment or collection of taxes have been asserted against the Company or any
Subsidiary.
(l) The outstanding Common Shares and outstanding
options and warrants to purchase Common Shares have been duly authorized and
validly issued. The outstanding Common Shares are fully paid and nonassessable.
The outstanding options and warrants to purchase Common Shares constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms. None of the outstanding Common Shares or options or warrants to
purchase Common Shares has been issued in violation of the preemptive rights of
any shareholder of the Company. None of the holders of the outstanding Common
Shares is subject to personal liability solely by reason of being such a holder.
The offers and sales of the outstanding Common Shares and outstanding options
and warrants to purchase Common Shares were at all relevant times either
registered under the Act and the applicable state securities or Blue Sky laws or
exempt from such registration requirements. The authorized Common Shares and
outstanding options and warrants to purchase Common Shares conform to the
descriptions thereof contained in the Registration Statement and Prospectus.
Except as set forth in the Registration Statement and the Prospectus, on the
Effective Date and the Closing Date, there will be no outstanding options or
warrants for the purchase of, or other outstanding rights to purchase, Common
Shares or securities convertible into Common Shares.
(m) No securities of the Company have been sold by
the Company or by or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common
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control with the Company within the three years prior to the date hereof, except
as disclosed in the Registration Statement.
(n) The issuance and sale of the Shares and the
Warrant Shares have been duly authorized and, when the Shares and the Warrant
Shares have been issued and duly delivered against payment therefor as
contemplated by this Agreement and the Representatives' Warrant Agreement,
respectively, the Shares and the Warrant Shares will be validly issued, fully
paid and nonassessable, and the holders thereof will not be subject to personal
liability solely by reason of being such holders. Neither the Shares nor the
Warrant Shares will be subject to preemptive rights of any shareholder of the
Company.
(o) The issuance and sale of the Representatives'
Warrants have been duly authorized and, when issued, paid for and delivered as
contemplated by the Representatives' Warrant Agreement, the Representatives'
Warrants will constitute valid and binding obligations of the Company,
enforceable as to the Company in accordance with their terms. The
Representatives' Warrants will not be subject to preemptive rights of any
shareholder of the Company. The Warrant Shares have been duly reserved for
issuance upon exercise of the Representatives' Warrants in accordance with the
provisions of the Representatives' Warrant Agreement. The Representatives'
Warrants conform to the description thereof contained in the Registration
Statement and Prospectus.
(p) Neither the Company nor any Subsidiary is in
violation of, or in default under, (i) any term or provision of its Articles of
Incorporation, Memorandum or Articles of Association or By-Laws (or similar
charter documents); (ii) any material term or provision or any financial
covenants of any indenture, mortgage, contract, commitment or other agreement or
instrument to which it is a party or by which it or any of its property or
business is or may be bound or affected; or (iii) any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company, any Subsidiary or any
of their respective properties or business. The Company and each Subsidiary
owns, possesses or has obtained all governmental and other (including those
obtainable from third parties) Permits necessary to own or lease, as the case
may be, and to operate its properties, whether tangible or intangible, and to
conduct the business and operations of the Company as presently conducted, and
all such Permits are outstanding and in good standing, and there are no
proceedings pending or to the best of the Company's knowledge, threatened (nor,
to the best of the Company's knowledge, is there any basis therefor) which seek
to cancel, terminate or limit such Permits.
(q) Except as set forth in the Prospectus, there
are no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration
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tribunal, pending, or, to the best of the Company's knowledge, threatened
against the Company or any Subsidiary or involving the Company's or any
Subsidiary's properties or business which, if determined adversely to the
Company or any Subsidiary would, individually or in the aggregate, result in any
material adverse change in the financial position, shareholders' equity, results
of operations, properties, business, management or affairs or business prospects
of the Company or any Subsidiary or which question the validity of the capital
stock of the Company or this Agreement or of any action taken or to be taken by
the Company pursuant to, or in connection with, this Agreement; nor, to the best
of the Company's knowledge, is there any basis for any such claim, action, suit,
proceeding, arbitration, investigation or inquiry. There are no outstanding
orders, judgments or decrees of any court, governmental agency or other tribunal
naming the Company or any Subsidiary and enjoining the Company or any Subsidiary
from taking, or requiring the Company or any Subsidiary to take, any action, or
to which the Company or any Subsidiary or the Company's or any Subsidiary's
properties or business is bound or subject.
(r) Neither the Company nor any of its affiliates has
incurred any liability for any finder's fees or similar payments in connection
with the transactions herein contemplated.
(s) The Company and each of the Subsidiaries each
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, rights, trade secrets,
confidential information, processes and formulations used or proposed to be used
in the conduct of its business as described in the Prospectus (collectively the
"Intangibles"); to the best of the Company's knowledge, neither the Company nor
any Subsidiary has infringed or is infringing upon the rights of others with
respect to the Intangibles; and neither the Company nor any Subsidiary has
received any notice of conflict with the asserted rights of others with respect
to the Intangibles which could, singly or in the aggregate, materially adversely
affect its business as presently conducted or the prospects, financial condition
or results of operations of the Company or any Subsidiary and the Company knows
of no basis therefor; and, to the best of the Company's knowledge, no others
have infringed upon the Intangibles of the Company or any Subsidiary.
(t) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus and the
Company's latest consolidated financial statements, neither the Company nor any
Subsidiary has incurred any material liability or obligation, direct or
contingent, or entered into any material transaction, whether or not incurred in
the ordinary course of business, or sustained any material loss or interference
with its business from fire, storm, explosion, flood or other casualty, whether
or not covered by insurance, or from any labor dispute or court or governmental
action, order or decree; and
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since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there have not been, and prior to the Closing Date
referred to below there will not be, any changes in the capital stock or any
material increases in the long-term debt of the Company or any Subsidiary or any
material adverse change in or affecting the general affairs, management,
financial condition, shareholders' equity, results of operations or prospects of
the Company or any Subsidiary, other than as set forth or contemplated in the
Prospectus.
(u) Neither the Company nor any Subsidiary owns any
real property. The Company and each Subsidiary each has good title to all
personal property (tangible and intangible) owned by it, free and clear of all
security interests, charges, mortgages, liens, encumbrances and defects, except
such as are described in the Registration Statement and Prospectus or such as do
not materially affect the value or transferability of such property and do not
interfere with the use of such property made, or proposed to be made, by the
Company or any Subsidiary. The leases, licenses or other contracts or
instruments under which the Company and the Subsidiaries lease, hold or are
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do not interfere
with the use of such property made, or proposed to be made, by the Company or
any Subsidiary, and all rentals, royalties or other payments, if any, accruing
thereunder which became due prior to the date of this Agreement have been duly
paid, and neither the Company nor any Subsidiary, nor, to the best of the
Company's knowledge, any other party is in default thereunder and, to the best
of the Company's knowledge, no event has occurred which, with the passage of
time or the giving of notice, or both, would constitute a default thereunder.
Neither the Company nor any Subsidiary has received notice of any violation of
any applicable law, ordinance, regulation, order or requirement relating to its
owned or leased properties. The Company and each Subsidiary has adequately
insured its properties against loss or damage by fire or other casualty and
maintains, in adequate amounts, such other insurance as is usually maintained by
companies engaged in the same or similar businesses located in its geographic
area.
(v) Each contract or other instrument (however
characterized or described) to which the Company or a Subsidiary is a party or
by which their respective properties or businesses are or may be bound or
affected and to which reference is made in the Prospectus has been duly and
validly executed, is in full force and effect in all material respects and is
enforceable against the parties thereto in accordance with its terms, and none
of such contracts or instruments has been assigned by the Company or any
Subsidiary, and neither the Company nor any Subsidiary, nor, to the best of the
Company's knowledge, any other party is in default thereunder and, to the best
of the Company's knowledge, no event has occurred which, with the lapse of time
or the giving of notice, or both, would constitute a default thereunder.
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None of the material provisions of such contracts or
instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company or any Subsidiary or any of their respective assets or businesses.
(w) The employment, consulting, confidentiality and
non-competition agreements between the Company and its officers, employees and
consultants and between the Subsidiaries and their respective officers,
employees and consultants, described in the Registration Statement, are binding
and enforceable obligations upon the respective parties thereto in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to principles of
equity.
(x) Except as set forth in the Prospectus, the
Company has no employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements that
are subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended.
(y) To the best of the Company's knowledge, no
labor problem exists with any of the Company's employees or any Subsidiary's
employees or is imminent which could adversely affect the Company or any
Subsidiary.
(z) Neither the Company nor any Subsidiary has,
directly or indirectly, at any time (i) made any contributions to any candidate
for political office, or failed to disclose fully any such contribution in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than, in each case, payments or contributions
required or allowed by applicable law. The Company's internal accounting
controls and procedures are sufficient to cause the Company to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as amended.
(aa) The Shares have been approved for listing on
the Nasdaq National Market ("Nasdaq").
(ff) The Company has provided to Xxxxxx Xxxxxxxxxx
LLP, counsel to the several Underwriters ("Underwriters' Counsel"), all material
agreements, certificates, correspondence and other items, documents and
information requested by such counsel's Corporate Review Memorandum dated April
14, 1998.
Any certificate signed by an officer of the Company
or by an officer of a Subsidiary and delivered to the
Representatives or to Underwriters' Counsel shall be deemed to be
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a representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the several Underwriters as follows:
(a) The Company will not at any time, whether
before the Effective Date or thereafter during such period as the Prospectus is
required by law to be delivered in connection with the sales of the Shares by
the Representatives or a dealer, file or publish any amendment or supplement to
the Registration Statement or Prospectus of which the Representatives have not
been previously advised and furnished a copy, or to which the Representatives
shall object in writing.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the
Representatives promptly, and, if requested by the Representatives, confirm such
advice in writing, (i) when the Registration Statement, or any post-effective
amendment to the Registration Statement or any supplemented Prospectus is filed
with the Commission; (ii) of the receipt of any comments from the Commission;
(iii) of any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, or of the initiation of any
proceedings for any of such purposes. The Company will use its best efforts to
prevent the issuance of any such stop order or of any order preventing or
suspending such use and to obtain as soon as possible the lifting thereof, if
any such order is issued.
(c) The Company will deliver to each Underwriter,
without charge, from time to time until the Effective Date, as many copies of
each Preliminary Prospectus as each Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to each Underwriter, without charge, as soon as
the Registration Statement becomes effective, and thereafter from time to time
as requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as each Underwriter may
reasonably request. The Company has furnished or will furnish to each of the
Representatives a signed copy of the Registration Statement as originally filed
and of all amendments thereto, whether filed before or after the Registration
Statement becomes effective, a copy of all exhibits filed therewith and a signed
copy of all consents and certificates of experts.
(d) The Company will comply with the Act, the
Regulations, the Securities Exchange Act of 1934, as amended (the
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"Exchange Act"), and the rules and regulations thereunder so as to permit the
continuance of sales of and dealings in the Offered Shares and in any Optional
Shares which may be issued and sold. If, at any time when a prospectus relating
to the Shares is required to be delivered under the Act, any event occurs as a
result of which the Registration Statement and Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it shall be
necessary to amend or supplement the Registration Statement and Prospectus to
comply with the Act or the regulations thereunder, the Company will promptly
file with the Commission, subject to Section 5(a) hereof, an amendment or
supplement which will correct such statement or omission or which will effect
such compliance.
(e) The Company will furnish such proper informa-
tion as may be required and otherwise cooperate in qualifying the Shares for
offering and sale under the securities or Blue Sky laws relating to the offering
in such jurisdictions as the Representatives may reasonably designate, provided
that no such qualification will be required in any jurisdiction where, solely as
a result thereof, the Company would be subject to service of general process or
to taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) The Company will make generally available to
its security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Representatives and Underwriters' Counsel as soon as practicable
and in any event not later than 45 days after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earning statement meeting the requirements of Rule 158(a)
under the Act covering a period of at least 12 consecutive months beginning
after the effective date of the Registration Statement.
(g) For a period of three years from the Effective
Date, the Company will deliver to the Representatives, on a timely basis (i) a
copy of each report or document, including, without limitation, reports on Forms
8-K, 10-C, 10-K (or 10-KSB) and 10-Q (or 10-QSB) and exhibits thereto, filed or
furnished to the Commission, any securities exchange or the National Association
of Securities Dealers, Inc. (the "NASD") on the date each such report or
document is so filed or furnished; (ii) as soon as practicable, copies of any
reports or communications (financial or other) of the Company mailed to its
security holders; (iii) as soon as practicable, a copy of any Schedule 13D, 13G,
14D-1 or 13E-3 received or prepared by the Company from time to time; (iv) to
the extent available, quarterly statements setting forth such information
regarding the Company's results of operations and financial position (including
balance sheet, profit and loss statements and data regarding backlog) as is
regularly prepared by
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management of the Company; and (v) such additional information concerning the
business and financial condition of the Company as the Representatives may from
time to time reasonably request and which can be prepared or obtained by the
Company without unreasonable effort or expense. The Company will furnish to its
shareholders annual reports containing audited financial statements and such
other periodic reports as it may determine to be appropriate or as may be
required by law.
(h) Neither the Company nor any person that con-
trols, is controlled by or is under common control with the Company will take
any action designed to or which might be reasonably expected to cause or result
in the stabilization or manipulation of the price of the Common Shares.
(i) If the transactions contemplated by this
Agreement are consummated, BlueStone shall retain the $40,000 previously paid to
it, and the Company will pay or cause to be paid the following: all costs and
expenses incident to the performance of the obligations of the Company under
this Agreement, including, but not limited to, the fees and expenses of
accountants and counsel for the Company; the preparation, printing, mailing and
filing of the Registration Statement (including financial statements and
exhibits), Preliminary Prospectuses and the Prospectus, and any amendments or
supplements thereto; the printing and mailing of the Selected Dealer Agreement;
the issuance and delivery of the Shares to the Representatives; all taxes, if
any, on the issuance of the Shares; the fees, expenses and other costs of
listing the Shares on Nasdaq and of qualifying the Shares for sale under the
"Blue Sky" or securities laws of those states in which the Shares are to be
offered or sold, including the fees and disbursements of Underwriters' Counsel
incurred in connection therewith, and the cost of printing and mailing the "Blue
Sky Survey"; the filing fees incident to securing any required review by the
NASD; the cost of furnishing to the several Underwriters copies of the
Registration Statement, Preliminary Prospectuses and the Prospectus as herein
provided; the costs of placing "tombstone advertisements" in any publications
which may be selected by the Representatives; and all other costs and expenses
incident to the performance of the Company's obligations hereunder which are not
otherwise specifically provided for in this Section 5(i).
In addition, at the Closing Date, the Representatives
will deduct from the payment for the Offered Shares an amount equal to the
Representatives' costs, fees and expenses incurred during the registration
process (less the sum of $40,000 previously paid to BlueStone), including all
reasonable out-of-pocket accountable expenses relating to the transactions
contemplated hereby, which amount will include the fees and expenses of
Underwriters' Counsel (other than those payable by the Company in connection
with "Blue Sky" qualifications referred to in the preceding paragraph) and all
of the costs associated with the marketing and selling of the Offered Shares.
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(j) If the transactions contemplated by this
Agreement or related hereto are not consummated because the Company decides not
to proceed with the offering for any reason or if the Representatives decide not
to proceed with the offering because of a breach by the Company of its
representations, warranties or covenants in this Agreement or as a result of
adverse changes in the affairs of the Company, the Company will reimburse the
Representatives for all of their accountable expenses reasonably incurred in
connection with the offering. If the Representatives decide not to proceed with
the offering for any other reason, the Company will reimburse the
Representatives for their accountable expenses up to the $40,000 previously paid
to BlueStone. In no event, however, will the Representatives, in the event the
offering is terminated, be entitled to retain or receive more than an amount
equal to their actual accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds
from the sale of the Shares for the purposes set forth in the Prospectus.
(l) During the period of nine (9) months following
the date hereof, neither the Company nor any of its officers, directors or
securityholders beneficially owning one percent (1%) or more of the outstanding
Common Shares ("Affiliated Shareholders") will offer for sale, sell, transfer,
pledge or otherwise dispose of, directly or indirectly, any securities of the
Company, in any manner whatsoever, whether pursuant to Rule 144 of the
Regulations or otherwise, and no holder of registration rights relating to
securities of the Company will execute any such registration rights, in either
case, without the prior written consent of BlueStone. The Company will deliver
to the Representatives the undertakings as of the date hereof of its officers,
directors and Affiliated Shareholders to this effect.
(m) The Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the nine (9) months
following the date hereof without BlueStone's prior written consent.
(n) The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
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(o) The Company will use its best efforts to
maintain the listing of the Shares on Nasdaq or another exchange that is
mutually agreed upon by the Company and the Representatives for so long as the
Shares are qualified for such listing.
(p) The Company will, concurrently with the
Effective Date, register the class of equity securities of which the Shares are
a part under Section 12(g) of the Exchange Act and the Company will maintain the
registration for a minimum of five (5) years after the Effective Date.
(q) The Company shall retain a transfer agent for the
Common Shares, reasonably acceptable to BlueStone, for a period of three (3)
years following the Effective Date. In addition, for a period of three (3) years
following the Effective Date, the Company, at its own expense, shall cause its
transfer agent to provide BlueStone, if so requested in writing, with copies of
the Company's daily transfer sheets and when requested by BlueStone, a current
list of the Company's security holders, including a list of the beneficial
owners of securities held by a depository trust company and other nominees.
(r) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to Underwriters' Counsel, within a reasonable
period from the date hereof, four bound volumes, including the Registration
Statement, as amended or supplemented, all exhibits to the Registration
Statement, the Prospectus and all other underwriting documents.
(s) The Company shall, within 10 days of the date
hereof, have applied for listing in Standard & Poor's Corporation Records
Service (including annual report information) or Xxxxx'x Industrial Manual
(Xxxxx'x OTC Industrial Manual not being sufficient for these purposes) and
shall use its best efforts to have the Company listed in such manual at or prior
to the Effective Date and shall maintain such listing for a period of three (3)
years following the Effective Date.
(t) For a period of two (2) years from the
Effective Date, the Company shall provide BlueStone, on a not less than annual
basis, with internal forecasts setting forth projected results of operations for
each annual period in the two (2) fiscal years following the respective dates of
such forecasts; provided, however, that BlueStone shall keep confidential and
shall not disclose to any third party any material non-public information. Such
forecasts shall be provided to BlueStone more frequently than annually if
prepared more frequently by management, and revised forecasts shall be prepared
and provided to BlueStone when required to reflect more current information,
revised assumptions or actual results that differ materially from those set
forth in the forecasts.
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(u) For a period of three (3) years following the
Effective Date, the Company shall continue to retain Ernst & Young LLP (or such
other nationally recognized accounting firm as is acceptable to BlueStone) as
the Company's independent public accountants.
(v) For a period of three (3) years following the
Effective Date, the Company, at its expense, shall cause its independent
certified public accountants, as described in Section 5(v) above, to review (but
not audit) the Company's financial statements for each of the first three fiscal
quarters prior to the announcement of quarterly financial information, the
filing of the Company's 10-Q (or 10-QSB) quarterly report and the mailing of
quarterly financial information to shareholders.
(w) For a period of twenty-five (25) days following
the Effective Date, the Company will not issue press releases or engage in any
other publicity without BlueStone's prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
(x) For a period of three (3) years following the
Effective Date, the Company will cause its Board of Directors to meet, either in
person or telephonically, a minimum of four (4) times per year and will hold a
shareholder's meeting at least once per annum.
(y) For a period of eighteen (18) months following
the Effective Date, the Company will not offer or sell any of its securities at
a discount from the then current market price without the prior written consent
of the Underwriter, which consent shall not be unreasonably withheld.
6. Conditions of the Underwriters' Obligation to Purchase
Shares from the Company. The obligation of the several Underwriters to purchase
and pay for the Offered Shares which they have agreed to purchase from the
Company is subject (as of the date hereof and the Closing Date) to the accuracy
of, and the Company's compliance in all material respects with, the
representations and warranties of the Company herein, to the accuracy of the
statements of the Company and its officers made pursuant hereto, to the
performance in all material respects by the Company or its Subsidiaries of their
respective obligations hereunder, and to the following additional conditions:
(a) The Registration Statement will have become
effective not later than 9:30 A.M., New York City time, on the day following the
date of this Agreement, or at such later time or on such later date as the
Representatives may agree to in writing; prior to the Closing Date, no stop
order suspending the effectiveness of the Registration Statement will have been
issued and no proceedings for that purpose will have been initiated or will be
-18-
pending or, to the best of the Representatives' or the Company's knowledge, will
be contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction of
Underwriters' Counsel.
(b) At the Closing Date, there will have been
delivered to the Representatives a signed opinion of Smith, Anderson, Blount,
Dorsett, Xxxxxxxx & Xxxxxxxx, L.L.P., counsel for the Company ("Company
Counsel"), dated as of the Closing Date (and any other opinions of counsel
referred to in such opinion of Company Counsel or relied upon by Company Counsel
in rendering their opinion), in the form attached to this Agreement as Schedule
B.
(c) At the Closing Date, there will have been
delivered to the Representatives a signed opinion of Underwriters' Counsel,
dated as of the Closing Date, to the effect that the opinions delivered pursuant
to Section 6(b) hereof appear on their face to be appropriately responsive to
the requirements of this Agreement, except to the extent waived by the
Representatives, specifying the same, and with respect to such other related
matters as the Representatives may require.
(d) At the Closing Date (i) the Registration State-
ment and the Prospectus and any amendments or supplements thereto will contain
all material statements which are required to be stated therein in accordance
with the Act and the Regulations and will conform in all material respects to
the requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; (ii)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding would materially adversely affect the business, property,
financial condition or results of operations of the Company, other than as set
forth in the Registration Statement and the Prospectus. At the Closing Date,
there will be delivered to the
-24-
Representatives a certificate signed by the Chairman of the Board or the
President or a Vice President of the Company, dated the Closing Date, evidencing
compliance with the provisions of this Section 6(d) and stating that the
representations and warranties of the Company set forth in Section 4 hereof were
accurate and complete in all material respects when made on the date hereof and
are accurate and complete in all material respects on the Closing Date as if
then made; that the Company has performed all covenants and complied with all
conditions required by this Agreement to be performed or complied with by the
Company prior to or as of the Closing Date; and that, as of the Closing Date, no
stop order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been initiated or, to the best
of his knowledge, are contemplated or threatened. In addition, the
Representatives will have received such other and further certificates of
officers of the Company as the Representatives or Underwriters' Counsel may
reasonably request.
(e) At the time that this Agreement is executed and
at the Closing Date, the Representatives will have received a signed letter from
Ernst & Young LLP, dated the date such letter is to be received by the
Representatives and addressed to them, confirming that it is a firm of
independent public accountants within the meaning of the Act and Regulations and
stating that: (i) insofar as reported on by it, in its opinion, the consolidated
financial statements of the Company included in the Prospectus comply as to form
in all material respects with the applicable accounting requirements of the Act
and the applicable Regulations; (ii) on the basis of procedures and inquiries
(not constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus and the latest available unaudited interim financial statements of
the Company, if more recent than that appearing in the Registration Statement
and Prospectus, inquiries of officers of the Company responsible for financial
and accounting matters as to the transactions and events subsequent to the date
of the latest audited financial statements of the Company, and a reading of the
minutes of meetings of the shareholders, the Board of Directors of the Company
and any committees of the Board of Directors, as set forth in the minute books
of the Company, nothing has come to its attention which, in its judgment, would
indicate that (A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three business days prior to the date of such
letter, there have been any decreases in net current assets or net assets as
compared with amounts shown in such financial statements or decreases in net
sales or decreases in total or per share net income compared with the
corresponding period in the preceding year or any change in the capitalization
or long-term debt of the Company, except in all cases as set forth in or
contemplated by the Registration Statement and the Prospectus, and (B) the
unaudited
-25-
interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus, do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Regulations or are not fairly presented in conformity with generally accepted
accounting principles and practices on a basis substantially consistent with the
audited financial statements included in the Registration Statement or the
Prospectus; and (iii) it has compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(f) There shall have been duly tendered to the
Representatives certificates representing the Offered Shares to be sold on the
Closing Date.
(g) The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the Offered
Shares by the Underwriters or the sale of the Shares by the Representatives.
(h) No action shall have been taken by the
Commission or the NASD the effect of which would make it improper, at any time
prior to the Closing Date or the Option Closing Date, as the case may be, for
any member firm of the NASD to execute transactions (as principal or as agent)
in the Shares, and no proceedings for the purpose of taking such action shall
have been instituted or shall be pending, or, to the best of the
Representatives' or the Company's knowledge, shall be contemplated by the
Commission or the NASD. The Company represents at the date hereof, and shall
represent as of the Closing Date or Option Closing Date, as the case may be,
that it has no knowledge that any such action is in fact contemplated by the
Commission or the NASD.
(i) The Common Shares have been approved for
listing on Nasdaq.
(j) All proceedings taken at or prior to the
Closing Date or the Option Closing Date, as the case may be, in connection with
the authorization, issuance and sale of the Shares shall be reasonably
satisfactory in form and substance to the Representatives and to Underwriters'
Counsel, and such counsel shall have been furnished with all such documents,
certificates and
-26-
opinions as they may request for the purpose of enabling them to pass upon the
matters referred to in Section 6(c) hereof and in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company, or the compliance by
the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have
delivered to the Underwriters the written undertakings of its officers,
directors and security holders and/or registration rights holders, as the case
may be, to the effect of the matters set forth in Section 5(l).
If any of the conditions specified in this Section
6 have not been fulfilled, this Agreement may be terminated by the
Representatives on notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold
harmless each Underwriter, including specifically each person that may be
substituted for an Underwriter as provided in Section 10 hereof, each officer,
director, partner, employee and agent of any Underwriter, and each person, if
any, who controls any of the Underwriters within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, from and against any and all
losses, claims, damages, expenses or liabilities, joint or several (and actions
in respect thereof), to which they or any of them may become subject under the
Act or under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse each of the Underwriters and each such
person, if any, for any legal or other expenses reasonably incurred by them or
any of them in connection with investigating or defending any actions, whether
or not resulting in any liability, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained (i) in the
Registration Statement, in any Preliminary Prospectus or in the Prospectus (or
the Registration Statement or Prospectus as from time to time amended or
supplemented) or (ii) in any application or other document executed by the
Company, or based upon written information furnished by or on behalf of the
Company, filed in any jurisdiction in order to qualify the Shares under the
securities laws thereof (hereinafter "application"), or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, in light of the circumstances under which they were
made, unless such untrue statement or omission was made in such Registration
Statement, Preliminary Prospectus, Prospectus or application in reliance upon
and in conformity with information furnished in writing to the Company in
connection therewith by the Underwriter or any such person through the
Underwriter expressly for use therein; provided, however, that the indemnity
agreement
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contained in this Section 7(a) with respect to any Preliminary Prospectus will
not inure to the benefit of the Underwriter (or to the benefit of any other
person that may be indemnified pursuant to this Section 7(a)) if (A) the person
asserting any such losses, claims, damages, expenses or liabilities purchased
the Shares which are the subject thereof from such Underwriter or other
indemnified person; (B) such Underwriter or other indemnified person failed to
send or give a copy of the Prospectus to such person at or prior to the written
confirmation of the sale of such Shares to such person; and (C) the Prospectus
did not contain any untrue statement or alleged untrue statement or omission or
alleged omission giving rise to such cause, claim, damage, expense or liability.
(b) Each Underwriter (including specifically each
person that may be substituted for an Underwriter as provided in Section 11
hereof) agrees to indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, from and against any and all
losses, claims, damages, expenses or liabilities, joint or several (and actions
in respect thereof), to which they or any of them may become subject under the
Act or under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse the Company and each such director, officer
or controlling person for any legal or other expenses reasonably incurred by
them or any of them in connection with investigating or defending any actions,
whether or not resulting in any liability, insofar as such losses, claims,
damages, expenses, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained (i) in
the Registration Statement, in any Preliminary Prospectus or in the Prospectus
(or the Registration Statement or Prospectus as from time to time amended or
supplemented) or (ii) in any application (including any application for
registration of the Shares under state securities or Blue Sky laws), or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, in light of the circumstances under which
they were made, but only insofar as any such statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by such Underwriter, or by the Representatives
on behalf of such Underwriter, expressly for use therein.
(c) Promptly after receipt of notice of the
commencement of any action in respect of which indemnity may be sought against
any indemnifying party under this Section 7, the indemnified party will notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party will, subject to the provisions hereinafter stated, assume
the defense of such action (including the employment of counsel satisfactory to
the indemnified party and the payment of expenses) insofar as such
-28-
action relates to an alleged liability in respect of which indemnity may be
sought against the indemnifying party. After notice from the indemnifying party
of its election to assume the defense of such claim or action, the indemnifying
party shall no longer be liable to the indemnified party under this Section 7
for any legal or other expenses subsequently incurred by the indemnified party
in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the reasonable judgment of the
indemnified party or parties, it is advisable for the indemnified party or
parties to be represented by separate counsel, the indemnified party or parties
shall have the right to employ a single counsel to represent the indemnified
parties who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the indemnified parties thereof against the
indemnifying party, in which event the fees and expenses of such separate
counsel shall be borne by the indemnifying party. Any party against whom
indemnification may be sought under this Section 7 shall not be liable to
indemnify any person that might otherwise be indemnified pursuant hereto for any
settlement of any action effected without such indemnifying party's consent.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 8 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including, for this purpose, any
contribution made by or on behalf of any director of the Company, any officer of
the Company who signed the Registration Statement and any controlling person of
the Company) as one entity and the Underwriters (including, for this purpose,
any contribution by or on behalf of each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and each officer, director, partner, employee and agent of any of
the Underwriters) as a second entity, shall contribute to the losses,
liabilities, claims, damages and expenses whatsoever to which any of them may be
subject, so that the Underwriters are responsible for the proportion thereof
equal to the percentage which the underwriting discount per Share set forth on
the cover page of the Prospectus represents of the initial public offering price
per Share set forth on the cover page of the Prospectus and the Company is
responsible for the remaining portion; provided, however, that if applicable law
does not permit such allocation, then, if applicable law permits, other relevant
equitable considerations such as the relative fault of the Company and the
Underwriters in connection with the facts which resulted in such losses,
liabilities, claims, damages and expenses shall also be considered. The relative
fault, in the case of an untrue statement, alleged untrue statement,
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omission or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission or alleged omission relates
to information supplied by the Company or by the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company, on one hand, and the Underwriters, on the other hand, agree that it
would be unjust and inequitable if the respective obligations of the Company and
the Underwriters for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and expenses or
by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 8. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls any of the Underwriters within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee
and agent of any of the Underwriters will have the same rights to contribution
as the Underwriters, and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 8 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriters contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained in this Agreement shall
remain operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriters, the Company or any of its directors and officers or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares.
10. Substitution of Underwriters.
(a) If one or more Underwriters should default in its
or their obligation to purchase and pay for any Offered Shares hereunder and if
the aggregate number of such Offered Shares which all Underwriters so defaulting
have agreed to purchase does not exceed 10% of the total number of the Offered
Shares, the non-defaulting Underwriters will be obligated severally to purchase
and pay for (in addition to the number of Offered Shares set forth
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22988/1111/JEJ/385081.3
opposite their names in Schedule A attached hereto) the full number of Offered
Shares agreed to be purchased by all defaulting Underwriters, and not so
purchased, in proportion to their respective commitments hereunder. In such
event the Representatives, for the accounts of the several nondefaulting
Underwriters, may take up and pay for all or any part of such additional Offered
Shares to be purchased by each such Underwriter under this Section 10(a), and
may postpone the Closing Date to a time not exceeding three full business days
after the Closing Date determined as provided in Section 2 hereof.
(b) If one or more Underwriters should default in its
or their obligation to purchase and pay for any Offered Shares hereunder and if
the aggregate number of such Offered Shares which all Underwriters so defaulting
have agreed to purchase exceeds 10% of the total number of Offered Shares, or if
one or more Underwriters for any reason permitted hereunder should cancel its or
their obligation to purchase and pay for Offered Shares hereunder, the
non-cancelling and non-defaulting Underwriters (hereinafter called the
"remaining Underwriters") will have the right to purchase such Offered Shares in
such proportion as may be agreed among them at the Closing Date determined as
provided in Section 2 hereof. If the remaining Underwriters do not purchase and
pay for such Offered Shares at such Closing Date, the Closing Date will be
postponed for 24 hours and the remaining Underwriters will have the right to
purchase such Offered Shares, or to substitute another person or persons to
purchase the same, or both, at such postponed Closing Date. If purchasers have
not been found for such Offered Shares by such postponed Closing Date, the
Closing Date will be postponed for a further 24 hours, and the Company will have
the right to substitute another person or persons, reasonably satisfactory to
the Representatives to purchase such Offered Shares at such second postponed
Closing Date. If it shall be arranged for the remaining Underwriters or
substituted underwriters to take up the Firm Shares of the defaulting
Underwriter or Underwriters as provided in this Section, (A) the Company shall
have the right to postpone the time of delivery for a period of not more than
three (3) full Business Days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary. If the Company has not found such purchasers for
such Offered Shares by such second postponed Closing Date, then this Agreement
will automatically terminate, and neither the Company nor the remaining
Underwriters will be under any obligation under this Agreement (except that the
Company and the Underwriters will remain liable to the extent provided in
Sections 7 and 8 hereof and the Company will also remain liable to the extent
provided in Section 5(j) hereof). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10(b). Nothing in Section 11 hereof will relieve a defaulting
Underwriter from the liability for its
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default and nothing in this Section 10(b) will obligate any Underwriter to
purchase or find purchasers for any Offered Shares in excess of those agreed to
be purchased by such Underwriter under the terms of Section 2 hereof.
11. Termination of Agreement.
(a) The Company, by written or telegraphic notice to
the Representatives, or the Representatives, by written or telegraphic notice to
the Company, may terminate this Agreement prior to the earlier of (i) 11:00
A.M., New York City time, on the first full business day after the Effective
Date; or (ii) the time when the Underwriters, after the Registration Statement
becomes effective, release the Offered Shares for public offering. The time when
the Underwriters "release the Offered Shares for public offering" for the
purposes of this Section 11 means the time when the Underwriters release for
publication the first newspaper advertisement, which is subsequently published,
relating to the Offered Shares, or the time when the Underwriters release for
delivery to members of a selling group copies of the Prospectus and an offering
letter or an offering telegram relating to the Offered Shares, whichever will
first occur.
(b) This Agreement, including without limitation, the
obligation to purchase the Shares and the obligation to purchase the Optional
Shares after exercise of the option referred to in Section 3 hereof, is subject
to termination in the absolute discretion of the Underwriters, by notice given
to the Company prior to delivery of and payment for all the Offered Shares or
the Optional Shares, as the case may be, if, prior to such time, any of the
following shall have occurred: (i) the Company withdraws the Registration
Statement from the Commission or the Company does not or cannot expeditiously
proceed with the public offering; (ii) the representations and warranties in
Section 4 hereof are not materially correct or cannot be complied with; (iii)
trading in securities generally on the New York Stock Exchange or the American
Stock Exchange will have been suspended; (iv) limited or minimum prices will
have been established on either such Exchange; (v) a banking moratorium will
have been declared either by federal or New York State authorities; (vi) any
other restrictions on transactions in securities materially affecting the free
market for securities or the payment for such securities, including the Offered
Shares or the Optional Shares, will be established by either of such Exchanges,
by the Commission, by any other federal or state agency, by action of the
Congress or by Executive Order; (vii) trading in any securities of the Company
shall have been suspended or halted by any national securities exchange, the
NASD or the Commission; (viii) there has been a materially adverse change in the
condition (financial or otherwise), prospects or obligations of the Company;
(ix) the Company will have sustained a material loss, whether or not insured, by
reason of fire, flood, accident or other calamity; (x) any action has been taken
by the government of the United States or any department or agency thereof
which, in the judgment
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of the Representatives, has had a material adverse effect upon the market or
potential market for securities in general; or (xi) the market for securities in
general or political, financial or economic conditions will have so materially
adversely changed that, in the judgment of the Representatives, it will be
impracticable to offer for sale, or to enforce contracts made by the
Underwriters for the resale of, the Offered Shares or the Optional Shares, as
the case may be.
(c) If this Agreement is terminated pursuant to
Section 6 hereof or this Section 11 or if the purchases provided for herein are
not consummated because any condition of the Underwriters' obligations hereunder
is not satisfied or because of any refusal, inability or failure on the part of
the Company to comply with any of the terms or to fulfill any of the conditions
of this Agreement, or if for any reason the Company shall be unable to or does
not perform all of its obligations under this Agreement, the Company will not be
liable to any of the Underwriters for damages on account of loss of anticipated
profits arising out of the transactions covered by this Agreement, but the
Company will remain liable to the extent provided in Sections 5(j), 7, 8 and 9
of this Agreement.
12. Information Furnished by the Underwriters to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and
8 hereof, the only information given by the Underwriters to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page 2 with respect to stabilizing the market price of Shares, information in
the paragraph on page with respect to concessions and reallowances, the table on
page regarding the offering syndicate, and the information in the ,
, and full paragraphs on page with respect to discretionary accounts, the
determination of the public offering price, stabilizing the market price of the
Shares, and BlueStone, respectively, as such information appears in any
Preliminary Prospectus and in the Prospectus.
13. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telecopied to, the
following addresses: if to BlueStone, the Representatives, or the Underwriters,
to BlueStone Capital Partners, L.P., 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Facsimile No. (000) 000-0000, with a copy to Xxxxxx Xxxxxxxxxx LLP, Attention:
Xxxxxx X. Xxxxxxx, Esq., 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Facsimile No. (000) 000-0000; if to the Company, to Interactive Magic, Inc., 000
Xxxxxxxxx Xxxxx, Xxxxx 0000, Xxxxxxxxxxx, Xxxxx Xxxxxxxx 00000, Attention: X.X.
Xxxxxxx, Chairman and Chief Executive Officer, Facsimile No. (000) 000-0000 with
a copy to Smith, Anderson, Blount, Dorsett, Xxxxxxxx &
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Xxxxxxxx, L.L.P., Attention: Xxxxxx X. Xxxxx, Esq., 0000 Xxxxx
Xxxxx Xxxxxxx Xxxxxx, Xxxxxxx, Xxxxx Xxxxxxxx 00000, Facsimile No.
(000) 000-0000.
This Agreement shall be deemed to have been made and delivered
in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction of the
New York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address
(Attention: President) shall be deemed in every respect effective service of
process upon the Company in any such suit, action or proceeding.
14. Parties in Interest. This Agreement is made solely for the
benefit of the several Underwriters, the Company and, to the extent expressed,
any person controlling the Company or the Underwriters, each officer, director,
partner, employee and agent of the Underwriters, the directors of the Company,
its officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares from any
of the Underwriters, as such purchaser.
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If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
Very truly yours,
INTERACTIVE MAGIC, INC.
By:_____________________________
Name: X.X. Xxxxxxx
Title: Chairman and Chief
Executive Officer
Confirmed and accepted in New York, N.Y., as of the date first above written:
BLUESTONE CAPITAL PARTNERS, L.P.
By: BlueStone Capital Management, Inc.,
General Partner
By:__________________________________
Xxxxx X. Xxxxx
President
XXXXXX, XXXXX XXXXX INCORPORATED
By:__________________________________
Name:
Title:
Acting on behalf of themselves as the Representatives of the several
Underwriters named in Schedule A hereto.
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SCHEDULE A
TO THE UNDERWRITING AGREEMENT
Underwriter Number of Shares
BlueStone Capital Partners, L.P...........................................
Xxxxxx, Xxxxx Xxxxx, Incorporated..........................................
Total............................................................
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