CENTRAL EUROPEAN DISTRIBUTION CORPORATION
1,150,000 shares of Common Stock, par value $.01 per share
and
1,150,000 redeemable Common Stock purchase warrants
Underwriting Agreement
[_____], 1998
Fine Equities, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
SouthWall Capital Corp.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
Central European Distribution Corporation, a Delaware corporation (the
"Company"), proposes to sell to Fine Equities, Inc. and SouthWall Capital Corp.
(hereinafter collectively referred to as the "Underwriters") shares of the
Company's common stock, par value $.01 per share (the "Common Stock") and
redeemable warrants ("Warrants") to purchase such shares to be issued pursuant
to a Warrant Agreement among the Company, the Underwriters and American Stock
Transfer & Trust Company dated _______, 1998 (the "Warrant Agreement"). The
aggregate number of such shares that the Company proposes to sell is 1,150,000
(the "Firm Shares") and the aggregate number of such warrants that the Company
proposes to sell is 1,150,000 (the "Firm Warrants" and together with the Firm
Shares, the "Firm Securities"). The respective amounts of the Firm Securities
to be so purchased by the Underwriters are set forth opposite your respective
names in Schedule I hereto. In addition, the Company and the Selling
Shareholders (as hereinafter defined) propose to sell to the Underwriters, at
the Underwriters' option, an aggregate of up to 172,500 additional shares and a
like number of warrants (the "Option Shares" and "Option Warrants,"
respectively), of which the Company proposes to issue and sell 97,500 Option
Shares and 172,500 Option Warrants and the Selling Shareholders propose to sell
an aggregate of 75,000 Option Shares. Unless the context otherwise indicates:
the Option Shares and the Option Warrants are herein collectively called the
"Option Securities;" the Firm Shares and the Option Shares (to the extent the
aforementioned option is exercised) are herein collectively called the "Shares;"
and the Firm Warrants and the Option Warrants (to the extent the aforementioned
option is exercised) are collectively called the "Warrants."
You have advised the Company that you desire to purchase, severally,
the number of Firm Securities set forth opposite your respective names in
Schedule I hereto, plus your pro rata portion of the Option Securities if you
elect to exercise the aforementioned option in whole or in part. In
consideration of the mutual agreements contained herein and of the interests of
the parties in the transactions contemplated hereby, the parties hereto,
intending to be legally bound, agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(a) A registration statement (File No. 333-_____) on Form SB-2
relating to the public offering of the Shares and Warrants, including a
form of prospectus subject to completion, copies of which have heretofore
been delivered to the Underwriters, has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the rules
and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with
the Commission under the Act and one or more amendments to such
registration statement may have been so filed. After the execution of this
Agreement, the Company will file with the Commission either (i) if such
registration statement, as it may have been amended, has been declared by
the Commission to be effective under the Act, either (A) if the Company
relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined)
relating to the Shares and Warrants that shall identify the Preliminary
Prospectus (as hereinafter defined) that it supplements containing such
information as is required or permitted by Rules 434, 430A and 424(b) under
the Act or (B) if the Company does not rely on Rule 434 under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed, in
such registration statement), with such changes or insertions as are
required by Rule 430A under the Act or permitted by Rule 424(b) under the
Act and, in the case of either clause (i)(A) or (i)(B) of this sentence, as
have been provided to and approved by the Underwriters prior to the
execution of this Agreement, or (ii) if such registration statement, as it
may have been amended, has not been declared by the Commission to be
effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Underwriters prior to the execution of
this Agreement.
As used in this Agreement, the term "Registration Statement"
means such registration statement, as amended at the time when it was or is
declared effective, including all financial schedules and exhibits thereto
and including any information omitted therefrom pursuant to Rule 430A under
the Act and including the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus subject to completion filed
with such registration statement or any amendment thereto (including the
prospectus subject to completion, if any, included in the Registration
Statement or any amendment thereto at the time it was or is declared
effective); the term "Prospectus" means (A) if the Company relies on Rule
434 under the Act, the Term Sheet relating to the Shares and Warrants that
is first filed pursuant to Rule 424(b)(7) under the Act, together with the
Preliminary Prospectus identified therein that such Term Sheet supplements;
(B) if the Company does not rely on Rule 434 under the Act, the prospectus
first filed with the Commission pursuant to Rule 424(b) under the Act or
(C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to said Rule 424(b), such term
means the prospectus included in the Registration Statement; except that if
such registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and
prior to the Option Closing Date (as defined in Section 3(b) hereof), the
terms "Registration Statement" and "Prospectus" shall mean such
registration statement and prospectus as so amended, and the term
"Prospectus" shall mean the prospectus as so supplemented, or both, as the
case may be; and the term "Term Sheet" means any term sheet that satisfies
the requirements of Rule 434 under the Act. Any reference to the "date" of
a Prospectus that includes a Term Sheet shall mean the date of such Term
Sheet.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the
Registration Statement becomes effective and at all times subsequent
thereto up to and on the Closing Date (as hereinafter defined) or the
Option Closing Date, as the case may be, (i) the Registration Statement and
Prospectus will in all respects conform to the requirements of the Act and
the Rules and Regulations; and (ii) neither the Registration Statement nor
the Prospectus will include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make statements therein not misleading; provided, however, that the Company
makes no representations, warranties or agreements as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation thereof. It is understood that the statements set forth in the
Prospectus on page 2 with respect to stabilization, under the heading
"Underwriting" and the identity of counsel to the Underwriters under the
heading "Legal Matters" constitute the only information
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furnished in writing by or on behalf of the several Underwriters for
inclusion in the Registration Statement and Prospectus, as the case may be.
(c) Each of the Company and ▇▇▇▇▇ Agri International Poland Sp.
z o. o., a corporation organized under the laws of Poland (the
"Subsidiary"), has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority corporate and other to own its
properties and conduct its business as described in the Prospectus and is
duly qualified to do business as a foreign corporation and is in good
standing in all other jurisdictions in which the nature of its business or
the character or location of its properties requires such qualification,
except where failure to so qualify will not materially affect the Company's
or the Subsidiary's business, properties or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company as of _____, 1997 is as set forth in the Prospectus under
"Capitalization"; the shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued and
are fully paid and non-assessable; except as set forth in the Prospectus,
no options, warrants, or other rights to purchase, agreements or other
obligations to issue, or agreements or other rights to convert any
obligation into, any shares of capital stock of the Company have been
granted or entered into by the Company; the capital stock conforms to all
statements relating thereto contained in the Registration Statement and
Prospectus; and neither the filing of the Registration Statement nor the
offering or sale of the Shares and Warrants as contemplated by this
Agreement gives rise to any registration rights or other rights, other than
those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock or other securities of the
Company.
(e) The Shares and Warrants to be issued and sold by the Company
have been duly authorized, and when issued and delivered pursuant to this
Agreement, will be duly authorized, validly issued, fully paid and non-
assessable; the shares of Common Stock issuable upon exercise of the
Warrants have been duly authorized and reserved for issuance upon exercise
of the Warrants and will when issued as contemplated by the instrument
evidencing the Warrants be validly issued, fully paid and non-assessable;
and no preemptive rights of any security holder of the Company exist with
respect to any shares of Common Stock or the issue and sale thereof.
Neither the filing of the Registration Statement nor the offering
or sale of the Shares and Warrants as contemplated in this Agreement gives
rise to any rights, other than those which have been waived or satisfied,
for or relating to the registration of any securities of the Company.
The Warrant Agreement, which will be substantially in the form
filed as an exhibit to the Registration Statement, and Warrants have been
duly authorized; and when the Warrants are delivered and paid for pursuant
to this Agreement, the Warrant Agreement and the Warrants will have been
duly executed and delivered and will constitute the valid and legally
binding obligations of the Company, enforceable in accordance with their
terms.
The shares of Common Stock and warrants (including the shares of
Common Stock issuable upon exercise of such warrants) issuable upon
exercise of the Underwriters' Unit Purchase Option (as defined in Section
13 hereof) have been reserved for issuance upon exercise of the
Underwriters' Unit Purchase Option and, when issued and sold will be duly
authorized, validly issued, fully paid and non-assessable and free of
preemptive rights and no personal liability will attach to the ownership
thereof.
(f) This Agreement and the Underwriters' Unit Purchase Option
have each been duly and validly authorized, executed and delivered by the
Company. The Company has full power and lawful authority to authorize,
issue and sell the Shares and Warrants to be sold by it hereunder on the
terms and conditions set forth herein, and no consent, approval,
authorization or other order of any governmental authority is required in
connection with such authorization, execution and delivery or
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with the authorization, issue and sale of the Shares and Warrants or the
Underwriters' Unit Purchase Option, except such as may be required under
the Act or state securities laws.
(g) The Company does not own, directly or indirectly, any capital
stock or other equity ownership or proprietary interests in any other
corporation, association, trust, partnership, joint venture or other entity
other than the Subsidiary. All of the outstanding shares of capital stock
of the Subsidiary have been duly authorized and validly issued, are fully
paid and nonassessable and free of any preemptive or similar rights, and
are owned by the Company, free and clear of any lien, adverse claim,
security agreement or other encumbrance and have been issued in compliance
with all applicable federal and state securities laws, and no options,
warrants, or other rights to purchase, agreements or other obligations to
issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Subsidiary have been granted or entered into
by the Company or the Subsidiary;
(h) Except as described in the Prospectus, neither the Company
nor the Subsidiary is in violation, breach of default of or under, and
consummation of the transactions herein contemplated and the fulfillment of
the terms of this Agreement will not conflict with, or result in a breach
or violation of, any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the property or assets of the Company or the
Subsidiary pursuant to the terms of any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or the
Subsidiary is a party or by which the Company or the Subsidiary may be
bound or to which any of the property or assets of the Company or the
Subsidiary is subject, nor will such action result in any violation of the
provisions of the articles of incorporation or the by-laws (or other
organizational documents), as amended, of the Company or the Subsidiary, or
any statute or any order, rule or regulation applicable to the Company or
the Subsidiary of any court or of any regulatory authority or other
governmental body having jurisdiction over the Company or the Subsidiary.
(i) Each of the Company and the Subsidiary has good and
marketable title to all properties and assets described in the Prospectus
as owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except for such liens, charges, encumbrances or restrictions
as are not materially significant or important in relation to its
respective business; all of the material leases and subleases under which
the Company or the Subsidiary is the lessor or sublessor of properties or
assets or under which the Company or the Subsidiary hold properties or
assets as lessee or sublessee as described in the Prospectus are in full
force and effect, and, except as described in the Prospectus, neither the
Company nor the Subsidiary is in default in any material respect with
respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone that is adverse to
rights of the Company or the Subsidiary as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or
affecting or questioning the right of either the Company or the Subsidiary
to continued possession of the leased or subleased premises or assets under
any such lease or sublease except as described or referred to in the
Prospectus; and the Company and the Subsidiary own or lease all such
properties described in the Prospectus as are necessary to their operations
as now conducted and, except as otherwise stated in the Prospectus, as
proposed to be conducted as set forth in the Prospectus.
(j) Ernst & Young Audit Sp. z o. o., Warsaw, Poland, who has
given its reports on certain financial statements filed and to be filed
with the Commission as a part of the Registration Statement are with
respect to the Company, independent public accountants as required by the
Act and the Rules and Regulations.
(k) The financial statements, together with related notes, set
forth in the Prospectus (or if the Prospectus is not in existence, the most
recent Preliminary Prospectus) present fairly the financial position and
results of operations and changes in stockholders' equity and cash flow
position
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of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
statements and related notes have been prepared in accordance with United
States generally accepted accounting principles applied on a basis which is
consistent during the periods involved. The information set forth under the
captions "Dilution", "Capitalization", and "Selected Financial Data" in the
Prospectus fairly present, on the basis stated in the Prospectus, the
information included therein.
(l) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), neither the
Company nor the Subsidiary has incurred any liabilities or obligations,
direct or contingent, not in the ordinary course of business, or entered
into any transaction not in the ordinary course of business, which is
material to the business of the Company or the Subsidiary, and there has
not been any change in the capital stock of, or any incurrence of short-
term or long-term debt by, the Company or the Subsidiary or any issuance of
options, warrants or other rights to purchase the capital stock of the
Company or the Subsidiary or any adverse change or any development
involving, so far as the Company can now reasonably foresee a prospective
adverse change in the condition (financial or other), net worth, results of
operations, business, key personnel or properties of it which would be
material to the business or financial condition of the Company or the
Subsidiary and neither the Company nor the Subsidiary has become a party
to, and neither the business nor the property of the Company or the
Subsidiary has become the subject of, any material litigation, whether or
not in the ordinary course of business.
(m) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit
or proceeding to which the Company or the Subsidiary is a party before or
by any court or governmental agency or body, which might result in any
material adverse change in the condition (financial or other), business
prospects, net worth, or properties of the Company or the Subsidiary, nor
are there any actions, suits or proceedings related to environmental
matters or related to discrimination on the basis of age, sex, religion or
race, and no labor disputes involving the employees of the Company or the
Subsidiary exist or are imminent which might be expected to adversely
affect the conduct of the business, property or operations or the financial
condition or results of operations of the Company or the Subsidiary.
(n) Except as disclosed in the Prospectus, the Company and the
Subsidiary have filed all necessary income and franchise tax returns with
all federal, state, local and foreign governmental agencies and have paid
all taxes shown as due thereon; and there is no tax deficiency which has
been or to the knowledge of the Company might be asserted against the
Company or the Subsidiary.
(o) The Company and the Subsidiary have sufficient licenses,
permits and other governmental authorizations currently required for the
conduct of their business or the ownership of their properties as described
in the Prospectus and are in all material respects complying therewith. To
the best knowledge of the Company, none of the activities or business of
the Company or the Subsidiary are in violation of, or cause the Company or
the Subsidiary to violate, any law, rule, regulation or order of the United
States, Poland or any state, county or locality, or of any agency or body
of the United States, Poland or of any state, county or locality, the
violation of which would have a material adverse impact upon the condition
(financial or otherwise), business, property, prospective results of
operations, or net worth of the Company or the Subsidiary.
(p) The Company and the Subsidiary own or possess the right to
use all patents, trademarks, trademark registrations, service marks,
service ▇▇▇▇ registrations, trade names, copyrights, licenses, inventions,
trade secrets and rights described in the Prospectus as being necessary for
the conduct of their respective businesses, and neither the Company nor the
Subsidiary is aware of any claim to the contrary or any challenge by any
other person to the rights of the Company and the Subsidiary with respect
to the foregoing. The Company's and the Subsidiary's businesses as now
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conducted do not and will not infringe or conflict with in any material
respect, patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses or other intellectual property or franchise right of any
other person. Except as described in the Prospectus, no claim has been made
against the Company or the Subsidiary alleging the infringement by the
Company or the Subsidiary of any patent, trademark, service ▇▇▇▇, trade
name, copyright, trade secret, license in or other intellectual property
right or franchise right of any person.
(q) The Company and the Subsidiary are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are customary in the businesses in which they are engaged;
and neither the Company nor the Subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue their respective businesses at a cost that
would not have a material adverse effect upon the condition (financial or
otherwise), business, property, prospective results of operations, or net
worth of the Company or the Subsidiary.
(r) Neither the Company nor the 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 payments or contributions
required or allowed by applicable law. The Company's and the Subsidiary's
internal accounting controls and procedures are sufficient to cause the
Company and the Subsidiary to comply in all material respects with the
Foreign Corrupt Practices Act of 1977, as amended.
(s) On the Closing Dates (hereinafter defined), all transfer or
other taxes (including franchise, capital stock or other tax, other than
income taxes, imposed by any jurisdiction), if any, which are required to
be paid in connection with the sale and transfer of the Shares and Warrants
to the Underwriters hereunder will have been fully paid or provided for by
the Company and all laws imposing such taxes will have been fully complied
with.
(t) All contracts and other documents of the Company and the
Subsidiary which are, under the Rules and Regulations, required to be filed
as exhibits to the Registration Statement have been so filed.
(u) Neither the Company nor the Subsidiary has taken nor will
take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute,
the stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares and Warrants hereby.
(v) Neither the Company nor the Subsidiary has entered into any
agreement pursuant to which any person is entitled, either directly or
indirectly, to compensation from the Company or the Subsidiary for services
as a finder in connection with the proposed public offering.
(w) Except as previously disclosed in writing by the Company to
the Underwriters, no officer, director or stockholder of the Company or the
Subsidiary has any affiliation or association with any member of the
National Association of Securities Dealers, Inc. (the "NASD").
(x) Neither the Company nor the Subsidiary is, nor upon receipt
of the proceeds from the sale of the Shares and Warrants will be, an
"investment company" within the meaning of the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
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(y) Neither the Company nor the Subsidiary has distributed, nor
will they distribute prior to the First Closing Date (as defined in Section
3(a) hereof), any offering material in connection with the offering and
sale of the Shares and Warrants other than the Preliminary Prospectus,
Prospectus, the Registration Statement or the other materials permitted by
the Act, if any.
(z) There are no business relationships or related-party
transactions of the nature described in Item 404 of Regulation S-B
involving the Company or the Subsidiary and any person described in such
Item that are required to be disclosed in the Prospectus and that have not
been so disclosed.
(aa) The Company and the Subsidiary have complied with all
provisions of Section 517.075 Florida Statutes relating to doing business
with the government of Cuba or with any person or affiliate located in
Cuba.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each
of the selling shareholders listed in Schedule II hereto (the "Selling
Shareholders") severally represents and warrants to, and agrees with, each
Underwriter that:
(a) Such Selling Shareholder has duly executed and delivered a
power of attorney (the "Power of Attorney") and custody agreement (the
"Custody Agreement"), in the forms heretofore delivered to the
Underwriters, appointing ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (the
"Attorneys-in-fact"), and either of them, as attorneys-in-fact with
authority to execute and deliver this Agreement on behalf of such Selling
Shareholder and to take certain other actions with respect hereto, and
appointing American Stock Transfer & Trust Company as custodian (the
"Custodian"). The Attorneys-in-fact are authorized to execute, deliver and
perform the Power of Attorney and the Custody Agreement and this Agreement
on behalf of such Selling Shareholder, including, without limitation, the
authority to determine the purchase price to be paid to each Selling
Shareholder by the Underwriters as set forth in Section 3 of this
Agreement. Certificates in negotiable form representing the Option Shares
to be sold by each Selling Shareholder hereunder have been deposited with
the Custodian pursuant to the Custody Agreement for the purpose of delivery
pursuant to this Agreement. Such Selling Shareholder agrees that the
Option Shares represented by the certificates on deposit with the Custodian
are subject to the interests of the Underwriters hereunder, that the
arrangements made for such custody and the appointment of the Attorneys-in-
fact are to that extent irrevocable, and that the obligations of such
Selling Shareholder hereunder shall not be terminated, except as provided
in this Agreement, by any act of such Selling Shareholder, by operation of
law or otherwise, whether by the dissolution, reorganization, death or
incapacity of such Selling Shareholder or the occurrence of any other
event. If any such dissolution, reorganization, death, incapacity or other
such event should occur before the delivery of the Option Shares to be sold
by the affected Selling Shareholder hereunder, the certificates for such
Option Shares shall be delivered by the Custodian in accordance with the
terms and conditions of this Agreement, as if such dissolution,
reorganization, death, incapacity, or other event had not occurred,
regardless of whether or not the Custodian or Attorneys-in-fact shall have
received notice thereof.
(b) Such Selling Shareholder has all requisite right, power and
authority to enter into this Agreement and the Power-of-Attorney and the
Custody Agreement, and to sell, transfer and deliver the Option Shares to
be sold by such Selling Shareholder hereunder, and this Agreement, the
Power-of-Attorney and the Custody Agreement have been duly authorized,
executed and delivered by or on behalf of such Selling Shareholder and
constitute the legal, valid and binding obligations of such Selling
Shareholder enforceable in accordance with their respective terms.
(c) The execution, delivery and performance, and the consummation
of the transactions contemplated hereby and by the Prospectus, the Power-
of-Attorney and the Custody Agreement, and the fulfillment of the terms
hereof, do not and shall not, with or without the giving of notice or lapse
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of time or both, (i) conflict with any term or provision of such Selling
Shareholder's charter, bylaws or other organic or governing documents, if
applicable, (ii) conflict with or result in a breach or a violation of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage or other agreements or instrument to which such Selling
Shareholder is a party or by which such Selling Shareholder or any of his,
her or its Option Shares is bound, or (iii) violate any existing,
applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic or foreign,
having jurisdiction over such Selling Shareholder or any of his, her or its
Option Shares.
(d) All authorizations, approvals and consents necessary for the
valid execution and delivery by such Selling Shareholder of the Power-of-
Attorney and the Custody Agreement, and for the execution and delivery of
this Agreement on behalf of such Selling Shareholder, have been duly given
and received and are in full force and effect, and the sale and delivery of
the Option Shares to be sold by such Selling Shareholder hereunder (other
than, at the time of the execution hereof, the issuance of the order of the
Commission declaring the Registration Statement effective and such
authorization, approvals or consents as may be necessary under the state
securities or blue sky laws and the bylaws, rules and pronouncements of the
NASD, have been obtained and are in full force and effect.
(e) Such Selling Shareholder now is, and on the Closing Date and
any Option Closing Date will be, the lawful owner of the Option Shares to
be sold by such Selling Shareholder pursuant to this Agreement. On the
Closing Date and any Option Closing Date, such Selling Shareholder will
have good and marketable title to such Option Shares, free and clear of all
liens, pledges, encumbrances, security interests, equities, claims or other
restrictions (other than those created under the Power-of-Attorney and the
Custody Agreement). Upon proper delivery of, and payment for, such Option
Shares as provided herein, the Underwriters will acquire good and
marketable title thereto, free and clear of all liens, pledges,
encumbrances, security interests, equities, claims and other restrictions
and defects whatsoever, including any liability for estate or inheritance
taxes, or any liability to or claims of any creditor, devisee, legatee or
beneficiary of such Selling Shareholder.
(f) Such Selling Shareholder is not prompted to sell the Option
Shares to be sold by such Selling Shareholder hereunder by any information
concerning the Company or the Subsidiary that is not set forth in the
Prospectus.
(g) Such Selling Shareholder has examined the Registration
Statement and the Prospectus and the information relating to such Selling
Shareholder set forth therein or otherwise furnished to the Company by such
Selling Shareholder or on such Selling Shareholder's behalf for use in
connection with the preparation of the Registration Statement and the
Prospectus (including, without limiting the generality of the foregoing,
all representations and warranties of such Selling Shareholder in the Power
of Attorney) and, as to such information, neither the Registration
Statement, the Prospectus nor the Power of Attorney contains any untrue or
inaccurate statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
(h) Such Selling Shareholder has not incurred any liability for
any finder's fee or similar payment in connection with the sale of such
Selling Shareholder's Option Shares hereunder.
(i) Such Selling Shareholder has not distributed and will not
distribute any offering material in connection with the offering and sale
of the Shares and Warrants other than the Preliminary Prospectus and the
Prospectus or other material, if any, permitted by the Act and the Rules
and Regulations. Neither such Selling Shareholder nor any affiliate of
such Selling Shareholder has taken or shall take any action designed, or
that might be reasonably expected, to cause or result in
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stabilization or manipulation of, or to facilitate the sale or resale of,
any shares of the Common Stock or Warrants.
(j) Such Selling Shareholder has no reason to believe that any of
the representations and warranties of the Company set forth in Section 1
above is untrue or inaccurate in any material respect.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES AND WARRANTS.
(a) Subject to the terms and conditions set forth herein, and on
the basis of the representations, warranties and agreements contained
herein, the Company shall sell to the Underwriters, and each such
Underwriter severally, and not jointly, shall purchase from the Company at
a price of $_____ per Share and $.10 per Warrant, less an underwriting
discount of 10% in each case, at the place and time hereinafter specified,
the number of Firm Securities set forth opposite the names of the
Underwriters in Schedule I hereto.
Delivery of the Firm Securities against payment therefor shall
take place at the offices of Fine Equities, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (or at such other place as may be designated by
agreement between you and the Company) at 10:00 a.m., New York City time,
on _____, 1998, or at such later time and date as you may designate, such
time and date of payment and delivery for the Firm Securities being herein
called the "First Closing Date."
(b) In addition, subject to the terms end conditions set forth
herein, and on the basis of the representations, warranties and agreements
contained herein, the Company and each Selling Shareholder, severally and
not jointly, hereby grants an option (the "Over-allotment Option") to the
several Underwriters to purchase from the Company and the Selling
Shareholders, respectively, at the price per Share and per Warrant as set
forth in subsection (a) above, all or any part of the respective number of
Option Securities determined as hereinafter provided, aggregating the
number of Option Shares and Option Warrants set forth opposite the names of
the Company and the Selling Shareholders in Schedule II hereto. The Over-
allotment Option may be exercised within 45 days after the effective date
of the Registration Statement upon notice by the Underwriters to the
Company advising as to the amount of Option Shares and/or Option Warrants
as to which the Underwriters are exercising such option, the names and
denominations in which the certificates for such Option Shares and/or
Option Warrants are to be registered and the time and date when such
certificates are to be delivered. Such time and date (hereinafter, the
"Option Closing Date") shall be determined by the Underwriters but shall
not be earlier than four nor later than ten full business days after the
exercise of the Over-allotment Option, nor in any event prior to the First
Closing Date. Delivery of the Option Securities against payment therefor
shall take place at the offices of Fine Equities, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇. The number of Option Shares and/or Option
Warrants to be purchased by each Underwriter, if any, shall bear the same
percentage to the total number of Option Securities being purchased by the
several Underwriters pursuant to this subsection (b) as the respective
numbers of Firm Shares and/or Firm Warrants being purchased by such
Underwriter bears to the respective total numbers thereof, as adjusted, in
each case by the Underwriters in such manner as the Underwriters may deem
appropriate. If the Over-allotment Option is exercised with respect to
fewer than all of the Option Securities, the Option Securities will be sold
in the following order: (i) first, the Option Shares the Selling
Shareholders propose to sell and (ii) second, the Option Shares and Option
Warrants the Company proposes to sell. The Over-allotment Option may be
exercised only to cover over-allotments in the sale by the Underwriters of
Firm Shares and/or Firm Warrants referred to in subsection (a) above. In
the event the Company declares or pays a dividend or distribution on its
Common Stock, whether in the form of cash, shares of Common Stock or any
other consideration, prior to the Option Closing Date, such dividend or
distribution shall also be paid on the Option Securities on the Option
Closing Date.
-9-
Certificates in negotiable form for the Option Shares to be sold
by each of the Selling Shareholders hereunder have been placed in custody,
for delivery under this Agreement pursuant to the Custody Agreement. Each
Selling Shareholder agrees that the Option Shares represented by the
certificates so held in custody are subject to the interests of the
Underwriters hereunder, that the arrangements made by such Selling
Shareholder for such custody are to that extent irrevocable and that the
obligations of such Selling Shareholder hereunder shall not be terminated
by the act of such Selling Shareholder or by operation of law, whether by
the death or incapacity of such Selling Shareholder or the occurrence of
any other event, except as specifically provided herein or in the Custody
Agreement. If any Selling Shareholder should die or be incapacitated, or if
any other such event should occur, before the delivery of the Option Shares
hereunder, certificates for the Option Shares to be sold by such Selling
Shareholder shall, except as specifically provided herein or in the Custody
Agreement, be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death, incapacity or other event
has not occurred, regardless of whether the Custodian shall have received
notice of such death, incapacity or other event.
(c) The Company and the Selling Shareholders will make the
certificates for the Shares and Warrants to be purchased by the
Underwriters hereunder available to the Underwriters for review at least
two full business days prior to the First Closing Date or the Option
Closing Date (which are collectively referred to herein as the "Closing
Dates"). The certificates shall be in such names and denominations as the
Underwriters may request, at least two full business days prior to the
Closing Dates. Time shall be of the essence and delivery at the time and
place specified in this Agreement is a further condition to the obligations
of each Underwriter.
Definitive certificates in negotiable form for the Firm
Securities to be purchased by the Underwriters hereunder will be delivered
by the Company to the Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the
Company with regard to the Firm Securities to be purchased from the
Company.
In addition, in the event the Underwriters exercise the Over-
allotment Option for all or any portion of the Option Securities pursuant
to the provisions of subsection (b) above, payment for such Option
Securities shall be made by certified or bank cashier's checks in New York
Clearing House funds, payable to or upon the order of the Company with
regard to the Option Shares and Option Warrants to be purchased from the
Company and to the order of the Custodian for the respective accounts of
the Selling Shareholders with regard to the Option Shares being purchased
from such Selling Shareholders at the offices of Fine Equities, Inc., ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (or such other place as may be
designated by agreement between the Underwriters and the Company) at the
time and date of delivery of such Option Securities as required by the
provisions of subsection (b) above, against receipt of the certificates for
such Option Securities by the Underwriters registered in such names and in
such denominations as the Underwriters may request.
It is understood that the several Underwriters propose to offer
the Shares and Warrants (including the Option Securities) to be purchased
hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective as promptly as possible. If
required, the Company will file the Prospectus or any Term Sheet that
constitutes a part thereof and any amendment or supplement thereto with the
Commission in the manner and within the time period required by Rules 434
and 424(b) under the Act. Upon notification from the Commission that the
Registration Statement has become effective, the Company will so
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advise the Underwriters and will not at any time, whether before or after
the effective date, file the Prospectus, Term Sheet or any amendment to the
Registration Statement or supplement to the Prospectus of which the
Underwriters shall not previously have been advised and furnished with a
copy or to which the Underwriters or the Underwriters' counsel shall have
objected to in writing or which is not in compliance with the Act and the
Rules and Regulations. At any time prior to the later of (A) the completion
by all of the Underwriters of the distribution of the Shares and Warrants
contemplated hereby (but in no event more than nine months after the date
on which the Registration Statement shall have become or been declared
effective) and (B) 25 days after the date on which the Registration
Statement shall have become or been declared effective, the Company will
prepare and file with the Commission, promptly upon the Underwriters'
request, any amendments or supplements to the Registration Statement or
Prospectus which, in the Underwriters' opinion, may be necessary or
advisable in connection with the distribution of the Shares and Warrants.
As soon as the Company is advised thereof, the Company will
advise the Underwriters, and confirm such advice in writing, (i) when the
Registration Statement or any post-effective amendment to the Registration
Statement is filed with the Commission, (ii) of the receipt of any comments
of the Commission, (iii) of the effectiveness of any post-effective
amendment to the Registration Statement, (iv) of the filing of any
supplement to the Prospectus or any amended Prospectus, (v) of any request
made by the Commission for amendment of the Registration Statement or for
supplementing of the Prospectus or for additional information with respect
thereto, (vi) of the issuance by the Commission or any state or regulatory
body of any stop order or other order or threat thereof suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any Preliminary Prospectus, or (vii) of the
suspension of the qualification of the Shares and Warrants for offering in
any jurisdiction, or of the institution 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,
if any such order is issued, to obtain as soon as possible the lifting
thereof.
The Company has caused to be delivered to the Underwriters copies
of each Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act.
The Company authorizes the several Underwriters and dealers to use the
Prospectus in connection with the sale of the Shares and Warrants for such
period as in the opinion of counsel to the several Underwriters the use
thereof is required to comply with the applicable provisions of the Act and
the Rules and Regulations. In case of the happening, at any time within
such period as a Prospectus is required under the Act to be delivered in
connection with sales by an underwriter or dealer of any event of which the
Company has knowledge and which materially affects the Company or the
securities of the Company, or which in the opinion of counsel for the
Company or counsel for the Underwriters should be set forth in an amendment
of the Registration Statement or a supplement to the Prospectus in order to
make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Shares and Warrants or in case it shall be
necessary to amend or supplement the Prospectus to comply with law or with
the Rules and Regulations, the Company shall notify the Underwriters
promptly and forthwith prepare and furnish to the Underwriters copies of
such amended Prospectus or of such supplement to be attached to the
Prospectus, in such quantities as the Underwriters may reasonably request,
in order that the Prospectus, as so amended or supplemented, will not
contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus,
in the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of any such amendment or
supplement to the Registration Statement or amended Prospectus or
supplement to be attached to the Prospectus shall be without expense to the
Underwriters, except that in case any Underwriter is required, in
connection with the sale of the Shares and Warrants, to deliver a
Prospectus nine months or more after the effective date of the Registration
Statement, the Company will upon request of and at the expense of such
-11-
Underwriter, amend or supplement the Registration Statement and Prospectus
and furnish the Underwriter with reasonable quantities of prospectuses
complying with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations thereunder in connection with the offering
and issuance of the Shares and Warrants.
(b) The Company will use its best efforts to qualify to register
the Shares and Warrants for sale under the securities or "blue sky" laws of
such jurisdictions as the Underwriters may designate and will make such
applications and furnish such information as may be required for that
purpose and to comply with such laws, provided the Company shall not be
required to qualify as a foreign corporation or a dealer in securities or
to execute a general consent of service of process in any jurisdiction in
any action other than one arising out of the offering or sale of the Shares
and Warrants. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriters may
reasonably request.
(c) If the sale of the Shares and Warrants provided for herein is
not consummated for any reason caused by the Company, the Company shall pay
all costs and expenses incident to the performance of the Company's
obligations hereunder, including but not limited to, all of the expenses
itemized in Section 9, including the accountable expenses of the
Underwriters.
(d) The Company will use its best efforts to (i) cause a
Registration Statement on Form 8-A under the Exchange Act to be declared
effective concurrently with the completion of this offering and will notify
the Underwriters in writing immediately upon the effectiveness of such
registration statement, and (ii) if requested by the Underwriters, to
obtain and keep current a listing in the Standard & Poor's or ▇▇▇▇▇'▇
Industrial OTC Manual.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, the Company, at its
expense, will furnish to its stockholders an annual report (including
financial statements audited by independent public accountants), in
reasonable detail, and at its expense will furnish to the Underwriters
during the period ending five (5) years from the date hereof (i) as soon as
practicable after the end of each fiscal year, a balance sheet of the
Company and any of its subsidiaries as at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company
and any of its subsidiaries for such fiscal year, all in reasonable detail
and accompanied by a copy of the certificate or report thereon of
independent accountants; (ii) as soon as practicable after the end of each
of the first three fiscal quarters of each fiscal year, consolidated
summary financial information of the Company for such quarter in reasonable
detail; (iii) as soon as they are available, a copy of all reports
(financial or other) mailed to security holders; (iv) as soon as they are
available, a copy of all non-confidential reports and financial statements
furnished to or filed with the Commission or any securities exchange or
automated quotation system on which any class of securities of the Company
is listed; and (v) such other information as you may from time to time
reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company
and its subsidiary or subsidiaries are consolidated in reports furnished to
its stockholders generally.
(g) The Company will deliver to the Underwriters at or before the
First Closing Date two signed copies of the Registration Statement,
including all financial statements and exhibits filed therewith, and of all
amendments thereto, and will deliver to the several Underwriters such
number of conformed copies of the Registration Statement, including such
financial statements but without
-12-
exhibits, and of all amendments thereto, as the several Underwriters may
reasonably request. The Company will deliver to the Underwriters or upon
the order of the several Underwriters, from time to time until the
effective date of the Registration Statement, as many copies of any
Preliminary Prospectus filed with the Commission prior to the effective
date of the Registration Statement as such Underwriters may reasonably
request. The Company will deliver to the several Underwriters on the
effective date of the Registration Statement and thereafter for so long as
a Prospectus is required to be delivered under the Act, from time to time,
as many copies of the Prospectus, in final form, or as thereafter amended
or supplemented, as such Underwriters may from time to time reasonably
request. The Company, not later than (i) 5:00 p.m., New York City time, on
the date of determination of the public offering price for the First Shares
and Warrants, if such determination occurred at or prior to 12:00 noon, New
York City time, on such date or (ii) 6:00 p.m., New York City time, on the
business day following the date of determination of such offering price, if
such determination occurred after 12:00 noon, New York City time, on such
date, will deliver to the several Underwriters, without charge, as many
copies of the Prospectus and any amendment or supplement thereto as such
Underwriters may reasonably request for purposes of confirming orders that
are expected to settle on the First Closing Date.
(h) The Company will make generally available to its security
holders and deliver to the Underwriters as soon as it is practicable to do
so but in no event later than 90 days after the end of twelve months after
its current fiscal quarter, an earnings statement (which need not be
audited) covering a period of at least 12 consecutive months beginning
after the effective date of the Registration Statement, which shall satisfy
the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Shares and Warrants for the purposes set forth under "Use of Proceeds" in
the Prospectus, and will file such reports with the Commission with respect
to the sale of the Shares and Warrants and the application of the proceeds
therefrom as may be required pursuant to Rule 463 under the Act.
(j) The Company will, promptly upon your request, prepare and
file with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action,
which in the reasonable opinion of counsel to the several Underwriters, may
be reasonably necessary or advisable in connection with the distribution of
the Shares and Warrants, and will use its best efforts to cause the same to
become effective as promptly as possible.
(k) The Company will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Underwriters' Unit Purchase Option.
(l) The Company will not, and will deliver to the Underwriters
agreements to the effect that for a period of 24 months from the First
Closing Date (the "Lock-Up Period"), no officer, director or existing
stockholder or optionholder of the Company (such officers, directors and
stockholders being herein referred to as the "Principal Stockholders")
will, directly or indirectly, offer, sell (including any short sale), grant
any option for the sale of, acquire any option to dispose of, transfer,
pledge, assign, hypothecate or otherwise dispose of any securities of the
Company. In order to enforce this covenant, the Company shall impose stop-
transfer instructions with respect to the securities owned by the Principal
Stockholders until the end of such period and an appropriate legend shall
be marked on the face of stock certificates representing all of such
securities.
(m) Subject to subsection (q) of this Section 4, during the
eighteen (18) month period from the effective date of the Registration
Statement (the "Effective Date"), you shall have the right of first refusal
(the "Right of First Refusal") to act as underwriter or agent for any and
all public offerings or private placements of securities of the Company, or
of any successor to or subsidiary of
-13-
the Company or other entity in which the Company has an equity interest
(herein this paragraph (m) referred to collectively as the "Company"), by
the Company (the "Subsequent Company Offering") or any secondary offering
of the Company's securities by the Principal Stockholders (the "Secondary
Offering"). Accordingly, if during such period the Company intends to make
a Subsequent Company Offering or the Company receives notification from any
of such Principal Stockholders of such holder's intention to make a
Secondary Offering, the Company shall notify you in writing of such
intention and of the proposed terms of the offering. The Company shall
thereafter promptly furnish you with such information concerning the
business, condition and prospects of the Company as you may reasonably
request. If within thirty (30) business days of receipt of such notice of
intention and statement of terms you do not accept in writing such offer to
act as underwriter or agent with respect to such offering upon the terms
proposed and, in the case of a Subsequent Company Offering, the Company has
received your prior written consent to make such offering, the Company and
each of the Principal Stockholders shall be free to negotiate terms with
other underwriters or agents with respect to such offering and to effect
such offering on such proposed terms within six months after the end of
such thirty (30) business day period. Before the Company and/or any of the
Principal Stockholders shall accept any modified proposal from such
underwriter or agent, your preferential right shall be reinstated and the
same procedure with respect to such modified proposal as provided above
shall be adopted. The failure by you to exercise your Right of First
Refusal in any particular instance shall not affect in any way such right
with respect to any other Subsequent Company Offering or Secondary
Offering. By execution and delivery of agreements in form and substance
satisfactory to you, each of the Principal Stockholders agrees to be bound
by the terms of this Section 4(m) concerning any proposed Secondary
Offering.
(n) Prior to completion of this offering, the Company will make
all filings required, including registration under the Exchange Act, to
obtain the listing of the Shares and Warrants on the Nasdaq SmallCap Market
or the American Stock Exchange, and will effect and maintain such listing
for at least seven years from the effective date of the Registration
Statement.
(o) The Company and each of the Selling Shareholders represents
that he or it has not taken and agrees that he or it will not take,
directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result in the stabilization
or manipulation of the price of the Shares or the Warrants or to facilitate
the sale or resale of the Shares or the Warrants.
(p) On the Closing Date and simultaneously with the delivery of
the Shares and Warrants, the Company shall execute and deliver to the
Underwriters the Underwriters' Unit Purchase Option. The Underwriters'
Unit Purchase Option will be substantially in the form of the Underwriters'
Unit Purchase Option filed as an exhibit to the Registration Statement.
(q) During the twelve month period commencing on the date of this
Agreement, the Company will not, without the prior written consent of the
Underwriters, grant options to purchase shares of Common Stock at an
exercise price less than the greater of (i) the initial public offering
price of the Shares or (ii) the fair market value of the Common Stock on
the date of grant. During the Lock-Up Period, the Company will not,
without the prior written consent of the Underwriters, grant options to any
current officer of the Company or sell or offer any securities of the
Company, except pursuant to options and warrants outstanding on the date
hereof.
(r) The Company will not, without the prior written consent of
the Underwriters, grant registration rights to any person which are
exercisable sooner than __ months from the First Closing Date.
(s) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ shall be Chairman of the Board, President
and Chief Executive Officer of the Company on the Closing Dates. The
Company has obtained key person life insurance
-14-
in an amount of not less than $2.5 million on the life of ▇▇. ▇▇▇▇▇ and
will use its best efforts to maintain such insurance during the three year
period commencing from the First Closing Date. In the event that ▇▇.
▇▇▇▇▇'▇ employment with the Company is terminated prior to such three year
period, the Company will obtain a comparable policy on the life of his
successor for the balance of such three year period. For a period of _____
months from the First Closing Date, the compensation of the executive
officers of the Company shall not be increased from the compensation levels
disclosed in the Prospectus.
(t) So long as any Warrants are outstanding, the Company shall
use its best efforts to cause post-effective amendments to the Registration
Statement to become effective in compliance with the Act and without any
lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be
delivered to each holder of record of a Warrant and to furnish to each
Underwriter and dealer as many copies of each such Prospectus as such
Underwriter or dealer may reasonably request. The Company shall not call
for redemption any of the Warrants unless a registration statement covering
the securities underlying the Warrants has been declared effective by the
Commission and remains current at least until the date fixed for
redemption. In addition, for so long as any Warrant is outstanding, the
Company will promptly notify the Underwriters of any material change in the
business, financial condition or prospects of the Company or any subsidiary
thereof.
(u) Upon the exercise of any Warrant or Warrants after ________,
1999, the Company will pay the Underwriters, a fee of four percent (4%) of
the aggregate exercise price of the Warrants, of which a portion may be
reallowed to the dealer who solicited the exercise (which may also be
either or both of the Underwriters) if (i) the market price of the
Company's Common Stock is greater than the exercise price of the Warrants
on the date of exercise; (ii) the exercise of the Warrant was solicited by
a member of the NASD; (iii) the Warrant is not held in a discretionary
account; (iv) the disclosure of compensation arrangements has been made in
documents provided to customers, both as part of the original offering and
at the time of exercise; and (v) the solicitation of the Warrant was not in
violation of Rule 10b-6 promulgated under the Exchange Act. The Company
agrees not to solicit the exercise of any Warrants other than through the
Underwriters and will not authorized any other dealer to engage in such
solicitation without the prior written consent of the Underwriters.
(v) For a period of five years from the effective date of the
Registration Statement, the Company (i) at its expense, shall cause its
regularly engaged independent certified public accountants 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 Quarterly Report on Form 10-QSB
(or 10-Q, as the case may be) and the mailing of quarterly financial
information to stockholders and (ii) shall not change its accounting firm
without the prior written consent of the Underwriters.
(w) For a period of five years from the First Closing Date (i)
the Underwriters shall have the right, but not the obligation, to (a)
designate a director to the Board of Directors of the Company or (b)
designate one person to attend all meetings of the Board of Directors,
which person will be entitled to receive all notices and other
correspondence as if such person were a member of the Board of Directors
and to be reimbursed for out-of-pocket expenses incurred in connection with
attendance of meeting of the Board of Directors, and (ii) the Company shall
engage a public relations firm acceptable to the Underwriters.
5. CONDITIONS OF UNDERWRITERS' OBLIGATION. The obligations of the
several Underwriters to purchase and pay for the Shares and Warrants which they
have respectively agreed to purchase hereunder are subject to the accuracy (as
of the date hereof, and as of the Closing Dates) of and compliance with the
representations and warranties of the Company and the Selling Shareholders set
forth herein, to the performance by the Company and the
-15-
Selling Shareholders of their respective obligations hereunder, and to the
satisfaction (at or prior to the Closing Dates), of each of following
conditions:
(a) The Registration Statement shall have become effective and
the Underwriters shall have received notice thereof not later than 10:00
a.m., New York City time, on the date on which the amendment to the
Registration Statement originally filed with respect to the Shares and
Warrants or to the Registration Statement, as the case may be, containing
information regarding the initial public offering price of the Shares and
Warrants has been filed with the Commission, or such later time and date as
shall have been agreed to by the Underwriters; if required, the Prospectus
or any Term Sheet that constitutes a part thereof and any amendment or
supplement thereto shall have been filed with the Commission in the manner
and within the time period required by Rule 434 and 424(b) under the Act;
on or prior to the Closing Dates, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that or a similar purpose shall have been instituted or
shall be pending or, to the Underwriters' knowledge or to the knowledge of
the Company, shall be contemplated by the Commission; any request on the
part of the Commission for additional information shall have been complied
with to the reasonable satisfaction of counsel to the several Underwriters;
(b) At the First Closing Date, the Underwriters shall have
received the opinion, addressed to the Underwriters, dated as of the First
Closing Date, of ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, Washington, D.C. and Warsaw, Poland,
counsel for the Company and the Selling Shareholders, in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with full corporate power and authority to own its
properties and conduct its business as described in the Registration
Statement and Prospectus and is duly qualified or licensed to do
business as a foreign corporation and is in good standing in each
jurisdiction in which the ownership or leasing of its properties or
conduct of its business requires such qualification;
(ii) the Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
Poland, with full corporate power and authority to own its properties
and conduct its business as described in the Registration Statement
and Prospectus and is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction in
which the ownership or leasing of its properties or conduct of its
business requires such qualification; all of the outstanding shares of
capital stock of the Subsidiary have been duly authorized and validly
issued, are fully paid and nonassessable and free of preemptive or
similar rights, and are owned by the Company, free and clear of any
lien, adverse claim, security interest or other encumbrance; no
options, warrants, or other rights to purchase, agreements or other
obligations to issue, or agreements or other rights to convert any
obligation into, any shares of capital stock of the Subsidiary have
been granted or entered into by the Company or the Subsidiary;
(iii) to the best knowledge of such counsel, (A) each of
the Company and the Subsidiary has obtained, or is in the process of
obtaining, all licenses, permits and other governmental authorizations
necessary to the conduct of its business as described in the
Prospectus, (B) such licenses, permits and other governmental
authorizations obtained are in full force and effect, and (C) each of
the Company and the Subsidiary are in all material respects complying
therewith;
(iv) the authorized capitalization of the Company as of
_____,1997 is as set forth under the caption "Capitalization" in the
Prospectus; all shares of the Company's outstanding stock requiring
authorization for issuance by the Company's Board of Directors
-16-
have been duly authorized and validly issued, are fully paid and non-
assessable and conform to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have not been
issued in violation of the preemptive rights of any shareholder and
the shareholders of the Company do not have any preemptive rights or
other rights to subscribe for or to purchase, nor are there any
restrictions upon the voting or transfer of any of the shares of
Common Stock; except as set forth in the Prospectus, no options,
warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation
into, any shares of capital stock of the Company have been granted or
entered into by the Company; the Common Stock, the Warrants, the
Underwriters' Unit Purchase Option and the Warrant Agreement conform
to the respective descriptions thereof contained in the Prospectus;
the Shares have been, and the shares of Common Stock to be issued upon
exercise of the Warrants and the Underwriters' Unit Purchase Option,
upon issuance in accordance with the terms of such Warrants, the
Warrant Agreement and the Underwriters' Unit Purchase Option, have
been duly authorized and, when issued and delivered, will be duly and
validly issued, fully paid, non-assessable, free of preemptive rights
and no personal liability will attach to the ownership thereof; all
prior sales by the Company of its securities have been made in
compliance with or under exemption from registration under the Act and
applicable state securities laws and no shareholders of the Company
have any rescission rights with respect to securities of the Company;
a sufficient number of shares of Common Stock has been reserved for
issuance upon exercise of the Warrants and the Underwriters' Unit
Purchase Option; and, to the best of such counsel's knowledge, neither
the filing of the Registration Statement nor the offering or sale of
the Shares and Warrants as contemplated by this Agreement gives rise
to any registration rights or other rights, other than those which
have been waived or satisfied, for or relating to the registration of
any shares of Common Stock or other securities of the Company;
(v) this Agreement and the Warrant Agreement have been duly
and validly authorized, executed and delivered by the Company and by
or on behalf of each of the Selling Shareholders, and the
Underwriters' Unit Purchase Option has been duly and validly
authorized, executed and delivered by the Company, and, assuming due
execution by each other party hereto or thereto, each of such
agreements constitutes a legal, valid and binding obligation of the
Company and each of the Selling Shareholders, as the case may be,
enforceable against the Company and each of the Selling Shareholders,
as the case may be, in accordance with their respective terms (except
as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law);
(vi) the Powers of Attorney and the Custody Agreements have
been duly and validly executed and delivered by or on behalf of each
of the Selling Shareholders; upon delivery of certificates for the
Option Shares to be sold by the Selling Shareholders under this
Agreement and the payment therefor as contemplated by this Agreement,
valid and marketable title to the Option Shares represented thereby
will have been acquired by the Underwriters, free and clear of all
security interests, liens, encumbrances, claims or equities
whatsoever; and nothing has come to the attention of such counsel
which caused them to believe that any Selling Shareholder does not
have full legal right, power and authority to sell, transfer and
deliver the Option Shares to be sold by him or her or it under this
Agreement;
(vii) the certificates evidencing the shares of Common
Stock are in valid and proper legal form and conform to the
requirements of the General Corporation Law of the State of Delaware;
the Warrants will be exercisable for shares of Common Stock in
-17-
accordance with the terms of the Warrants and at the prices therein
provided for; and the warrants underlying the Underwriters' Unit
Purchase Option will be exercisable for shares of Common Stock in
accordance with the terms of the Underwriters' Unit Purchase Option
and at the prices therein provided for;
(viii) such counsel knows of no pending or threatened legal
or governmental proceedings to which either the Company or the
Subsidiary is a party which could materially adversely affect the
business, property, financial condition or operations of either the
Company or the Subsidiary; or which question the validity of the
Shares, the Warrants, this Agreement, the Warrant Agreement, the
Underwriters' Unit Purchase Option, the Powers of Attorney or the
Custody Agreements, or of any action taken or to be taken by either
the Company or the Subsidiary pursuant to this Agreement, the Warrant
Agreement, the Underwriters' Unit Purchase Option, the Powers of
Attorney or the Custody Agreements; and no such proceedings are known
to such counsel to be contemplated against either the Company or the
Subsidiary; there are no governmental proceedings or regulations
required to be described or referred to in the Registration Statement
which are not so described or referred to;
(viii) to the knowledge of such counsel, neither the
Company nor the Subsidiary has received notice of any claim or
challenge regarding its ownership of or its other rights to or under
any patents, trademarks, service marks, trade names, licenses,
inventions or any other rights described in the Prospectus; to the
knowledge of such counsel, (i) no claim has been made against the
Company or the Subsidiary alleging infringement by the Company or the
Subsidiary of any patent, trademark, service ▇▇▇▇, trade name, trade
secret, license in or other intellectual property or franchise right
of any person, (ii) no legal or governmental proceedings are pending
relating to the foregoing and (iii) no such proceedings are currently
threatened by governmental authorities or others;
(ix) Neither the Company nor the Subsidiary is in violation
of or default under, nor will the execution and delivery of this
Agreement, the Warrant Agreement, the Underwriters' Unit Purchase
Option, the Powers of Attorney or the Custody Agreements, and the
incurrence of the obligations herein and therein set forth and the
consummation of the transactions herein or therein contemplated,
result in a breach or violation of, or constitute a default under the
certificate or articles of incorporation or by-laws (or other
organizational documents), in the performance or observance of any
material obligations, agreement, covenant or condition contained in
any bond, debenture, note or other evidence of indebtedness or in any
contract, indenture, mortgage, loan agreement, lease, joint venture or
other agreement or instrument to which the Company or the Subsidiary
is a party or by which the Company's or the Subsidiary's properties
may be bound or in violation of any material order, rule, regulation,
writ, injunction, or decree of any government instrumentality or
court, domestic or foreign;
(x) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or
are pending before or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations;
(xi) such counsel has participated in the preparation of the
Registration Statement and the Prospectus and nothing has come to the
attention of such counsel to cause
-18-
such counsel to have reason to believe that the Registration Statement
or any amendment thereto at the time it became effective or as of the
Closing Dates contained any untrue statement of a material fact
required to be stated therein or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make statements therein,
in light of the circumstances under which they were made, not
misleading (except, in the case of both the Registration Statement and
any amendment thereto and the Prospectus and any supplement thereto,
for the financial statements, notes thereto and other financial
information and schedules contained therein, as to which such counsel
need express no opinion);
(xii) all descriptions in the Registration Statement and
the Prospectus, and any amendment or supplement thereto, of contracts
and other documents are accurate and fairly present the information
required to be shown, and counsel is familiar with all contracts and
other documents referred to in the Registration Statement and the
Prospectus and any such amendment or supplement or exhibit to the
Registration Statement, and such counsel does not know of any
contracts or documents of a character required to be summarized or
described therein or to be filed as exhibits thereto which are not so
summarized, described or filed;
(xiii) no authorization, approval, consent or license of
any governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Shares or Warrants by the Company, in connection with
the execution, delivery and performance of this Agreement, the Warrant
Agreement, the Powers of Attorney or the Custody Agreements by the
Company or the Subsidiary or in connection with the taking of any
action contemplated herein, or the issuance of the Underwriters' Unit
Purchase Option or the securities underlying the Underwriters' Unit
Purchase Option, other than registrations or qualifications of the
Shares and Warrants under applicable state or foreign securities or
Blue Sky laws and registration under the Act;
(xiv) the statements in the Registration Statement under
the captions "Business", "Use of Proceeds", "Management", and
"Description of Securities" have been reviewed by such counsel and
insofar as they refer to descriptions of agreements, statements of
law, descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
(xv) the Shares and Warrants have been duly authorized for
listing on the Nasdaq SmallCap Market [or] the American Stock
Exchange; and
(xvi) to such counsel's knowledge, there are no business
relationships or related-party transactions of the nature described in
Item 404 of Regulation S-B involving the Company or the Subsidiary and
any person described in such Item that are required to be disclosed in
the Prospectus and which have not been so disclosed.
Such opinions shall also cover such matters incident to the
transactions contemplated hereby as the Underwriters or counsel for the
Underwriters shall reasonably request. In rendering such opinions, such
counsel may rely upon certificates of any officer of the Company or the
Subsidiary or public officials as to matters of fact.
(c) All corporate proceedings and other legal matters relating to
this Agreement, the Warrant Agreement, the Powers of Attorney, the Custody
Agreements, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel
to the several Underwriters, and you shall have received from such counsel
a signed opinion,
-19-
dated as of the First Closing Date, together with copies thereof for each
of the other Underwriters, with respect to the validity of the issuance of
the Shares and Warrants, the form of the Registration Statement and
Prospectus (other than the financial statements and other financial data
contained therein), the execution of this Agreement and other related
matters as you may reasonably require. The Company, the Subsidiary and the
Selling Shareholders shall have furnished to counsel for the several
Underwriters such documents as it may reasonably request for the purpose of
enabling them to render such opinion.
(d) The Underwriters shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the
First Closing Date from Ernst & Young Audit Sp. z o. o., Warsaw, Poland,
independent public accountants for the Company, substantially in the form
approved by the Underwriters, and including estimates of the Company's
revenues and results of operations for the period ending at the end of the
month immediately preceding the effective date and results of the
comparable period during the prior fiscal year.
(e) At the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct with
the same effect as if made on and as of the Closing Dates and the Company
and the Subsidiary shall have performed all of their respective obligations
hereunder and satisfied all the conditions on their part to be satisfied at
or prior to such Closing Date; (ii) the Registration Statement and the
Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the
Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement
nor the Prospectus nor any amendment or supplement thereto shall 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
not misleading; (iii) there shall have been, since the respective dates as
of which information is given, no material adverse change, or any
development involving a prospective material adverse change, in the
business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs
of the Company or the Subsidiary from that set forth in the Registration
Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the effective date of
the Registration Statement, and the Company and each of the Subsidiary
shall not have incurred any material liabilities or entered into any
agreement not in the ordinary course of business other than as referred to
in the Registration Statement and Prospectus; (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity shall be
pending or threatened against the Company or the Subsidiary which would be
required to be set forth in the Registration Statement, and no proceedings
shall be pending or threatened against the Company or the Subsidiary before
or by any commission, board or administrative agency in the United States,
Poland or elsewhere, wherein an unfavorable decision, ruling or finding
would materially and adversely affect the business, property, condition
(financial or otherwise), results of operations or general affairs of the
Company or the Subsidiary, and (v) the Underwriters shall have received, at
the First Closing Date, a certificate signed by each of the Chief Executive
Officer and the Executive Vice President of the Company, dated as of the
First Closing Date, evidencing compliance with the provisions of this
subsection (e).
(f) Upon exercise of the Over-allotment Option, the obligations
of the several Underwriters to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the
Option Closing Date) to the following additional conditions:
(i) the Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to the
Underwriters's knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any reasonable request on the part
of the Commission for additional
-20-
information shall have been complied with to the satisfaction of ▇▇▇▇▇
& ▇▇▇▇▇▇▇▇, counsel to the several Underwriters;
(ii) at the Option Closing Date, there shall have been
delivered to the Underwriters the signed opinion of ▇▇▇▇▇ & ▇▇▇▇▇▇▇
LLP, Washington, D.C., and Warsaw, Poland, counsel for the Company,
dated as of the Option Closing Date, in form and substance
satisfactory to ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to the several Underwriters,
together with copies of such opinions for each of the other several
underwriters, which opinion shall be substantially the same in scope
and substance as the opinion furnished to the Underwriters at the
First Closing Date pursuant to Section 5(b) hereof, except that such
opinion, where appropriate, shall cover the Option Securities;
(iii) at the Option Closing Date, there shall have been
delivered to the Underwriters a letter in form and substance
satisfactory to the Underwriters from Ernst & Young Audit Sp. z o. o.,
Warsaw, Poland, dated the Option Closing Date and addressed to the
Underwriters confirming the information in their letter referred to in
Section 5(d) hereof and stating that nothing has come to their
attention during the period from the ending date of their review
referred to in said letter to a date not more than five business days
prior to the Option Closing Date, which would require any change in
said letter if it were required to be dated the Option Closing Date;
(iv) the Underwriters shall have received a certificate
dated the Option Closing Date, from each Selling Shareholder to the
effect that, as of the Option Closing Date: (A) the representations
and warranties made by such Selling Shareholder are true and correct
in all material respects as if made on and as of the Option Closing
Date; and (B) such Selling Shareholder has complied with all of the
obligations and satisfied all of the conditions which are to be
performed or satisfied on his or her or its part at or prior to the
Option Closing Date;
(v) at the Option Closing Date, there shall have been
delivered to the Underwriters a certificate of the Chief Executive
Officer and Executive Vice President of the Company, dated the Option
Closing Date, in form and substance satisfactory to ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇,
counsel to the several Underwriters, substantially the same in scope
and substance as the certificate, furnished to you at the First
Closing Date pursuant to Section 5(e) hereof;
(vi) all proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be satisfactory in form and substance to the Underwriters, and
the Underwriters and ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to the several
Underwriters, shall have been furnished with all such documents,
certificates and opinions as the Underwriters may request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements
of the Company and the Subsidiary or their compliance with any of the
covenants or conditions contained herein.
(g) 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, for members of the NASD to execute transactions (as principal
or agent) in the Shares or the Warrants, and no proceedings for the taking
of such action shall have been instituted or shall be pending, or, to the
knowledge of the Underwriters or the Company, shall be contemplated by the
Commission or the NASD. The Company represents that at the date hereof it
has no knowledge that any such action is in fact contemplated by the
Commission or the NASD. The Company and the Subsidiary shall have advised
the Underwriters of any NASD affiliation of any of their officers,
directors, stockholders or other affiliates.
-21-
(h) If any of the conditions herein provided for in this Section
shall not have been fulfilled as of the date indicated, this Agreement and
all obligations of the several Underwriters under this Agreement may be
canceled at, or at any time prior to, each Closing Date by the
Underwriters. Any such cancellation shall be without liability of the
Underwriters to the Company.
6. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY AND THE SELLING
SHAREHOLDERS. The obligations of the Company and the Selling Shareholders to
sell and deliver the Shares and Warrants in the manner provided in this
Agreement is subject to the condition that at the Closing Dates, no stop orders
suspending the effectiveness of the Registration Statement shall have been
issued under the Act or any proceedings therefor initiated or threatened by the
Commission. If such condition has been satisfied on the First Closing Date, but
is not satisfied after the First Closing Date and prior to the Option Closing
Date, then only the obligation of the Company and the Selling Shareholders to
sell and deliver the Option Securities upon any exercise of the Over-allotment
Option hereof shall be affected.
7. INDEMNIFICATION.
(a) The Company and each Selling Shareholder, severally and not
jointly, shall indemnify and hold harmless each Underwriter, and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any and all losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not
be limited to, all reasonable costs of defense and investigation and all
attorneys' fees), to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, and shall reimburse, as
incurred, such Underwriters and such controlling persons for any legal or
other expenses reasonably incurred in connection with investigating,
defending against or appearing as a third party witness in connection with
any losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in (i) the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, (ii)
any blue sky application or other document executed by the Company or the
Subsidiary specifically for that purpose or based upon written information
furnished by the Company or the Subsidiary filed in any state or other
jurisdiction in order to qualify any or all of the Shares and Warrants
under the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or arise
out of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any
amendment or supplement thereto, or in any Blue Sky Application, a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that neither the Company nor any
Selling Shareholder will be liable in any such case to the extent, but only
to the extent, that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company or the Subsidiary by or on
behalf of the Underwriters specifically for use in the preparation of the
Registration Statement or any such amendment or supplement thereof or any
such Blue Sky Application or any such preliminary Prospectus or the
Prospectus or any such amendment or supplement thereto. Notwithstanding
the foregoing, no Selling Shareholder shall be required to indemnify and
hold harmless any Underwriter until the Underwriters shall have pursued all
remedies, including execution of judgment, reasonably available against the
Company and shall have been unable, after reasonable effort, to execute
such judgment against the Company. The obligations of the Company and the
Selling Shareholders under this Section 7(a) will be in addition to any
liability which the Company or the Selling Shareholders may otherwise have.
(b) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless the Company, each of the directors of the Company, each
nominee (if any) for any director named in the Prospectus, each of the
officers of the Company who have signed the Registration Statement, each
Selling Shareholder and each other person, if any, who controls the Company
or a Selling Shareholder
-22-
within the meaning of the Act to the same extent as the foregoing
indemnities from the Company and the Selling Shareholders to the several
Underwriters, but only with respect to any loss, claim, damage, liability
or expense resulting from statements or omissions, or alleged statements or
omissions, if any, made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto (i) in
reliance upon and in conformity with written information furnished to the
Company by the Underwriters or by any Underwriter through the Underwriters
expressly for use in the preparation thereof and (ii) relating to the
transactions effected by the Underwriters in connection with the offer and
sale of the Shares and Warrants contemplated hereby. The obligations of
each Underwriter under this Section 7(b) will be in addition to any
liability which the Underwriters may otherwise have.
(c) If any action, inquiry, investigation or proceeding is
brought against any person in respect of which indemnification may be
sought pursuant to Section 7(a) or (b) hereof, such person (hereinafter
called the "indemnified party") shall, promptly after notification of, or
receipt of service of process for, such action, inquiry, investigation or
proceeding, notify in writing the party or parties against whom
indemnification is to be sought (hereinafter called the indemnifying
party") of the institution of such action, inquiry, investigation or
proceeding. The indemnifying party, upon the request of the indemnified
party, shall assume the defense of such action, inquiry, investigation or
proceeding, including, without limitation, the employment of counsel
(reasonably satisfactory to such indemnified party) and payment of
expenses. No indemnification provided for in this Section 7 shall be
available to any indemnified party who shall fail to give such notice if
the indemnifying party does not have knowledge of such action, inquiry,
investigation or proceeding, to the extent that such indemnifying party has
been materially prejudiced by the failure to give such notice, but the
omission to so notify the indemnifying party shall not relieve the
indemnifying party otherwise than under this Section 7. Such indemnified
party or controlling person thereof shall have the right to employ its or
their own counsel in any such case, but the fees and expenses of such
counsel (other than reasonable costs of investigation) shall be at the
expense of such indemnified party unless the employment of such counsel
shall have been authorized in writing by the indemnifying party in
connection with the defense of such action. If such indemnified party is
an Underwriter or a person who controls such Underwriter within the meaning
of the Act, who shall have been advised by counsel that there may be a
conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties or that there may be legal defenses
available to such indemnified party or parties different from or in
addition to those available to the indemnifying party or parties, the
indemnified party or parties shall be entitled to select separate counsel
to conduct the defense to the extent determined by such counsel to be
necessary to protect the interests of the indemnified party or parties, and
the fees and expenses of such counsel shall be borne by the indemnifying
party (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
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm for all Underwriters and
controlling persons named as parties to such action or actions, which firm
shall be designated in writing by the Underwriters). Expenses covered by
the indemnification in this Section 7 shall be paid by the indemnifying
party as they are incurred by the indemnified party. Anything in this
Section 7 to the contrary notwithstanding, the indemnifying party shall not
be liable for any settlement of any such claim effected without its written
consent, which shall not be unreasonably withheld in light of all factors
of importance to such indemnifying party.
8. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act
in any case in which (i) any Underwriter makes any claim for indemnification
pursuant to Section 7 hereof 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
the express provisions of Section 7 provide for indemnification in such case, or
(ii) contribution under the Act may be
-23-
required on the part of any Underwriter, then the Company and each person who
controls the Company and each of the Selling Shareholders, on the one hand, and
any such Underwriter, on the other hand, shall contribute to the amount paid or
payable as a result of the aggregate losses, claims, damages or liabilities to
which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that all such Underwriters are
responsible pro rata in the aggregate for that portion of such losses, claims,
damages or liabilities represented by the percentage that the underwriting
discount per Unit appearing on the cover page of the Prospectus bears to the
public offering price appearing thereon, and the Company and each of the Selling
Shareholders shall be responsible pro rata for the remaining portion determined
by the proportion that the number of Shares and Warrants sold by the Company
bears to the total number of Shares and Warrants sold hereunder and each Selling
Shareholder is responsible for the percentage of such remaining portion
determined by the proportion that the number of Option Shares being sold by such
Selling Shareholder bears to the total number of [Shares plus Warrants] being
sold hereunder; provided, however, that if such allocation is not permitted by
applicable law, then the relative fault of the Company and the Selling
Shareholders and the Underwriters and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations, shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company, the Subsidiary, the Selling Shareholders or the Underwriters, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company, the Selling
Shareholders and the Underwriters agree (a) that it would not be just and
equitable if the respective obligations of the Company, the Selling Shareholders
and the Underwriters to contribute pursuant to this Section 8 were to be
determined by pro rata or per capita allocation of the aggregate damages (even
if the Underwriters in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section 8,
(b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of Shares
and Warrants purchased by such Underwriter to the number of Shares and Warrants
purchased by all contributing Underwriters) of the portion of such losses,
claims, damages or liabilities for which the Underwriters are responsible, and
(c) no Selling Shareholder shall be required to contribute any amount in excess
of the proceeds of the sale of such Selling Shareholder's Option Shares. 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 is not
guilty of such fraudulent misrepresentation. As used in this paragraph, the word
"Company" includes any officer, director, or person who controls the Company
within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then any
Underwriter and each person who controls any Underwriter shall be entitled to
contribution from the Company, its officers, directors and controlling persons
and the Selling Shareholders to the full extent permitted by law. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any persons having liability under Section 11 of the Act other than the Company,
the Selling Shareholders and the Underwriters. No contribution shall be
requested with regard to the settlement of any matter from any party who did not
consent to such settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
9. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale
of the Shares and Warrants to the Underwriters is consummated, the Company
will pay all costs and expenses incident to the performance of this
Agreement by the Company including, but not limited to, the fees and
expenses of counsel to the Company and of the Company's accountants; the
costs and expenses incident to the preparation, printing, filing and
distribution under the Act of the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto),
Preliminary Prospectus and the Prospectus, as amended or supplemented, or
the Term Sheet; the fee of the NASD in connection with the filing required
by the NASD relating to the offering of the Shares and Warrants
contemplated hereby; the fees and expenses of investigative reports
regarding the Company, the Subsidiary and certain officers and directors of
the Company; all expenses, including reasonable fees and disbursements of
counsel to the Underwriters, in connection with the qualification of the
Shares and Warrants under the state securities or blue sky laws which the
Underwriters shall designate; the
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cost of printing and furnishing to the several Underwriters copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Agreement Among Underwriters, Selling Agreement, Warrant
Agreement, Underwriters' Questionnaire, Underwriters' Power of Attorney and
the Blue Sky Memorandum; any fees relating to the listing of the Shares and
Warrants on the Nasdaq SmallCap Market, American Stock Exchange or any
other securities exchange; the cost of printing the certificates
representing the Shares and Warrants; the fees of the transfer agent
retained in connection with the sale of the Shares and Warrants; the cost
of publication of at least three "tombstones" relating to the public
offering of the Shares and Warrants (at least one of which shall be in
national business newspaper and one of which shall be in a major New York
newspaper) and the cost of preparing at least five hard cover "bound
volumes" relating to such offering in accordance with the Underwriters'
request. The Company shall pay any and all taxes (including any transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales
to the Underwriters hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 4(a)
of this Agreement, except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at
the First Closing Date pay to the Underwriters a non-accountable expense
allowance of $_____, of which $_____ has been paid. In the event the Over-
allotment Option is exercised, the Company shall pay to the Underwriters at
the Option Closing Date an additional amount equal to ___% of the gross
proceeds received upon exercise of such option. In the event the
transactions contemplated hereby are not consummated by reason of any
action by the Underwriters (except if such prevention is based upon a
breach by the Company or any Subsidiary of any covenant, representation or
warranty contained herein or because any other condition to the
Underwriters' obligations hereunder required to be fulfilled by the Company
or the Subsidiary is not fulfilled), the Company shall be liable for only
the amount (not less than $50,000) paid by the Company to the Underwriters
prior to such determination. In the event the transactions contemplated
hereby are not consummated by reason of any action of the Company or the
Subsidiary or because of a breach by the Company or the Subsidiary of any
covenant, representation or warranty herein, the Company shall be liable
for the accountable expenses of the Underwriters, including legal fees, up
to a maximum of $125,000.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from the Underwriters or from any other
person for services as a finder in connection with the proposed offering,
and the Company agrees to indemnify and hold harmless the Underwriters
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to,
all costs of defense and investigation and all attorneys' fees), to which
the Underwriters or such other person may become subject insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an
employee of the party claiming an indemnity) or entity that he or it is
entitled to a finder's fee in connection with the proposed offering by
reason of such person's or entity's influence or prior contact with the
indemnifying party.
10. SUBSTITUTION OF UNDERWRITERS.
If any Underwriter shall for any reason not permitted hereunder cancel
its obligations to purchase the Firm Shares and/or Firm Warrants hereunder, or
shall fail to take up and pay for the number of Firm Shares and/or Firm Warrants
set forth opposite its name in Schedule I hereto upon tender of such Firm Shares
and/or Firm Warrants in accordance with the terms hereof, then:
(a) If the aggregate number of First Shares and/or Firm Warrants
which such Underwriter agreed but failed to purchase does not exceed 10% of
the total number of Firm Shares and Firm Warrants, the other Underwriter
shall be obligated severally, in proportion to its respective
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commitments hereunder, to purchase the Firm Shares and/or Warrants which
such defaulting Underwriter or Underwriters agreed but failed to purchase.
(b) If any Underwriter so defaults and the agreed number of Firm
Shares and/or Warrants with respect to which such default or defaults
occurs is more than 10% of the total number of Firm Shares and Firm
Warrants, the other Underwriter shall have the right to take up and pay for
the Firm Shares and/or Firm Warrants which the defaulting Underwriter
agreed but failed to purchase. If such other Underwriter does not, at the
First Closing Date, take up and pay for the Firm Shares and/or Firm
Warrants which the defaulting Underwriter agreed but failed to purchase,
the time for delivery of the Firm Shares and Firm Warrants shall be
extended to the next business day to allow the other Underwriter the
privilege of substituting within twenty-four hours (including non-business
hours) another Underwriter or Underwriters satisfactory to the Company. If
no such Underwriter or Underwriters shall have been substituted as
aforesaid, within such twenty-four hour period, the time of delivery of the
Firm Shares and Firm Warrants may, at the option of the Company, be again
extended to the next following business day, if necessary, to allow the
Company the privilege of finding within twenty-four hours (including non-
business hours) another Underwriter or Underwriters to purchase the Firm
Shares and/or Firm Warrants which the defaulting Underwriter agreed but
failed to purchase. If it shall be arranged for the other Underwriters or
substituted Underwriters to take up the Firm Shares and/or Firm Warrants of
the defaulting Underwriter as provided in this Section, (i) the Company or
the Underwriters shall have the right to postpone the time of delivery for
a period of not more than seven 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 and (ii)
the respective numbers of Firm Shares and Firm Warrants to be purchased by
the other Underwriter or substituted Underwriters shall be taken as the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one Underwriter and the other
Underwriter shall not take up and pay for all the Firm Shares and Firm
Warrants agreed to be purchased by the defaulting Underwriter or substitute
another Underwriter or Underwriters as aforesaid, or the Company shall not
find or shall not elect to seek another Underwriter or Underwriters for
such Firm Shares and Firm Warrants as aforesaid, then this Agreement shall
terminate.
If, following exercise of the Over-allotment Option, any
Underwriter shall for any reason not permitted hereunder cancel its
obligations to purchase Option Securities at the Option Closing Date, or
shall fail to take up and pay for the number or type of Option Securities,
which it becomes obligated to purchase at the Option Closing Date upon
tender of such Option Securities in accordance with the terms hereof, then
the other Underwriter or substituted Underwriters may take up and pay for
the Option Securities of the defaulting Underwriter in the manner provided
in Section 10(b) hereof. If the other Underwriter or substituted
Underwriters shall not take up and pay for all such Option Securities, the
non-defaulting Underwriter shall be entitled to purchase the number and
type of Option Securities for which there is no default or, at its
election, the Over-allotment Option shall terminate and the exercise
thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section. In the event of
termination of this Agreement, there shall be no liability on the part of
any nondefaulting Underwriter to the Company, provided that the provisions
of this Section 10 shall not in any event affect the liability of any
defaulting Underwriter to the Company arising out of such default.
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11. EFFECTIVE DATE.
This Agreement shall become effective upon its execution, except that
the Underwriters may, at their option, delay such effectiveness until 11:00
a.m., New York City time on the first full business day following the effective
date of the Registration Statement, or at such earlier time after the effective
date of the Registration Statement as the Underwriters in their discretion shall
first commence the initial public offering by the Underwriters of any of the
Shares and/or Warrants. The time of the initial public offering shall mean the
time of release by the Underwriters of the first newspaper advertisement with
respect to the Shares and Warrants, or the time when the Shares and Warrants are
first generally offered by the Underwriters to dealers by letter or telegram,
whichever shall first occur. This Agreement may be terminated by the
Underwriters at any time before it becomes effective as provided above, except
that Sections 4(c), 7, 8, 9, 14, 15, 16 and 17 shall remain in effect
notwithstanding such termination.
12. TERMINATION.
(a) This Agreement, except for Sections 4(c), 7, 8, 9, 14, 15, 16
and 17 hereof, may be terminated at any time prior to the First Closing
Date, and the Over-allotment Option, if exercised, may be canceled at any
time prior to the Option Closing Date, by the Underwriters if in their
judgment it is impracticable to offer for sale or to enforce contracts made
by the Underwriters for the resale of the Shares and Warrants agreed to be
purchased hereunder by reason of (i) the Company or the Subsidiary having
sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree; (ii) trading in securities on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq
Stock Market having been suspended or limited; (iii) material governmental
restrictions having been imposed on trading in securities generally (not in
force and effect on the date hereof); (iv) a banking moratorium having been
declared by federal or New York state authorities; (v) an outbreak of
international hostilities or other national or international calamity or
crisis or change in economic or political conditions having occurred; (vi)
a pending or threatened legal or governmental proceeding or action relating
generally to the Company's or the Subsidiary's business, or a notification
having been received by either the Company or the Subsidiary of the threat
of any such proceeding or action, which could materially adversely affect
the Company or the Subsidiary; (vii) except as contemplated by the
Prospectus, the Company or the Subsidiary is merged or consolidated into or
acquired by another company or group or there exists a binding legal
commitment for the foregoing or any other material change of ownership or
control occurs; (viii) the passage by the Congress of the United States,
governmental agency of Poland, or by any state legislative body or federal
or state agency or other domestic or foreign authority of any act, rule or
regulation, measure, or the adoption of any orders, rules or regulations by
any governmental body or any authoritative accounting institute or board,
or any governmental executive, which is reasonably believed likely by the
Underwriters to have a material impact on the business, financial condition
or financial statements of the Company or the market for the securities
offered pursuant to the Prospectus; (ix) any adverse change in the
financial or securities markets beyond normal market fluctuations having
occurred since the date of this Agreement; or (x) any material adverse
change having occurred, since the respective dates of which information is
given in the Registration Statement and Prospectus, in the earnings,
business prospects or general condition of the Company or any of its
Subsidiary, financial or otherwise, whether or not arising in the ordinary
course of business.
(b) If the Underwriters elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 12 or in Section 11, the Company shall be promptly notified by the
Underwriters, by telephone or telegram, confirmed by letter.
13. UNDERWRITERS' UNIT PURCHASE OPTION.
At or before the First Closing Date, the Company will sell to the
Underwriters, or its designees, for a consideration of $11.50, and upon the
terms and conditions set forth in the form of Underwriters' Unit Purchase Option
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annexed as an exhibit to the Registration Statement, an Underwriters' Unit
Purchase Option (the "Underwriters' Unit Purchase Option") to purchase an
aggregate of 115,000 shares of Common Stock plus 115,000 warrants to purchase
such number of shares of Common Stock. In the event of conflict in the terms of
this Agreement and the Underwriters' Unit Purchase Option, the language of the
Underwriters' Unit Purchase Option shall control.
14. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties
and other statements of the Company or the Selling Shareholders, where
appropriate, and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters, the Company or any of its officers or
directors or any controlling person or the Selling Shareholders and will survive
delivery of and payment of the Shares and Warrants and the termination of this
Agreement.
15. NOTICE.
Any communications specifically required hereunder to be in writing,
if sent to the Underwriters, will be mailed, delivered and confirmed to them at
Fine Equities, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and at
SouthWall Capital Corp., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, with a copy
in each case sent to ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq., or if sent to the Company, will be
mailed, delivered and confirmed to it at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, #▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, with a copy sent to ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, Columbia
Square, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇, attention: ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, Esq.
16. PARTIES IN INTEREST.
The Agreement herein set forth is made solely for the benefit of the
several Underwriters, the Company, the Selling Shareholders, and, to the extent
expressed, the Principal Stockholders, any person controlling the Company or
any of the several Underwriters, and directors of the Company, nominees for
directors (if any) named in the Prospectus, its officers who have signed the
Registration Statement, and their respective executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser, as such purchaser, from any of the several
Underwriters of the Shares and Warrants. All of the obligations of the
Underwriters hereunder are several and not joint.
17. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance with,
the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
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If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
By:
----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman and Chief Executive Officer
SELLING SHAREHOLDERS
By:
----------------------------------------
Attorney-in-fact
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
FINE EQUITIES, INC.
By:
----------------------------------------
Name:
Title:
SOUTHWALL CAPITAL CORP.
By:
----------------------------------------
Name:
Title:
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SCHEDULE I
Underwriter Number of Firm Securities to be Purchased
-------------------------------- -----------------------------------------
Fine Equities, Inc.
SouthWall Capital Corp.
Total Firm Shares
Total Firm Warrants
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SCHEDULE II
Number of Firm Securities to be Sold
------------------------------------
Central European Distribution Corporation 1,150,000 Firm Shares
1,150,000 Firm Warrants
Number of Option Securities to be Sold
--------------------------------------
Central European Distribution
Corporation 97,500 Option Shares
75,000 Option Warrants
Selling Shareholders:
[__________] [__________]
[__________] [__________]
[__________] [__________]
75,000 Option Shares
--------------------------------------
Total ................................... 172,500 Option Shares
172,500 Option Warrants
======================================
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