Exhibit 1.1
8,250,000 Shares of Common Stock
MOVIE GALLERY, INC.
UNDERWRITING AGREEMENT
May __, 2002
BEAR, ▇▇▇▇▇▇▇ & CO. INC.
▇▇▇▇▇▇ ▇▇▇▇▇▇ PARTNERS LLC
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, ▇▇▇▇▇▇▇ & Co. Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
and
▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners LLC
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies/Gentlemen:
Movie Gallery, Inc., a corporation organized and existing under the
laws of Delaware (the "Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell an aggregate of 3,900,000 shares of its common
stock, par value $0.001 per share (the "Common Stock"), and certain stockholders
of the Company named in Schedule II hereto (collectively, the "Selling
Stockholders") severally propose, subject to the terms and conditions stated
herein, to sell an aggregate of 4,350,000 outstanding shares of Common Stock,
with each Selling Stockholder selling the number of shares set forth opposite
such Selling Stockholder's name in Schedule II hereto in the column entitled
"Number of Firm Shares to Be Sold" (such 8,250,000 shares of Common Stock being
hereinafter referred to as the "Firm Shares") to the several underwriters named
in Schedule I hereto (the "Underwriters") and, for the sole purpose of covering
over-allotments in connection with the sale of the Firm Shares, at the option of
the Underwriters, H. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇") and ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
("▇▇▇▇▇▇▇" and, together with ▇▇▇▇▇▇▇, the "Over-Allotment Selling
Stockholders") severally propose, subject to the terms and conditions stated
herein, to sell up to an additional 1,237,500 shares of Common Stock in the
aggregate (the "Additional Shares") with each Over-Allotment Selling Stockholder
proposing to sell up to the number of shares of Common Stock set forth opposite
his name in Schedule II in the column entitled "Number of Additional Shares to
Be Sold if Maximum Option Exercised". The Firm Shares and any Additional Shares
purchased by the Underwriters are referred to herein as the "Shares". The Shares
are more fully described in the Registration Statement referred to below. Bear,
▇▇▇▇▇▇▇ & Co. Inc. ("Bear ▇▇▇▇▇▇▇") and ▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners LLC ("▇▇▇▇▇▇
▇▇▇▇▇▇" and, together with Bear ▇▇▇▇▇▇▇, the "Representatives") are
acting as co-lead managers in connection with the offering and sale of the
Shares (the "Offering").
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof and as of the Closing Date and each Additional Closing Date (each as
defined in Section 2 below) that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
333-86016), and amendments thereto, and related preliminary prospectuses for the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of the Shares which registration statement, as so amended, has been
declared effective by the Commission and copies of which have heretofore been
delivered to the Underwriters. The registration statement, as amended at the
time it became effective, including the exhibits and information (if any) deemed
to be part of the registration statement at the time of effectiveness pursuant
to Rule 430A or 434(d) under the Securities Act, is hereinafter referred to as
the "Registration Statement." If the Company has filed or is required pursuant
to the terms hereof to file a registration statement pursuant to Rule 462(b)
under the Securities Act registering additional shares of Common Stock (a "Rule
462(b) Registration Statement"), then, unless otherwise specified, any reference
herein to the term "Registration Statement" shall be deemed to include such Rule
462(b) Registration Statement. Other than a Rule 462(b) Registration Statement,
which became effective upon filing, no other document with respect to the
Registration Statement has heretofore been filed with the Commission. No stop
order suspending the effectiveness of either the Registration Statement or the
Rule 462(b) Registration Statement, if any, has been issued and no proceeding
for that purpose has been initiated or threatened by the Commission. The
Company, if required by the rules and regulations of the Commission (together,
the "Rules and Regulations") or by the Securities Act, proposes to file the
Prospectus with the Commission pursuant to Rule 424(b) under the Securities Act
("Rule 424(b)"). The prospectus, in the form in which it is to be filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations, or, if the
prospectus is not to be filed with the Commission pursuant to Rule 424(b), the
prospectus in the form included as part of the Registration Statement at the
time the Registration Statement became effective, is hereinafter referred to as
the "Prospectus," except that if any revised prospectus or prospectus supplement
shall be provided to the Underwriters by the Company for use in connection with
the Offering which differs from the Prospectus (whether or not such revised
prospectus or prospectus supplement is required to be filed by the Company
pursuant to Rule 424(b)), the term "Prospectus" shall refer to such revised
prospectus or prospectus supplement, as the case may be, from and after the time
it is first provided to the Underwriters for such use. Any preliminary
prospectus or prospectus subject to completion included in the Registration
Statement or filed with the Commission pursuant to Rule 424 under the Securities
Act is hereafter called a "Preliminary Prospectus." All references in this
Agreement to the Registration Statement, the Rule 462(b) Registration Statement,
a Preliminary Prospectus and the Prospectus, or any amendments or supplements to
any of the foregoing shall be deemed to include any copy thereof filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("▇▇▇▇▇").
(b) At the time of the effectiveness of the Registration
Statement or the effectiveness of any post-effective amendment to the
Registration Statement, when the
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Prospectus is first filed with the Commission pursuant to Rule 424(b) or Rule
434 under the Securities Act ("Rule 434"), when any supplement to or amendment
of the Prospectus is filed with the Commission and at the Closing Date and the
Additional Closing Date, if any (as hereinafter respectively defined), the
Registration Statement and the Prospectus and any amendments thereof and
supplements thereto complied or will comply in all material respects with the
applicable provisions of the Securities Act, the Exchange Act and the Rules and
Regulations and did not and will not contain an untrue statement of a material
fact and did not and will not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein (i) in the
case of the Registration Statement, not misleading and (ii) in the case of the
Prospectus or any related Preliminary Prospectus in the light of the
circumstances under which they were made, not misleading. When any related
Preliminary Prospectus was first filed with the Commission (whether filed as
part of the Registration Statement for the registration of the Shares or any
amendment thereto or pursuant to Rule 424(a) under the Securities Act) and when
any amendment thereof or supplement thereto was first filed with the Commission,
such Preliminary Prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the
Securities Act and the Rules and Regulations and did not contain an untrue
statement of a material fact and did not omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. No representation and warranty is made in this subsection (b),
however, with respect to any information contained in or omitted from the
Registration Statement or the Prospectus or any related Preliminary Prospectus
or any amendment thereof or supplement thereto in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of any Underwriter through the Representatives specifically for use therein
("Underwriters' Information"). The parties acknowledge and agree that the
Underwriters' Information consists solely of (i) the number of shares the
Underwriters severally have agreed to purchase from the Company and the Selling
Stockholders as set forth in the table under the first paragraph under the
caption "UNDERWRITING" in the Prospectus and (ii) the material included in the
first paragraph under the caption "UNDERWRITING -- Commissions and Discounts".
If Rule 434 is used, the Company will comply with the requirements of Rule 434
and the Prospectus shall not be "materially different," as such term is used in
Rule 434, from the Prospectus included in the Registration Statement at the time
it became effective.
(c) Ernst & Young LLP, who have certified the financial
statements and supporting schedules and information included in the Registration
Statement, and Singer Lewak ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, who have certified
certain financial statements and other information of Video Update, Inc. ("Video
Update") that are included in the Registration Statement, each are independent
public accountants as required by the Securities Act and the Rules and
Regulations.
(d) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as set forth
in the Registration Statement and the Prospectus, the Company has not paid any
dividends on its capital stock, and there has been no material adverse change or
any development involving a prospective material adverse change, whether or not
arising from transactions in the ordinary course of business, in (i) the
business, affairs, properties, condition (financial or otherwise), results of
operations, stockholders' equity or prospects of the Company and each subsidiary
of the Company listed on
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Exhibit 21 of the Registration Statement (the "Subsidiaries"), taken as a whole;
(ii) the long-term debt of the Company and its Subsidiaries; (iii) the capital
stock of the Company; (iv) the consummation of the transactions contemplated by
this Agreement and the Prospectus; or (v) the validity or enforceability of the
Company's obligations hereunder or thereunder (a "Material Adverse Change" or
"Material Adverse Effect"). Since the date of the latest balance sheet presented
in the Registration Statement and the Prospectus, neither the Company nor any of
the Subsidiaries has incurred or undertaken any liabilities or obligations,
direct or contingent, or entered into any transactions which are material to the
Company and the Subsidiaries, taken as a whole, except for liabilities or
obligations which are reflected in the Registration Statement and the
Prospectus.
(e) This Agreement and the transactions contemplated hereby
have been duly and validly authorized by the Company and this Agreement has been
duly and validly executed and delivered by the Company.
(f) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby do not and will not
(i) conflict with, require consent under or result in a breach of any of the
terms and provisions of, or constitute a default (or an event which with notice
or lapse of time, or both, would constitute a default) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries pursuant to, any indenture,
mortgage, deed of trust, loan agreement or other agreement, instrument,
franchise, license or permit to which the Company or any of the Subsidiaries is
a party or by which the Company or any of the Subsidiaries or their respective
properties, operations or assets may be bound, except for such conflicts,
breaches or defaults or liens, charges or encumbrances as would not result in a
Material Adverse Effect or (ii) violate or conflict with any provision of the
certificate or articles of incorporation, by-laws, certificate of formation,
limited liability company agreement, partnership agreement or other
organizational documents of the Company or any of the Subsidiaries or (iii)
except as would not have a Material Adverse Effect, violate or conflict with any
judgment, decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body, domestic or foreign, having
jurisdiction over the Company or any of the Subsidiaries or any of their
respective properties, operations or assets. No consent, approval,
authorization, order, registration, filing, qualification, license or permit of
or with any court or any public, governmental or regulatory agency or body,
domestic or foreign, having jurisdiction over the Company or any of the
Subsidiaries or any of their respective properties, operations or assets, or any
third party, is required for the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby or by the
Registration Statement and by the Prospectus, including the issuance, sale and
delivery of the Shares to be issued, sold and delivered hereunder, except the
registration under the Securities Act of the Shares and such consents,
approvals, authorizations, orders, registrations, filings, qualifications,
licenses and permits as may be required under state securities or Blue Sky laws
or the by-laws and rules of the National Association of Securities Dealers, Inc.
(the "NASD") in connection with the purchase and distribution of the Shares by
the Underwriters, each of which has been obtained.
(g) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus in the column entitled "Actual"
under the caption
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"Capitalization" and, after giving effect to the Offering and the other
transactions contemplated by the Registration Statement and the Prospectus, will
be as set forth in the column entitled "As Adjusted" under the caption
"Capitalization". All of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and were not issued in violation of or subject to any preemptive or similar
rights that entitle or will entitle any person to acquire from the Company or
any Subsidiary upon the issuance or sale thereof any shares of Common Stock, any
other equity security of the Company or any Subsidiaries and any security
convertible into, or exercisable or exchangeable for, any shares of Common Stock
or other such equity security (any "Relevant Security"), except for such rights
as may have been fully satisfied or waived prior to the effectiveness of the
Registration Statement. The Shares to be delivered on the Closing Date and the
Additional Closing Date, if any (as hereinafter respectively defined), have been
duly and validly authorized and, when delivered in accordance with this
Agreement, will be duly and validly issued, fully paid and non-assessable and
will not have been issued in violation of or subject to any preemptive or
similar rights that entitle or will entitle any person to acquire any Relevant
Security from the Company or any Subsidiary upon issuance or sale of Shares in
the Offering. The Common Stock, the Firm Shares and the Additional Shares
conform to the descriptions thereof contained in the Registration Statement and
the Prospectus. Except as disclosed in or specifically contemplated by the
Prospectus, neither the Company nor any Subsidiary has outstanding options to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, or any contracts or commitments to issue or sell, any Relevant
Security.
(h) The Subsidiaries are the only subsidiaries of the Company
within the meaning of Rule 405 under the Securities Act. Except for the
Subsidiaries, the Company owns no ownership or other beneficial interest,
directly or indirectly, in any corporation, partnership, joint venture or other
business entity. All of the issued shares of capital stock of or other ownership
interest in each of the Subsidiaries have been duly and validly authorized and
issued and are fully paid and non-assessable and are owned directly or
indirectly by the Company free and clear of all liens, encumbrances, equities or
claims.
(i) Each of the Company and the Subsidiaries has been duly
organized and validly exists as a corporation, partnership or limited liability
company in good standing under the laws of its jurisdiction of organization.
Each of the Company and the Subsidiaries is duly qualified to do business and is
in good standing as a foreign corporation, partnership or limited liability
company in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its business
makes such qualification necessary, except for those failures to be so qualified
or in good standing which will not in the aggregate have a Material Adverse
Effect. Each of the Company and the Subsidiaries has all requisite power and
authority, and all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits (collectively, the
"Consents") of and from all public, regulatory or governmental agencies and
bodies and third parties, foreign and domestic, to own, lease and operate its
properties and conduct its business as it is now being conducted and as
described in the Registration Statement and the Prospectus. No Consent contains
a materially burdensome restriction not adequately disclosed in the Registration
Statement and the Prospectus.
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(j) Except as described in the Prospectus, there is no legal,
governmental or regulatory proceeding or other litigation to which the Company
or any of the Subsidiaries is a party or of which any property or operations of
the Company or any of the Subsidiaries is the subject which, singularly or in
the aggregate, if determined adversely to the Company or any of the
Subsidiaries, is reasonably likely to have a Material Adverse Effect and, to the
best of the Company's knowledge, no such proceeding or litigation is threatened
or contemplated by any judicial, governmental or regulatory authority or other
third party, foreign or domestic; and the defense of all such proceedings and
litigation against or involving the Company or any of the Subsidiaries will not
have a Material Adverse Effect.
(k) Neither the Company nor any of its affiliates have taken,
nor will any of them take, directly or indirectly, any action designed to cause
or result in, or which constitutes or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock to facilitate the sale or resale of the Shares.
(l) The financial statements of the Company, including the
notes thereto, and the supporting schedules included in the Registration
Statement and the Prospectus present fairly in all material respects the
financial position as of the dates indicated and the cash flows and results of
operations for the periods specified of the Company and its consolidated
subsidiaries, and the financial statements of Video Update, including the notes
thereto, and the supporting schedules included in the Registration Statement and
the Prospectus present fairly in all material respects the financial position as
of the dates indicated and the cash flows and results of operations for the
periods specified of Video Update and its consolidated subsidiaries; except as
otherwise stated in the Registration Statement, the financial statements of the
Company and the financial statements of Video Update have been prepared on a
basis consistent with that of the books and records of the Company and Video
Update, as the case may be, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved and the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein. The
other financial and statistical information and data included in the
Registration Statement and the Prospectus present fairly the information
included therein and have been prepared on a basis consistent with that of the
financial statements that are included in the Registration Statement and the
Prospectus and the books and records of the respective entities presented
therein.
(m) The pro forma and as adjusted financial information
included in the Prospectus has been properly compiled, and prepared in
accordance with the applicable requirements of the Securities Act, the Exchange
Act and the Rules and Regulations and includes all adjustments necessary to
present fairly in all material respects the pro forma financial position of the
respective entity or entities presented therein at the respective dates
indicated and the results of their operations for the respective periods
specified. There are no historical or pro forma financial statements which are
required to be included in the Registration Statement and Prospectus in
accordance with Regulation S-X which have not been included as so required.
(n) The assumptions used in preparing the pro forma and as
adjusted financial information included in each of the Registration Statement
and the Prospectus provide a reasonable basis for presenting the significant
effects directly attributable to the transactions or events described therein,
the related pro forma and as adjusted adjustments give appropriate
6
effect to those assumptions, and the pro forma and as adjusted columns therein
reflect the proper application of those adjustments to the corresponding
historical financial statement amounts.
(o) The Common Stock is registered pursuant to Section 12(b)
of the Exchange Act and the outstanding shares of Common Stock (including the
Shares) are listed for quotation on the NASDAQ (as defined in Section 11(b)
below), and the Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act or de-listing the Common Stock from the NASDAQ, nor has the Company received
any notification that the SEC or the NASDAQ is contemplating terminating such
registration or listing.
(p) There are no contracts or other documents (including,
without limitation, any voting agreement), which are required to be described in
the Prospectus or filed as exhibits to the Registration Statement or the
Prospectus by the Securities Act, the Exchange Act or the Rules and Regulations
and which have not been so described or filed.
(q) Except as disclosed in the Prospectus, no holder of
securities of the Company has any rights to the registration of securities of
the Company because of the filing of the Registration Statement or otherwise in
connection with the sale of the Shares contemplated hereby, and any such rights
so disclosed have either been fully complied with by the Company or effectively
waived by the holders thereof.
(r) The Company has not prior to the date hereof offered or
sold any securities which would be "integrated" with the offer and sale of the
Shares pursuant to the Registration Statement.
(s) The statistical, industry-related and market-related data
included in the Prospectus are based on or derived from sources which the
Company reasonably believes to be reliable and accurate.
(t) No relationship, direct or indirect, exists between or
among any of the Company or any affiliate of the Company, on the one hand, and
any director, officer, stockholder, customer or supplier of any of them, on the
other hand, which is required by the Securities Act or by the Rules and
Regulations to be described in the Registration Statement or the Prospectus
which is not so described or is not described as required.
(u) The Company and its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) The Company is not and, upon consummation of the
transactions contemplated hereby and after giving effect to the application of
net proceeds of the Offering and the other transactions contemplated by the
Registration Statement and the Prospectus, will not
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be, subject to registration as an "investment company" under the Investment
Company Act of 1940, as amended.
(w) Each of the Company and the Subsidiaries owns or leases
all such properties as are necessary to the conduct of its business as presently
operated and proposed to be operated as described in the Registration Statement
and Prospectus. The Company and the Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Registration Statement and the
Prospectus or such as do not materially affect the value of such property by the
Company and the Subsidiaries; and any real property and buildings held under
lease or sublease by the Company and the Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and the Subsidiaries. Neither the Company
nor any of the Subsidiaries has received any notice of any claim adverse to its
ownership of any material real or personal property or of any claim against the
continued possession of any material real property, whether owned or held under
lease or sublease by the Company or any of the Subsidiaries.
(x) Each of the Company and the Subsidiaries has accurately
prepared and timely filed all federal, state and other tax returns that are
required to be filed by it and has paid or made provision for the payment of all
taxes, assessments, governmental or other similar charges, including without
limitation, all sales and use taxes and all taxes which the Company and each of
the Subsidiaries is obligated to withhold from amounts owing to employees,
creditors and third parties, with respect to the periods covered by such tax
returns (whether or not such amounts are shown as due on any tax return), other
than taxes being contested in good faith or for which adequate reserves have
been provided, or those currently payable without penalty or interest. No
deficiency assessment with respect to a proposed adjustment of the Company's or
any of the Subsidiaries' Federal, state, or other taxes is pending or, to the
best of the Company's knowledge, threatened. There is no tax lien, whether
imposed by any federal, state or other taxing authority, outstanding against any
material asset, property or business of the Company or any of the Subsidiaries.
(y) Neither the Company, any of the Subsidiaries nor, to the
Company's knowledge, any of its employees or agents has at any time during the
last five years (i) made any unlawful contribution to any candidate for foreign
office, or failed to disclose fully any contribution in violation of law or (ii)
made any payment to any federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States of any
jurisdiction thereof.
(z) Neither the Company nor any of the Subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default (and no event has
occurred which, with notice or lapse of time or both, would constitute such a
default) under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it is bound or to
which any of its property or assets is subject or (iii) is in violation in any
respect of any statute or any judgment, decree, order, rule or regulation of any
court or governmental or regulatory agency or body having jurisdiction over the
Company or any of the Subsidiaries or any of their
8
properties or assets, except any violation or default that would not have a
Material Adverse Effect.
(aa) To the best of the Company's knowledge, the Company and
each of the Subsidiaries owns or possesses adequate right to use all patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service ▇▇▇▇ registrations, copyrights, licenses, formulae,
customer lists, and know-how and other intellectual property (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) (collectively, the "Intellectual Property")
necessary for the conduct of their respective businesses as being conducted and
as described in the Registration Statement and Prospectus and have no reason to
believe that the conduct of their respective businesses will conflict with, and
have not received any notice of any claim of conflict with, any such right of
others. To the best of the Company's knowledge, there is no infringement by
third parties of any such Intellectual Property; there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by others
challenging the Company's or any Subsidiary's rights in or to any such
Intellectual Property, and the Company is unaware of any facts which would form
a reasonable basis for any such claim; and there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by others that
the Company infringes or otherwise violates any patent, trademark, copyright,
trade secret or other proprietary rights of others, and the Company is unaware
of any other fact which would form a reasonable basis for any such claim.
(bb) No labor disturbance by the employees of the Company or
any of the Subsidiaries exists or, to the best of the Company's knowledge, is
imminent and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or any Subsidiary's principal
suppliers, manufacturers', customers or contractors, which, in either case,
would reasonably be expected to have a Material Adverse Effect.
(cc) No "prohibited transaction" (as defined in Section 406 of
the Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"), or Section 4975
of the Internal Revenue Code of 1986, as amended from time to time (the "Code"),
or "accumulated funding deficiency" (as defined in Section 302 of ERISA) or any
of the events set forth in Section 4043(b) of ERISA (other than events with
respect to which the 30-day notice requirement under Section 4043 of ERISA has
been waived) has occurred with respect to any employee benefit plan which could
reasonably be expected to have a Material Adverse Effect; each employee benefit
plan is in compliance in all material respects with applicable law; including
ERISA and the Code; the Company has not incurred and does not expect to incur
liability under Title IV of ERISA with respect to the termination of, or
withdrawal from any "pension plan;" and each "pension plan" (as defined in
ERISA) for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, which
could cause the loss of such qualification.
(dd) There has been no storage, generation, transportation,
handling, treatment, disposal, discharge, emission, or other release of any kind
of toxic or other wastes or other hazardous substances by, due to, or caused by
the Company (or, to the Company's knowledge, any other entity for whose acts or
omissions the Company is or may be liable) upon
9
any property of any person or entity, including without limitation, any property
now or previously owned or leased by the Company or any of the Subsidiaries,
which would be a violation of any statute or any ordinance, rule, regulation,
order, judgment, decree or permit or which would, under any statute or any
ordinance, rule (including rule of common law), regulation, order, judgment,
decree or permit, or which would give rise to any liability, except for any
violation or liability which would not reasonably be expected to have,
singularly or in the aggregate with all such violations and liabilities, a
Material Adverse Effect. There has been no disposal discharge, emission or other
release of any kind onto such property or into the environment surrounding such
property of any toxic or other wastes or other hazardous substances with respect
to which the Company or any of the Subsidiaries has knowledge. The Company has
not agreed to assume, undertake or provide indemnification for any liability of
any other person under any Environmental Law, including any obligation for
cleanup or remedial action, except as would not reasonably be expected to have a
Material Adverse Effect.
(ee) The Company and the Subsidiaries possess such permits,
franchises, licenses, approvals, consents and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate federal,
state, local or foreign regulatory agencies or bodies necessary to conduct the
business now operated or proposed to be operated by them as described in the
Registration Statement and the Prospectus, except where the failure to possess
any such Governmental License would not individually or in the aggregate have a
Material Adverse Effect. The Company and the Subsidiaries are in compliance with
the terms and conditions of all such Governmental Licenses, except where the
failure to so comply would not individually or in the aggregate have a Material
Adverse Effect. All of the Governmental Licenses are valid and in full force and
effect, except where the invalidity of any such Government License or failure of
such Governmental License to be in full force and effect would not individually
or in the aggregate have a Material Adverse Effect, and neither the Company nor
any of the Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which if revoked or
modified would individually or in the aggregate have a Material Adverse Effect.
(ff) The Company and the Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged. All policies of insurance insuring the Company and the Subsidiaries or
their businesses, assets, employees, officers and directors and managers are in
full force and effect. The Company and the Subsidiaries are in compliance with
such terms of such policies and instruments in all material respects. There are
no claims by the Company or any of the Subsidiaries under any such policy or
instrument as to which any insurance company is denying liability or defending
under a reservation of rights clause where such denial of liability would have a
Material Adverse Effect, whether or not arising from transactions in the
ordinary course of business, except as described in the Registration Statement
and the Prospectus. Neither the Company nor any of the Subsidiaries 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 its business at a cost that
would not have a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business, except as described in the
Registration Statement and the Prospectus.
10
(gg) By order entered December 20, 2001 (the "Confirmation
Order"), the Bankruptcy Court for the District of Delaware confirmed that
certain plan of reorganization of Video Update, dated July 31, 2001, as modified
prior to such entry (the "Plan"). The Plan became effective and was fully
consummated on December 21, 2001. Pursuant to the Plan, the Company acquired
100% of the capital stock of reorganized Video Update. All creditors of Video
Update received notice of (i) Video Update's bankruptcy, (ii) any bar date
established in Video Update's bankruptcy case, and (iii) the Plan. No party in
interest has filed any appeal or motion, or to the knowledge of the Company, has
threatened to file or is contemplating filing, any appeal or motion, in each
case, with respect to the entry of the Confirmation Order (including without
limitation a motion to stay or modify the Confirmation Order). No stay of the
Confirmation Order is or has been in effect. The Confirmation Order has not been
modified.
Any certificate signed by or on behalf of the Company and delivered to
the Representatives or to counsel for the Underwriters' shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
2. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder represents and warrants to, and agrees with, the several
Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
(b) The Custody Agreement (as defined below) and the Power of
Attorney (as defined below) have been duly authorized, executed and delivered by
such Selling Stockholder and are valid and binding agreements of such Selling
Stockholder enforceable in accordance with their respective terms, except as
rights to indemnification thereunder may be limited by applicable law and except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
(c) The execution and delivery by such Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement signed by such Selling Stockholder and
the Company, as Custodian, relating to the deposit of the Shares to be sold by
such Selling Stockholder (the "Custody Agreement") and the Power of Attorney
appointing certain individuals as such Selling Stockholder's attorneys-in-fact
to the extent set forth therein, relating to the transactions contemplated
hereby and by the Registration Statement (the "Power of Attorney"), and the
consummation of the transactions contemplated hereby and thereby, will not
contravene any provision of applicable law, any agreement or other instrument
binding upon such Selling Stockholder or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such Selling
Stockholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by such Selling Stockholder of its obligations under this Agreement
or the Custody Agreement or the Power of Attorney of such
11
Selling Stockholder, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale of the
Shares.
(d) Certificates in negotiable form for such Selling
Stockholder's Shares have been placed in custody, for delivery pursuant to the
terms of this Agreement, under the Custody Agreement and the Power of Attorney,
and the shares of Common Stock represented by the certificates so held in
custody for such Selling Stockholder are subject to the interests hereunder of
the Underwriters and the Company. The arrangements for custody and delivery of
such certificates, made by such Selling Stockholder hereunder and under the
Custody Agreement and the Power of Attorney are not subject to termination by
any acts of the Selling Stockholder, or by operation of law, whether by death or
incapacity of any person acting on behalf of the Selling Stockholder or the
occurrence of any other event, and if such death, incapacity or any other such
event shall occur before the delivery of the Selling Stockholder's Shares
hereunder, certificates for such Shares will be delivered by the Custodian in
accordance with the terms and conditions of this Agreement, the Custody
Agreement and the Power of Attorney as if such death, incapacity or other event
had not occurred, regardless of whether the Custodian shall have received notice
of such death, incapacity or other event.
(e) Each Selling Stockholder has valid title to, and is the
owner of record in the stock records of the Company of, the Shares to be sold by
such Selling Stockholder pursuant to this Agreement. The Shares to be sold by
such Selling Stockholder pursuant to this Agreement are certificated securities
in registered form and are not held by or through any securities intermediary
within the meaning of the Uniform Commercial Code as in effect in the State of
New York (the "NYUCC"). Such Selling Stockholder has, and, at the Closing Date
and the Additional Closing Date, if applicable, will have, full right, power and
authority to hold, sell, transfer and deliver the Shares to be sold by such
Selling Stockholder hereunder. Upon the delivery to the Depository Trust Company
("DTC") or its agent of the Shares registered in the name of Cede & Co., as
nominee for DTC against payment by the several Underwriters therefor, and the
crediting by DTC of the Shares to the securities accounts of the several
Underwriters with DTC, DTC will be a "protected purchaser" of the Shares (as
defined in Section 8-303 of the NYUCC) and will acquire its interest in the
Shares (including, without limitation, all rights that such Selling Stockholders
had or has the power to transfer in such Shares) free of any adverse claim (as
defined in Section 8-102(a)(1) of the NYUCC) assuming neither DTC nor any
Underwriter has notice of any adverse claim. The Underwriters will acquire valid
security entitlements (within the meaning of Section 8-501 of the NYUCC) in
respect of the Shares to be purchased by them, and no action (whether framed in
conversion, replevin, constructive trust, equitable lien, or other theory) based
on an adverse claim to such Shares may be asserted against the Underwriters
assuming they have no notice of any adverse claim.
(f) Such Selling Stockholder does not directly or indirectly
have any registration or other similar rights to have any equity or debt
securities registered for sale by the Company under the Registration Statement
or included in the offering contemplated by this Agreement, other than as
described in the Registration Statement and as have been waived in writing in
connection with the offering contemplated hereby.
(g) The Selling Stockholder (i) does not directly or
indirectly have any preemptive right, co-sale right or right of first refusal or
other similar right to purchase any of the
12
Shares that are to be sold by the Underwriters pursuant to this Agreement, and
(ii) does not directly or indirectly own any warrants, options or similar rights
to acquire, and does not directly or indirectly have any right or arrangement to
acquire, any capital stock, rights, warrants, options or other securities from
the Company, other than as described in the Registration Statement.
(h) Such Selling Stockholder has not taken, and will not take,
directly or indirectly, any action designed to cause or result in, or which
constitutes or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares.
(i) At the time of the effectiveness of the Registration
Statement or the effectiveness of any post-effective amendment to the
Registration Statement, when the Prospectus is first filed with the Commission
pursuant to Rule 424(b) or Rule 434, when any supplement to or amendment of the
Prospectus is filed with the Commission and at the Closing Date and the
Additional Closing Date, if any, the Registration Statement and the Prospectus
and any amendments thereof and supplements thereto did not and will not contain
an untrue statement of a material fact and did not and will not omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein (i) in the case of the Registration Statement, not
misleading and (ii) in the case of the Prospectus or any related Preliminary
Prospectus in light of the circumstances under which they were made, not
misleading. When any related Preliminary Prospectus was first filed with the
Commission (whether filed as part of the Registration Statement for the
registration of the Shares or any amendment thereto or pursuant to Rule 424(a)
under the Securities Act) and when any amendment thereof or supplement thereto
was first filed with the Commission, such Preliminary Prospectus and any
amendments thereof and supplements thereto did not contain an untrue statement
of a material fact and did not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. No representation
and warranty is made in this subsection (i), however, with respect to any
information contained in or omitted from the Registration Statement or the
Prospectus or any related Preliminary Prospectus or any amendment thereof or
supplement thereto in reliance upon and in conformity with the Underwriters'
Information, it being understood and agreed that the only such information is
that described as such in the penultimate sentence of Section 1(b).
(j) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between such Selling Stockholder and any
person that would give rise to a valid claim against such Selling Stockholder or
any Underwriter for a brokerage commission, finder's fee or other like payment
in connection with this offering.
(k) Such Selling Stockholder, without independent
verification, has no reason to believe that the representations and warranties
of the Company contained in Section 1 hereof are not true and correct, is
familiar with the Registration Statement and the Prospectus and has no knowledge
of any material fact, condition or information not disclosed in the Registration
Statement or the Prospectus which has had or may reasonably be expected to have
a Material Adverse Effect on the Company and the Subsidiaries, individually or
taken as a whole, and is not prompted to sell any of the Shares by any
information concerning the Company which is not set forth in the Registration
Statement and the Prospectus.
13
(l) Each certificate signed by any officer or other
representative of such Selling Stockholder and delivered to the Underwriters or
Underwriters' Counsel pursuant to this Agreement shall be deemed to be a
representation and warranty by such Selling Stockholder to the Underwriters as
to the matters covered thereby.
3. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company and the Selling Stockholders agree to sell to each
Underwriter and each Underwriter, severally and not jointly, agrees to purchase
from the Company and the Selling Stockholders, at a purchase price per share of
$_______, the number of Firm Shares set forth below the caption "Company" or
"Selling Stockholders", as the case may be, and opposite the respective names of
the Underwriters on Schedule I hereto plus any additional number of Shares which
such Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at the office of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("Underwriters' Counsel"),
or at such other place as shall be agreed upon by the Representatives and the
Company, at 10:00 A.M., New York City time, on the third or fourth business day
(as permitted under Rule 15c6-1 under the Exchange Act) (unless postponed in
accordance with the provisions of Section 9 hereof) following the date of the
effectiveness of the Registration Statement (or, if the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the third or fourth business
day (as permitted under Rule 15c6-1 under the Exchange Act) after the
determination of the initial public offering price of the Shares), or such other
time not later than ten business days after such date as shall be agreed upon by
the Representatives and the Company (such time and date of payment and delivery
being herein called the "Closing Date").
Payment for the Shares shall be made to or upon the order of the
Company of the purchase price by wire transfer in Federal (same day) funds to
the Company and the Selling Stockholders upon delivery of certificates for the
Shares to the Representatives through the facilities of The Depository Trust
Company for the respective accounts of the several Underwriters against receipt
therefor signed by the Representatives. Certificates for the Shares to be
delivered to the Representatives shall be registered in such name or names and
shall be in such denominations as the Representatives may request at least one
business day before the Closing Date. The Company and the Selling Stockholders
will permit the Representatives to examine and package such certificates for
delivery at least one full business day prior to the Closing Date.
(c) In addition, the Over-Allotment Selling Stockholders
hereby grant to the Underwriters, acting severally and not jointly, the option
to purchase up to 1,237,500 Additional Shares in the aggregate at the same
purchase price per share to be paid by the Underwriters to the Company and the
Selling Stockholders for the Firm Shares as set forth in this Section 3, for the
sole purpose of covering over-allotments in the sale of Firm Shares by the
Underwriters. This option may be exercised at any time and from time to time, in
whole or in part on one or more occasions, on or before the thirtieth day
following the date of the Prospectus,
14
by written notice by the Representatives to the Over-Allotment Selling
Stockholders. Such notice shall set forth the aggregate number of Additional
Shares as to which the option is being exercised, each Over-Allotment Selling
Stockholder's pro rata proportion of such Additional Shares, and the date and
time, as reasonably determined by the Representatives, when the Additional
Shares are to be delivered (any such date and time being herein sometimes
referred to as the "Additional Closing Date"); provided, however, that the
Additional Closing Date shall not be earlier than the Closing Date or earlier
than the second full business day after the date on which the option shall have
been exercised nor later than the eighth full business day after the date on
which the option shall have been exercised (unless such time and date are
postponed in accordance with the provisions of Section 10 hereof). Certificates
for the Additional Shares shall be registered in such name or names and in such
authorized denominations as the Representatives may request in writing at least
one full business day prior to the Additional Closing Date. The Company will
permit the Representatives to examine and package such certificates for delivery
at least one full business day prior to the Additional Closing Date.
If the option is exercised as to all or any portion of the
Additional Shares, each Underwriter, acting severally and not jointly, will
purchase that proportion of the total number of Additional Shares then being
purchased which the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto (or such number increased as set forth in
Section 10 hereof) bears to the total number of Firm Shares being purchased from
the Company and the Selling Stockholders, subject, however, to such adjustments
to eliminate any fractional shares as the Representatives in their sole
discretion shall make.
Payment for the Additional Shares shall be made to or upon the order
of the Company of the purchase price by wire transfer in Federal (same day)
funds to the Over-Allotment Selling Stockholders at the offices of Underwriters'
Counsel, or such other location as may be mutually acceptable, upon delivery of
the certificates for the Additional Shares to the Representatives for the
respective accounts of the Underwriters.
4. Offering. Upon authorization of the release of the Firm Shares by
the Representatives, the Underwriters propose to offer the Shares for sale to
the public upon the terms and conditions set forth in the Prospectus.
5. Covenants of the Company and the Selling Stockholders. The Company
covenants and agrees with the Underwriters and the Selling Stockholders that:
(a) If the Registration Statement has not yet been declared
effective the Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible, and if Rule 430A is used or the filing of the Prospectus is otherwise
required under Rule 424(b) or Rule 434, the Company will file the Prospectus
(properly completed if Rule 430A has been used) pursuant to Rule 424(b) within
the prescribed time period and will provide evidence satisfactory to the
Representatives of such timely filing. If the Company elects to rely on Rule
434, the Company will prepare and file a term sheet that complies with the
requirements of Rule 434.
The Company will notify the Representatives immediately (and, if
requested by the Representatives, will confirm such notice in writing) (i) when
the Registration Statement and
15
any amendments thereto become effective, (ii) of any request by the Commission
for any amendment of or supplement to the Registration Statement or the
Prospectus or for any additional information, (iii) of the Company's intention
to file or prepare any supplement, revision or amendment to the Registration
Statement or the Prospectus, (iv) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus, (v) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of the initiation, or the threatening, of
any proceedings therefor, it being understood that the Company shall make every
effort to avoid the issuance of any such stop order, (v) of the receipt of any
comments from the Commission, and (vi) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Shares
for sale in any jurisdiction or the initiation or threatening of any proceeding
for that purpose. If the Commission shall propose or enter a stop order at any
time, the Company will make every reasonable effort to prevent the issuance of
any such stop order and, if issued, to obtain the lifting of such order as soon
as possible. The Company will not file any amendment to the Registration
Statement or any amendment of or supplement to the Prospectus (including the
prospectus required to be filed pursuant to Rule 424(b) or Rule 434) that
differs from the prospectus on file at the time of the effectiveness of the
Registration Statement before or after the effective date of the Registration
Statement to which the Representatives shall reasonably object in writing after
being timely furnished in advance a copy thereof.
(b) The Company shall comply with the Securities Act and the
Exchange Act to permit completion of the distribution as contemplated in this
Agreement, the Registration Statement and the Prospectus. If at any time when a
prospectus relating to the Shares is required to be delivered under the
Securities Act or the Exchange Act in connection with the sales of Shares, any
event shall have occurred as a result of which the Prospectus as then amended or
supplemented would, in the judgment of the Underwriters (based on advice from
Underwriters' Counsel) or the Company, include an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
existing at the time of delivery to the purchaser, not misleading, or if it
shall be necessary at any time to amend or supplement the Prospectus or
Registration Statement to comply with the Securities Act or the Rules and
Regulations, the Company will notify the Representatives promptly and prepare
and file with the Commission, subject to the second paragraph of Section 5(a)
hereof, an appropriate amendment or supplement (in form and substance reasonably
satisfactory to the Representatives) which will correct such statement or
omission and will use its best efforts to have any amendment to the Registration
Statement declared effective as soon as possible.
(c) The Company will promptly deliver to each of the
Underwriters and Underwriters' Counsel a signed copy of the Registration
Statement, including all consents and exhibits filed therewith and all
amendments thereto, and the Company will promptly deliver to each of the
Underwriters such number of copies of any Preliminary Prospectus, the
Prospectus, the Registration Statement, and all amendments of and supplements to
such documents, if any, as the Representatives may reasonably request. Prior to
10:00 A.M., New York time, on the business day next succeeding the date of this
Agreement and from time to time thereafter, the Company will furnish the
Underwriters with copies of the Prospectus in New York City in such quantities
as the Representatives may reasonably request.
16
(d) The Company shall promptly deliver to each of the
Underwriters and to Underwriters' Counsel copies of the Preliminary Prospectus,
and the Company consents to the use and delivery of the Preliminary Prospectus
by the Underwriters in accordance with Rule 430 and Section 5(b) of the
Securities Act. The Company shall also furnish to each of the Underwriters
copies of the Final Prospectus in such quantities as reasonably requested by any
of the Underwriters.
(e) The Company will use its best efforts, in cooperation with
the Representatives, at or prior to the time of effectiveness of the
Registration Statement, to qualify the Shares for offering and sale under the
securities laws relating to the offering or sale of the Shares of such
jurisdictions as the Representatives may designate and to maintain such
qualification in effect for so long as required for the distribution thereof;
except that in no event shall the Company be obligated in connection therewith
to qualify as a foreign corporation or to execute a general consent to service
of process.
(f) The Company will make generally available to its security
holders and to the Underwriters as soon as practicable, but in any event not
later than eighteen months after the effective date of the Registration
Statement (as defined in Rule 158(c) under the Securities Act), an earnings
statement of the Company and the Subsidiaries (which need not be audited)
complying with Section 11(a) of the Securities Act and the rules and regulations
of the Commission thereunder (including, at the option of the Company, Rule
158).
(g) During the period of 90 days from the date of the
Prospectus, the Company will not, directly or indirectly, without the prior
written consent of the Representatives, issue, sell, offer or agree to sell,
grant any option for the sale of, pledge, make any short sale or maintain any
short position, establish or maintain a "put equivalent position" (within the
meaning of Rule 16-a-1(h) under the Exchange Act), enter into any swap,
derivative transaction or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the Common Stock
(whether any such transaction is to be settled by delivery of Common Stock,
other securities, cash or other consideration) or otherwise dispose of, any
Common Stock (or any securities convertible into, exercisable for or
exchangeable for Common Stock) or interest therein of the Company or of any of
the Subsidiaries, and the Company will obtain the undertaking of each of its
directors and such of its stockholders as have been heretofore designated by the
Representatives and listed on Schedule III hereto, not to engage in any of the
aforementioned transactions on their own behalf during the period of 90 days
from the date of the Prospectus, other than the sale of Shares hereunder by the
Company and the Selling Stockholders, and the Company's issuance of Common Stock
upon (i) the conversion or exchange of convertible or exchangeable securities
outstanding on the date hereof; (ii) the exercise of currently outstanding
options; and (iii) the grant and exercise of options under, or the issuance and
sale of shares pursuant to, employee stock option plans in effect on the date
hereof. In addition, each Selling Stockholder agrees that, without the prior
written consent of the Representatives, it will not, during the period ending 90
days after the date of the Prospectus, make any demand for, or exercise any
right with respect to, the registration of any shares of Common Stock or any
security convertible into or exercisable or exchangeable for Common Stock.
17
(h) During the period of five years from the effective date of
the Registration Statement, the Company will furnish to the Representatives
copies of all reports or other communications (financial or other) furnished to
security holders, and will deliver to the Representatives (i) as soon as they
are available, copies of any reports and financial statements furnished to or
filed with the Commission or any national securities exchange on which any class
of securities of the Company is listed; and (ii) such additional information
concerning the business and financial condition of the Company as the
Representatives may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and the Subsidiaries are consolidated in reports furnished to its
security holders generally or to the Commission).
(i) The Company will apply the net proceeds from the sale of
the Shares as set forth under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to maintain the
listing of the Shares on the NASDAQ.
(k) The Company, during the period when the Prospectus is
required to be delivered under the Securities Act or the Exchange Act, will file
all documents required to be filed with the Commission pursuant to Section 13,
14 or 15 of the Exchange Act within the time periods required by the Exchange
Act and the rules and regulations thereunder.
6. Payment of Expenses. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company and the Selling Stockholders hereunder, including the
following: (i) the fees, disbursements and expenses of the Company's and the
Selling Stockholders' counsel and accountants in connection with the
registration of the Shares under the Securities Act and all other expenses in
connection with the preparation, printing and filing of the Registration
Statement, any Preliminary Prospectus and the Prospectus and amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of producing any agreement among
Underwriters, this Agreement, the blue sky memoranda, closing documents
(including any compilations thereof) and any other documents in connection with
the offering, purchase, sale and delivery of the Shares; (iii) all expenses in
connection with the qualification of the Shares for offering and sale under
state securities laws as provided in Section 5(e) hereof, including the
reasonable fees and disbursements of counsel for the Underwriters in connection
with such qualification and in connection with the blue sky survey; (iv) all
fees and expenses in connection with listing the Shares on the NASDAQ; (v) all
travel expenses of the Company's officers and employees and any other expense of
the Company incurred in connection with attending or hosting meetings with
prospective purchasers of the Shares; (vi) any stock transfer taxes incurred in
connection with this Agreement or the Offering; and (vii) the filing fees
incident to, and the reasonable fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the NASD of the
terms of the sale of the Shares. The Company also will pay or cause to be paid:
(i) the cost of preparing stock certificates; (ii) the cost and charges of any
transfer agent or registrar; and (iii) all other costs and expenses incident to
the performance of its and the Selling Stockholders' respective obligations
hereunder which are not otherwise specifically provided for in this Section 6.
It is understood,
18
however, that except as provided in this Section, and Sections 8 and 12 hereof,
the Underwriters will pay all of their own costs and expenses, including the
fees of their counsel and stock transfer taxes on resale of any of the Shares by
them. Notwithstanding anything to the contrary in this Section 6, in the event
that this Agreement is terminated pursuant to Section 7 or 12(b) hereof, or
subsequent to a Material Adverse Change, the Company will pay all reasonable
out-of pocket expenses of the Underwriters incurred in connection herewith.
7. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company herein contained, as of the date hereof and as of the
Closing Date (for purposes of this Section 7 "Closing Date" shall refer to the
Closing Date for the Firm Shares and any Additional Closing Date, if different,
for the Additional Shares), to the absence from any certificates, opinions,
written statements or letters furnished to the Representatives or to
Underwriters' Counsel pursuant to this Section 7 of any misstatement or
omission, to the performance by the Company and the Selling Stockholders of
their respective obligations hereunder, and to each of the following additional
terms and conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M., New York time, on the date of this Agreement, or at such
later time and date as shall have been consented to in writing by the
Representatives; if the Company shall have elected to rely upon Rule 430A or
Rule 434 of the Regulations, the Prospectus shall have been filed with the
Commission in a timely fashion in accordance with Section 5(a) hereof and a form
of the Prospectus containing information relating to the description of the
Shares and the method of distribution and similar matters shall have been filed
with the Commission pursuant to Rule 424(b) within the applicable time period;
and, at or prior to the Closing Date no stop order suspending the effectiveness
of the Registration Statement or any post-effective amendment thereof shall have
been issued and no proceedings therefor shall have been initiated or threatened
by the Commission.
(b) At the Closing Date, the Representatives shall have
received (i) the written opinion of ▇▇▇▇ & ▇▇▇▇▇ Professional Corporation,
counsel for the Company and the Selling Stockholders, dated the Closing Date
addressed to the Underwriters in the form attached hereto as Annex I and (ii)
the written opinion of S. Page ▇▇▇▇, in house counsel for the Company, dated the
Closing Date addressed to the Underwriters in the form attached hereto as Annex
II.
(c) At the Closing Date, the Representatives shall have
received (i) the written opinion of Goodmans LLP, Canadian counsel for the
Company and its Subsidiaries, dated the Closing Date addressed to the
Underwriters in the form attached hereto as Annex III and (ii) the written
opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Stirling Scales, Canadian counsel for the Company
and its Subsidiaries, dated the Closing Date addressed to the Underwriters in
the form attached hereto as Annex IV.
(d) All proceedings taken in connection with the sale of the
Firm Shares and the Additional Shares as herein contemplated shall be
satisfactory in form and substance to the Representatives and to Underwriters'
Counsel, and the Underwriters shall have received from
19
Underwriters' Counsel a favorable opinion, dated as of the Closing Date, with
respect to the issuance and sale of the Shares, the Registration Statement and
the Prospectus and such other related matters as the Representatives may
require, and the Company shall have furnished to Underwriters' Counsel such
documents as they may reasonably request for the purpose of enabling them to
pass upon such matters.
(e) At the Closing Date, the Representatives shall have
received a certificate of the Chief Executive Officer and Chief Financial
Officer of the Company, dated the Closing Date to the effect that (i) the
condition set forth in subsection (a) of this Section 7 has been satisfied, (ii)
as of the date hereof and as of the Closing Date, the representations and
warranties of the Company set forth in Section 1 hereof are accurate, (iii) as
of the Closing Date all agreements, conditions and obligations of the Company to
be performed or complied with hereunder on or prior thereto have been duly
performed or complied with, (iv) the Company and the Subsidiaries have not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or any legal or governmental
proceeding, (v) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus there has not been any
Material Adverse Change, except in each case as described in or contemplated by
the Prospectus, and (vi) there are no historical or pro forma financial
statements which are required to be included in the Registration Statement and
Prospectus in accordance with Regulation S-X which have not been included as so
required.
(f) The Representatives shall have received a comfort letter
from each of (i) Ernst & Young LLP, independent public accountants for the
Company, and (ii) Singer Lewak ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇, LLP, independent public
accountants for Video Update, at the time this Agreement is executed and at the
Closing Date, dated as of the date of this Agreement and as of the Closing Date,
respectively, addressed to the Underwriters and in form and substance
satisfactory to the Underwriters and Underwriters' counsel; provided, however,
that the comfort letters delivered on the Closing Date shall use a "cut-off
date" not earlier than the date hereof.
(g) Subsequent to the execution and delivery of this Agreement
or, if earlier, the dates as of which information is given in the Registration
Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been any change in the capital
stock or long-term debt of the Company or any of the Subsidiaries or any change,
or any development involving a prospective change, in or affecting the condition
(financial or otherwise), results of operations, business, properties or
prospects of the Company and the Subsidiaries individually or taken as a whole,
including, without limitation, the occurrence of a fire, flood, explosion or
other calamity at any of the properties owned or leased by the Company or any of
its Subsidiaries, the effect of which, in any such case described above, is, in
the judgment of the Underwriters, so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares on the terms and in the manner contemplated in the Prospectus
(exclusive of any supplement).
(h) The Representatives shall have also received a lock-up
agreement from each person who is a director of the Company and each stockholder
as shall have been heretofore designated by the Representatives and listed on
Schedule III hereto, substantially in
20
the form attached hereto as Annex V, and each such lock-up agreement shall be in
full force and effect on the Closing Date.
(i) At the Closing Date, the Shares shall have been approved
for quotation on the NASDAQ.
(j) At the Closing Date, the NASD shall have confirmed that it
has not raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(k) The Company shall have complied with the provisions of
Section 5(c) hereof with respect to the furnishing of prospectuses on the next
business day succeeding the date of this Agreement.
(l) The Company shall have furnished the Underwriters and
Underwriters' Counsel with such other certificates, opinions or other documents
as they may have reasonably requested.
(m) The Representatives shall have received on the Closing
Date and the Additional Closing Date, if applicable, a certificate, dated the
Closing Date or the Additional Closing Date, as applicable, and signed by the
Attorney-in-Fact of each Selling Stockholder, to the effect that the
representations and warranties of the Selling Stockholders contained in this
Agreement are true and correct as of the Closing Date or the Additional Closing
Date, as applicable, and that the Selling Stockholders have complied with all of
the agreements and satisfied all of the conditions on their part to be performed
or satisfied hereunder on or before the Closing Date or the Additional Closing
Date, as applicable.
(n) On the date hereof, the Company and the Selling
Stockholders shall have furnished for review by the Representatives copies of
the Powers of Attorney and Custody Agreements executed by each of the Selling
Stockholders and such further information, certificates and documents as the
Representatives may reasonably request.
(o) In the event the Underwriters exercise their option to
purchase the Additional Shares, all of the conditions in this Section 7 must be
satisfied in connection with such Additional Shares on or prior to the
Additional Closing Date.
If any of the conditions specified in this Section 7 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to the
Representatives or to Underwriters' Counsel pursuant to this Section 7 shall not
be satisfactory in form and substance to the Representatives and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
cancelled by the Representatives at, or at any time prior to, the Closing Date
and the obligations of the Underwriters to purchase the Additional Shares may be
cancelled by the Representatives at, or at any time prior to, the Additional
Closing Date. Notice of such cancellation shall be given to the Company in
writing, or by telephone. Any such telephone notice shall be confirmed promptly
thereafter in writing.
8. Indemnification.
21
(a) The Company shall indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
against any and all losses, liabilities, claims, damages and expenses whatsoever
as incurred (including but not limited to reasonable attorneys' fees and any and
all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement for the registration of the Shares, as
originally filed or any amendment thereof, or any related preliminary prospectus
or the Prospectus, or in any supplement thereto or amendment thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company will not be liable
in any such case to the extent but only to the extent that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with the written information
furnished to the Company by an Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only such
information furnished to the Company by any Underwriter consists of the
Underwriters' Information. This indemnity agreement will be in addition to any
liability which the Company may otherwise have including under this Agreement.
The foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Underwriter who failed to deliver a
Prospectus (as then amended or supplemented, provided by the Company to the
several Underwriters in the requisite quantity and on a timely basis to permit
proper delivery on or prior to the Closing Date) to the person asserting any
losses, claims, damages and liabilities and judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, if such material misstatement or omission or
alleged material misstatement or omission was cured, as determined by a court of
competent jurisdiction in a decision not subject to further appeal, in such
Prospectus and such Prospectus was required by law to be delivered at or prior
to the written confirmation of sale to such person.
(b) Each Selling Stockholder, severally and not jointly, will
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, against any and all losses, claims, damages,
liabilities and expenses whatsoever as incurred (including but not limited to
reasonable attorneys' fees and any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation), joint or several, to which they or
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the registration
statement for the registration of the Shares, as originally filed or any
amendment thereof, or any related
22
preliminary prospectus or the Prospectus, or in any supplement thereto or
amendment thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
with respect to the Selling Stockholders that are not the Over-Allotment Selling
Stockholders (such Selling Stockholders referred to herein as the "Other Selling
Stockholders"), such Other Selling Stockholders will only be liable under this
Section 8(b) to the extent that any such loss, liability, claim, damage or
expense (or actions in respect thereof) arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made in the registration statement for the registration of the Shares, as
originally filed or any amendment thereof, or any related preliminary prospectus
or the Prospectus, or in any supplement thereto or amendment thereof, in
reliance upon and in conformity with the written information furnished by or on
behalf of such Other Selling Stockholders to the Company specifically for use
therein; provided, further that the Selling Stockholders will not be liable in
any such case to the extent but only to the extent that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with the written information
furnished to the Company by an Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only such
information furnished to the Company by any Underwriter consists of the
Underwriters' Information. This indemnity agreement will be in addition to any
liability which the Selling Stockholders may otherwise have including under this
Agreement. The foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter who failed to
deliver a Prospectus (as then amended or supplemented, provided by the Company
to the several Underwriters in the requisite quantity and on a timely basis to
permit proper delivery on or prior to the Closing Date) to the person asserting
any losses, claims, damages and liabilities and judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, if such material misstatement or omission or
alleged material misstatement or omission was cured, as determined by a court of
competent jurisdiction in a decision not subject to further appeal, in such
Prospectus and such Prospectus was required by law to be delivered at or prior
to the written confirmation of sale to such person.
(c) Each Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, each of the directors of the Company,
each of the officers of the Company who shall have signed the Registration
Statement, each other person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
and each of the Selling Stockholders, against any losses, liabilities, claims,
damages and expenses whatsoever as incurred (including but not limited to
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement for the registration of
the Shares, as originally filed or any amendment thereof, or any related
preliminary prospectus or the Prospectus, or in any amendment thereof or
23
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with the written information furnished to the Company by an
Underwriter through the Representatives specifically for use therein, it being
understood and agreed that the only such information furnished to the Company by
any Underwriter consists of the Underwriters' Information. This indemnity will
be in addition to any liability which any Underwriter may otherwise have
including under this Agreement.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of any claims or the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify each party
against whom indemnification is to be sought in writing of the claim or the
commencement thereof (but the failure so to notify an indemnifying party shall
not relieve the indemnifying party from any liability which it may have under
this Section 8 to the extent that it is not materially prejudiced as a result
thereof and in any event shall not relieve it from any liability that such
indemnifying party may have otherwise than on account of the indemnity agreement
hereunder). In case any such claim or action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party may participate, at its own expense in the defense of such
action, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party; provided however, that counsel to the indemnifying party
shall not (except with the written consent of the indemnified party) also be
counsel to the indemnified party. Notwithstanding the foregoing, the indemnified
party or parties shall have the right to employ its or their own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
such indemnified party or parties unless (i) the employment of such counsel
shall have been authorized in writing by one of the indemnifying parties in
connection with the defense of such action, (ii) the indemnifying parties shall
not have employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, (iii) the
indemnifying party does not diligently defend the action after assumption of the
defense, or (iv) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to one or all of the indemnifying parties
(in which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses shall be borne by the indemnifying parties.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened investigation,
action or proceeding in respect of which indemnity or contribution may be or
could have been sought hereunder by the indemnified party, unless (x) such
settlement, compromise or judgment (i) includes an unconditional release of the
indemnified party from all liability and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
the indemnified party, and (y) the indemnifying party confirms in writing its
indemnification obligations hereunder with respect to such settlement,
compromise or judgment.
24
(e) Notwithstanding any provision in this Agreement to the
contrary, the aggregate liability of each Selling Stockholder under the
indemnity provisions of this Section 8, under the contribution provisions of
this Section 9 or for losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arising out of or based upon a breach by such
Selling Stockholder of the representations and warranties contained in Section
2(i), shall be limited to an amount equal to the aggregate gross proceeds, net
of underwriting discounts, received by such Selling Stockholder from the Shares
sold by such Selling Stockholder to the Underwriters hereunder.
9. Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 8 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, the Company, the Selling Stockholders
and the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting, in the case of losses,
claims, damages, liabilities and expenses suffered by the Company, any
contribution received by the Company from persons, other than the Underwriters,
who may also be liable for contribution, including persons who control the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, officers of the Company who signed the Registration Statement
and directors of the Company) as incurred to which the Company, the Selling
Stockholders and one or more of the Underwriters may be subject, in such
proportions as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other hand from the offering of the Shares or, if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to above but also the relative fault of the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other hand
shall be deemed to be in the same proportion as (x) the total proceeds from the
offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and the Selling Stockholders on the one hand
bears to (y) the underwriting discount received by the Underwriters on the other
hand, respectively, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault of the Company and the Selling Stockholders
on the one hand and of the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and the Selling Stockholders on
the one hand or the Underwriters on the other hand and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this Section. The aggregate amount of losses, liabilities,
claims, damages and expenses incurred by an indemnified party and referred to
above in this Section 9 shall be deemed to include any legal or
25
other expenses reasonably incurred by such indemnified party in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission. Notwithstanding the provisions of this Section 9,
(i) no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares are underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission and (ii)
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 9, each person, if any, who controls an Underwriter within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter, and each person, if any,
who controls the Company and the Selling Stockholders within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, each officer
of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company and the Selling Stockholders, subject in each case to clauses (i) and
(ii) of this Section 9. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties, notify each party or parties from whom contribution may be
sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have under this Section 9 or otherwise. The obligations of the
Underwriters to contribute pursuant to this Section 9 are several in proportion
to the respective number of Shares purchased by each of the Underwriters
hereunder and not joint. The obligations of the Selling Stockholders to
contribute pursuant to this Section 9 are several in proportion to the
respective number of Shares sold by each of the Selling Stockholders hereunder
and not joint.
10. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Additional Shares hereunder, and if
the Firm Shares or Additional Shares with respect to which such default relates
do not (after giving effect to arrangements, if any, made by the Representatives
pursuant to subsection (b) below) exceed in the aggregate 10% of the number of
Firm Shares or Additional Shares, the Firm Shares or Additional Shares to which
the default relates shall be purchased by the non-defaulting Underwriters in
proportion to the respective proportions which the numbers of Firm Shares set
forth opposite their respective names in Schedule I hereto bear to the aggregate
number of Firm Shares set forth opposite the names of the non-defaulting
Underwriters.
(b) In the event that such default relates to more than 10% of
the Firm Shares or Additional Shares, as the case may be, the Representatives
may in their discretion arrange for them or for another party or parties
(including any non-defaulting Underwriter or Underwriters who so agree) to
purchase such Firm Shares or Additional Shares, as the case may be, to which
such default relates on the terms contained herein. In the event that within
five calendar days after such a default the Representatives do not arrange for
the purchase of the Firm
26
Shares or Additional Shares, as the case may be, to which such default relates
as provided in this Section 10, this Agreement or, in the case of a default with
respect to the Additional Shares, the obligations of the Underwriters to
purchase and of the Over-Allotment Selling Stockholders to sell the Additional
Shares shall thereupon terminate, without liability on the part of the Company
with respect thereto (except in each case as provided in Sections 6, 8(a) and 9
hereof) or the Underwriters (except in the case as provided in Sections 8(c) and
9 hereof), or the Selling Stockholders (except in the case as provided in
Sections 8(b), 8(e) and 9 hereof), but nothing in this Agreement shall relieve a
defaulting Underwriter or Underwriters of its or their liability, if any, to the
other Underwriters, the Company and the Selling Stockholders for damages
occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to
which the default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as aforesaid,
the Representatives or the Company shall have the right to postpone the Closing
Date or Additional Closing Date, as the case may be for a period, not exceeding
five 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 and arrangements, and the Company agrees to file promptly any
amendment or supplement to the Registration Statement or the Prospectus which,
in the opinion of Underwriters' Counsel, may thereby be made necessary or
advisable. The term "Underwriter" as used in this Agreement shall include any
party substituted under this Section 10 with like effect as if it had originally
been a party to this Agreement with respect to such Firm Shares and Additional
Shares.
11. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Underwriters, the Company and the
Selling Stockholders contained in this Agreement or in certificates of officers
of the Company or any Subsidiary submitted pursuant hereto, including the
agreements contained in Section 6, the indemnity agreements contained in Section
8 and the contribution agreements contained in Section 9, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter or any controlling person thereof or by or on behalf
of the Company, any of its officers and directors or any controlling person
thereof or by the Selling Stockholders, and shall survive delivery of and
payment for the Shares to and by the Underwriters. The representations contained
in Section 1 and the agreements contained in Sections 6, 8, 9 and 12(e) hereof
shall survive the termination of this Agreement, including termination pursuant
to Section 10 or 12 hereof.
12. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective, upon the later of
(i) receipt by the Representatives, the Company and the Selling Stockholders of
notification of the effectiveness of the Registration Statement or (ii) the
execution of this Agreement. If either the initial public offering price or the
purchase price per Share has not been agreed upon prior to 5:00 P.M., New York
City time, on the fifth full business day after the Registration Statement shall
have become effective, this Agreement shall thereupon terminate without
liability to the Company, the Selling Stockholders or the Underwriters except as
herein expressly provided. Until this Agreement becomes effective as aforesaid,
it may be terminated by the Company or any Selling Stockholder by notifying
the Representatives or by the Representatives by notifying
27
the Company and the Selling Stockholders. Notwithstanding the foregoing, the
provisions of this Section 12 and of Sections 1, 6, 8 and 9 hereof shall at all
times be in full force and effect.
(b) The Representatives shall have the right to terminate this
Agreement at any time prior to the Closing Date or the obligations of the
Underwriters to purchase the Additional Shares at any time prior to the
Additional Closing Date, as the case may be, (A) if any domestic or
international event or act or occurrence has materially disrupted, or in the
opinion of the Representatives will in the immediate future materially disrupt,
the market for the Company's securities or securities in general; or (B) if
trading on The New York Stock Exchange (the "Exchange") or The NASDAQ National
Market (the "NASDAQ") shall have been suspended or been made subject to material
limitations, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required, on the
Exchange, the NASDAQ or by order of the Commission or any other governmental
authority having jurisdiction; or (C) if a banking moratorium has been declared
by any state or federal authority or if any material disruption in commercial
banking or securities settlement or clearance services shall have occurred; or
(D) any downgrading shall have occurred in the Company's corporate credit rating
or the rating accorded the Company's debt securities or preferred stock by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Securities Act) or if any such organization shall have
publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Company's debt securities; or
(E) (i) if there shall have occurred any outbreak or escalation of hostilities
or acts of terrorism involving the United States or there is a declaration of a
national emergency or war by the United States or (ii) if there shall have been
any other calamity or crisis or any change in political, financial or economic
conditions if the effect of any such event in (i) or (ii), in the judgment of
the Representatives, makes it impracticable or inadvisable to proceed with the
offering, sale and delivery of the Firm Shares or the Additional Shares, as the
case may be, on the terms and in the manner contemplated by the Prospectus.
(c) If one or more of the Selling Stockholders shall fail to
sell and deliver to the Underwriters the Shares to be sold and delivered by such
Selling Stockholders at the Closing Date pursuant to this Agreement, then the
Underwriters may at their option, by written notice from the Representatives to
the Company and the Selling Stockholders, either (i) terminate this Agreement
without any liability on the part of any Underwriter or, except as provided in
Sections 6 and 8 hereof, the Company or the Selling Stockholders, or (ii)
purchase the Shares which the Company and other Selling Stockholders have agreed
to sell and deliver in accordance with the terms hereof. If one or more of the
Selling Stockholders shall fail to sell and deliver to the Underwriters the
Shares to be sold and delivered by such Selling Stockholders pursuant to this
Agreement at the Closing Date or the Additional Closing Date, then the
Underwriters shall have the right, by written notice from the Representatives to
the Company and the Selling Stockholders, to postpone the Closing Date or the
Additional Closing Date, as the case may be, but in no event for longer than
seven days in order that the required changes, if any, to the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected.
(d) Any notice of termination pursuant to this Section 12
shall be in writing.
28
(e) If this Agreement shall be terminated pursuant to any of
the provisions hereof (otherwise than pursuant to (i) notification by the
Representatives as provided in Section 12(a) hereof or (ii) Section 10(b)
hereof), or if the sale of the Shares provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth herein is
not satisfied or because of any refusal, inability or failure on the part of the
Company or any Selling Stockholder to perform any agreement herein or comply
with any provision hereof, the Company will, subject to demand by the
Representatives, reimburse the Underwriters for all out-of-pocket expenses
(including the fees and expenses of their counsel), incurred by the Underwriters
in connection herewith.
13. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing, and:
(a) if sent to any Underwriter, shall be mailed, delivered, or
faxed and confirmed in writing, to such Underwriter c/o Bear, ▇▇▇▇▇▇▇ & Co.
Inc., ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Equity Capital
Markets, and ▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners LLC, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., with a copy to
Underwriter's Counsel at ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.;
(b) if sent to the Company, shall be mailed, delivered, or
faxed and confirmed in writing to the Company and its counsel at the addresses
set forth in the Registration Statement, Attention: S. Page ▇▇▇▇;
provided, however, that any notice to an Underwriter pursuant to Section 8 shall
be delivered or sent by mail or facsimile transmission to such Underwriter at
its address set forth in its acceptance facsimile to the Representatives, which
address will be supplied to any other party hereto by the Representatives upon
request. Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof.
14. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Section 8 and
9, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
This Agreement and all conditions and provisions hereof are intended to be for
the sole and exclusive benefit of the parties hereto and their respective
successors, and said controlling persons, and officers and directors and their
heirs and legal representatives, and it is not for the benefit of any other
person, firm or corporation. The term "successors and assigns" shall not include
a purchaser, in its capacity as such, of Shares from any of the Underwriters.
15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
29
17. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
18. Time is of the Essence. Time shall be of the essence of this
Agreement. As used herein, the term "business day" shall mean any day when the
Commission's office in Washington, D.C. is open for business.
[signature page follows]
30
If the foregoing correctly sets forth your understanding, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among us.
Very truly yours,
MOVIE GALLERY, INC.
By:_______________________________________
Name:
Title:
The Selling Stockholders named on Schedule
II hereto, acting severally
By:_______________________________________
Name:
Title: Attorney-in-Fact
Accepted as of the date first above written
BEAR, ▇▇▇▇▇▇▇ & CO. INC.
By:_______________________________________
Name:
Title:
▇▇▇▇▇▇ ▇▇▇▇▇▇ PARTNERS LLC
By:_______________________________________
Name:
Title:
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
S-1
SCHEDULE I
Number of
Additional
Shares to be
Purchased if
Total Number of Firm Shares Maximum Option
Name of Underwriter to be Purchased Exercised
------------------- --------------- ---------
Company: Selling
Stockholders:
Bear, ▇▇▇▇▇▇▇ & Co. Inc.
▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners LLC
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, Inc.
BB&T Capital Markets
SWS Securities, Inc.
Total................ 3,900,000 4,350,000 1,237,500
========= ========= =========
SCHEDULE II
Name of Selling Number of Firm Number of Additional
Stockholder (or Shares to Be Sold: Shares to Be Sold
Over-Allotment Selling ----------------- if Maximum Option
Stockholder, as Exercised:
applicable): -------------------
---------------------
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 1,000,000 309,375
H. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 3,000,000 928,125
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ 60,000 --
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 60,000 --
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 10,000 --
S. Page ▇▇▇▇ 80,000 --
J. ▇▇▇▇▇▇ ▇▇▇ 100,000 --
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 40,000 --
Total 4,350,000 1,238,500
SCHEDULE III
Name of Director or Stockholder Subject to the Lock-Up Provision:
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▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
J. ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
S. Page ▇▇▇▇
▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
