<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1997.
REGISTRATION NO. 333 -26855
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FINE.COM CORPORATION
NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER
<TABLE>
<S> <C> <C>
STATE OF WASHINGTON 7379 91-1657402
STATE OR JURISDICTION OF PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION CLASSIFICATION CODE NUMBER NUMBER
1118 POST AVENUE DANIEL M. FINE, CHIEF EXECUTIVE OFFICER
SEATTLE, WASHINGTON 98101 FINE.COM CORPORATION
(206) 292-2888 1118 POST AVENUE
ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL SEATTLE, WASHINGTON 98101
EXECUTIVE OFFICES (206) 292-2888
AND ADDRESS OF PRINCIPAL PLACE OF BUSINESS NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT
FOR SERVICE
</TABLE>
COPIES OF ALL COMMUNICATIONS TO THE FOREGOING TO BE SENT TO:
<TABLE>
<S> <C>
DAVID M. OTTO & WILLIAM A. CARLETON M. RIDGWAY BARKER
CAIRNCROSS & HEMPELMANN, P.S. KELLEY DRYE & WARREN LLP
701 FIFTH AVENUE, SUITE 7000 TWO STAMFORD PLAZA, 281 TRESSER BOULEVARD
SEATTLE, WASHINGTON 98104-7014 STAMFORD, CONNECTICUT 06901
(206) 587-0700 (203) 324-1400
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Form of Representative's Warrant Agreement
+3.1 Articles of Incorporation, as amended, of the Company
+3.2 Bylaws of the Company
+4.1 Specimen Common Stock Certificate
4.2 Form of Representative's Warrant (included as Exhibit A to Form of
Representative's Warrant Agreement filed as Exhibit 1.2)
5.1 Opinion of Cairncross & Hempelmann, P.S.
+10.1 Incentive Stock Option Plan
+10.2 1997 Stock Option Plan
+10.3 Employment Agreement dated May 9, 1997 with Daniel M. Fine
+10.4 Employment Agreement dated May 9, 1997 with James P. Chamberlin
+10.5A Loan Agreement dated March 31, 1997 with U.S. Bank of Washington
+10.5B Promissory Note in principal amount of $750,000 dated March 31, 1997
+10.5C Commercial Security Agreement dated March 31, 1997 for $750,000 revolving
line of credit
+10.5D Promissory Note in principal amount of $400,000 dated March 31, 1997
+10.5E Commercial Security Agreement dated March 31, 1997 for $400,000 equipment
line of credit
+10.5F Commercial Guaranty of Daniel M. Fine dated March 22, 1997 with U.S. Bank of
Washington
+10.6A Office Lease Agreement dated February 28, 1996 with Grand Pacific Limited
Partnership
+10.6B Personal Guaranty of Daniel M. Fine dated February 29, 1996
+10.6C First Amendment to Office Lease Agreement dated March 1997
+10.7A Promissory Note from Daniel M. Fine dated May 29, 1997
+10.7B Promissory Note from James P. Chamberlin dated May 29, 1997
+11.1 Statement Regarding Computation of Net Income per Share
23.1 Consent of Ernst & Young LLP, Independent Auditors
+23.2 Consent of Cairncross & Hempelmann, P.S. (included in opinion filed as
Exhibit 5.1)
+24.1 Powers of Attorney
+27.1 Financial Data Schedule
</TABLE>
- ---------------
+ Previously filed.
II-1
<PAGE> 3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
Amendment No. 2 to Registration Statement to be signed on its behalf by the
undersigned, in the City of Seattle, State of Washington, on July 3, 1997.
fine.com Corporation
By /s/ DANIEL M. FINE
------------------------------------
Daniel M. Fine
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES CAPACITIES DATE
- --------------------------------------------- ------------------------------- ---------------
<S> <C> <C>
/s/ DANIEL M. FINE Chairman of the Board of July 3, 1997
- --------------------------------------------- Directors
Daniel M. Fine Chief Executive Officer and
President
/s/ JAMES P. CHAMBERLIN Chief Financial Officer July 3, 1997
- --------------------------------------------- (principal financial and
James P. Chamberlin accounting officer) and
Director
* Director July 3, 1997
- ---------------------------------------------
Norman W. Lauchner
* Director July 3, 1997
- ---------------------------------------------
Anthony C. Naughtin
* Director July 3, 1997
- ---------------------------------------------
Herbert L. Fine
* Director July 3, 1997
- ---------------------------------------------
Frank Hadam
</TABLE>
*By: /s/ DANIEL M. FINE
---------------------------------
Attorney-in-Fact
II-2
<PAGE> 4
INDEX TO EXHIBITS
TO
FORM SB-2
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Form of Representative's Warrant Agreement
+3.1 Articles of Incorporation, as amended, of the Company
+3.2 Bylaws of the Company
+4.1 Specimen Common Stock Certificate
4.2 Form of Representative's Warrant (included as Exhibit A to Form of
Representative's Warrant Agreement filed as Exhibit 1.2)
5.1 Opinion of Cairncross & Hempelmann, P.S.
+10.1 Incentive Stock Option Plan
+10.2 1997 Stock Option Plan
+10.3 Employment Agreement dated May 9, 1997 with Daniel M. Fine
+10.4 Employment Agreement dated May 9, 1997 with James P. Chamberlin
+10.5A Loan Agreement dated March 31, 1997 with U.S. Bank of Washington
+10.5B Promissory Note in principal amount of $750,000 dated March 31, 1997
+10.5C Commercial Security Agreement dated March 31, 1997 for $750,000 revolving line
of credit
+10.5D Promissory Note in principal amount of $400,000 dated March 31, 1997
+10.5E Commercial Security Agreement dated March 31, 1997 for $400,000 equipment line
of credit
+10.5F Commercial Guaranty of Daniel M. Fine dated March 22, 1997 with U.S. Bank of
Washington
+10.6A Office Lease Agreement dated February 28, 1996 with Grand Pacific Limited
Partnership
+10.6B Personal Guaranty of Daniel M. Fine dated February 29, 1996
+10.6C First Amendment to Office Lease Agreement dated March 1997
+10.7A Promissory Note from Daniel M. Fine dated May 29, 1997
+10.7B Promissory Note from James P. Chamberlin dated May 29, 1997
+11.1 Statement Regarding Computation of Net Income per Share
23.1 Consent of Ernst & Young LLP, Independent Auditors
+23.2 Consent of Cairncross & Hempelmann, P.S. (included in opinion filed as Exhibit
5.1)
+24.1 Powers of Attorney
+27.1 Financial Data Schedule
</TABLE>
- ---------------
+ Previously filed.
<PAGE> 1
1,000,000 Shares of Common Stock
fine.com CORPORATION
UNDERWRITING AGREEMENT
New York, New York
July __, 1997
COLEMAN AND COMPANY SECURITIES, INC.
As Representative of the Several Underwriters
named in Schedule I hereto
666 Fifth Avenue
23rd Floor
New York, New York 10103
Ladies and Gentlemen:
fine.com Corporation, a Washington corporation (the "Company")
hereby confirms its agreement with Coleman and Company Securities, Inc.
("Coleman"), and each of the underwriters named in Schedule I hereto
(collectively the "Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in Section 11), for whom Coleman is acting
as the Representative (in such capacity Coleman shall hereinafter be referred to
as the "Representative"), with respect to the sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of the Company's common stock, no par value
("Common Stock"), set forth in Schedule I hereto (the "Offering"). Such shares
are hereinafter referred to as the "Firm Securities." Upon your request, as
provided in Section 2(b) of this Agreement, the Company shall also issue and
sell to the Underwriters, acting severally and not jointly, up to an additional
150,000 shares of Common Stock for the purpose of covering over-allotments, if
any. Such Additional Shares of Common Stock are hereinafter referred to as the
"Option Securities." The Firm Securities and Option Securities, if purchased,
are hereinafter referred to as the "Underwritten Securities."
The Company also proposes to sell to the Representative for
nominal consideration, warrants (the "Warrants") pursuant to a warrant agreement
(the "Warrant
<PAGE> 2
Agreement") for the purchase, during a period commencing one year after the date
hereof and expiring on the fifth anniversary of the date hereof, of 100,000
shares of Common Stock, subject to adjustment as provided in the Warrant
Agreement (the "Warrant Shares"), at an initial exercise price of $_______ per
share, subject to adjustment as provided in the Warrant Agreement. The
Underwritten Securities, the Warrants and the Warrant Shares (collectively, the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
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 (as defined in Section 2(c) hereof) and
the Option Closing Date (as defined in Section 2(b) hereof), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (File No. 333-26855), including
the related preliminary prospectus dated May 9, 1997 and any subsequent
preliminary prospectus subject to completion ("Preliminary Prospectus"), for the
registration of the Securities, under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations (the "Regulations") of the Commission under the Act. The
Company has complied with the conditions for the use of Form SB-2. The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriters and will not, file any other
amendment thereto to which the Representative shall have objected in writing
after having been furnished with a copy thereof. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof and all information deemed to be a part
thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Regulations), is hereinafter called the "Registration Statement," and the form
of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations, is hereinafter called the "Prospectus." The Company
may also file a related registration statement with the Commission pursuant to
Rule 462(b) of the Regulations for the purpose of registering certain additional
securities, which registration shall be effective upon filing with the
Commission. For purposes hereof, the "Rule 462 Registration Statement" means any
registration statement filed with the Commission pursuant to Rule 462(b) of the
Regulations including the Registration Statement and any prospectus incorporated
therein at the time such Registration Statement becomes effective. For purposes
hereof, "Rules and Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor, to the Company's knowledge,
any state regulatory authority has issued any order preventing or suspending the
use of any Preliminary Prospectus, the Registration Statement or Prospectus or
any part of any thereof and no proceedings for a stop order suspending the
effectiveness of the Registration Statement has been instituted or are pending
or, to the best of the Company's knowledge, threatened. Each of any Preliminary
Prospectus, the Registration Statement and Prospectus at the time of filing
thereof
-2-
<PAGE> 3
contained all statements required to be stated therein and complied in all
material respects with the requirements of the Act and the Rules and
Regulations, and none of any Preliminary Prospectus, the Registration Statement
or Prospectus at the time of filing thereof contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
and necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in strict conformity with information furnished to
the Company in writing by or on behalf of any Underwriter expressly for use in
any Preliminary Prospectus, Registration Statement or Prospectus or any
amendment thereof or supplement thereto (the "Underwriters' Information"). The
Company acknowledges that the Underwriters' Information shall include only such
written information that is contained under the caption "Underwriting" and the
stabilization legend set forth in the forepart of any Preliminary Prospectus,
the Prospectus and the Registration Statement.
(c) When the Registration Statement or any amendment thereto
becomes effective and through the last to occur of the Closing Date, Option
Closing Date, if any, or the last date the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all statements required
to be stated therein, and will comply in all material respects with the
requirements of the Act and the Rules and Regulations. Neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
provided, however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in strict conformity
with the Underwriters' Information.
(d) If the Company has elected to rely on Rule 462(b) and the
Rule 462(b) Registration Statement has not been declared effective (i) the
Company has filed a Rule 462(b) Registration Statement in compliance with and
that is effective upon filing pursuant to Rule 462(b) and has received
confirmation of its receipt and (ii) the Company has given irrevocable
instructions for transmission of the applicable filing fee in connection with
the filing of the Rule 462(b) Registration Statement, in compliance with Rule
111 promulgated under the Act or the Commission has received payment of such
filing fee.
(e) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Washington. The Company has no subsidiaries. Except as set forth in the
Prospectus, the Company does not, directly or indirectly, own an interest in any
corporation, partnership, trust, joint venture or other business entity. The
Company is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the conduct of its business requires such qualification or
licensing, except where the failure to be so qualified or licensed would not
have a material adverse effect on the condition, financial or otherwise,
earnings, shareholders' equity, value, operations, business, prospects or
results of operations of the Company (a "Material Adverse Effect.")
-3-
<PAGE> 4
(f) The Company has all requisite corporate power and
authority and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits (collectively, the
"Approvals") of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is and has been doing business in
compliance with all such Approvals and all federal, state and local laws, rules
and regulations; and the Company has not received any notice of proceedings
relating to the revocation or modification of any Approval. The disclosures in
the Registration Statement concerning the effects of federal, state and local
laws, rules and regulations on the Company's business as currently conducted and
as contemplated are correct in all respects and do not omit to state a material
fact necessary to make the statements contained therein not misleading in light
of the circumstances in which they were made.
(g) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus and will have the adjusted
capitalization set forth therein on the Closing Date and each Option Closing
Date, if any, based upon the assumptions set forth therein. The Company is not a
party to or bound by any instrument, agreement or other arrangement, including
but not limited to, any voting trust agreement, shareholders' agreement or other
agreement or instrument, affecting the securities or rights or obligations of
securityholders of the Company or providing for any of them to issue, sell,
transfer or acquire any capital stock, rights, warrants, options or other
securities of the Company, except for this Agreement, the Warrant Agreement and
as described in the Registration Statement. The Securities and all other
securities issued or issuable pursuant to existing plans, agreements or
arrangements relating to the issuance of securities or currently outstanding
options, warrants, rights or other securities of the Company by the Company
conform or, when issued and paid for, will conform, in all respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company have been
offered and sold by the Company in compliance with or pursuant to an exemption
from registration under the Act and applicable state securities law, have been
duly authorized and validly issued and are fully paid and non-assessable and the
holders thereof have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any
securityholders of the Company or similar contractual rights granted by the
Company. The Underwritten Securities have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof, will be validly
issued, fully paid and non-assessable. The Warrants have been duly authorized
and when issued, paid for and delivered in the manner contemplated by the
Warrant Agreement, will be validly issued and outstanding obligations of the
Company entitled to the benefits of the Warrant Agreement. The Warrant Shares
issuable upon exercise of the Warrants will, assuming payment therefore as set
forth in the Warrant Agreement, upon such issuance be duly authorized, validly
issued, fully paid and non-assessable and the Company has duly authorized and
reserved for issuance the Warrant Shares. The Securities are not and will not be
subject to any preemptive or other similar rights of any shareholder of the
Company, all corporate action required to be taken for the authorization, issue
and sale of the Securities and, in the case of Warrant Shares, reservation, has
been duly and validly taken; and the certificates representing the Securities
will be in due and proper form. Upon the issuance and delivery pursuant to the
terms of this Agreement of the Underwritten Securities to be sold by the Company
hereunder, the Underwriters will acquire good and
-4-
<PAGE> 5
marketable title to the Underwritten Securities free and clear of any liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever (collectively, the "Liens"),
except for Liens created or permitted to exist by an Underwriter. Upon the
issuance and delivery pursuant to the terms of the Warrant Agreement, of the
Warrants to be sold by the Company thereunder, the Representative will acquire
good and marketable title to the Warrants free and clear of any Liens, except
for Liens created or permitted to exist by the Representative.
(h) The financial statements, including the related notes and
schedules of the Company, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present in accordance with
generally accepted accounting principles the financial position, income, changes
in cash flow, changes in shareholder's equity and the results of operations of
the Company at the respective dates and for the respective periods to which they
apply and the pro forma financial information included in the Registration
Statement, the Preliminary Prospectus and the Prospectus presents fairly on a
basis consistent with that of the audited financial statements included therein,
what the Company's pro forma capitalization would have been for the respective
periods and as of the respective dates to which they apply after giving effect
to the adjustments described therein. Such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved.
Except as disclosed in the Prospectus, there has been no adverse change or
development involving an adverse change in the condition, financial or
otherwise, or in the earnings, position, prospects, value, operation,
properties, business, or results of operations of the Company taken as a whole,
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement, the Preliminary
Prospectus and the Prospectus, and the outstanding debt, the property, both
tangible and intangible, and the business of the Company conforms in all
material respects to the descriptions thereof contained in the Registration
Statement, the Preliminary Prospectus and the Prospectus. Financial information
set forth in the Preliminary Prospectus and Prospectus under the headings
"Summary Financial Information," "Selected Financial Data," "Capitalization,"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," fairly presents, in all respects, on the basis stated in the
Preliminary Prospectus and Prospectus, the information set forth therein and has
been derived from or compiled on a basis consistent with that of the audited
financial statements included in the Preliminary Prospectus and Prospectus.
(i) The Company (i) has timely filed all federal, state, local
and foreign tax returns that it is required to file through the date hereof or
has timely requested extensions thereof, other than those filings being
contested in good faith, and has timely paid all federal, state, local, and
foreign taxes shown to be due on such returns for which it is liable and has
timely furnished all information returns it is required to furnish, (ii) has
established adequate reserves for such taxes which are not due and payable or
which are being contested in good faith, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(j) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase from the Company of the
Underwritten Securities by the Underwriters, (iii) the
-5-
<PAGE> 6
purchase from the Company of the Warrants by the Representative, (iv) the
consummation by the Company of any of its obligations under this Agreement or
the Warrant Agreement, or (v) resales of the Underwritten Securities in
connection with the distribution contemplated hereby.
(k) The Company maintains with insurers of recognized
financial responsibility insurance policies and surety bonds, including, but not
limited to, general liability and property insurance, which insures the Company
and its employees, against such losses and, to the best knowledge of the
Company, risks generally insured against by comparable businesses in amounts
which are prudent and customary in its business. The Company has not (A) failed
to give notice or present any insurance claim with respect to any matter,
including but not limited to the Company's business, property or employees,
under the insurance policy or surety bond in a due and timely manner, (B) had
any disputes or claims against any underwriter of such insurance policies or
surety bonds or has failed to pay any premiums due and payable thereunder, or
(C) failed to comply with all conditions contained in such insurance policies
and surety bonds wherein such failure or dispute would have a Material Adverse
Effect. To the best knowledge of the Company, there are no facts or
circumstances under any such insurance policy or surety bond which would relieve
any insurer of its obligation to satisfy in full any valid claim of the Company.
(l) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or, to the Company's best knowledge,
threatened against (or circumstances that may give rise to the same), or
involving the Company, its properties or its business which (i) questions the
validity of the capital stock of the Company, this Agreement, the Warrant
Agreement, or of any action taken or to be taken by the Company pursuant to or
in connection with this Agreement or the Warrant Agreement, (ii) is required to
be disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately and
completely summarized in all respects), or (iii) might reasonably be expected to
have a Material Adverse Effect.
(m) The Company has full legal right, corporate power and
authority to authorize, issue, deliver and sell the Securities, enter into this
Agreement and the Warrant Agreement and to consummate the transactions provided
for in such agreements. This Agreement has been duly and properly authorized,
executed and delivered by the Company. This Agreement constitutes, and when the
Company has duly executed and delivered the Warrant Agreement (assuming the due
execution and delivery thereof by the Representative), the Warrant Agreement
will constitute a legal, valid and binding agreement and obligation of the
Company enforceable against the Company in accordance with its respective terms,
except (i) as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally, (ii) as enforceability of any
indemnification or contribution provisions may be limited under applicable laws
or the public policies underlying such laws and (iii) that the remedies of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceedings therefor may be brought. None of the Company's issue and sale of
the Securities, execution or delivery of this Agreement or the
-6-
<PAGE> 7
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, any Preliminary Prospectus, the
Prospectus, and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any Lien upon any property or assets
(tangible or intangible) of the Company pursuant to the terms of, (i) the
restated articles of incorporation, as amended, or by-laws of the Company, (ii)
any license, contract, indenture, mortgage, deed of trust, voting trust
agreement, shareholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or is or may be bound or
to which its properties or assets (tangible or intangible) is or may be subject,
or any indebtedness, or (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties, in each case, except, in the case of clauses (ii)
and (iii) such conflicts, breaches, violations, defaults, creations or
impositions which do not and would not have a Material Adverse Effect.
(n) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for performance by the Company of this
Agreement and the Warrant Agreement and the transactions contemplated hereby and
thereby, except such as (i) have been obtained or (ii) may be required under
state securities or Blue Sky laws or the Rules of the National Association of
Securities Dealers, Inc. (the "NASD") in connection with the Underwriters'
purchase and distribution of the Underwritten Securities and the
Representative's purchase of the Warrants or with respect to listing of the
Underwritten Securities or Warrant Shares on the Nasdaq SmallCap Market.
(o) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party or by which the
Company may be bound or to which the Company's assets, properties or businesses
may be subject have been duly and validly authorized, executed and delivered by
the Company and constitute legal, valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms. The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required to be shown
with respect thereto by Form SB-2, and there are no contracts or other documents
which are required by the Act to be described in the Registration Statement or
filed as exhibits to the Registration Statement which are not described or filed
as required, and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies.
(p) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of its capital stock of any class, and
there has not been any change in the capital stock, or any change in the debt
(long or short term) or liabilities or
-7-
<PAGE> 8
material adverse change in or affecting the general affairs, management,
financial operations, prospects, stockholders' equity or results of operations
of the Company.
(q) The Company is not in violation of its restated articles
of incorporation, as amended, or its by-laws, and except as disclosed in the
Prospectus, no default exists, and no event has occurred which with notice or
lapse of time or both, would constitute a default in the due performance and
observance of any term, covenant or condition of any license, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, partnership agreement, note, loan or
credit agreement, purchase order, or any other material agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company or any of its
properties is or may be bound or which may affect the property (tangible or
intangible) of the Company.
(r) The Company is in compliance with all federal, state,
local, and foreign laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours. There are no
pending investigations involving the Company, by the U.S. Department of Labor,
or any other governmental agency responsible for the enforcement of such
federal, state, local, or foreign laws and regulations. There is no unfair labor
practice charge or complaint against either the Company pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or, to the Company's best knowledge, threatened
against or involving the Company or any predecessor entity, and none has ever
occurred. No representation question exists respecting the employees of the
Company, and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company. No grievance or arbitration
proceeding is pending or threatened under any expired or existing collective
bargaining agreements of the Company. No labor dispute with the employees of the
Company exists, or, is imminent.
(s) Except as described in the Prospectus, the Company does
not maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No "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 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. No ERISA Plan (or any
trust created thereunder) has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code,
which could subject the Company to any tax penalty on prohibited transactions
and which has not adequately been corrected. Each ERISA Plan is in compliance
with all material reporting, disclosure and other requirements of the Internal
Revenue Code of 1986, as amended (the "Code") and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply with
Code Section 401(a), stating that such ERISA Plan and the attendant trust are
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<PAGE> 9
qualified thereunder. The Company has never completely or partially withdrawn
from a "multiemployer plan."
(t) Neither the Company nor any of its employees, directors,
shareholders, partners, or affiliates (within the meaning of the Rules and
Regulations) of any of the foregoing, has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(u) The Company owns or has the unrestricted right to use,
free and clear of all Liens, all patents, trademarks, service marks, trade
secrets, trade names and copyrights, technology and licenses and rights used in
the conduct of its business as now conducted or proposed to be conducted without
infringement upon or otherwise acting adversely to the right or claimed right of
any person, corporation or other entity under or with respect to any of the
foregoing and (ii) except as set forth in each of the Preliminary Prospectus and
the Prospectus, is not obligated or under any liability whatsoever to make any
payment out of the ordinary course by way of royalties, fees or otherwise to any
owner or licensee of, or other claimant to, any patent, trademark, service mark,
trade name, copyright, know-how, technology or other intangible asset, with
respect to the use thereof or in connection with the conduct of its business or
otherwise.
(v) The Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of all its intellectual property
in all material aspects.
(w) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in each Preliminary Prospectus and the Prospectus, as owned or leased by it free
and clear of all Liens, other than those referred to in each Preliminary
Prospectus and the Prospectus and Liens for taxes not yet due and payable.
(x) Ernst & Young LLP, whose report is filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants of the Company as required by the Act and the Rules and
Regulations.
(y) The Company has caused to be duly executed and delivered
agreements, in such form as the Company and Underwriters have heretofore
mutually agreed (collectively, the "Lock-up Agreements"), pursuant to which each
of the Company's officers, directors, shareholders and persons holding options,
warrants, rights or other securities of the Company, intending to be legally
bound, have agreed, for the benefit of the Company, the Representative and the
other Underwriters, that for a period of eighteen (18) months following the
effective date of the Registration Statement relating to the Offering (the
"Lock-up Period"), such person will not, without prior written consent of the
Representative, directly or indirectly, offer, offer to sell, sell, contract to
sell, grant any option for the purchase of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any beneficial interest in any
Common Stock or securities convertible into or exchangeable for or evidencing
any right to purchase or subscribe for any shares of Common Stock (either
pursuant to Rule 144 of the Regulations or
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<PAGE> 10
otherwise) either beneficially owned by such persons as of the effective date of
the Registration Statement or acquired by such persons during the Lock-up Period
as a result of the exercise of options.
(z) Except: (i) for payments in the aggregate amount of
$15,000 which have been made by the Company to Representative prior to the date
hereof in connection with investment banking advisory services rendered by the
Representative and (ii) as set forth in the Prospectus and herein, there are no
claims, payments, issuances, arrangements or understandings, whether oral or
written, for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or any other arrangements,
agreements, understandings, payments or issuance with respect to the Company, or
any of its officers, directors, shareholders, partners, employees or affiliates
that may affect the Underwriters' compensation. Except as contemplated hereby,
since the inception of the Company, no compensation has been paid to or on
behalf of any member of the NASD, or any affiliate or employee thereof, in
connection with any offering by the Company of the Company's securities.
(aa) The Underwritten Securities and Warrant Shares have been
approved for trading, subject to official notice of issuance, on the Nasdaq
SmallCap Market, and the Company has received no notice of any delisting
procedures.
(bb) Neither the Company, nor any of its respective officers,
employees, agents or any other person acting on behalf of the Company has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which (a) might subject the Company or any other such person to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, might have had a
Material Adverse Effect, or (c) if not continued in the future, might adversely
affect the assets, business, operations or prospects of the Company. The
Company's internal accounting controls are sufficient to enable the Company to
comply with the Foreign Corrupt Practices Act of 1977, as amended.
(cc) Except as set forth in each Preliminary Prospectus and
the Prospectus, no officer, director, shareholder or partner of the Company, or
any "affiliate" or "associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any of the foregoing persons or
entities has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficial interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in each
Preliminary Prospectus and the Prospectus under "Certain Transactions," there
are no existing agreements, arrangements, understandings or transactions, or
proposed agreements, arrangements, understandings or transactions, between or
among the Company, and
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<PAGE> 11
any officer, director or shareholder of the Company, or any partner, affiliate
or associate of any of the foregoing persons or entities.
(dd) Any certificate signed by any officer of the Company, and
delivered to the Representative or Kelley Drye & Warren LLP (to the
"Underwriters' Counsel") shall be deemed a representation and warranty by the
Company to the Underwriters as to the matters covered thereby.
(ee) The minute books of the Company have been made available
to the Representative and the Underwriters' Counsel, contain a complete summary
of all meetings and actions of the directors and shareholders of the Company
since the time of its incorporation, and reflect all transactions referred to in
such minutes accurately in all respects.
(ff) Except and to the extent described in each Preliminary
Prospectus and the Prospectus, no holders of any securities of the Company or of
any options, warrants or other convertible or exchangeable securities of the
Company have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
or to require the Company to file a registration statement under the Act and no
person or entity holds any anti-dilution rights with respect to any securities
of the Company.
(gg) Except as described in the Prospectus, the Company is not
aware of any bankruptcy, labor disturbance or other event affecting any of its
trademark licensees, principal suppliers or customers which is reasonably likely
to have a Material Adverse Effect.
(hh) The Company has not been notified nor is otherwise aware
that it is potentially liable, or is considered potentially liable, under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, or any similar law ("Environmental Laws"). To the Company's knowledge,
the Company is in compliance with all applicable existing Environmental Laws,
except for such instances of non-compliance which would not have a Material
Adverse Effect. The term "Hazardous Material" means (i) any "hazardous
substance" as defined by the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, (ii) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act, as amended, (iii) any petroleum or
petroleum product, (iv) any polychlorinated biphenyl and (v) any pollutant or
contaminant or hazardous, dangerous or toxic chemical, material, waste or
substance regulation under or within the meaning of any other Environmental Law.
To the Company's knowledge, no disposal, release or discharge of Hazardous
Material has occurred on, in, at or about any of the facilities or properties of
the Company, except for those instances which are in compliance with
Environmental Laws or in the aggregate would not have a Material Adverse Effect.
Except as described in the Prospectus, to the Company's knowledge: (i) there has
been no storage, disposal, generation, transportation, handling or treatment of
Hazardous Material by the Company (or to the knowledge of the Company, any of
its predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company in violation of any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit or which would
require remedial action which has not been taken, under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except for such
violations and failures to take remedial action which would not result in,
singularly or in the aggregate, a Material Adverse Effect; and (ii) there has
been no material
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<PAGE> 12
spill, discharge, leak, emission, injection, escape, dumping or release of any
kind onto such property or into the environment surrounding such property by the
Company of any Hazardous Materials, except for such spills, discharges, leaks,
emissions, injections, escapes, dumping or releases which are in compliance with
Environmental Laws or would not result in, singularly or in the aggregate, a
Material Adverse Effect.
(ii) The Company is not an "investment company," a company
controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
(ll) None of the proceeds of the sale of the Underwritten
Securities or Warrants will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security, for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the
Underwritten Securities or Warrants to be considered a "purpose credit" within
the meanings of Regulation G, T, U or X of the Board of Governors of the Federal
Reserve Board.
(kk) The Company has complied and will comply with all the
provisions of Florida H.B. 1771, codified as Section 517.075 of the Florida
Statutes, and all regulations promulgated thereunder relating to issuers doing
business with Cuba.
2. Purchase by the Underwriters; Delivery and Payment.
(a) On the basis of the representations,
warranties, covenants and agreements herein contained, and subject to the terms
and conditions herein set forth, the Company agrees to issue and sell to each
Underwriter, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at a price of $_________ per share, that proportion of the
number of Firm Securities set forth in Schedule A opposite the name of such
Underwriter bears to the total number of Firm Securities, subject to such
adjustment as the to eliminate any sales or purchases of fractional shares, plus
any additional number of Firm Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 11 of this
Agreement.
(b) In addition, on the basis of the
representations, warranties, covenants and agreements, herein contained and
subject to the terms and conditions herein set forth, the Company hereby grants
an option to the Underwriters, severally and not jointly, to purchase all or any
part of an additional 150,000 shares of Common Stock at a price of $______ per
share. The option granted hereby will expire 30 days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement
if the Company has elected to rely upon Rule 430A under the Rules and
Regulations (or if such 30th day shall be a Saturday, Sunday or holiday, on the
next business day thereafter when the Nasdaq SmallCap Market is open for
trading), and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Securities upon notice in writing or by
telephone (confirmed in writing) by the Representative to the Company setting
forth the number of Option Securities as to which
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<PAGE> 13
the Underwriters are then exercising the option and the time and date of payment
and delivery for any such Option Securities. Upon exercise of the option as
provided herein, the Company shall become obligated to sell to each of the
Underwriter and subject to the terms and conditions herein set forth, each of
the Underwriters (severally and not jointly) shall become obligated to purchase
from the Company that proportion of the total number of Option Securities then
being purchased which the number of Firm Securities set forth in Schedule A
hereto opposite the name of such Underwriter bears to the total number of Firm
Securities, subject in each case to such adjustments as the to eliminate any
sales or purchases of fractional shares. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representative, but shall not
be later than five full business days after the exercise of said option, nor in
any event prior to the Closing Date, as hereinafter defined, unless otherwise
agreed upon by the Representative and the Company. The Underwriters shall not be
under any obligation to purchase any of the Option Securities prior to the
exercise of such option. No Option Securities shall be delivered unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and
delivery of certificates for, the Firm Securities shall be made at the offices
of the Representative, 666 Fifth Avenue, New York, New York, or at such other
place as shall be agreed upon by the Representative and the Company. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on July
__, 1997 or at such other time and date as shall be agreed upon by the
Representative and the Company (such time and date of payment and delivery being
herein called "Closing Date"). In addition, in the event that any or all of the
Option Securities are purchased by the Underwriters, payment of the purchase
price for, and delivery of certificates for, such Option Securities shall be
made at the above mentioned office of the Representative or at such other place
as shall be agreed upon by the Representative and the Company on each Option
Closing Date as specified in the notice from the Representative to the Company.
Delivery of the certificates for the Firm Securities and Option Securities, if
any, shall be made to the Representative against payment by or on behalf of the
Underwriters, severally and not jointly, of the purchase price for the Firm
Securities and the Option Securities, if any, by certified or official bank
check or checks drawn upon or by a New York Clearing House Bank and payable in
same-day funds to the order of the Company, such payment to be net of all
amounts owed to the Underwriters and Representative under the terms of this
Agreement upon such date of payment including the underwriting discount, net
non-accountable expenses and additional amounts owed under Section 5 of this
Agreement and such other amounts as the Company and Underwriters may agree.
Certificates for the Underwritten Securities shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Representative may request in
writing at least 48 hours prior to Closing Date or the relevant Option Closing
Date, as the case may be. The certificates for the Underwritten Securities shall
be made available to the Representative at such office or such other place as
the Representative may designate for inspection, checking and packaging at least
24 hours prior to Closing Date or the relevant Option Closing Date, as the case
may be.
(d) On the Closing Date, the Company shall issue
and sell to the Representative, and at the direction of the Representative, to
any co-managing underwriter or to bona fide officers of the Representative or
member of the underwriting group with respect to the Offering, Warrants to
purchase an aggregate of 100,000 shares of Common Stock at a
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<PAGE> 14
purchase price of $.001 per warrant. The Warrants shall be exercisable for a
period of four (4) years commencing one year from the date hereof at a price
equal to one hundred twenty percent (120%) of the initial public offering price
of the Underwritten Securities. The Warrant Agreement and form of Warrant shall
be substantially in the form filed as Exhibit 4.2 to the Registration Statement.
Payment for the Warrants shall be made by the Representative to or upon the
order of the Company on the Closing Date.
3. Public Offering of the Underwritten Securities. As soon after the
effective time of the Registration Statement as the Representative deems
advisable, the Underwriters shall make a public offering of the Underwritten
Securities (other than to residents of any jurisdiction in which the
qualification of the Underwritten Securities is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Representative may from time to time increase or decrease the public
offering price after the distribution of the Underwritten Securities has been
completed to such extent as the Representative in its sole discretion deem
advisable. The Representative may enter into one or more agreements as the
Underwriters, in each of their sole discretion, deem advisable with one or more
broker-dealers who shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act during any time that a prospectus relating to the securities is required to
be delivered under the Act of which the Representative and Underwriters' Counsel
shall not previously have been advised and furnished with a copy a reasonable
period of time prior to the proposed filing, or to which the Representative
shall have reasonably objected or which is not in compliance with the Act, the
Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the notice in
writing, (i) when the Registration Statement, as amended, becomes effective and,
if the provisions of Rule 430A promulgated under the Act will be relied upon,
when the Prospectus has been filed in accordance with said Rule 430A and when
any post-effective amendment to the Registration Statement becomes effective,
(ii) of the issuance by the Commission of any stop order or of the initiation,
or the threatening, of any proceeding, suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of the
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution of proceedings for that purpose, (iii) of the
issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Securities for
offering or sale in any jurisdiction or of the initiation, or the threatening,
of any proceeding for that purpose, (iv) of the receipt of any comments from the
Commission; and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information. The Company will use its best efforts to prevent the
issuance of any
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<PAGE> 15
stop or suspension order and if the Commission or any state securities
commission authority shall enter a stop order or suspend such qualification at
any time, the Company will make every effort to obtain promptly the lifting or
withdrawal of such order or suspension.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b)(1) (or, if applicable and if consented to by the Representative,
pursuant to Rule 424(b)(4)) on or before the date it is required to be filed
under the Act and the Rules and Regulations.
(d) The Company shall, in cooperation with the Representative,
at or prior to the time the Registration Statement becomes effective, arrange
for the qualification of the Securities for offering and sale under the
securities or blue sky laws of such jurisdictions as the Representative may
designate to permit the continuance of sales and dealings therein for as long as
may be necessary to complete the distribution contemplated hereby and shall make
such applications, file such documents and furnish such information as may be
required for such purpose; provided, however, the Company shall not be required
to qualify as a foreign corporation, subject itself to taxation or file a
general consent to service of process in any such jurisdiction. In each
jurisdiction where such qualification shall be effected, the Company will,
unless the Representative agrees that such action is not at the time necessary
or advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(e) During the time when a Prospectus is required to be
delivered under the Act, the Company shall comply with all requirements imposed
upon it by the Act and the Exchange Act, as now and hereafter amended and by the
Rules and Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Securities in accordance
with the provisions hereof and the Prospectus, or any amendments or supplements
thereto. If at any time when a prospectus relating to the Securities is required
to be delivered under the Act, any event shall have occurred as a result of
which, in the opinion of counsel for the Company or Underwriters' Counsel, the
Prospectus, as then amended or supplemented, would 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 under which they were made, not misleading, or if it is necessary
at any time to amend the Prospectus to comply with the Act or the Rules and
Regulations, the Company will notify the Representative promptly and prepare and
file with the Commission an appropriate amendment or supplement in accordance
with Section 10 of the Act that corrects such statement or omission or effects
such compliance, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to, or at the direction of,
the Representative copies of such amendment or supplement as soon as available
and in such quantities as the Representative may request.
(f) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the first day after the
end of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year) the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of
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<PAGE> 16
the Rules and Regulations, and to the Representative, an earnings statement
which will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Rules and
Regulations, which statement need not be audited unless required by the Act.
(g) During the three year period commencing on the date
hereof, the Company will furnish to its shareholders (i) as soon as practicable,
but in any event not later than 120 days after the last day of each annual
fiscal period, its audited statements of income, shareholders' equity and cash
flows for such period and its audited balance sheet as of the end of such period
as to which the Company's independent accountants have rendered an opinion and
(ii) as soon as practicable, but in any event not later than 45 days after each
of the first three quarterly fiscal periods, its unaudited statements of income,
shareholders' equity and cash flows, for such period and its unaudited balance
sheet as of the end of such period. In addition, during the three year period
commencing on the date hereof, the Company will deliver to the Representative:
i. concurrently with furnishing such quarterly
reports to its shareholders, statements of income of the Company for
each quarter in the form furnished to the Company's shareholders and
certified by the Company's principal financial or accounting officer;
ii. concurrently with furnishing such annual reports
to its shareholders, a balance sheet of the Company at the end of the
preceding fiscal year, together with statements of income,
shareholders' equity and cash flows of the Company for such fiscal
year, accompanied by a copy of the report thereon of the Company's
independent certified public accountants;
iii. as soon as they are available, copies of all
reports (financial or other) mailed to shareholders;
iv. as soon as they are available, copies of all
reports and financial statements furnished to or filed with the
Commission, the NASD or any securities exchange;
v. within a reasonable amount of time prior to its
release, every press release and every material news item or article
of interest to the financial community in respect of the Company or
its affairs which was released or prepared by or on behalf of the
Company; and
vi. any additional information of a public nature
concerning the Company (and any future subsidiaries) or its businesses
which the Representative may reasonably request.
During such five year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
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<PAGE> 17
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representative may request.
(j) On or before the effective date of the Registration
Statement, the Company shall provide the Representative with true copies of the
Lock-up Agreements duly executed and delivered by each of the Company's
officers, directors, shareholders and persons holding warrants, options, rights
or other securities of the Company. For a period of 18 months following the
effective date of the Registration Statement, without the prior written consent
of the Representative, the Company shall not, directly or indirectly, issue,
offer to sell, sell, grant any option for the purchase or sale of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of any securities
of the Company, including shares of capital stock of the Company, or securities
or other rights convertible into, exercisable or exchangeable for or evidencing
any right to purchase or subscribe for any shares of capital stock of the
Company (either pursuant to Rule 144 of the Rules and Regulations or otherwise)
or dispose of any beneficial interest therein except for (i) shares of Common
Stock issued pursuant to this Agreement, (ii) the Warrants, (iii) the Warrant
Shares and (iv) options for the purchase of Common Stock granted pursuant to the
Company's 1997 Stock Option Plan, provided, however, that the exercise price of
such options shall be equal to or greater than the initial public offering price
per share set forth in Section 2(a) hereof and that the grant of options during
the Lock-up Period shall be conditioned upon receipt from the person to whom
such options have been granted of a duly executed Lock-up Agreement.
Notwithstanding anything to the contrary in this Agreement, for a period of 18
months following the effective date of the Registration Statement, the Company
will not file any Registration Statement relating to any securities of the
Company, without the prior consent of the Representative.
(k) Neither the Company, nor any of its officers, directors,
nor any of their respective affiliates (within the meaning of the Rules and
Regulations) will take, directly or indirectly, any action designed to, or which
might reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(l) The Company shall apply the net proceeds from the sale of
the Shares in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(m) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Rules and
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<PAGE> 18
Regulations, and all such reports, forms and documents filed will comply as to
form and substance with the applicable requirements under the Act, the Exchange
Act, and the Rules and Regulations.
(n) The Company shall furnish to the Representative as early
as practicable prior to each of the date hereof, the Closing Date and each
Option Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Section 6(j) hereof.
(o) The Company shall cause the Common Stock to be traded on
the Nasdaq SmallCap Market and for a period of five (5) years from the date
hereof, use its best efforts to maintain the Nasdaq SmallCap Market listing of
the Common Stock to the extent outstanding.
(p) For a period of two (2) years from the Closing Date, the
Company shall furnish to the Representative at the Company's sole expense, daily
consolidated transfer sheets relating to the Common Stock.
(q) Within 30 days from the effective date of the Registration
Statement, take all necessary and appropriate actions to be included in Standard
and Poor's Corporation descriptions and to continue such inclusion for a period
of not less than five (5) years from the effective date of the Registration
Statement.
(r) Except as contemplated by the Warrant Agreement, the
Company hereby agrees that it will not for a period of eighteen (18) months from
the effective date of the Registration Statement, adopt, propose to adopt or
otherwise permit to exist any employee, officer, director, consultant or
compensation plan or arrangement permitting (i) the grant, issue, sale or entry
into any agreement to grant, issue or sell any option, warrant or other contract
right at an exercise price that is less than the greater of the initial public
offering price of the Shares set forth herein and the fair market value on the
date of grant or sale except for [ ] shares of Common Stock issuable upon
exercise of stock options granted pursuant to the Company's 1996 Incentive Stock
Option Plan as of the effective date of the Registration Statement which have an
exercise price of $2.05 per share of Common Stock and [ ] shares of Common Stock
issuable upon exercise of stock options granted as of the effective date of the
Registration Statement which have an exercise price of $6.50 per share of Common
Stock; (ii) the maximum number of shares of Common Stock or other securities of
the Company purchasable at any time pursuant to options or warrants issued by
the Company to exceed 307,157 shares; (iii) the payment for such securities with
any form of consideration other than cash; or (iv) the existence of stock
appreciation rights, phantom options or similar arrangements.
(s) Until the completion of the distribution of the
Underwritten Securities, if any, the Company shall not without the prior written
consent of the Representative and Underwriters' Counsel, issue, directly or
indirectly any press release or other communication or hold any press conference
with respect to the Company or its activities or the offering
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<PAGE> 19
contemplated hereby, other than trade releases issued in the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(t) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the Warrant Shares, the
Company will not take any action or actions which may prevent or disqualify the
use by the Company of Form S-1, Form SB-2 or Form S-3 (or other appropriate
form) for the registration under the Act of the Warrant Shares.
(u) For a period of three years following the Closing Date,
the Company will permit a designee of Coleman (which Coleman hereby currently
designates as Stanley L. Bartels) to observe meetings of the Company's board of
directors and shall provide to such designee, at the same time provided to the
members of the Company's board of directors, all notices, minutes, documents,
information and other materials generally provided to the members of the
Company's board of directors. The Company will reimburse the designee directly
for reasonable out-of-pocket expenses incurred in attending board meetings
including but not limited to expenses for food, transportation and lodging, and
shall pay that designee not less than $1,500 per meeting attended. During such
three year period, the Company will hold no less than four formal and "in
person" meetings of its board of directors each year.
(v) Prior to the 90th day after the Closing Date, the Company
will provide the Representative and its designees with five sets of bound
volumes of the transaction documents relating to the Offering, in form and
substance reasonably satisfactory to the Representative.
(w) For a period of 19 months subsequent to the Closing Date,
the Company will retain the Representative in an investment banking advisory
capacity and the Company will pay the Representative as consideration for such
advisory services a monthly fee of $3,000, plus pre-approved disbursements.
(x) For a period of three years commencing upon the Closing
Date, the Company will retain the Representative, in a non-exclusive capacity,
for mergers and acquisitions introduced or arranged by the Representative. Upon
the consummation of any such transactions, the Representative shall be
compensated on the basis of the "Lehman Formula."
(y) The Company has delivered and the Representative
acknowledges receipt of a reasonably detailed budget covering the period from
the Closing Date to the end of the Company's first fiscal year following the
Closing Date. During each of the next two succeeding fiscal years, the Company
will provide to the Representative, not more than 45 days after the beginning of
such fiscal year, a reasonably detailed budget covering such fiscal year. For
each budget period, the Company will also provide to the Representative
financial statements prepared in sufficient detail so as to allow comparison to
the budgets.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing
Date and the Option Closing Date (to the extent not paid at the Closing Date)
all expenses and fees (other than fees of Underwriters' Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement and the Warrant Agreement, including,
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<PAGE> 20
without limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement, each Preliminary Prospectus, the
Prospectus and any amendments and supplements thereto, in quantities as
hereinabove stated, and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, the Underwriters' Powers of
Attorney, and related documents, including the cost of all copies thereof and of
the Preliminary Prospectuses and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Representative and such dealers as the
Representative may request, (iii) the printing, engraving, issuance and delivery
of the Securities including, but not limited to, (v) the purchase from the
Company of the Underwritten Securities by the Underwriters, (x) the purchase
from the Company of the Warrants by the Representative, (y) the consummation by
the Company of any of its obligations under this Agreement and the Warrant
Agreement, and (z) resale of the Underwritten Securities by the Underwriters in
connection with the distribution contemplated hereby, (iv) the qualification of
the Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum" and the "Supplemental Blue Sky Memorandum," and fees and
disbursements of counsel incurred in connection therewith, which fees of counsel
shall not exceed $30,000, (v) advertising costs and expenses, including but not
limited to costs and expenses in connection with the "road show," information
meetings and presentations (including travel and hotel expenses of the
Representative), bound volumes, prospectus memorabilia and expenses relating to
"tomb-stone" advertisements which expenses shall not exceed $12,000, (vi) costs
and expenses in connection with due diligence investigations, including but not
limited to fees not in excess of $5,000 of any independent counsel or consultant
retained, (vii) fees and expenses of the transfer agent and registrar, (viii)
the fees payable to the Commission and the NASD, and (x) the fees and expenses
incurred in connection with the inclusion of the Underwritten Securities and
Warrant Shares on the Nasdaq SmallCap Market, any other over-the-counter market
or any exchange.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a) or Section 12, the Company shall
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel, less
any amounts already paid pursuant to Section 5(c) hereof, provided, however,
that the maximum reimbursement for which the Company shall be liable pursuant to
this Section 5(b) shall not exceed $120,000, and provided, further, that if the
Agreement is terminated in accordance Section 10(a)(v) due to the outbreak of
hostilities between the United States and any foreign power (or in the case of
any ongoing hostilities, a material escalation thereof) or an outbreak of any
other insurrection or armed conflict involving the United States, the Company
shall reimburse and indemnify the Representative for an amount equal to 50% of
the Representative's actual out-of-pocket expenses subject to the maximum
reimbursement of $120,000.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to Section 5(a), it will pay to the Representative on
the Closing Date by certified or bank cashier's check or, at the
Representative's election, by deduction from the proceeds of the
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<PAGE> 21
Offering, a non-accountable expense allowance equal to three percent (3%) of the
gross proceeds received by the Company from the sale of the Firm Securities,
$25,000 of which has been paid to date. In the event the Underwriters elect to
exercise the over-allotment option described in Section 2(b) hereof, the Company
further agrees to pay to the Representative, on each Option Closing Date, by
certified or bank cashier's check or, at the Representative's election, by
deduction from the proceeds of the Offering, a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds received by the Company from
the sale of the Option Securities on such Option Closing Date.
(d) The Company warrants, represents and agrees that all
payments and reimbursements due pursuant to this Section 5 will be promptly and
fully made. If the Company shall fail to promptly and fully pay all amounts due
pursuant to this Section 5, the Company shall be liable to the Representative
for all attorneys' fees and costs incurred in connection with the collection of
such amounts.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York time, on the date hereof or such later date and
time as shall be approved in writing by the Representative, and, at the Closing
Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Securities and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to Closing Date the Company shall
have provided evidence satisfactory to the Representative of such timely filing,
or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representative's opinion, is material, or omits
to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representative's opinion, is material, or
omits to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or
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<PAGE> 22
is necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. No order suspending the sale of the
Securities in any jurisdiction shall have been issued on either the Closing Date
or the relevant Option Closing Date, if any, and no proceedings for that purpose
shall have been instituted or shall, to the knowledge of the Representative, be
threatened.
(c) On or prior to the Closing Date, the Representative shall
have received from Underwriters' Counsel, such opinion or opinions with respect
to the organization of the Company, the validity of the Underwritten Securities,
Warrants, Warrant Shares, the Registration Statement, the Prospectus and other
related matters as the Representative may request and Underwriters' Counsel
shall have received such papers and information as they request to enable them
to pass upon such matters.
(d) At Closing Date, the Representative shall have received
the opinion of Cairncross & Hempelmann, P.S., counsel to the Company, dated the
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
i. the Company (A) has been duly incorporated and is
validly existing under the laws of the State of Washington (B) is duly
qualified and licensed and in good standing as a foreign corporation in
each jurisdiction in which its ownership or leasing of any properties
or the character of its operations requires such qualification or
licensing except where such lack of qualification or licensing would
not have a material adverse effect on the business, properties or
financial condition of the Company, and (C) has all requisite corporate
power and authority, and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; to the best actual
knowledge of such counsel, the Company is and has been doing business
in material compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state
and local laws, rules and regulations; the Company has not received any
notice of proceedings relating to the revocation or modification of any
such authorization, approval, order, license, certificate, franchise,
or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially adversely
affect the business, operations, condition, financial or otherwise, or
the earnings, business affairs, position, prospects, value, operation,
properties, business or results of operations of the Company;
ii. the Company does not have any subsidiaries and
does not own any interest in any corporation, partnership, joint
venture, trust or other business entity;
iii. the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any
amendment or supplement thereto, under the caption "Capitalization,"
and the Company is not a party to or bound by any instrument, agreement
or other arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this
Agreement and the Warrant
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<PAGE> 23
Agreement and as described in the Prospectus. The Securities and all
other securities issued or issuable by the Company conform, or when
issued and paid for, will conform in all respects to all statements
with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with
respect thereto, and except for common law principles relating to
piercing the corporate "veil" about which no opinion need be given, the
holders are not subject to personal liability by reason of being such
holders (except as they may be liable by reason of their own acts); and
none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company. The Securities to
be sold by the Company hereunder and under the Warrant Agreement are
not and will not be subject to any preemptive or other similar rights
of any shareholder, have been duly authorized and, when issued, paid
for and delivered in accordance with the terms hereof and thereof, will
be validly issued, fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; except for common law
principles relating to piercing the corporate "veil" about which no
opinion need be given,the holders thereof will not be subject to any
liability solely by reason of being such holders (except as they may be
liable by reason of their own acts); all corporate action required to
be taken for the authorization, issue and sale of the Securities has
been duly and validly taken; and assuming that the certificates
representing the Securities are in the forms attached respectively as
Exhibit 4.1 and 4.2 to the Registration Statement, such certificates
are in due and proper form. The Warrants have been duly authorized and
when validly issued, delivered and paid for in the manner contemplated
by the Warrant Agreement will constitute valid and binding obligations
of the Company entitled to the benefits of the Warrant Agreement. The
Company has duly authorized and reserved the Warrant Shares for
issuance upon exercise of the Warrants. Upon the issuance and delivery
pursuant to this Agreement and the Warrant Agreement of the
Underwritten Securities and Warrants, and assuming that the
Underwriters are acquiring the Underwritten Securities and the
Representative is acquiring the Warrants in good faith without notice
of any adverse claim, the Underwriters will acquire good and marketable
title to the Underwritten Securities and the Representative will
acquire good and marketable title to the Warrants, each free and clear
of any pledge, lien, charge, claim, encumbrance, security interest, or
other restriction or equity of any kind whatsoever. No transfer tax is
payable by or on behalf of the Underwriters or the Representative in
connection with (A) the issuance by the Company of the Underwritten
Securities, (B) the purchase from the Company of the Underwritten
Securities by the Underwriters, (C) the purchase from the Company of
the Warrants by the Representative, (D) the consummation by the Company
of any of its obligations under this Agreement or the Warrant
Agreement, or (E) resales of the Underwritten Securities in connection
with the distribution contemplated hereby;
iv. the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has been
timely made in the appropriate form under Rule 430A, and no stop order
suspending the use of all, or any part, of the Preliminary Prospectus,
the Registration Statement or Prospectus or suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or, to
the best of such counsel's actual knowledge after due inquiry,
threatened or contemplated under the Act;
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<PAGE> 24
v. each of any Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments or
supplements thereto (other than the financial statements and other
financial and statistical data included therein, as to which no opinion
need be rendered) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
vi. to the best of such counsel's actual knowledge,
(A) there are no agreements, contracts or other documents required by
the Act to be described in the Registration Statement and the
Prospectus and filed as exhibits to the Registration Statement other
than those described in the Registration Statement and the Prospectus
and filed as exhibits thereto, and the exhibits which have been filed
are correct copies of the documents of which they purport to be copies;
(B) the descriptions in the Registration Statement and the Prospectus
and any supplement or amendment thereto of contracts and other
documents to which the Company is a party or by which it is bound,
including any document to which the Company is a party or by which it
is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects
and fairly represent the information required to be shown by Form SB-2;
(C) there is not pending or threatened against the Company any action,
arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, which (x) is required to be disclosed in the Registration
Statement and is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in
all respects), or (y) questions the validity of the capital stock of
the Company or this Agreement and the Warrant Agreement or of any
action taken or to be taken by the Company pursuant to or in connection
with any of the foregoing; (D) no statute or regulation or legal or
governmental proceeding required to be described in the Prospectus that
is not described as required; and (E) except as disclosed in the
Prospectus, there is no action, suit or proceeding pending, or
threatened, against or affecting the Company before any court or
arbitrator or governmental body, agency or official (or any basis
thereof known to such counsel) in which there is a reasonable
possibility of an adverse decision which may result in a material
adverse change in the condition, financial or otherwise, earnings,
prospects, shareholders' equity, value, operations, properties,
business or results of operations of the Company;
vii. the Company has full legal right, corporate
power and authority to enter into each of this Agreement and the
Warrant Agreement and to consummate the transactions provided for
herein and therein; and each of this Agreement and the Warrant
Agreement has been duly authorized, executed and delivered by the
Company. Each of this Agreement and the Warrant Agreement, constitutes
a legal, valid and binding agreement of the Company enforceable against
the Company in accordance with its terms, and none of the Company's
execution or delivery of this Agreement and the Warrant Agreement, its
performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its
businesses as described in the Registration Statement, the Prospectus,
and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of
any of the terms or provisions of, or constitutes or will constitute a
default
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<PAGE> 25
under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company, except as disclosed in
the Prospectus, pursuant to the terms of, (A) the articles of
incorporation, as amended, or by-laws of the Company, (B) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or by which it
is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or
(C) any statute, judgment, decree, order, rule or regulation applicable
to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the
Company or any of its respective activities or properties which are
described in the Prospectus except with respect to clauses (B) or (C)
for conflicts, breaches, violations, defaults, creations or impositions
which do not and would not have a material adverse effect on the
condition, financial or otherwise, prospects, shareholders' equity,
value, operations, properties, business or results of operation of the
Company;
viii. no consent, approval, authorization or order,
and no filing with, any court, regulatory body, government agency or
other body (other than such as may be required under Blue Sky laws or
Rules of the NASD, as to which no opinion need be rendered) is required
in connection with the issuance of the Underwritten Securities, the
issuance of the Warrants and the Warrant Shares, and the Registration
Statement, the performance of this Agreement and the Warrant Agreement,
and the transactions contemplated hereby and thereby (except consents,
approvals, authorizations or orders, and filings which have been
properly made or obtained);
ix. to the best of such counsel's actual knowledge,
the properties and business of the Company conform in all material
respects to the description thereof contained in the Registration
Statement and the Prospectus; all items of real and personal property
stated in the Prospectus to be owned or leased by the Company, are
owned or leased in each case free and clear of all liens, charges,
claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and
payable;
x. the Company is not in breach of, or in default
under, any term or provision of any material license, contract,
indenture, mortgage, installment sale agreement, deed of trust, lease,
voting trust agreement, shareholders' agreement, partnership agreement,
note, loan or credit agreement or any other material agreement or
instrument evidencing an obligation for borrowed money, or any other
material agreement or instrument to which the Company is a party or by
which the Company may be bound or to which the property or assets
(tangible or intangible) of the Company is subject or affected, the
effect of which could materially and adversely affect the condition,
financial or otherwise, earnings, prospects, shareholders' equity,
value, operations, properties, business or results of operation of the
Company; the Company is not in violation of any term or provision of
its articles of incorporation, as amended, or
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<PAGE> 26
by-laws or in violation of any franchise, license, permit, judgment,
decree, order, statute, rule or regulation;
xi. the statements in the Prospectus under
"Business," "Management," "Certain Transactions," "Principal
Shareholders," and "Description of Securities," have been reviewed by
such counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
xii. the Underwritten Securities and Warrant Shares
have been accepted for quotation, subject to official notice of
issuance, on the Nasdaq SmallCap Market;
xiii. to the best of such counsel's actual knowledge
after due inquiry, the persons listed under the caption "Principal
Shareholders" in the Prospectus are the respective "beneficial owners"
(as such phrase is defined in Regulation 13d-3 under the Exchange Act)
of the securities set forth opposite their respective names thereunder
as and to the extent set forth therein;
xiv. to the best of such counsel's actual knowledge
after due inquiry, except as described in the Prospectus, no person,
corporation, trust, partnership, association or other entity has the
right to include and/or register any securities of the Company in the
Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration
statement;
xv. neither the execution and delivery by the Company
of, nor the performance of its obligations under this Agreement and the
Warrant Agreement nor the sale, issuance, execution or delivery by the
Company of the Underwritten Securities or Warrants will violate
Regulation G, T, U or X of the Federal Reserve Board; and
xvi. the Company is not an "investment company," a
company controlled by, under common control with, or controlling an
"investment company" or a "promoter" or "principal underwriter" for an
"investment company" as such terms are defined in the Investment
Company Act of 1940, as amended.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted and to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Underwriters and they are
justified in relying thereon.
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<PAGE> 27
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, and
representatives of the independent public accountants for the Company, at which
conferences the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus, and related matters were discussed and, although such
counsel is not passing upon, and does not assume any responsibility for, the
accuracy, completeness or fairness of the statements contained in the
Registration Statement, on the basis of the foregoing, no facts have come to the
attention of such counsel which has lead them to believe that either the
Registration Statement or any amendment thereto, at the time such Registration
Statement or amendment became effective or the Prospectus or amendment or
supplement thereto as of the date of such opinion contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and schedules and other financial, statistical and
accounting data included in the Registration Statement or Prospectus or excluded
therefrom).
At each Option Closing Date, if any, the Representative shall have
received the favorable opinion of Cairncross & Hempelmann, P.S., counsel to the
Company, dated the Option Closing Date, addressed to the Underwriters and in
form and substance satisfactory to Underwriters' Counsel confirming as of Option
Closing Date the statements made by Cairncross & Hempelmann, P.S., in its
opinion delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Option
Closing Date, if any, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require and have
requested reasonably in advance for the purpose of enabling them to review or
pass upon the matters referred to in Section 6(c), or in order to evidence the
accuracy, completeness or satisfaction of any of the representations, warranties
or conditions of the Company, or herein contained.
(f) On and as of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective material adverse change in the condition,
financial or otherwise, prospects, shareholders' equity or the business
activities of the Company, whether or not in the ordinary course of business,
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company; (iii) the Company shall not be in default under any
provision of any instrument relating to any material outstanding indebtedness of
the Company; (iv) the Company shall not have issued any securities (other than
the Underwritten Securities and Warrants) or declared or paid any dividend or
made any distribution in respect of its capital stock of any class and there has
not been any change in the capital stock or any change in the debt (long or
short term) or liabilities or obligations of the Company (contingent or
otherwise); (v) no material amount of the assets of the Company shall have been
pledged or mortgaged, except as set forth in the Registration Statement and
Prospectus; (vi) no action, suit or proceeding, at law or in equity, shall have
been pending or threatened (or circumstances giving rise to same) against the
Company, or affecting any of its properties or business before or by any court
or federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision,
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ruling or finding may materially adversely affect the condition, financial or
otherwise, results of operations, business or prospects of the Company, except
as set forth in the Registration Statement and Prospectus; and (vii) no stop
order shall have been issued under the Act and no proceedings therefor shall
have been initiated, threatened or contemplated by the Commission or any state
regulatory authority.
(g) At each of the Closing Date and each Option Closing Date,
if any, the Representative shall have received a certificate of the Company
signed by the principal executive officer and by the chief financial or chief
accounting officer of the Company, dated the Closing Date or Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
i. The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the
Closing Date or the Option Closing Date, as the case may be, and the
Company has complied with all agreements and covenants and satisfied
all conditions contained in this Agreement on its part to be performed
or satisfied at or prior to such Closing Date or Option Closing Date,
as the case may be;
ii. No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or, to
the best of each of such person's knowledge, after due inquiry are
contemplated or threatened under the Act;
iii. The Registration Statement and the Prospectus
and, if any, each amendment and each supplement thereto, contain all
statements and information required to be included therein, and none of
the Registration Statement, nor any amendment or supplement thereto
includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and neither the Prospectus or any
amendment or supplement thereto includes any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
iv. Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus
through the Closing Date or the Option Closing Date, as the case may
be: (a) the Company has not incurred other than in the ordinary course
of its business, any material liabilities or obligations, direct or
contingent, except as disclosed in the Prospectus; (b) the Company has
not paid or declared any dividends or other distributions on its
capital stock, except as disclosed in the Prospectus; (c) the Company
has not entered into any transactions not in the ordinary course of
business, except as disclosed in the Prospectus; (d) there has not been
any change in the capital stock or long-term debt or any increase in
the short-term borrowings (other than any increase in the short-term
borrowings in the ordinary course of business) of the Company; (e) the
Company has not sustained any loss or damage to its property or assets,
whether or not insured; (f) there is no litigation which is pending or
threatened (or circumstances giving rise to same) against the Company
or any affiliated party of any
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<PAGE> 29
of the foregoing which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (g) there has
occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) On or prior to the date hereof, the Representative shall
have received clearance from the NASD as to the amount of compensation allowable
or payable to the Underwriters, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Representative
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory (including the nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Representative and Underwriters' Counsel, from Ernst & Young LLP:
i. confirming that they are independent certified
public accountants with respect to the Company within the meaning of
the Act and the applicable Rules and Regulations;
ii. stating that it is their opinion that the
financial statements and supporting schedules of the Company included
in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Rules and Regulations thereunder and that the Underwriters may rely
upon the opinion of Ernst & Young LLP with respect to the financial
statements and supporting schedules included in the Registration
Statement;
iii. stating that, on the basis of procedures which
included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the
latest available minutes of meetings and actions of the shareholders,
the board of directors and the Audit Committee of the board of
directors of the Company, consultations with officers and other
employees of the Company responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has come
to their attention which would lead them to believe that (A) the
financial information contained in the Registration Statement and
Prospectus does not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations or is not fairly presented in conformity with generally
accepted accounting principles applied on a basis consistent with that
of the audited financial statements of the Company, or (B) at a
specified date not more than five (5) days prior to the date of
delivery of such letter, there has been any change in the capital stock
or long-term debt of the Company, or any decrease in the shareholders'
equity or working capital or net assets of the Company as compared
with amounts shown in the January 31, 1997 balance sheet included in
the Registration Statement, other than as set forth in or contemplated
by the Registration Statement, or, if there was any change or decrease,
setting forth the amount of such change or decrease, and (D) during the
period
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<PAGE> 30
from January 31, 1997 to a specified date not more than five (5) days
prior to the date of delivery of such letter, there was any decrease in
gross revenue, net income or net income per share of the Company, in
each case as compared with the corresponding period beginning February
1, 1996 other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the amount
of such decrease;
iv. stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the Company
set forth (in the Prospectus in each case to the extent that such
amounts, numbers, percentages, statements and information may be
derived from the general accounting records, including work sheets, of
the Company and excluding any questions requiring an interpretation by
legal counsel), with the results obtained from the application of
specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letter and
found them to be in agreement; and
v. statements as to such other matters incident to
the transaction contemplated hereby as the Representative may
reasonably request.
(j) At Closing Date and each Option Closing Date, if any, the
Representative shall have received from Ernst & Young LLP, a letter, dated as of
the Closing Date or the Option Closing Date, as the case may be, to the effect
that they reaffirm that statements made in the letter furnished pursuant to
Section 6(i) hereof, except that the specified date referred to shall be a date
not more than five days prior to Closing Date or the Option Closing Date, as the
case may be, and, if the Company has elected to rely on Rule 430A of the Rules
and Regulations, to the further effect that they have carried out procedures as
specified in clause (iv) of Section 6(i) with respect to certain amounts,
percentages and financial information as specified by the Representative and
deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and
have found such amounts, percentages and financial information to be in
agreement with the records specified in such clause (iv).
(k) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to, or at the direction of, the
Representative the appropriate number of Underwritten Securities.
(l) No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to Section 4(e) hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
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<PAGE> 31
(m) On or before the Closing Date, the Company shall have
executed and delivered to the Representative, (i) the Warrant Agreement
substantially in the form filed as Exhibit 4.2 to the Registration Statement in
final form and substance satisfactory to the Representative, and (ii) the
Warrants in such denominations and to such designees as shall have been provided
by the Representative to the Company.
(n) On or before Closing Date, the Underwritten Securities and
Warrant Shares shall have been duly approved for quotation on the Nasdaq Small
Cap Market, subject to official notice of issuance.
(o) On or before Closing Date, there shall have been delivered
to the Representative, Lock-up Agreements from each of the Company's directors,
officers, shareholders, and persons holding warrants, options, rights or other
securities of the Company, in form and substance satisfactory to Underwriters'
Counsel.
(p) Trading in the Common Stock shall not have been suspended
by the Nasdaq SmallCap Market at any time after the date hereof.
(q) Prior to the Closing Date, the Representative shall have
received from the Company any changes, modifications or supplement to the
detailed budget covering the period from the Closing Date to the end of the
Company's first fiscal year following the Closing Date previously delivered to
the Representative.
(r) All relevant terms, conditions and circumstances relating
to the Offering shall be reasonably satisfactory to the Representative.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to the Representative.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters (for purposes of this Section 7, "Underwriters" shall include
the officers, directors, partners and employees of each of the Underwriters,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, suits and litigation in respect thereof), whatsoever (including but
not limited to any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any action, suit, proceeding or
litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which
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<PAGE> 32
any Underwriter or any such controlling person may become subject under the Act,
the Exchange Act or any other statute or at common law or otherwise, insofar as
such losses, claims, damages, expenses or liabilities arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained (i) in any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time amended and supplemented); (ii) in any
post-effective amendment or amendments or any new registration statement and
prospectus in which is included securities of the Company issued or issuable
upon exercise of the Securities; or (iii) in any application or other document
or written communication (in this Section 7 collectively called "application")
executed by the Company or based upon written information furnished by the
Company in any jurisdiction in order to qualify the Securities under the
securities laws thereof or filed with the Commission, any state securities
commission or agency, Nasdaq or any other securities exchange; or arise out of
or are based upon the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading (in the case of the Preliminary Prospectus and Prospectus, in the
light of the circumstances under which they were made), unless such statement or
omission was made in reliance upon and in conformity with the Underwriters'
Information and provided, further, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in any Preliminary
Prospectus or the Prospectus, the indemnification provided for herein shall not
apply to any loss, liability, claim, damage or expense to the extent the same
results from the sale of Securities to a person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the
Prospectus, or in the case of an untrue statement or omission or alleged untrue
statement or omission in the Prospectus, a copy of the amended Prospectus or
supplement thereto, if the Company has previously furnished sufficient copies
thereof, based upon the number of copies requested by the Underwriters, to the
Underwriters a reasonable time in advance and the claim, damage or expense of
such person results from an untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in a Preliminary
Prospectus or Prospectus that was corrected in the Prospectus or amendment or
supplement thereto.
The indemnity agreement in this Section 7(a) shall be in
addition to any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company within the meaning of the Act, to the
same extent as the foregoing indemnity from the Company to the Underwriters but
only with respect to statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any application made in reliance upon, and in strict
conformity with the Underwriters' Information.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from: (i)
any liability which it may have under this Section 7(a) or (b) hereof unless and
to the
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<PAGE> 33
extent that it has been prejudiced in any material respect by such failure or
from the forfeiture of substantial rights and defenses or (ii) any liability
which it may have otherwise). In case any such action, suit or proceeding is
brought against any indemnified party, and it notifies an indemnifying party or
parties of the commencement thereof, the indemnifying party or parties will be
entitled to participate therein, 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
reasonably satisfactory to such 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 the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) 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 of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, suits, proceedings or litigation in respect thereof) (A) in such
proportion as is appropriate to reflect the relative benefits received by each
of the contributing parties, on the one hand, and the party to be indemnified on
the other hand, from the offering of the Securities or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by of the Company on
the one hand, and the Underwriters, on the other, shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Securities
(before deducting expenses) bear to the total underwriting discounts received by
the Underwriters hereunder, in each case as set forth in the
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<PAGE> 34
table on the cover page of the Prospectus. Relative fault 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, or by the Underwriters, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions, suits, proceedings or litigation in respect thereof)
referred to above in this Section 7(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action, claim, suit, proceeding or
litigation. Notwithstanding the provisions of this Section 7(d), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discount applicable to the Securities purchased by the Underwriter hereunder. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 7,
each person, if any, who controls the Company within the meaning of the Act,
each officer of the Company who has signed the Registration Statement, and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to this Section 7(d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this Section
7(d), notify such party or parties from whom contribution may be sought, but the
omission so to 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 hereunder or otherwise than under this Section 7(d), or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company, as the case may be, and the respective
indemnity agreements contained in Section 7 hereof, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
any Underwriter, the Company, any controlling person of any Underwriter or the
Company, and shall survive termination of this Agreement or the issuance and
delivery of the Underwritten Securities to the Underwriters and Warrants to the
Representative.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Underwritten Securities for
the sale to the public; provided, however, that the provisions of this Section 9
and Sections 5, 7 and 10 of this Agreement shall at all times be effective. For
purposes of this Section 9, the Securities to be purchased hereunder shall be
deemed to have been so released upon the earlier of dispatch by the
Representative of telegrams to securities dealers releasing such shares for
offering or the release by the Underwriters for publication of
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<PAGE> 35
the first newspaper advertisement which is subsequently published relating to
the Underwritten Securities.
10. Termination.
(a) This agreement may be terminated with respect to the Firm
Securities or Option Securities, if any, in the sole discretion of the
Representative by notice to the Company given prior to the Closing Date or the
relevant Option Closing Date, respectively, in the event that all obligations
set forth in Section 6 have not been performed or satisfied or the Company shall
have failed, refused or been unable to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder at or prior
thereto or if at or prior to the Closing Date or such Option Closing Date,
respectively:
i. the Company sustains a loss by reason of
explosion, fire, flood, accident or other calamity, which, in the
reasonable opinion of the Representative, substantially affects the
value of the properties of the Company or which materially interferes
with the operation of the business of the Company regardless of whether
such loss shall have been insured; there shall have been a Material
Adverse Effect, or any development involving a prospective Material
Adverse Effect (including, without limitation, a change in management
or control of the Company), in the business, operations, condition,
financial or otherwise, earnings, prospects, shareholders' equity,
value, operations, properties, business or results of operations of the
Company, except in each case as described in or contemplated by the
Prospectus (exclusive of any amendment or supplement thereto); or Mr.
Daniel M. Fine shall have suffered any injury or disability of a nature
that could materially adversely affect his ability to function as
President and Chief Executive Officer of the Company for more than six
months;
ii. any material action, suit or proceeding shall be
threatened, instituted or pending, at law or in equity, against the
Company or any of its directors or executive officers, by any person
or by any federal, state or other governmental or regulatory
commission, board or agency;
iii. trading in the Common Stock shall have been
suspended by the Commission or the NASD or trading in securities
generally on the New York Stock Exchange, American Stock Exchange or
the over-the-counter market shall have been suspended or minimum or
maximum prices shall have been established on either such exchange or
quotation system;
iv. a moratorium on banking activities shall have
been declared by New York or United States authorities; or
v. there shall have been (A) an outbreak of
hostilities between the United States and any foreign power (or, in the
case of any ongoing hostilities, a material escalation thereof), (B) an
outbreak of any other insurrection or armed conflict involving the
United States or (C) any other calamity or crisis or material change in
financial, political or economic conditions, having an effect on the
financial markets that, in any case referred to in this clause (v), any
of which of the above events or other market-
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<PAGE> 36
related events, in the sole judgment of the Representative makes it
impracticable or inadvisable to proceed with the Offering or the
delivery of the Securities as contemplated by the Registration
Statement, as amended as of the date hereof.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a) or Section 12 or if this
Agreement shall not be carried out within the time specified herein, or any
extension thereof granted to the Representative, by reason of any failure on the
part of the Company to perform any undertaking or satisfy any condition of this
Agreement by it to be performed or satisfied (including, without limitation,
pursuant to Section 6, Section 10(a) or Section 12), the Company shall promptly
reimburse and indemnify the Representative for all of its out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel (less
amounts previously paid pursuant to Section 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and expenses and Blue
Sky filing fees. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6, 10, 11 and 12 hereof),
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Underwritten Securities which it or they are
obligated to purchase on such date under this Agreement (the "Defaulted
Securities"), the Representative shall have the right, within 48 hours
thereafter, to make arrangement for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representative shall not have completed
such arrangements within such 48-hour period, then:
i. if the number of Defaulted Securities does not
exceed 10% of the total number of Firm Securities to be
purchased on such date, the non-defaulting Underwriters shall
be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
ii. if the number of Defaulted Securities exceeds 10%
of the total number of Firm Securities, this Agreement shall
terminate without liability on the part of any
non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
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<PAGE> 37
12. Default by the Company. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Representative
may at their option, by notice from the Representative to the Company, terminate
the Underwriters' obligation to purchase Option Securities from the Company on
such date) without any liability on the part of any non-defaulting party other
than pursuant to Section 5, Section 7 and Section 10 hereof. No action taken
pursuant to this Section 12 shall relieve the Company from liability, if any, in
respect of such default.
13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to them at
Coleman and Company Securities, Inc., 666 Fifth Avenue, 23rd Floor, New York,
New York 10103, Attention: Stanley L. Bartels, with a copy to Kelley Drye &
Warren LLP, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut
06901, Attention: M. Ridgway Barker, Esq. Notices to the Company shall be
directed to the Company at 1118 Post Avenue, Seattle, Washington 98101,
Attention: Chief Financial Officer, with a copy to each of the President of the
Company at the foregoing address for the Company and to Cairncross & Hempelmann,
P.S., 701 Fifth Avenue, Suite 7000, Seattle, Washington 98104, Attention: David
M. Otto, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives 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 provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to be
a successor by reason merely of such purchase.
15. CONSTRUCTION. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW OR CONFLICT OF LAWS PRINCIPLES.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the Warrant
Agreement constitute the entire agreement of the parties hereto and supersede
all prior written or oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may not be amended except
in a writing, signed by the Representative and the Company.
-37-
<PAGE> 38
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
fine.com CORPORATION
By:
-------------------------------
Daniel M. Fine
Chief Executive Officer
Confirmed and accepted as of the date first above written.
COLEMAN AND COMPANY SECURITIES, INC.
as Representative of the Several Underwriters
named in Schedule I hereto
By: COLEMAN AND COMPANY SECURITIES, INC.
By:
------------------------------------
Stanley L. Bartels
Executive Vice President
-38-
<PAGE> 39
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Securities to
Name of Underwriters be Purchased
- -------------------- ---------------
<S> <C>
Coleman and Company Securities, Inc............................................
Oscar Gruss & Son Incorporated.................................................
TOTAL . . . . . . . . . . . . . . . . .................................... 1,000,000
=========
</TABLE>
-39-
<PAGE> 1
- --------------------------------------------------------------------------------
FINE.COM CORPORATION
AND
COLEMAN AND COMPANY SECURITIES, INC.
-----------------
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of July ___, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
REPRESENTATIVE'S WARRANT AGREEMENT dated as of July ___, 1997
by and between fine.com CORPORATION, a Washington corporation (the "Company"),
and COLEMAN AND COMPANY SECURITIES, INC., a Delaware corporation (the
"Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative,
or at the direction of the Representative, to any co-managing underwriter
warrants ("Warrants") to purchase up to an aggregate of 100,000 shares of common
stock, no par value, of the Company ("Common Stock"); and
WHEREAS, the Representative has agreed pursuant to the
Underwriting Agreement (the "Underwriting Agreement") dated as of July __, 1997
by and between the Company and the Representative, to act as the Representative
of the underwriters named in Schedule I thereto (the "Underwriters") in
connection with the Company's proposed public offering (the "Offering") of
1,000,000 shares of Common Stock at an initial public offering price of $_____
per share of Common Stock (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative, or its designees, in
consideration for, and as part of the Representative's compensation in
connection with, the Representative acting as such pursuant to the terms of the
Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises hereof, the
payment by the Representative to the Company of an aggregate $100, the
agreements herein set forth and other good and valuable consideration, hereby
acknowledged, the parties hereto agree as follows:
1. Grant. The Representative and, at the direction of the
Representative, any co-managing underwriter of the Offering, is hereby granted
the right to purchase, at any time from July __, 1998, until 5:30 P.M., New York
time, on July __, 2002 (the "Expiration Date"), up to an aggregate of 100,000
shares of Common Stock (the "Shares") (subject to adjustment as provided in
Section 8 hereof) at the initial Exercise Price (as hereinafter defined)
(subject to the terms and conditions of this Agreement). Except as set forth
herein, the Shares issuable upon exercise of the Warrants will be in all
respects identical to the shares of Common Stock being purchased by the
Representative for resale to the public pursuant to the terms and provisions of
the Underwriting Agreement. Any Warrant that is not exercised on or prior to the
Expiration Date shall be void and all rights hereunder shall cease.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants are exercisable at the
Exercise Price payable by certified or official bank check in New York Clearing
House funds. Upon surrender of a Warrant Certificate with a duly executed
Election to Purchase (in the form of Annex A to the Warrant Certificate),
together with payment at the Company's principal offices (presently located at
1118 Post Avenue, Seattle, Washington 98101) of the aggregate Exercise Price of
the Warrants being exercised, the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock underlying the Warrants). In the case of the purchase of less than
all the shares of Common Stock purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Warrants exercisable thereunder.
<PAGE> 3
3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, Holders shall have the right, at any time, and from time to
time, to exercise the Warrants in full or in part by surrendering Warrant
Certificates representing a certain number of additional Warrants as payment of
the aggregate Exercise Price for the shares of Common Stock being acquired upon
exercise of the Warrants. The Warrants are exercisable pursuant to this Section
3.2 by surrender of the Warrant Certificate with a duly executed Election to
Purchase (in the form of Annex B to the Warrant Certificate) and surrender of a
certain number of Warrants in addition to those being exercised. The number of
additional Warrants to be surrendered in payment of the aggregate Exercise Price
for the Warrants being exercised shall be determined by multiplying the number
of Warrants to be exercised by the Exercise Price, and then dividing the product
thereof by an amount equal to the Market Price (as defined below) minus the
Exercise Price. Solely for the purposes of this Section 3.2, Market Price shall
be calculated either (i) on the date which the Election to Purchase (in the form
of Annex B to the Warrant Certificate) is deemed to have been sent to the
Company pursuant to Section 13 hereof ("Notice Date") or (ii) as the average of
the Market Prices for each of the five trading days preceding the Notice Date,
whichever of (i) or (ii) is greater.
3.3 Definition of Market Price. As used herein, the phrase
"Market Price" at any date shall be deemed to be the last reported sale price,
or, in case no such reported sale takes place on such day, the average of the
last reported bid prices for the last three (3) trading days, in either case as
officially reported by the Nasdaq SmallCap Market or the principal securities
exchange on which the Common Stock is listed or admitted to trading or by the
Nasdaq National Market ("NNM"), or, if the Common Stock is not quoted by the
Nasdaq SmallCap Market, listed or admitted to trading on any national securities
exchange or quoted by the NNM, the average closing bid price as furnished by the
NASD through the Nasdaq SmallCap Market or similar organization if the Nasdaq
SmallCap Market is no longer reporting such information, or if the Common Stock
is not quoted on the Nasdaq SmallCap Market, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for the total number of whole shares of
Common Stock for which such Warrants were exercised shall be made promptly (and
in any event within five (5) business days thereafter) without charge to the
Holder thereof including, without limitation, any stock transfer or similar tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the
name of, or in such names as may be directed by, the Holder thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in a name other than that of the Holder, and the Company shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the
Shares underlying the Warrants shall be executed on behalf of the Company by the
manual or facsimile signature of the then present Chairman of the Board of
Directors or President of the Company under its corporate seal reproduced
thereon and by the then present Treasurer or Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer. Certificates
representing the shares of Common Stock issuable upon exercise of the Warrants
shall be dated the date on which the Company receives the Election to Purchase,
Warrant Certificate and payment of the Exercise Price.
5. Restriction On Transfer of Warrants. The Warrants may not
be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole
or in part, for a period of one (1) year from the effective date of the
Registration Statement on Form SB-2 (File No. 333-26855), except that the
Warrants may be (i) assigned in whole or part to any officer or partner of the
Representative or any member of the underwriting group and (ii) transferred by
operation of law as a result of the death or divorce of any transferee to whom
the Warrants may have been transferred. Any assignment shall be effected by a
duly executed assignment in the form of Annex C to the Warrant Certificate.
-2-
<PAGE> 4
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. The initial exercise
price of each Warrant shall be $_____ per share of Common Stock. The adjusted
exercise price shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price in accordance with the
provisions of Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
7. Registration Rights.
7.1 Piggyback Registration. If, at any time commencing after
July ___, 1998 and expiring six (6) years thereafter, the Company proposes to
register any of its securities under the Securities Act of 1933, as amended (the
"Securities Act") (other than pursuant to a Form S-4, Form S-8 or any other
successor form of limited purpose), it will give written notice by registered
mail at least thirty (30) days prior to the filing of each such registration
statement, to the Representative and to all other Holders of Warrants and
Warrant Securities of its intention to do so. If the Representative or other
Holders of Warrants and Warrant Securities notify the Company within twenty (20)
business days after receipt of any such notice of its or their desire to include
any of their respective Warrant Securities in such proposed registration
statement, the Company shall afford the Representative and such Holders of
Warrants and Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement, provided, however, that
if the managing underwriter advises the Company in writing that the inclusion of
all Warrant Securities that Holders have proposed be included in such
registration statement would interfere with the successful marketing of the
securities proposed to be registered by the Company, then the securities to be
included in such registration shall be included in the following order:
(a) first, the securities proposed to be included in
such registration by the Company or, if such registration is
for securities of specified security holders of the Company,
by such holders; and
(b) second, the Warrant Securities held by the Holders
requested to be included in such registration; and
(c) third, all other holders of Common Stock entitled to
be included in such registration statement (pro rata among the
holders requesting such registration based upon the number of
shares of Common Stock requested by each such holder to be
registered).
Notwithstanding the provisions of this Section 7.1, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.1 (irrespective of whether a written request
for inclusion of any such Warrant Securities shall have been made) to elect not
to file any such proposed registration statement or to withdraw the same after
the filing but prior to the effective date thereof.
7.2 Demand Registration.
(a) At any time commencing on July ___, 1998 and expiring four
(4) years thereafter (which date is the fifth anniversary of the effective date
of the Registration Statement on Form SB-2 (File No. 333-26855)) (or such
earlier time as the Warrant Securities are eligible for sale under Rule 144(k),
the Holders of the Warrants and/or Warrant Securities representing at least 26%
of such securities (assuming the exercise of all of the Warrants) shall have the
right (which right is in addition to the registration rights under Section 7.1
hereof), exercisable by written notice to the Company, on one occasion only to
request to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of counsel
for the Company and, if either the Representative or a majority of the Holders
electing to participate in the registration requested pursuant to this Section
7.2(a) have retained counsel in connection with such registration, counsel for
each of the Representative and
-3-
<PAGE> 5
a majority of the Holders electing to participate in such registration, in order
to comply with the provisions of the Securities Act, so as to permit a public
offering and sale of their respective Warrant Securities for nine consecutive
months by such Holders and any other Holders of the Warrants and/or Warrant
Securities who notify the Company of their decision to join within fifteen (15)
days after receiving notice from the Company pursuant to Section 7.2(b).
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.2 by any Holder or Holders to all
other registered Holders of Warrants and Warrant Securities within ten (10) days
from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.1
and Section 7.2(a), at any time commencing after July __, 1998 and expiring six
(6) years thereafter (or such earlier time as the Warrant Securities are
eligible for sale under Rule 144(k)), any Holder(s) of Warrants and/or Warrant
Securities shall have the right, exercisable by written request to the Company,
to require the Company to prepare and file, with the Commission a registration
statement and such other documents, including a prospectus, as may be necessary
in the opinion of counsel for the Company and, if either the Representative or a
majority of the Holders electing to participate in the registration requested
pursuant to this Section 7.2(c) have retained counsel in connection with such
registration, counsel for each of the Representative and the majority of the
Holders electing to participate in such registration, so as to permit a public
offering and sale for nine consecutive months by any such Holder(s) of their
respective Warrant Securities, provided, however, that (i) a minimum of 26% of
the Warrant Securities issuable upon exercise of the Warrants issued on the date
hereof must be registered under such registration statement, and (ii) the
provisions of Section 7.3(b) hereof shall not apply to any such registration
request and all reasonable costs, fees and expenses in connection therewith,
including, without limitation, registration fees, legal and accounting fees,
printing fees, blue sky fees and expenses, that have been approved in advance by
a majority of the Holders participating in such registration, shall be at the
expense of the Holder or Holders making such request.
(d) Notwithstanding the provisions of Sections 7.2(a) and
7.2(c), if the Company shall not have filed a registration statement relating to
the Warrant Securities within the time period specified in Section 7.3(a)
hereof, the Company shall have the obligation, upon the written notice of
election of at least 26% of the Holders of the Warrants and/or Warrant
Securities, to repurchase (i) any and all Warrant Securities held by such
persons at the higher of the Market Price per share of Common Stock on (x) the
date of the notice sent pursuant to Section 7.2(a) or (y) the expiration of the
period specified in Section 7.3(a) and (ii) any and all Warrants at such Market
Price less the Exercise Price of such Warrant. Such repurchase shall be in
immediately available funds and shall close within two (2) days after the later
of (i) the expiration of the period specified in Section 7.3(a) or (ii) the
delivery of the written notice of election specified in this Section 7.2(d).
(e) Notwithstanding the provisions of Sections 7.2(a) and (c),
if at any time during which the Company is obligated to maintain the
effectiveness of a registration statement pursuant to such Sections 7.2(a) and
(c), the Company's Board of Directors, after the consultation with counsel to
the Company (which counsel shall be experienced in securities matters) has
determined in good faith that the filing of such registration statement or the
compliance by the Company with its disclosure obligations thereunder would
require the disclosure of material information which the Company has a bona fide
business purpose for preserving as confidential, then the Company may delay the
filing or the effectiveness of such registration statement (if not then filed or
effective, as appropriate) and shall not be required to maintain the
effectiveness thereof for a period expiring upon the earlier to occur of (i) the
date on which such information is disclosed to the public or ceases to be
material or the Company is so able to comply with its disclosure obligations or
(ii) 30 days after the Company's Board of Directors makes such good faith
determination. There shall not be more than one such delay period with respect
to any registration pursuant to Section 7.2(a) or (c). Notice of any such delay
period and of the termination thereof will be promptly delivered by the Company
to each Holder and shall be maintained in confidence by each such Holder.
7.3 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.1 or 7.2 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement, as soon as practicable, but in any event within sixty
(60) days of receipt of any demand therefor, shall use its best efforts to have
any
-4-
<PAGE> 6
registration statement declared effective at the earliest possible time and
shall furnish each Holder desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested; provided, however, that the
Company shall not be obligated to effect such registration under the Securities
Act except in accordance with the following provisions:
(i) the Company shall not be obligated to use its
best efforts to file and cause to become effective any
registration statement for a period of up to 90 days if at the
time of such request any other registration statement pursuant
to which shares of Common Stock of the Company are to be or
were sold has been filed with the Commission and not withdrawn
or has been declared effective within the prior 60 days; and
(ii) the Company may delay the filing or
effectiveness of the registration statement for a period of up
to 90 days after the date of a request for registration if at
the time of such request the Company is engaged in a firm
commitment underwritten public offering of Common Stock in
which the Holders may include their Warrant Securities
pursuant to Section 7.1 hereof.
(b) The Company shall pay all costs, fees and expenses in
connection with all registration statements filed pursuant to Sections 7.1 and
7.2(a) hereof (excluding fees and expenses of the Representative's and Holders'
counsel and accountants and any underwriting or selling commissions) including,
without limitation, the Company's legal and accounting fees, printing expenses,
blue sky fees and expenses. The Holder(s) whose Warrant Securities are the
subject of a Registration Statement filed pursuant to Section 7.2(c) will pay
all reasonable costs, fees and expenses in connection therewith, including,
without limitation, registration fees, legal and accounting fees, printing fees,
blue sky fees and expenses that have been approved in advance by a majority of
the Holders participating in such registration. If the Company shall fail to
comply with the provisions of Section 7.3(a) hereof, the Company shall, in
addition to any other equitable or other relief available to such Holders,
extend the Exercise Period by such number of days as shall equal the delay
caused by the Company's failure and be liable for any or all incidental, special
and consequential damages sustained by such Holders.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided,
that, the Company shall not be obligated to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action which
would subject it to general service of process or to taxation in any
jurisdiction where it is not then so subject.
(d) The Company shall furnish without charge to each Holder of
Warrant Securities, promptly after filing thereof with the Commission, at least
one copy of the registration statement filed pursuant to Section 7.1 or 7.2 (a
"Registration Statement") and each amendment thereto or each amendment or
supplement to the prospectus included therein (the "Prospectus") including all
financial statements and schedules, documents incorporated by reference therein
and if the Holder so requests in writing, all exhibits thereto.
(e) The Company shall take such action as may be reasonably
necessary so that (i) the Registration Statement and any amendment thereto and
any Prospectus forming a part thereof and any supplement or amendment thereto
complies in all material respects with the Securities Act and the rules and
regulations thereunder, (ii) the Registration Statement and any amendment
thereto (in either case, other than with respect to written information
furnished to the Company by or on behalf of any Holder specifically for
inclusion therein) does not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
any statement therein not misleading and (iii) the Prospectus and any supplement
thereto (in either case, other than with respect to such information from
Holders), does not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(f) The Company shall promptly advise the Holders of Warrant
Securities registered under the Registration Statement (which advice pursuant to
clauses (ii) - (iv) shall be accompanied by an instruction to
-5-
<PAGE> 7
suspend the use of the Prospectus until the requisite changes have been made)
and, if requested by such persons, shall confirm such advice in writing:
(i) when the Registration Statement and any amendment
thereto has been filed with the Commission and when the
Registration Statement or any post-effective amendment thereto
has become effective;
(ii) of any request by the Commission for amendments to
the Registration Statement or amendments or supplements to the
Prospectus or for additional information relating thereto;
(iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration
Statement or of the suspension by any state securities
commission of the qualification of the Warrant Securities for
offering or sale in any jurisdiction, or the initiation of any
proceeding for any of the preceding purposes; and
(iv) of the happening of any event that requires the
making of any changes in the Prospectus so that, as of such
date, the Prospectus does not contain an untrue statement of a
material fact and does not omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
(g) If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Warrant
Securities under state securities or Blue Sky laws, the Company shall use its
reasonable best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(h) The Company shall, during the period the Company is
obligated to maintain the effectiveness of a Registration Statement under
Section 7.2 hereof, deliver to each Holder of Warrant Securities included under
the Registration Statement, without charge, such reasonable number of copies of
the Prospectus (including each preliminary prospectus) included in the
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request to facilitate the public sale or other disposition of the
Warrant Securities by the selling Holder.
(i) The Company shall cooperate with the Holders and the
underwriter(s), if any, to facilitate the timely preparation and delivery of
certificates representing Warrant Securities to be sold under the Registration
Statement, free of any restrictive legends and in such denominations and
registered in such names as the Holders or the underwriter(s), if any, may
reasonably request in connection with the sales of Warrant Securities pursuant
to the Registration Statement.
(j) Upon the occurrence of any event contemplated by Section
7.3(f)(ii) - (iv) hereof or any request by the Commission for any amendments to
the Registration Statement or for additional information relating thereto or the
happening of any event that requires the making of any changes in the
Registration Statement, the Company shall file (and use its reasonable best
efforts to have declared effective as soon as possible) a post-effective
amendment to the Registration Statement or an amendment or supplement to the
Prospectus or file any other required document so that, as thereafter delivered
to the purchasers of Warrant Securities registered under the Registration
Statement, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
in light of the circumstances under which they were made not misleading. Each
Holder of Warrant Securities registered under the Registration Statement agrees
by acquisition of such Warrant Securities that, upon receipt of any notice from
the Company of the existence of any fact of the kind described in Section
7.3(f)(ii) - (iv) hereof, such Holder will forthwith discontinue disposition of
Warrant Securities pursuant to the Registration Statement until such Holder
receives copies of the supplemented or amended Prospectus contemplated by this
Section 7.3(j), or until such Holder is advised in writing by the Company that
the use of the Prospectus may be resumed, and such Holder has received copies of
any additional or supplemental filings which are incorporated by reference in
the Prospectus. If so directed by the Company, each Holder will
-6-
<PAGE> 8
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Warrant Securities current at the time of receipt of such notice.
(k) Nothing contained in this Agreement shall be construed as
requiring the Holders to exercise their Warrants prior to the initial filing of
any registration statement or the effectiveness thereof.
(l) The Company shall not permit the inclusion of any
securities other than Warrant Securities to be included in any Registration
Statement filed pursuant to Section 7.2(a) or 7.2(c) hereof without the prior
written consent of the Holders representing a majority of the Holders then
requesting registration under such Section 7.2(a) or Section 7.2(c),
respectively.
(m) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such Registration Statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) if and to the extent
permitted by Statement of Auditing Standards No. 72, a "cold comfort" letter
dated the effective date of such Registration Statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such Registration Statement, in each case covering
substantially the same matters with respect to such Registration Statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(n) The Company shall as soon as practicable after the
effective date of the Registration Statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Securities Act) an earnings statement (which need
not be audited) complying with Section 11(a) of the Securities Act and covering
a period of at least 12 consecutive months beginning after the effective date of
the Registration Statement.
(o) The Company shall deliver promptly to each Holder
participating in the offering upon request, and to the managing underwriters, if
any, copies of all correspondence between the Commission and the Company, its
counsel or accountants and all memoranda relating to discussions with the
Commission or its staff with respect to the Registration Statement and shall
permit each Holder and such underwriters to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the Registration Statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent accountants, all to
such reasonable extent and at such reasonable times and as often as any Holder
or underwriter shall reasonably request.
(p) With respect to the registration of Warrant Securities
pursuant to Section 7.2 to be sold to an underwriter for reoffering to the
public, the Company shall negotiate in good faith with respect to entering into
an underwriting agreement with the managing underwriters selected for such
underwriting by Holders holding a majority of the Warrant Securities requested
to be included in such underwriting, which may include the Representative. Such
agreement shall be satisfactory in form and substance to the Company, each
Holder and such managing underwriter and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities and may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company except as they
may relate to such Holders and their intended methods of distribution and shall
not be requested by the Company to provide indemnification except as provided in
Section 7.3(s) hereof.
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(q) In addition to Warrant Securities, and except as otherwise
provided in Section 7.3(l) hereof, upon the written request therefor by any
Holders, the Company shall include in the Registration Statement any other
securities of the Company held by such Holders as of the date of filing of such
Registration Statement, including without limitation restricted shares of Common
Stock, options, warrants or securities convertible into shares of Common Stock
and shall not be requested by the Company to provide indemnification except as
provided in Section 7.3(s) hereof.
(r) For purposes of this Agreement, wherever a specified
percent of Holders is required to take action, such percentage shall be
calculated: (i) assuming the immediate exercise of all of the outstanding
Warrants for Common Stock and (ii) excluding the shares of Common Stock then
issued or issuable pursuant to Warrants that (x) are held by the Company, an
affiliate or officer thereof or any of their respective affiliates, members of
their family or persons acting as their nominees or in conjunction therewith or
(y) have been resold to the public pursuant to a Registration Statement filed
with the Commission under the Securities Act.
(s) Indemnification and Contribution.
(1) The Company agrees to indemnify and hold harmless each
Holder (for purposes of this Section 7.3(s), "Holder" shall include the
officers, directors, partners, employees and agents, and each person, if any,
who controls any Holder ("controlling person") within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act, from and against any
and all losses, claims, damages, expenses or liabilities, joint or several (and
actions, proceedings, suits and litigation in respect thereof), whatsoever, as
the same are incurred, to which such Holder or any such controlling person may
become subject, under the Securities Act, the Exchange Act or any other statute
or at common law or otherwise insofar as such losses, claims, damages, expenses
or liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, or
any preliminary Prospectus or Prospectus (as from time to time amended and
supplemented) or arise out of or are based upon the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein (with respect to any preliminary Prospectus or
Prospectus, in the light of the circumstances under which they were made), not
misleading; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, expense or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, or any
preliminary Prospectus or Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Holder specifically for inclusion therein and
provided, further, that the Company shall not be liable to any such Holder under
the indemnity agreement in this subsection (1): (i) with respect to any
preliminary Prospectus or Prospectus (if such Prospectus has then been amended
or supplemented) to the extent that any such loss, liability, claim, damage or
expense of such Holder arises out of a sale of Warrant Securities by such Holder
to a person to whom (a) there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus (or of the Prospectus as
then amended or supplemented) if the Company has previously furnished copies
thereof to such Holder a reasonable time in advance or (b) prior to written
confirmation of such sale, such Holder received notice from the Company pursuant
to Section 7.3(j) to discontinue disposition pursuant to such Prospectus and, in
either case, the loss, liability, claim, damage or expense of such Holder
results from an untrue statement or alleged untrue statement or omission or
alleged omission of a material fact contained in the preliminary Prospectus (or
the Prospectus) which was corrected in the Prospectus (or the Prospectus as
amended or supplemented) or (ii) to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon any action or
failure to act by such Holder that is found in a final judicial determination
(or a settlement tantamount thereto) to constitute bad faith, willful misconduct
or gross negligence on the part of such Holder. The indemnity agreement in this
subsection (1) shall be in addition to any liability which the Company may have
at common law or otherwise, to the extent not inconsistent therewith.
The Company also agrees to indemnify or contribute to losses
of any underwriters of Warrant Securities registered under the Registration
Statement, their officers and directors and each person, if any, who controls
any such underwriter (within the meaning of the Securities Act) on substantially
the same basis as that of the indemnification of the Holders provided in this
Section 7.3(s)(1) and shall, if requested by Holders holding a
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<PAGE> 10
majority of the Warrant Securities sought to be registered pursuant to Section
7.2 hereof, enter into an underwriting agreement reflecting such agreement, as
provided in Section 7.3(p) hereof.
(2) Each Holder agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers and each other person, if
any, who controls the Company within the meaning of the Securities Act, to the
same extent as the foregoing indemnity from the Company to the Holders, but only
with respect to (i) statements or omissions, if any, made in conformity with
information relating to such Holder furnished in writing by such Holder
specifically for use in the Registration Statement, or any preliminary
Prospectus or the Prospectus or any amendment thereof or supplement thereto, and
(ii) any breach of such Holder's representations, covenants or agreements set
forth herein; provided, however, that the obligation to indemnify will be
individual to each Holder and will be limited to the amount of net proceeds
received by such Holder from the sale of Warrant Securities pursuant to the
Registration Statement.
(3) Promptly after receipt by an indemnified party under this
Section 7.3(s) of notice of the commencement of any action, suit or proceeding,
such indemnified party shall, if a claim in respect thereof is to be made
against one or more indemnifying parties under this Section 7.3(s), notify each
party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure to notify an indemnifying party shall not
relieve it from any liability which it may have under Sections 7.3(s)(1) or (2)
unless and to the extent that it has been prejudiced in a material respect by
such failure or from the forfeiture of substantial rights and defenses). In case
any such action, suit or proceeding is brought against any indemnified party,
and it notifies an indemnifying party or parties of the commencement thereof,
the indemnifying party or parties will be entitled to participate therein, 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 reasonably satisfactory to such
indemnified party, which may be the same counsel as counsel to the indemnifying
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 the indemnifying parties in connection with the defense of such
action at the expense of the indemnifying party, (ii) the indemnifying parties
shall not have employed counsel reasonably satisfactory to such indemnified
party to take charge of the defense of such action within a reasonable time
after notice of commencement of the action or (iii) such indemnified party or
parties shall have reasonably concluded, after consultation with counsel to such
indemnified party or parties, that a conflict of interest exists which makes
representation by counsel chosen by the indemnifying party not advisable (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 of one additional counsel shall be borne by
the indemnifying parties. In no event shall the indemnifying parties be liable
for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7.3(s) to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent.
(4) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7.3(s), but it is judicially determined (by the entry
of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 7.3(s) provide for indemnification
in such case, or (ii) contribution under the Securities Act may be required,
then each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid as a result of such losses, claims, damages,
expenses or liabilities (or actions, suits, proceedings or litigation in respect
thereof) in such proportion as is appropriate to reflect the relative fault of
each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. Relative fault 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 or by a Holder,
and the parties' relative
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<PAGE> 11
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, expenses or liabilities (or
actions, suits, proceedings or litigation in respect thereof) referred to above
in this subsection (4) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating,
preparing or defending any such action, claim, suit, proceeding or litigation.
Notwithstanding the provisions of this subsection (4), no Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Warrant Securities sold by such indemnifying party and
distributed to the public were offered to the public exceeds the amount of any
damages that such indemnifying party has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 12(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 7.3(s), each person, if any, who controls the Company within the
meaning of the Securities Act, each executive officer of the Company and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to this subsection (4). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit, proceeding or litigation against such party in respect to which a
claim for contribution may be made against another party or parties under this
subsection (4), notify such party or parties from whom contribution may be
sought, but the omission so to 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 hereunder or otherwise than under this subsection (4), or to
the extent that such party or parties were not adversely affected by such
omission. The contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or otherwise.
(t) Notwithstanding the foregoing provisions of this Section
7.3, no registration rights shall be extended pursuant to this Section 7 with
respect to any Warrant Securities (i) which have been sold pursuant to and in
accordance with an effective Registration Statement, (ii) sold in accordance
with Rule 144 under the Securities Act or (iii) eligible for sale under Rule
144(k) under the Securities Act.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Adjustments.
(a) In the event that the Company shall subdivide its
outstanding shares of Common Stock into a greater number of shares or combine
its outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price in effect immediately prior thereto shall be forthwith
proportionately decreased in the case of a subdivision or increased in the case
of a combination. An adjustment made pursuant to this Section 8.1(a) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the date of such subdivision or combination, as the
case may be.
(b) In the event that the Company shall (i) issue or
distribute (for no consideration or at a price per share less than the Market
Price per share on the date of such issuance or distribution) shares of any
class of capital stock of the Company (such shares being hereafter referred to
as "Capital Stock") (excluding an issuance or distribution of Common Stock
described in Section 8.1(a)) or (ii) issue or distribute any rights, warrants,
options or convertible or exchangeable securities entitling the holder thereof
to subscribe for, purchase, convert into or exchange for Capital Stock at a
price per share less than the Market Price per share of such Capital Stock on
the date of such issuance or distribution, then, in each such case, at the
earliest of (A) the date the Company enters into a firm contract for such
issuance or distribution, (B) the record date for the determination of
stockholders entitled to receive any such Capital Stock or any such rights,
warrants, options or convertible or exchangeable securities or (C) the date of
actual issuance or distribution of any such Capital Stock or any such rights,
warrants, options or convertible or exchangeable securities, the Exercise Price
shall be reduced by multiplying the Exercise Price in effect immediately prior
to such earliest date by:
(x) if such Capital Stock is Common Stock, a fraction the
numerator of which is the number of shares of Common Stock
outstanding on such earliest date plus the number of shares of
Common Stock which could be purchased at the Market Price per
share of Common Stock on the date of
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<PAGE> 12
such issuance or distribution with the aggregate consideration
(based on the Fair Market Value thereof) received or
receivable by the Company either (A) in connection with such
issuance or distribution or (B) upon the conversion, exchange,
purchase or subscription of all such rights, warrants, options
or convertible or exchangeable securities (the "Aggregate
Consideration"), and the denominator of which is the number of
shares of Common Stock outstanding on such earliest date plus
the number of shares of Common Stock to be so issued or
distributed or to be issued upon the conversion, exchange,
purchase or subscription of all such rights, warrants, options
or convertible or exchangeable securities; or
(y) if such Capital Stock is other than Common Stock, a
fraction the numerator of which is the Market Price per share
of Common Stock on such earliest date minus an amount equal to
(A) the difference between (1) the Market Price per share of
such Capital Stock multiplied by the number of shares of such
Capital Stock to be so issued and (2) the Aggregate
Consideration, divided by (B) the number of shares of Common
Stock outstanding on such date, and the denominator of which
is the Market Price per share of Common Stock on such earliest
date.
Such adjustment shall be made successively whenever any such Capital Stock,
rights, warrants, options or convertible or exchangeable securities are so
issued or distributed. In determining whether any rights, warrants, options or
convertible or exchangeable securities entitle the holders thereof to subscribe
for, purchase, convert into or exchange for shares of such Capital Stock at less
than such Market Price, there shall be taken into account the Fair Market Value
of any consideration received or receivable by the Company for such rights,
warrants, options or convertible or exchangeable securities (including upon
exercise thereof.) If any right, warrant, option or convertible or exchangeable
securities, the issuance of which resulted in an adjustment in the Exercise
Price pursuant to this Section 8.1(b), shall expire and shall not have been
exercised, the Exercise Price shall immediately upon such expiration be
recomputed to the Exercise Price which would have been in effect if such right,
warrant, option or convertible or exchangeable securities had never been
distributed or issued. Notwithstanding anything contained in this paragraph to
the contrary, the issuance of Capital Stock upon the exercise of such rights,
warrants or options or the conversion or exchange of such convertible or
exchangeable securities will not cause an adjustment in the Exercise Price if no
such adjustment would have been required at the time such right, warrant, option
or convertible or exchangeable security was issued or distributed; provided,
however, that, if the consideration payable upon such exercise, conversion or
exchange or the Capital Stock receivable thereupon are changed after the time of
the issuance or distribution of such right, warrant, option or convertible or
exchangeable security, then such change shall be deemed to be the expiration
thereof without having been exercised and the issuance or distribution of new
options, rights, warrants or convertible or exchangeable securities.
Notwithstanding anything contained in this Agreement to the
contrary, options, rights or warrants issued or distributed by the Company,
including options, rights or warrants distributed prior to the date of this
Agreement, to holders of Common Stock generally which, until the occurrence of a
specified event or events (a "Trigger Event"), (i) are deemed to be transferred
with Common Stock, (ii) are not exercisable and (iii) are also issued on a pro
rata basis with respect to future issuances of Common Stock, shall be deemed not
to have been issued or distributed for purposes of this Section 8.1 (and no
adjustment to the Exercise Price under this Section 8.1 will be required) until
the occurrence of the earliest Trigger Event. Upon the occurrence of a Trigger
Event, such options, rights or warrants shall continue to be deemed not to have
been issued or distributed for purposes of this Section 8.1 (and no adjustment
to the Exercise Price under this Section 8.1 will be required) if and for so
long as each Holder who thereafter exercises such Holder's Warrants shall be
entitled to receive upon such exercise, in addition to the shares of Common
Stock issuable upon such conversion, a number of such options, rights or
warrants, as the case may be, equal to the number of options, rights or warrants
to which a holder of the number of shares of Common Stock equal to the number of
shares of Common Stock issuable upon exercise of such Holder's Warrants is
entitled to receive at the time of such exercise in accordance with the terms
and provisions of and applicable to such options, rights or warrants. Upon the
expiration of any such options, rights or warrants or at such time, if any, as a
Holder is not entitled to receive such options, rights or warrants upon exercise
of such Holder's Warrants, an adjustment (if any is required) to the Exercise
Price shall be made in accordance with this Section 8.1 with respect to the
issuance of all such options, rights and warrants as of the date of issuance
thereof, but subject to the provisions of the preceding paragraph. If any such
option, right or warrant, including any such
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<PAGE> 13
options, rights or warrants distributed prior to the date of this Agreement, are
subject to events, upon the occurrence of which such options, rights or warrants
become exercisable to purchase different securities, evidences of indebtedness,
cash, properties or other assets or different amounts thereof, then, subject to
the preceding provisions of this paragraph, the date of the occurrence of any
and each such event shall be deemed to be the date of distribution and record
date with respect to new options, rights or warrants with such new purchase
rights (and a termination or expiration of the existing options, rights or
warrants without exercise thereof). In addition, in the event of any
distribution (or deemed distribution) of options, rights or warrants, or any
Trigger Event or other event of the type described in the preceding sentence,
that required (or would have required but for the provisions of Section 8.3) an
adjustment to the Exercise Price under this Section 8.1 and such options, rights
or warrants shall thereafter have been redeemed or repurchased without having
been exercised, then the Exercise Price shall be adjusted upon such redemption
or repurchase to give effect to such distribution, Trigger Event or other event,
as the case may be, as though it had instead been a cash distribution, equal on
a per share basis to the result of the aggregate redemption or repurchase price
received by holders of such options, rights or warrants divided by the number of
shares of Common Stock outstanding as of the date of such repurchase or
redemption, made to holders of Common Stock generally as of the date of such
redemption or repurchase.
Notwithstanding anything contained in this Section 8.1(b) to
the contrary, no adjustment shall be made in the Exercise Price pursuant to this
Section 8.1(b) with respect to the issuance of Common Stock or options or other
rights to purchase an aggregate maximum of 307,157 shares of Common Stock
pursuant to the Company's 1996 Incentive Stock Option Plan and the Company's
1997 Stock Option Plan.
(c) If the Company shall pay or distribute, as a dividend or
otherwise, generally to holders of Common Stock or any class or series of
Capital Stock which is convertible into or exercisable or exchangeable for
Common Stock, any assets, properties or rights (including, without limitation,
evidences of indebtedness of the Company, any subsidiary or any other person or
entity, cash or Capital Stock or other securities of the Company, any subsidiary
or any other person or entity, but excluding payments and distributions as
described in Section 8.1(a) or 8.1(b), dividends and distributions in connection
with the liquidation, dissolution or winding up of the Company in its entirety
and distributions consisting solely of cash described in Section 8.1(d)), then
in each such case the Exercise Price shall be reduced by multiplying the
Exercise Price in effect immediately prior to the date of such payment or
distribution by a fraction, the numerator of which is the Market Price per share
of Common Stock on the record date for the determination of stockholders
entitled to receive such payment or distribution less the Fair Market Value per
share on such record date of the assets, properties or rights so paid or
distributed and the denominator shall be the Market Price per share of Common
Stock on such record date. For purposes of this Section 8.1(c), such Fair Market
Value per share shall equal the aggregate Fair Market Value on such record date
of the assets, properties or rights paid or distributed divided by the number of
shares of Common Stock outstanding on such record date. Such adjustment shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such distribution.
(d) If the Company shall, by dividend or otherwise, make a
distribution (other than in connection with the liquidation, dissolution or
winding up of the Company in its entirety), generally to holders of Common Stock
or any class or series of Capital Stock which is convertible into or exercisable
or exchangeable for Common Stock, consisting solely of cash where (x) the sum of
(i) the aggregate amount of such cash plus (ii) the aggregate amount of all cash
so distributed (by dividend or otherwise) to such holders within the 12-month
period ending on the record date for determining stockholders entitled to
receive such distribution with respect to which no adjustment has been made to
the Exercise Price pursuant to this Section 8.1(d) exceeds (y) 10% of the result
of the multiplication of (1) the Market Price per share of Common Stock on such
record date times (2) the number of shares of Common Stock outstanding on such
record date, then the Exercise Price shall be reduced, effective immediately
prior to the opening of business on the day following such record date, by
multiplying the Exercise Price in effect immediately prior to the close of
business on the day prior to such record date by a fraction, the numerator of
which is the Market Price per share of Common Stock on such record date less the
aggregate amount of cash per share so distributed and the denominator of which
is such Market Price; provided, however, that, if the aggregate amount of cash
per share is equal to or greater than such Market Price, then, in lieu of the
foregoing adjustment, adequate provision shall be made so that each Holder shall
have the right to receive upon conversion (with respect to each share of Common
Stock issued upon such conversion and in addition to the Common Stock
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<PAGE> 14
issuable upon conversion) the aggregate amount of cash per share such Holder
would have received had such Holder's Warrants been exercised immediately prior
to such record date. In no event shall the Exercise Price be increased pursuant
to this Section 8.1(d); provided, however, that if such distribution is not so
made, the Exercise Price shall be adjusted to be the Exercise Price which would
have been in effect if such distribution had not been declared. For purposes of
this paragraph of this Section 8.1(d), such aggregate amount of cash per share
shall equal such sum divided by the number of shares of Common Stock outstanding
on such record date.
(e) Anything in this Section 8 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Exercise Price, in addition to those required by this Section 8.1, as it in its
discretion shall determine to be advisable.
(f) For purposes of this Agreement, "Fair Market Value" means,
at any date as to any asset, property or right (including without limitation,
capital stock or any person, evidences of indebtedness or other securities, but
excluding cash), the fair market value of such item as determined in good faith
by the Board of Directors, whose determination shall be conclusive; provided,
however, that, if there is a Market Price for such item on such date, "Fair
Market Value" means such Market Price (without giving effect to the last
sentence of the definition thereof).
8.2 Merger or Consolidation. In the event of (i) any
reclassification (including, without limitation, a reclassification effected by
means of an exchange or tender offer by the Company or any Subsidiary) or change
of outstanding Common Stock (other than a change relating to par value, or as a
result of a subdivision or combination), (ii) any consolidation, merger or
combination of the Company with another corporation as a result of which holders
of Common Stock shall be entitled to receive securities or other assets
(including cash) with respect to or in exchange for Common Stock or (iii) any
sale or conveyance of the assets of the Company as, or substantially as, an
entirety to any other corporation as a result of which holders of Common Stock
shall be entitled to receive securities or other assets (including cash) with
respect to or in exchange for Common Stock, then the Company or the successor or
purchasing corporation, as the case may be, shall execute and deliver to the
Holder upon surrender of the Warrant Certificate held by such Holder a
supplemental warrant agreement providing that the holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon full exercise of such Warrant, the
kind and amount of shares of stock and/or other securities and/or property
receivable upon such consolidation or merger, by a holder of the number of
shares of Common Stock for which such Warrant might have been exercised
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance. Such supplemental warrant agreement shall
provide for adjustments which shall be as nearly equivalent as practicable to
the adjustments provided for in this Section 8. The above provision of this
subsection shall similarly apply to successive events of the type described in
this Section 8.2.
8.3 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than two cents ($0.02) per Warrant Security, provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents ($0.02) per Warrant Security.
8.4 Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 8.1, the number
of shares of Common Stock issuable upon exercise at the adjusted Exercise Price
of each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable upon exercise of
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.5 Certificate of Adjustment. After each adjustment of the
Exercise Price or the amount of Warrant Securities purchasable upon exercise of
Warrants pursuant to this Section 8, the Company will promptly prepare a
certificate signed by the Chairman, President, Treasurer or Secretary of the
Company setting forth: (i) the Exercise Price, as so adjusted; (ii) the amount
of Warrant Securities purchasable upon exercise of each Warrant
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<PAGE> 15
after such adjustment; and (iii) a brief statement of the facts accounting for
such adjustment. The Company will promptly file such certificate with its
records and cause a brief summary thereof to be sent by ordinary first class
mail to each Holder at such Holder's last address as it shall appear on the
registry books of the Company.
8.6 Validity of Warrant Certificate. Notwithstanding any
adjustments or changes in the Exercise Price or the amount of Warrant Securities
purchasable upon exercise of Warrants, Warrant Certificates theretofore and
thereafter issued shall continue to express the Exercise Price per share and the
amount of Warrant Securities purchasable thereunder as of the date such Warrant
Certificates were originally issued; provided, the Holders shall be entitled to
exercise Warrants represented by such Warrant Certificates after giving effect
to each such adjustment and change, and such Warrant Certificate shall be deemed
to incorporate each such adjustment and change as if new Warrant Certificates
reflecting each such adjustment and change had been issued to the Holders.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable, without expense, upon the surrender thereof
by the Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
such Warrant Certificates, if mutilated, the Company will make and deliver a new
Warrant Certificate of like tenor in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants to purchase Common Stock, nor shall it
be required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
or other securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized capital stock,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock or other securities, property or rights as
shall be issuable upon exercise thereof. The Company covenants and agrees that,
upon exercise of the Warrants and payment of the Exercise Price therefor, all
shares of Common Stock and other securities issued by the Company upon such
exercise shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any security holder of the Company. As long
as the Warrants shall be outstanding, the Company shall use its reasonable best
efforts to cause the Common Stock issuable upon the exercise of the Warrants to
be listed (subject to official notice of issuance) on all securities exchanges
on which the Common Stock may then be listed and/or quoted on the Nasdaq
National Market or Nasdaq SmallCap Market if the Common Stock issued to the
public is so quoted.
12. Notices to Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to receive dividends
or to vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter or as
having any rights whatsoever as a stockholder of the Company. If, however, at
any time prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall set a record date for the
purpose of entitling holders of shares of Common Stock to
receive a dividend or distribution payable otherwise than in
cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company;
-14-
<PAGE> 16
(b) the Company shall offer to all the holders of
shares of Common Stock any additional shares of capital stock
of the Company or securities convertible into or exchangeable
for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event to each Holder at least 15 days prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the stockholders entitled to such dividend, distribution or offer, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with any of the events
described in this Section 12.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to a Holder, to the address of such Holder as
shown on the books of the Company; or
(b) If to the Company, to the address set forth in
Section 3 hereof or to such other address as the Company may
designate by notice to the Holders.
14. Supplements and Amendments. The Company and the
Underwriters may from time to time supplement or amend this Agreement without
the approval of any Holders (other than the Representative) in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Representative may deem necessary or desirable and which the Company and
the Representative deem shall not adversely affect the interests of the Holders
in any material respect.
15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close
of business on July ___, 2004. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until the
close of business on July ___, 2009.
17. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificates issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum and also hereby irrevocably waive any right or claim to trial by jury in
connection with any such action, proceeding or claim. Any such process or
summons to be served upon any of the Company, the Representative and the Holders
(at the option of the party bringing such action, proceeding or claim) may be
served by transmitting a copy thereof, by registered or certified mail, return
receipt requested, postage prepaid, addressed to it at the address set forth in
Section 13
-15-
<PAGE> 17
hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, the Representative and the Holders agree that the prevailing party(ies)
in any such action or proceeding shall be entitled to recover from the other
party(ies) all of its/their reasonable legal costs and expenses relating to such
action or proceeding and/or incurred in connection with the preparation
therefor.
18. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof. Except as set forth in Section 14 hereof,
this Agreement may not be modified or amended except by a writing duly signed by
the Company, Holders of Warrants or Warrant Securities representing a majority
of the shares of Common Stock issuable or issued hereunder and the party against
whom enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only, and are not intended, nor
should they be construed as, a part of this Agreement and shall be given no
substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person, corporation or entity other than the
Company, the Representative and any other Holders of Warrants and/or Warrant
Securities any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole and exclusive benefit of the Company
and the Representative and any other Holders of Warrants and/or Warrant
Securities.
22. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original and such counterparts shall together constitute but one and
the same instrument.
[SIGNATURES ON NEXT PAGE]
-16-
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
[SEAL] FINE.COM CORPORATION
By:______________________________________
Name:
Title:
Attest:
_______________________________
Name:
Title:
COLEMAN AND COMPANY SECURITIES, INC.
By:______________________________________
Name:
Title:
-17-
<PAGE> 19
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, JULY __, 2002
No. W- ____ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered
assigns, is the registered holder of Warrants to purchase initially, at any time
from July __, 1998 until 5:30 p.m. New York time on July __, 2002 (the
"Expiration Date"), up to __________ fully paid and nonassessable shares of
Common Stock, no par value (the "Common Stock"), of fine.com Corporation (the
"Company"), at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $_____ per share upon surrender of this
Warrant Certificate and payment of the Exercise Price, at an office or agency of
the Company, but subject to the conditions set forth herein and in the
Representative's Warrant Agreement dated as of July __, 1997 by and between the
Company and Coleman and Company Securities, Inc. (the "Warrant Agreement").
Payment of the Exercise Price, shall be made by certified or official bank check
in New York Clearing House funds payable to the order of the Company and by
surrender of this Warrant Certificate.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the amount the type and/or number of the
Company's securities issuable hereunder may, subject to certain conditions, be
adjusted. Subject to Section 8.6 of the Warrant Agreement, in such event, the
Company will, at the request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrants; provided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter or otherwise impair the rights of the holder as set forth
in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
A-1
<PAGE> 20
Upon the exercise of less than all of the Warrants evidenced
by this Warrant Certificate, the Company shall forthwith issue to the holder
hereof a new Warrant Certificate representing such number of unexercised
Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of _______________________, _______
FINE.COM CORPORATION
[SEAL] By:______________________________________
Name:
Title:
Attest:
_____________________________
Name:
Title:
A-2
<PAGE> 21
ANNEX A
TO WARRANT CERTIFICATE
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase
___________________shares of Common Stock and herewith tenders in payment for
such securities a certified or official bank check payable in New York Clearing
House Funds to the order of ___________________________________ in the amount of
$_________________, all in accordance with the terms of Section 3 of the
Representative's Warrant Agreement dated as of July __, 1997 by and between
fine.com Corporation and Coleman and Company Securities, Inc. The undersigned
requests that a certificate for such securities be registered in the name of
________________________whose address is _______________________________________
and that such certificate be delivered to ______________________whose address is
______________________________________.
Dated: _________________
Signature________________________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
_________________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
A-3
<PAGE> 22
ANNEX B
TO WARRANT CERTIFICATE
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase __________ shares of
Common Stock all in accordance with the terms of Section 3.2 of the
Representative's Warrant Agreement dated as of July , 1997 by and between
fine.com Corporation and Coleman and Company Securities, Inc. The undersigned
requests that a certificate for such securities be registered in the name of
___________________whose address is _______________________________________ and
that such certificate be delivered to __________________________whose address is
_____________________________________________.
Dated:
Signature________________________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
_________________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE> 23
ANNEX C
TO WARRANT CERTIFICATE
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ______________________________ hereby
sells, assigns and transfers unto
________________________________________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
the within Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute __________________and appoint
Attorney to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _________________ Signature:_______________________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
_________________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE> 1
EXHIBIT 5.1
[CAIRNCROSS & HEMPELMANN, P.S. LETTERHEAD]
July 3, 1997
fine.com Corporation
1118 Post Avenue
Seattle, Washington 98101
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
fine.com Corporation, a Washington corporation (the "Company"), has
requested that we furnish an opinion, as set forth herein, with respect to
certain matters in connection with the offering of up to 1,150,000 shares of the
Company's common stock, no par value (the "Shares"), (which includes 150,000
Shares subject to an option granted to the several underwriters of such
offering solely to cover over-allotments, if any) as well as up to 100,000
additional shares of such common stock underlying certain warrants (the
"Representative's Warrants") to be issued to the representative of the several
underwriters for the offering, pursuant to the prospectus (the "Prospectus")
included in the Company's registration statement on Form SB-2, as amended (File
No. 333-26855) (the "Registration Statement").
We have acted as counsel for the Company in connection with the offering
and sale of the Shares. In the course of such representation, our firm assisted
the Company in the preparation of the Registration Statement and related
documents and correspondence. In connection with the opinions expressed herein,
we have reviewed the Company's Articles of Incorporation, as amended, Bylaws,
form of Representative's Warrant Agreement, minutes of meetings of and action of
the Board of Directors and the Company's shareholders and other relevant
documents we deemed necessary. This letter should be read in conjunction with
the Prospectus and, unless the context hereof clearly otherwise provides, all
capitalized terms herein shall have the respective meanings ascribed thereto in
the Prospectus.
On the basis of the foregoing, and subject to the qualifications set forth
herein, we are of the opinion that (a) the Shares have been duly authorized,
and, upon the issuance and sale thereof by the Company as described in the
Registration Statement, and the receipt of the consideration therefor as
described therein, the Shares will be validly issued, fully paid and
non-assessable, and (b) the Representative's Warrants and the shares to be
issued upon exercise of the Representative's Warrants, when issued in exchange
for the consideration recited therein, will be legally issued, fully paid and
non-assessable. This opinion does not address the compliance, or lack thereof,
of the offering or such issuance and sale with any securities laws or any law or
statute other than the Washington Business Corporation Act (Title 23B of the
Revised Code of Washington).
<PAGE> 2
This letter and the opinions expressed herein are solely for the benefit
of the Company, and should not be relied upon by any other person without our
prior written consent, except that we hereby consent to the reference to our
firm under "Legal Matters" in the Prospectus and to the inclusion of this letter
as Exhibit 5.1 to the Registration Statement.
Very truly yours,
/s/ CAIRNCROSS & HEMPELMANN, P.S.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated April 1, 1997
(except for Note 8, as to which the date is May 9, 1997), in Amendment No. 2 to
the Registration Statement (Form SB-2 No. 333-26855) and related Prospectus of
fine.com Corporation for the registration of 1,250,000 shares of its common
stock.
/s/ Ernst & Young LLP
Ernst & Young LLP
Seattle, Washington
July 3, 1997
