AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRAURY 12, 1999
REGISTRATION NO. 333-66099
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 6 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DIGITAL LAVA INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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Delaware 7371 95-4584080
(State or Other (Primary Standard (I.R.S.
Jurisdiction of Industrial Classification Employer identification
Incorporation Or Code Number) No.)
Organization)
10850 Wilshire Boulevard, Suite 1260 10850 Wilshire Boulevard, Suite 1260
Los Angeles, CA 90024 Los Angeles, CA 90024
(310) 470-1149 (Address of Principal Place or
(Address and Telephone Number Intended Principal Place
of Principal Executive Offices) of Business)
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Joshua D.J. Sharfman
Chief Executive Officer
Digital Lava Inc.
10850 Wilshire Boulevard, Suite 1260
Los Angeles, California 90024
(310) 470-1149
(Name, Address, And Telephone Number Of Agent For Service)
COPIES TO:
Jeffrey D. Abbey, Esq. Lawrence B. Fisher, Esq.
Ehrenreich Eilenberg Krause & Zivian LLP Orrick, Herrington & Sutcliffe LLP
11 East 44th Street 30 Rockefeller Plaza
New York, New York 10017 New York, New York 10112
(212) 986-9700 (212) 506-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant. The
Delaware General Corporation Law provides that Section 145 is not exclusive of
other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Article __ of the Registrant's Bylaws provides for indemnification by the
Registrant of its directors, officers and employees to the fullest extent
permitted by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases, redemptions or
other distributions, or (iv) for any transaction from which the director derived
an improper personal benefit. The Registrant's Certificate of Incorporation
provides for such limitation of liability.
The Registrant intends to obtain directors, and officers, insurance
providing indemnification for certain of the Registrant's directors, officers
and employees for certain liabilities.
Reference is also made to the Underwriting Agreement to be filed as Exhibit
1.1 to the registration Statement for information concerning the Underwriters'
obligation to indemnify the registrant and its officers and directors in ceratin
circumstances.
Item 25. Other Expenses of Issuance and Distribution.
SEC Registration Fee $ 11,867
American Stock Exchange Listing Fee $ 32,500
NASD Filing Fee $ 4,768
Accounting Fees and Expenses* $250,000
Printing and Engraving* $100,000
Legal Fees and Expenses* $350,000
Blue Sky Fees and Expenses* $ 20,000
Transfer Agent and Registrar Fees* $ 5,000
Miscellaneous Expenses* $ 25,865
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Total $800,000
========
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* Estimated.
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Item 26. Recent Sales of Unregistered Securities.
The following discussion gives retroactive effect to the one for 9.139
reverse stock split and the recapitalization to be effected immediately prior to
the completion of this offering. Since its organization in July 1995, the
Company, and in several instances members of management and principal
stockholders, has sold and issued the following unregistered securities in
transactions which were exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 4(2) of the Securities Act, as they were
transactions not involving a public offering. The Company believes that all such
purchasers either were "accredited investors" and/or had access to and had an
opportunity to review all relevant information concerning the Company and
sufficient knowledge and experience in business and financial matters to
evaluate the merits and risks of such an investment. The Company believes that
all of the investors were "sophisticated investors."
The Company relied on several factors in concluding that its investors had
the requisite financial status and sophistication to invest in the Company's
securities. The Company's founders or its counsel were personally familiar with
all of its original equity investors and many of the subsequent bridge loan
investors and had direct knowledge of their financial status and prior
investment activities. In addition, the Company relied on detailed investor
questionnaires which required potential investors to confirm their salaries and
net worth. For those bridge loan transactions in which the Company used finders,
the Company had an opportunity to meet many of the potential investors prior to
their investments in the Company's securities. Through discussions with such
potential investors or with the finders who introduced such investors, the
Company was able to learn about the financial status and sophistication of its
investors and their previous investments in bridge loans and similar types of
transactions.
For those investors not personally known by the Company or with whom the
Company did not have an opportunity to meet, the Company relied on the detailed
questionnaires completed by such investors and on personal knowledge of such
investors by the Company's finders and placement agents.
In July 1995, the Company issued an aggregate of 809,565 shares of Common
Stock to Roger Berman, James Stigler, Thomas Stigler and Kenneth Mendoza for
nominal consideration in connection with the formation of the Company.
From August 1995 to June 1996, the Company sold an aggregate of 200,826
shares of Common Stock to 26 individuals, 19 of whom were accredited investors
and 7 of whom were non-accredited investors for $686,599 in cash. Each of the
investors received an offering memorandum which contained appropriate risk
factors and a detailed description of the Company's business. Each of the
investors completed a questionnaire regarding their financial status and
investment history.
From March to June 1996, the Company issued an aggregate of 29,334 shares
of Common Stock to a consultant and its legal counsel, Eilenberg & Zivian, in
consideration for services performed for the Company.
In September 1996, in connection with a $450,000 bridge financing completed
in such month, the Company issued warrants to purchase an aggregate of 70,265
shares of Common Stock to two accredited investors, one of which received a
portion of its warrants as a finder. Each of the investors received an offering
memorandum which contained appropriate risk factors and a detailed description
of the Company's business. Each of the investors completed a questionnaire
regarding their financial status and investment history.
In November 1996, the Company issued 110,732 shares of Common Stock to
Joshua Sharfman, Chief Executive Officer of the Company, in consideration for
services performed for the Company.
In November 1996 and January 1997, the Company issued warrants to purchase
an aggregate of 23,212 shares of Common Stock to Eilenberg & Zivian in
consideration for services performed for the Company.
In January 1997, certain members of management and principal stockholders
of the Company granted to Judson Cooper options to acquire 13,958 of their
shares of series A convertible preferred stock and 19,941 of their shares of
common stock in exchange for services provided to the Company.
In January and March 1997, the Company issued 4,377 shares of common stock
to two consultants for services performed for the Company.
In May 1997, in connection with the issuance of an aggregate principal
amount of $187,500 of promissory notes, the Company issued warrants to purchase
an aggregate of 20,520 shares of Common Stock to five accredited investors. Each
of the investors received an offering memorandum which contained appropriate
risk factors and a detailed description of the Company's business. Each of the
investors completed a questionnaire regarding their financial status and
investment history.
In May 1997, in connection with a $817,500 bridge financing completed in
April and May 1997, the Company issued warrants to purchase an aggregate of
45,712 shares of Common Stock to three individuals who acted as finders in
connection with such financing. Each of the investors who participated in the
financing received an offering memorandum which contained appropriate risk
factors and a detailed description of the Company's business. Each of the
investors completed a questionnaire regarding their
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<PAGE>
financial status and investment history.
In July 1997, in connection with a $902,000 bridge financing completed in
June and July 1997, the Company issued warrants to purchase an aggregate of
15,957 shares of Common Stock to three individuals who acted as finders in
connection with such financing. Each of the investors who participated in the
financing received an offering memorandum which contained appropriate risk
factors and a detailed description of the Company's business. Each of the
investors completed a questionnaire regarding their financial status and
investment history.
In December 1997, certain members of management and principal stockholders
of the Company granted to Eilenberg & Zivian Investments options to acquire
1,642 of their shares of series A convertible preferred stock in exchange for
certain legal and advisory services provided to the Company.
In February 1998, in connection with the issuance of an aggregate principal
amount of $775,000 of promissory notes, the Company issued warrants to purchase
an aggregate of 96,233 shares of Common Stock to ten accredited investors. Each
of the investors received an offering memorandum which contained appropriate
risk factors and a detailed description of the Company's business. Each of the
investors completed a questionnaire regarding their financial status and
investment history.
In February 1998, in connection with a $1,750,000 bridge financing
completed from December 1997 to February 1998, the Company issued warrants to
purchase an aggregate of 47,730 shares of Common Stock to two finders. Each of
the investors in the financing received an offering memorandum which contained
appropriate risk factors and a detailed description of the Company's business.
Each of the investors completed a questionnaire regarding their financial status
and investment history.
In May 1998, the Company issued warrants to purchase an aggregate of 10,943
shares of Common Stock to the Whitestone Group, in consideration for services
performed for the Company.
In September 1998, the Company issued warrants to purchase an aggregate of
21,885 shares of Common Stock to a finder in consideration for such finder's
release of any claims against the Company under the finder's agreement with the
Company.
In October 1998, the Company issued warrants to purchase an aggregate of
20,000 shares of Common Stock to Shahrokh Sedaghat in consideration for services
performed for the Company.
In December 1998, the Company issued warrants to purchase an aggregate of
13,131 shares of Common Stock to Schwartz Communications in consideration for
services performed for the Company.
In December 1998, the Company issued warrants to purchase an aggregate of
6,000 shares of Common Stock to four investors in consideration for such
investors' release of any claims against the Company.
In December 1998, in connection with the issuance of an aggregate principal
amount of $550,000 of subordinated promissory notes, the Company issued warrants
to purchase an aggregate of 275,000 shares of Common Stock to ten accredited
investors. Each of the investors received an offering memorandum which contained
appropriate risk factors and a detailed description of the Company's business.
Each of the investors completed a questionnaire regarding their financial status
and investment history.
In connection with the recapitalization to be completed immediately prior
to the completion of the offering, the Company will issue an aggregate of
846,600 shares of Common Stock to holders of an aggregate principal amount of
$2,832,000 of promissory notes in exchange for one-half of the outstanding
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<PAGE>
principal of their notes, the accrued interest on such notes and the warrants
received in connection with the issuance of such notes. All of such holders
received their notes and warrants in connection with bridge financings completed
from March 1996 through July 1997. In connection with such financings, each
holder received an offering memorandum which contained appropriate risk factors
and a detailed description of the Company's business. Each holder completed a
questionnaire regarding their financial status and investment history.
In connection with the recapitalization to be completed immediately prior
to the completion of the offering, the Company will issue an aggregate of 30,836
shares of Common Stock to holders of an aggregate principal amount of $925,000
of promissory notes in exchange for outstanding warrants to acquire 107,689
shares of Common Stock received in connection with the issuance of such notes.
All of such holders received their notes and warrants in connection a bridge
financing completed from December 1997 to February 1998. In connection with such
financing, each holder received an offering memorandum which contained
appropriate risk factors and a detailed description of the Company's business.
Each holder completed a questionnaire regarding their financial status and
investment history.
Item 27. Exhibits.
Exhibit
Number Description of Exhibits
- ------- --------------------
1(a)****** Form of Underwriting Agreement
1(b)** Form of Financial Advisory Agreement
3(a)** Amended and Restated Certificate of Incorporation, in effect
as of the date hereof
3(b)** Form of Amendment to Amended and Restated Certificate of
Incorporation
3(c)** Form of Amended and Restated Certificate of Incorporation
3(d)* Bylaws of the Company, in effect as of the date hereof
3(e)*** Form of Amended and Restated Bylaws of the Company
4(a)* Form of Common Stock Certificate
4(b)** Form of Warrant Agreement
4(c)** Form of Representative's Warrant Agreement
4(d)* 1996 Incentive and Non-Qualified Stock Option Plan (1)
4(e)* Warrant Agreement dated as of September 30, 1996 between the
Company and Millenium Capital Management (2)
4(f)* Warrant Agreement dated as of September 30, 1996 between the
Company and Miracle Investments Co. (2)
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<PAGE>
4(g)* Registration Rights Agreement between the Company, Miracle
Investments Co. and Millenium Capital Management
4(h)* Warrant Agreement dated November 1, 1996 between the Company
and Eilenberg & Zivian(2)(3)
4(i)* Warrant Agreement dated January 27, 1997 between the Company
and Eilenberg & Zivian (2)(3)
4(j)* Warrant Agreement dated May 30, 1997 between the Company and
certain investors and finders(2)
4(k)* Registration Rights Agreement dated May 30, 1997 between the
Company and certain investors and finders
4(l)* Letter Agreement dated October 6, 1998 between the Company
and certain investors
4(m)* Warrant Agreement dated July 11, 1997 between the Company
and certain investors and finders(2)
4(n)* Registration Rights Agreement dated July 11, 1997 between
the Company and certain investors and finders
4(o)** Warrant Agreement between the Company and Schwartz
Communications
4(p)* Warrant Agreement dated February 19, 1998 between the
Company and certain investors and finders (2)
4(q)* Registration Rights Agreement dated February 19, 1998
between the Company and certain investors and finders
4(r)* Form of Promissory Note dated February 19, 1998 between the
Company and certain investors
4(s)* Warrant Agreement dated May 1, 1998 between the Company and
The Whitestone Group (2)
4(t)* Registration Rights Agreement dated May 1, 1998 between the
Company and The Whitestone Group
4(u)* Letter Agreement between the Company and certain investors
and finders dated July 15, 1998
4(v)* Letter Agreement between the Company and certain investors
and finders dated July 16, 1998
4(w)* Letter Agreement between the Company and certain investors
and finders dated July 29, 1998
4(x)* Warrant Agreement dated as of October 7, 1998 between the
Company and certain consultants
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<PAGE>
4(y)* Registration Rights Agreement dated as of October 7, 1998
between the Company and certain consultants
4(z)* Letter Agreement as of October 7, 1998 between the Company
and certain investors
4(aa)* Amended and Restated Option Agreement dated as of May 1,
1998 between the Company, Judson Cooper and certain founders
of the Company (2)
4(ab)* Amended and Restated Option Agreement dated as of May 1,
1998 between the Company, E&Z Investments and certain
founders of the Company (2)
4(ac)*** Warrant Agreement between the Company and United Resources
Partners dated September 18, 1998
4(ad)** Warrant Agreement dated January 7, 1999 between the Company
and certain investors
4(ae)** Warrant Agreement between the Company and certain investors
dated December 7, 1998
4(af)** Registration Rights Agreemnt between the Company and certain
investors dated between December 7, 1998
4(ag)*** Registration Rights Agreement between the Company and United
Resources Partners dated September 18, 1998
5(a)**** Opinion of Ehrenreich Eilenberg Krause & Zivian LLP
10(a)* Employment Agreement dated September 1, 1998 between the
Company and Thomas Stigler
10(b)* Employment Agreement dated September 1, 1998 between the
Company and Joshua D.J. Sharfman
10(c)* Consulting Agreement dated September 1, 1998 between the
Company and Roger Berman
10(d)* Consulting Agreement dated September 1, 1998 between the
Company and Dr. James Stigler
10(e)* Consulting Agreement dated September 1, 1998 between the
Company and Prism Ventures LLC
10(f)** Consulting Agreement dated May 1, 1998 between the Company
and the Whitestone Group
10(g)** Consulting Agreement dated October 7, 1998 between the
Company and Shahrokh "Shawn" Sedaghat
10(h)***** Agreement dated January 8, 1998 between the Company and
RealNetworks, Inc.(4)
10(i)***** Agreement dated April 1, 1998 between the Company and
RealNetworks, Inc.(4)
10(j)***** Software License Agreement dated March 31, 1997 between the
Company and Cinax Designs, Inc.(4)
10(k)** Agreement dated August 8, 1998 between the Company and
Lesson Lab
23(a)**** Consent of Ehrenreich Eilenberg Krause & Zivian LLP
(included in opinion filed as Exhibit 5(a))
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<PAGE>
23(b)**** Consent of PricewaterhouseCoopers LLP
24(a)* Power of Attorney (included in Part II of the Registration
Statement under the caption Signatures")
27(a)** Financial Data Schedule
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* Filed with original SB-2 Registration Statement filed on October 23, 1998.
** Filed with Amendment No. 1 to SB-2 Registration Statement filed on January
12, 1999.
*** Filed with Amendment No. 2 to SB-2 Registration Statement.
**** Filed with Amendment No. 3 to SB-2 Registration Statement.
***** Filed with Amendment No. 5 to SB-2 Registration Statement.
****** Filed with this Amendment No. 6 to SB-2 Registration Statement.
(1) Does not reflect increase in number of shares issuable under the Plan
pursuant to resolution of Board of Directors.
(2) These agreements were entered into prior to the reverse split of the
Company's Common Stock and, therefore, do not reflect such reverse split.
(3) These warrant agreements do not reflect exercise price changes made
pursuant to resolutions of the Board of Directors.
(4) Confidential information is omitted and identified by a * and filed
separately with the SEC pursuant to a request for Confidential Treatment.
Item 28. Undertakings.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the undersigned Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the undersigned Registrant of expenses incurred or paid by a director, officer
or controlling person of the undersigned Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
undersigned Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant in all instances will provide to the
Underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the
undersigned Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be
part of the registration statement as of the time it was declared
effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
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<PAGE>
(d) The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
undersigned Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on the 12th
day of February, 1999.
DIGITAL LAVA INC.
By: /s/ Joshua D.J. Sharfman
----------------------------
Joshua D.J. Sharfman
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
respective capacities and on the respective dates set forth opposite their
names.
Signatures Title Date
- ---------- ----- ----
*
- ---------------------------
James Stigler Chairman and Director February 12, 1999
/s/ Danny Gampe
- ---------------------------
Danny Gampe Chief Financial Officer February 12, 1999
(Principal Financial and
Accounting Officer)
*
- ---------------------------
Roger Berman Director February 12, 1999
*
- ---------------------------
Thomas Stigler Director February 12, 1999
*
- ---------------------------
Gerald Porter Director February 12, 1999
/s/ Joshua D.J. Sharfman
- ---------------------------
Joshua D.J. Sharfman Chief Executive Officer February 12, 1999
and Director (Principal
Executive Officer)
*By: /s/ Joshua D.J. Sharfman
---------------------------
Joshua D.J. Sharfman
Attorney-in-fact
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2,400,000 Shares of Common Stock and
1,200,000 Redeemable Common Stock Purchase Warrants
DIGITAL LAVA INC.
UNDERWRITING AGREEMENT
New York, New York
_____________, 1999
Dirks & Company, Inc.
As Representative of the
Several Underwriters listed
on Schedule A hereto
520 Madison Avenue
New York, NY 10022
Ladies and Gentlemen:
Digital Lava Inc., a Delaware corporation (the "Company") confirms its agreement
with Dirks & Company, Inc. ("Dirks") and each of the several underwriters named
in Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 11) for
whom Dirks is acting as representative (in such capacity, Security Capital shall
hereinafter be referred to as "you" or the "Representative"), with respect to
the sale by the Company and the purchase by the Underwriters, acting severally
and not jointly, of the respective number of shares ("Shares") of the Company's
common stock, $0.0001 par value per share ("Common Stock"), and redeemable
Common Stock purchase warrants ("the Redeemable Warrants"), each to purchase one
share of Common Stock set forth in Schedule A hereto. The aggregate 2,400,000
Shares of Common Stock and 1,200,000 Redeemable Warrants will be separately
tradable upon issuance and are hereinafter referred to as the "Firm Securities."
Each Redeemable Warrant is exercisable commencing on [____________] [twelve
months after the date of the Prospectus] until [______________] [five years
after the date of the Prospectus], unless previously redeemed by the Company, at
an initial exercise price of $[____________] per share [120% of the initial
public offering price of the Common Stock] of Common Stock. The Redeemable
Warrants may be redeemed by the Company, in whole but not in part, at a
redemption price of $.10 per warrant at any time commencing [__________]
[eighteen months after the date of the Prospectus] on thirty (30) days' prior
written notice, provided that the average closing sale price of the Common Stock
as reported on the American Stock Exchange equals or exceeds $11.25 per share,
for any twenty (20) days within a period of thirty (30) consecutive trading days
ending on the fifth (5th) trading day prior to the date of the notice of
<PAGE>
redemption, all in accordance with the terms and conditions of the Warrant
Agreement (herein defined).
Upon the Representative's request, as provided in Section 2(b) of this
Agreement, the Company shall also issue and sell to the Underwriters up to an
additional 360,000 Shares of Common Stock and/or 180,000 Redeemable Warrants for
the purpose of covering over-allotments, if any. Such 360,000 shares of Common
Stock and 180,000 Redeemable Warrants are hereinafter collectively referred to
as the "Option Securities". The Company also proposes to issue and sell to you
warrants (the "Representative's Warrants") pursuant to the Representative's
Warrant Agreement (the "Representative's Warrant Agreement") for the purchase of
an additional 240,000 shares of Common Stock and/or 120,000 Redeemable Warrants.
The shares of Common Stock and Redeemable Warrants issuable upon exercise of the
Representative's Warrants are hereinafter referred to as the "Representative's
Securities." The Firm Securities, the Option Securities, the Representative's
Warrants and the Representative's Securities (collectively, hereinafter referred
to as the "Securities") are more fully described in the Registration Statement
and the Prospectus referred to below.
1. Representations and Warranties of the Company.
(a) The Company represents and warrants to, and agrees with, the
Underwriters as of the date hereof, and as of the Closing Date (hereinafter
defined) and each Option Closing Date (hereinafter defined), if any, as follows:
(i) 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 (No. 333-66099), including
any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Firm Securities, the Option Securities and the
Representative's 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 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 which the Underwriters shall
have objected to 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 or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein) and all
information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430A 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." 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.
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<PAGE>
(ii) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of
the Registration Statement or any of the Company's securities have been
instituted or are pending or to the Company's knowledge, threatened. Each
of the Preliminary Prospectus, Registration Statement and Prospectus at the
time of filing thereof conformed with the requirements of the Act and the
Rules and Regulations, and none of the Preliminary Prospectus, 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, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus or any amendment thereof or supplement thereto. The
Company has filed all reports, forms or other documents required to be
filed under the Act or the Exchange Act and the respective Rules and
Regulations thereunder, and all such reports, forms or other documents,
when so filed or as subsequently amended, complied in all material respects
with the Act and the Exchange Act and the respective rules and regulations
thereunder.
(iii) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and
each Option Closing Date (as defined herein), if any, and during such
longer period as 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 which are required
to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to 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
information furnished to the Company in writing by or on behalf of any
Underwriters expressly for use in the Preliminary Prospectus, Registration
Statement or Prospectus or any amendment thereof or supplement thereto.
(iv) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its
incorporation. The Company does not 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 character of its operations 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, of the
Company (a "Material Adverse Effect"). The Company has all requisite power
and authority (corporate and other), and
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the Company 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, except where the failure to do so would not
have a Material Adverse Effect; the Company is and has been doing business
in compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all applicable federal, state,
local and foreign laws, rules and regulations; and 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 and
adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, value, operation, properties, business or results of
operations of the Company. 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 material respects and do not omit to state
a material fact required to be stated therein necessary to make the
statements contained therein not misleading, in light of the circumstances
in which they were made.
(v) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set
forth therein on the Closing Date and the Option Closing Date, if any,
based upon the assumptions set forth therein, 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, the Representative's Warrant
Agreement and the Warrant 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 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 holders of any security of the Company or
similar contractual rights granted by the Company. The Securities are not
and will not be subject to any preemptive or other similar rights of any
stockholder, 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 and will conform to the description thereof
contained in the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be taken
for the authorization, issue and sale of the Securities 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
hereof and the Representative's Warrant Agreement of the Securities to be
sold by the Company hereunder, the Underwriters or the Representative, as
the case may be, will acquire good and marketable title to such Securities
free and clear of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever.
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(vi) The financial statements of the Company, together with the
related notes and schedules thereto, included in the Registration
Statement, each Preliminary Prospectus and the Prospectus fairly present
the financial position, income, changes in cash flow, changes in
stockholders' equity, and the results of operations of the Company at the
respective dates and for the respective periods to which they and such
financial statements have been prepared in conformity with generally
accepted accounting principles and the Rules and Regulations, consistently
applied throughout the periods involved and such financial statements as
are audited have been examined by Pricewaterhouse Coopers LLP, who are
independent certified public accountants within the meaning of the Act and
the Rules and Regulations, as indicated in their reports filed herewith.
There has been no adverse change or development involving a material
prospective change in the condition, financial or otherwise, or in the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business, or results of operations of the Company, whether or
not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the
Prospectus and the outstanding debt, the property, both tangible and
intangible, and the business of the Company conform in all material
respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. Financial information (including, without
limitation, any pro forma financial information) set forth in the
Prospectus under the headings "Summary Financial Information," "Selected
Financial Information," "Capitalization," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," fairly present,
on the basis stated in the Prospectus, the information set forth therein,
have been derived from or compiled on a basis consistent with that of the
audited financial statements included in the Prospectus; and in the case of
pro forma financial information, if any, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred
to therein.
(vii) The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal
Revenue Code of 1986 (the "Code"), and has furnished all information
returns it is required to furnish pursuant to the Code, (ii) has
established adequate reserves for such taxes which are not due and payable,
and (iii) does not have any tax deficiency or claims outstanding, proposed
or assessed against it.
(viii) 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 by the Underwriters of the
Firm Securities and Option Securities from the Company, and the purchase by
the Representative of the Representative's Warrants from the Company, (iii)
the consummation by the Company of any of its obligations under this
Agreement or the Representative's Warrant Agreement, or (iv) resales of the
Firm Securities and the Option Securities in connection with the
distribution contemplated hereby.
(ix) The Company maintains insurance policies, including, but not
limited to, general liability and property insurance, which insures the
Company and its
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employees, against such losses and risks generally insured against by
comparable businesses. The Company (A) has not 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 any
insurance policy or surety bond in a due and timely manner, (B) does not
have 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) has failed to comply with all conditions contained in
such insurance policies and surety bonds. 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.
(x) 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 threatened against (or
circumstances that may give rise to the same), or involving the properties
or business of, the Company which (i) questions the validity of the capital
stock of the Company, this Agreement, the Representative's Warrant
Agreement or the Warrant Agreement or of any action taken or to be taken by
the Company pursuant to or in connection with this Agreement, the
Representative's Warrant 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 summarized in all material respects), or (iii)
might materially and adversely affect the condition, financial or
otherwise, or the earnings, position, prospects, stockholders' equity,
value, operation, properties, business or results of operations of the
Company.
(xi) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this
Agreement, the Representative's Warrant Agreement and the Warrant Agreement
and to consummate the transactions provided for in such agreements; and
this Agreement, the Representative's Warrant Agreement and the Warrant
Agreement have each been duly and properly authorized, executed and
delivered by the Company. Each of this Agreement, the Representative's
Warrant Agreement and the Warrant Agreement constitutes a legal, valid and
binding agreement of the Company enforceable against the Company in
accordance with its terms. None of the Company's issue and sale of the
Securities, execution or delivery of this Agreement, the Representative's
Warrant Agreement or the 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 and 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, 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 pursuant to the terms of,
(i) the certificate of incorporation or by-laws of the Company, (ii) 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
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the Company is a party or by which the Company 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 (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.
(xii) 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 the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the issuance of the
Representative's Warrants, the performance of this Agreement, the
Representative's Warrant Agreement and the Warrant Agreement and the
transactions contemplated hereby and thereby, including without limitation,
any waiver of any preemptive, first refusal or other rights that any entity
or person may have for the issue and/or sale of any of the Securities,
except such as have been or may be obtained under the Act or may be
required under state securities or Blue Sky laws and the rules of the
National Association of Securities Dealers, Inc. (the "NASD") in connection
with the Underwriters' purchase and distribution of the Firm Securities,
the Option Securities and the Representative's Warrants to be sold by the
Company hereunder.
(xiii) 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 it
may be bound or to which any of its assets, properties or business may be
subject have been duly and validly authorized, executed and delivered by
the Company, and constitute the 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 in all material
respects 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 in all
material respects complete and correct copies of the documents of which
they purport to be copies.
(xiv) 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 material change in the debt (long or short term) or liabilities or
material adverse change in or affecting the condition, financial or
otherwise, earnings, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company.
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<PAGE>
(xv) Except as described in the Prospectus, no default exists 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
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.
(xvi) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and 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 the Company pending before the National Labor Relations Board or
any strike, picketing, boycott, dispute, slowdown or stoppage pending or
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 under any expired or
existing collective bargaining agreements of the Company. No labor dispute
with the employees of the Company exists, or is imminent.
(xvii) Except for a major medical plan for its employees and a 401(k)
plan for all employees, to which the Company, as employer, does not
contribute, 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 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 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 reporting, disclosure
and other requirements of 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 qualified thereunder. The Company has never completely or
partially withdrawn from a "multiemployer plan."
(xviii) Neither the Company nor any of its employees, directors,
stockholders, 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
8
<PAGE>
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.
(xix) None of the patents, patent applications, trademarks, service
marks, service names, trade names and copyrights and none of the licenses
and rights to the foregoing presently owned or held by the Company are in
dispute or are in any conflict with the right of any other person or
entity. The Company (i) owns or has the right to use, free and clear of all
liens, charges, claims, encumbrances, pledges, security interests, defects
or other restrictions or equities of any kind whatsoever, all patents,
patent applications, trademarks, service marks, service names, trade names
and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed
to be conducted without infringing 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 described in the
Prospectus, is not obligated or under any liability whatsoever to make any
payment by way of royalties, fees or otherwise to any owner or licensee of,
or other claimant to, any patent, patent application, trademark, service
mark, service names, 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. There is no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or governmental or other
proceeding, domestic or foreign, pending or threatened (or circumstances
that may give rise to the same) against the Company which challenges the
exclusive rights of the Company with respect to any trademarks, trade
names, service marks, service names, copyrights, patents, patent
applications or licenses or rights to the foregoing used in the conduct of
its business, or which challenge the right of the Company to use any
technology presently used or contemplated to be used in the conduct of its
business.
(xx) The Company owns and has the unrestricted right to use all trade
secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
inventions, technology, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein
"intellectual property") that are material to the development, manufacture,
operation and sale of all products and services sold or proposed to be sold
by the Company, free and clear of and without violating any right, lien, or
claim of others, including without limitation, former employers of its
employees; provided, however, that the possibility exists that other
persons or entities, completely independently of the Company, or its
employees or agents, could have developed trade secrets or items of
technical information similar or identical to those of the Company. The
Company is not aware of any such development of similar or identical trade
secrets or technical information by others.
(xxi) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
stated in the Prospectus, owned or leased by it 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.
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(xxii) Pricewaterhouse Coopers LLP ("PriceWaterhouse Coopers"), whose
report is filed with the Commission as a part of the Registration
Statement, are independent certified public accountants as required by the
Act and the Rules and Regulations.
(xxiii) The Company has caused to be duly executed legally binding and
enforceable agreements ("Lock-Up Agreement") pursuant to which each of the
Company's officers and directors of the Company, holders of [ ] shares of
Common Stock and holders --------- of securities exchangeable or
exercisable for or convertible into shares of Common Stock have agreed not
to, directly or indirectly, offer, sell, grant any option for the sale of,
assign, transfer, pledge, hypothecate, distribute or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock (either pursuant to Rule 144 of
the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein for a period of not less than twelve (12) months following
the effective date of the Registration Statement without the prior written
consent of the Representative and the Company. Any shares of Common Stock
issued in connection with a private placement which occurs after the date
hereof shall be subject to Lock-Up Agreements for a period of six (6)
months following the effective date of the Registration Statement. Holders
of [_______] shares of Common Stock have agreed not to, directly or
indirectly, offer, sell, transfer, pledge, assign, hypothecate, or
otherwise encumber any such shares of Common Stock or any securities
convertible into, exercisable or exchangeable for or evidencing any right
to purchase or subscribe for any shares of Common Stock (either pursuant to
Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein for a period of not less than nine (9) months
following the effective date of the Registration Statement without the
prior written consent of the Representative and the Company. If at any time
commencing 180 days after the effective date of the Registration Statement,
the closing sale or bid price of the Common Stock is greater than 150% of
the initial public offering price of the Common Stock for a period of five
(5) consecutive trading days, the Representative will, upon request,
release any securities subject to a lock-up agreement specified above. In
addition, the Company shall not sell or offer for sale any of its
securities for a period of six (6) months from the effective date of the
Registration Statement without the consent of the Representative except
pursuant to options and warrants issued on the effective date of the
Registration Statement. The Company will cause the Transfer Agent, as
defined below, to mark an appropriate legend on the face of stock
certificates representing all of such securities and to place "stop
transfer" orders on the Company's stock ledgers.
(xxiv) Except as described in the Prospectus under "Underwriting,"
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, stockholders,
partners, employees or affiliates that may affect the Underwriters'
compensation, as determined by the NASD.
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(xxv) The Common Stock and Redeemable Warrants have been approved for
listing on the American Stock Exchange ("Amex").
(xxvi) Neither the Company nor any of its directors, 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 on
the assets, business or operations of the Company, or (c) if not continued
in the future, might adversely affect the assets, business, condition,
financial or otherwise, earnings, position, properties, value operations or
prospects of the Company. The Company's internal accounting controls are
sufficient to cause the Company to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
(xxvii) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the
Company further agrees that if it or any affiliate commences engaging in
business with the government of Cuba or with any person or affiliate
located in Cuba after the date the Registration Statement becomes or has
become effective with the Commission or with the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if the
information reported or incorporated by reference in the Prospectus, if
any, concerning the Company's, or any affiliate's, business with Cuba or
with any person of affiliate located in Cuba changes in any material way,
the Company will provide the Department notice of such business or change,
as appropriate, in a form acceptable to the Department.
(xxviii) Except as set forth in the Prospectus, no officer, director
or stockholder 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, 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 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 any officer, director, or Principal Stockholder (as such term is
defined in the Prospectus) of the Company or any partner, affiliate or
associate of any of the foregoing persons or entities.
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(xxix) Any certificate signed by any officer of the Company, and
delivered to the Representative or to Underwriters' Counsel (as defined
herein) shall be deemed a representation and warranty by the Company to the
Representative as to the matters covered thereby.
(xxx) The minute books of the Company have been made available to the
Representative and contain a complete summary of all meetings and actions
of the directors, stockholders, audit committee, compensation committee and
any other committee of the Board of Directors of the Company, respectively,
since the time of its incorporation, and reflects all transactions referred
to in such minutes accurately in all material respects.
(xxxi) Except and to the extent described in 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.
(xxxii) The Company has as of the effective date of the Registration
Statement entered into employment agreements with Joshua Sharfman and
Thomas Stigler in the forms filed as Exhibits to the Registration
Statements.
(xxxiii) The Company has entered into a warrant agreement,
substantially in the form filed as Exhibit 4(b) to the Registration
Statement (the "Warrant Agreement"), with American Stock Transfer & Trust
Company, as Warrant Agent, in form and substance satisfactory to the
Representative, with respect to the Redeemable Warrants and providing for
the payment of warrant solicitation fees. The Warrant Agreement has been
duly and validly authorized by the Company and, assuming due execution by
the parties thereto other than the Company, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as obligations to indemnify or
contribute to losses may be limited by applicable law).
(xxxiv) The Company has entered into a financial advisory and
consulting agreement substantially in the form filed as Exhibit _____ to
the Registration Statement (the "Consulting Agreement") with the
Representative, with respect to the rendering of consulting services by the
Underwriter to the Company. The Consulting Agreement has been duly and
validly authorized by the Company and assuming due execution by the parties
thereto other than the Company, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or
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affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to
indemnify or contribution may be limited by applicable law).
(xxxv) The Company has filed a Form 8-A with the Commission providing
for the registration under the Exchange Act of the Securities and such Form
8-A has been declared effective by the Commission.
(xxxvi) The Company has reviewed its operations and any third parties
with which the Company has a material relationship to evaluate the extent
to which the business or operations of the Company will be affected by the
Year 2000 Problem. As a result of such review, the disclosure in the
Registration Statement under Year 2000 is accurate and complies in all
material respects with the rules and regulations of the Act. The "Year 2000
Problem" as used herein means any significant risk that computer hardware
or software used in the receipt, transmission, processing, manipulation,
storage, retrieval, retransmission or other utilization of data or in the
operation of mechanical or electrical systems of any kind will not, in the
case of dates or time periods occurring after December 31, 1999, function
at least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000.
2. Purchase, Sale and Delivery of the Securities and Representative's
Warrants.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter
agrees to purchase from the Company at a price of $____ per share of Common
Stock [90% of the initial public offering price per share of Common Stock] and
$____ per Redeemable Warrant [90% of the initial public offering price per
Redeemable Warrant], that number of Firm Securities set forth in Schedule A
opposite the name of such Underwriter, subject to adjustment as the
Representative in its sole discretion shall make 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 hereof.
(b) In addition, on the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters to purchase
all or any part of an additional 360,000 shares of Common Stock at a price of
$___ per share of Common Stock [90% of the initial public offering price per
share of Common Stock] and 180,000 warrants at a price of $____ per Redeemable
Warrant [90% of the initial public offering price per Redeemable Warrant]. The
option granted hereby will expire 45 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, 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 by the Representative to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option
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Securities. Any such time and date of delivery (an "Option Closing Date") shall
be determined by the Representative, but shall not be later than seven 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. Nothing herein contained shall obligate the
Underwriters to make any over-allotments. 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 Dirks & Company, Inc. at 520
Madison Avenue, 10th Floor, New York, New York, 10022, 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 __________, 1999 or
at such other time and date as shall be agreed upon by the Representative and
the Company, but not less than three (3) nor more than seven (7) full business
days after the effective date of the Registration Statement (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 the Option Securities, if any, shall be made to the
Underwriters against payment by the Underwriters of the purchase price for the
Firm Securities and the Option Securities, if any, to the order of the Company
for the Firm Securities and the Option Securities, if any, by New York Clearing
House funds. Certificates for the Firm Securities and the Option Securities, if
any, 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 two (2) business days prior to
the Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the Firm Securities and the Option Securities, if any, shall be
made available to the Representative at such office or such other place as the
Representative may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day 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 the Representative's Warrants to the Representative at a purchase
price of $.0001 per warrant, which warrants shall entitle the holders thereof to
purchase an aggregate of 240,000 shares of Common Stock and/or 120,000
Redeemable Warrants. The Representative's Warrants shall be exercisable for a
period of four (4) years commencing one (1) year from the effective date of the
Registration Statement at a price equaling one hundred twenty percent (165%) of
the initial public offering price of the Common Stock and Redeemable Warrants.
The Representative's Warrant Agreement and form of Warrant Certificate shall be
substantially in the form filed as Exhibit 4(c) to the Registration Statement.
Payment for the Representative's Warrants shall be made on the Closing Date.
3. Public Offering of the Common Stock and Redeemable Warrants. As soon
after the Registration Statement becomes effective as the Representative deems
advisable, the Underwriters shall make a public offering of the Firm Securities
and such Option Securities as
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the Representative may determine (other than to residents of or in any
jurisdiction in which qualification of the Common Stock and Redeemable Warrants
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 distribution of the Common Stock and
the Redeemable Warrants has been completed to such extent as the Representative,
in its discretion deems advisable. The Underwriters may enter into one of 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 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 before termination of the offering of the Units by the Underwriters of which
the Representative shall not previously have been advised and furnished with a
copy, or to which the Representative shall have 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, 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.
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 of such order.
(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)) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement and (ii) the fifteenth business day after the effective date of
the Registration Statement.
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<PAGE>
(d) The Company will give the Representative notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the
Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel"),
shall object.
(e) The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
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, 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
or file a general or limited 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.
(f) During the time when a prospectus is required to be delivered under the
Act, the Company shall use all reasonable efforts to 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, includes
an 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
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, 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, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the copies of such
amendment or supplement as soon as available and in such quantities as the
Underwriters may request.
(g) As soon as practicable, but in any event not later than 45 days after
the end of the 12-month period beginning on the 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
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<PAGE>
generally available to its security holders, in the manner specified in Rule
158(b) of 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,
covering a period of at least twelve (12) consecutive months after the effective
date of the Registration Statement.
(h) During a period of five (5) years after the date hereof, the Company
will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the Company's
principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity,
and cash flows of the Company for such fiscal year, accompanied by a copy
of the certificate thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports (financial
or other) mailed to stockholders;
(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) 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 subsidiary) or its businesses which the
Representative may request.
(vii) During such five-year period, if the Company has an active
subsidiary, the foregoing financial statements will be on a consolidated
basis to the extent that the accounts of the Company and its
subsidiary(ies) are consolidated, and will be accompanied by similar
financial statements for any significant subsidiary which is not so
consolidated.
(i) The Company will maintain a transfer agent and warrant agent ("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 and Redeemable Warrants.
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<PAGE>
(j) The Company will furnish to the Representative or on 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.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Representative with true copies of duly executed,
legally binding and enforceable agreements pursuant to which, for a period of
twelve (12) months from the effective date of the Registration Statement, the
officers and directors of the Company, holders of [____] shares of Common Stock
and holders of securities exchangeable or exercisable for or convertible into
shares of Common Stock, agree that it or he or she will not directly or
indirectly, issue, offer to sell, sell, grant an option for the sale of, assign,
transfer, pledge, hypothecate, distribute or otherwise encumber or dispose of
any shares of Common Stock or securities convertible into, exercisable or
exchangeable for or evidencing any right to purchase or subscribe for any shares
of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein without the prior
written consent of the Representative and the Company. On or before the
effective date of the Registration Statement, the Company shall provide the
Representative with true copies of duly executed, legally binding and
enforceable agreements, pursuant to which, for a period of nine (9) months from
the effective date of the Registration Statement, holders of [_____] shares of
Common Stock agree that it or he or she will not, directly or indirectly, issue,
offer, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate, distribute or otherwise encumber or dispose of such shares of
Common Stock or any securities convertible into, exercisable or exchangeable for
or evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior written consent of
the Representative and the Company (together with the agreements described
above, the "Lock-up Agreements"). During the six (6) month period commencing
with the effective date of the Registration Statement, the Company shall not,
without the prior written consent of the Representative, sell, contract or offer
to sell, issue, transfer, assign, pledge, hypothecate, distribute, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any options,
rights or warrants with respect to any shares of Common Stock, except as set
forth in clause(s) of Section 4 hereof and except in connection with strategic
transactions or mergers and acquisitions for which no consent is required. On or
before the Closing Date, the Company shall deliver instructions to the Transfer
Agent authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreements and to place
appropriate stop transfer orders on the Company's ledgers.
(l) Neither the Company, nor any of its officers, directors, stockholders,
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 in the future reasonably be expected to cause or result in, stabilization
or manipulation of the price of any securities of the Company.
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<PAGE>
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. Except as described in the Prospectus, no portion
of the net proceeds will be used, directly or indirectly, to acquire any
securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, any reports or
forms 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 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.
(o) 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 its letter to be furnished pursuant
to Section 6(j) hereof.
(p) The Company shall use its best efforts to cause the Common Stock and
the Redeemable Warrants to be quoted on Amex, the Nasdaq National Market or
other national securities exchange and for a period of five (5) years from the
date hereof, use its best efforts to maintain the Amex, Nasdaq, or other
national securities exchange quotation of the Common Stock and the Redeemable
Warrants to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the Company shall
furnish to the Representative at the Representative's request and at the
Company's sole expense, (i) daily consolidated transfer sheets relating to the
Common Stock and the Redeemable Warrants (ii) the list of holders of all of the
Company's securities and (iii) a Blue Sky "Trading Survey" for secondary sales
of the Company's securities prepared by counsel to the Company.
(r) As soon as practicable, (i) but in no event more than five (5) business
days before the effective date of the Registration Statement, file a Form 8-A
with the Commission providing for the registration under the Exchange Act of the
Securities and (ii) but in no event more than 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 Moody's OTC Manual
and to continue such inclusion for a period of not less than five (5) years.
(s) The Company hereby agrees that it will not, for a period of twelve (12)
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 similar arrangement permitting (i) the grant, issue,
sale or entry into any agreement to grant, issue or sell any option, warrant or
other contract right (x) at an exercise price that is less than the greater of
the public offering price of the Shares set forth herein and the fair market
value on the date of grant or sale with regard to existing employees, directors
or consultants or equal to the fair market value at the date of grant for
employees and consultants hired and directors elected
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after the date hereof or (y) to any of its executive officers or directors or to
any holder of 5% or more of the Common Stock except pursuant to the Company's
1996 Incentive and Non-Qualified Stock Option Plan (the "Plan"); (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 the aggregate 250,000 shares reserved for future issuance under the
Company's Plan; provided, however, that if the stockholders of the Company
approve an amendment to the Plan that increases the number of shares reserved
for future issuance up to 500,000 shares, 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 shall not exceed 500,000; (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.
(t) Until the completion of the distribution of the Firm Securities and the
Option Securities, 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 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.
(u) For a period equal to the lesser of (i) five (5) years from the date
hereof, and (ii) the sale to the public of the Representative's Securities, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form SB-2 or Form S-1 (or other appropriate form) for the
registration under the Act of the Representative's Securities. The Company
further agrees to use its best efforts to file such post-effective amendments to
the Registration Statement as may be necessary, in order to maintain its
effectiveness and to keep such Registration Statement effective while any of the
Redeemable Warrants or Representative's Warrants remain outstanding.
(v) For a period of five (5) years after the effective date of the
Registration Statement, the Representative shall have the right to designate for
election one (1) individual to the Company's Board of Directors (the "Board").
Such person shall be mutually acceptable to the Company and the Representative.
In the event the Representative elects not to exercise such right, then it may
designate one (1) individual to attend meetings of the Company's Board. The
Company shall notify the Representative of each meeting of the Board and the
Company shall send to such individual all notices and other correspondence and
communications sent by the Company to members of the Board. Such individual
shall be reimbursed for all out-of-pocket expenses incurred in connection with
his attendance of meetings of the Board.
(w) For a period of twelve (12) months after the effective date of the
Registration Statement, the Company shall not restate, amend or alter any term
of any written employment, consulting or similar agreement entered into between
the Company and any officer, director or key employee as of the effective date
of the Registration Statement in a manner which is more favorable to such
officer, director or key employee, without the prior written consent of the
Representative.
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(x) The Company will use its best efforts to maintain the effectiveness of
the Registration Statement for a period of five years after the date hereof.
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, the Warrant Agreement and the Representative's Warrant Agreement,
including, 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 and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Warrant Agreement, the
Representative's Warrant Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreements, 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 Underwriters and such
dealers as the Underwriters may request, in quantities as hereinabove stated,
(iii) the printing, engraving, issuance and delivery of the Securities
including, but not limited to, (x) the purchase by the Underwriters of the Firm
Securities and the Option Securities and the purchase by the Representative of
the Representative's Warrants from the Company, (y) the consummation by the
Company of any of its obligations under this Agreement, the Warrant Agreement
and the Representative's Warrant Agreement, and (z) resale of the Firm
Securities and the Option 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," the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith, (v) advertising costs and expenses,
including but not limited to costs and expenses in connection with the "road
show", information meetings and presentations, bound volumes and prospectus
memorabilia and "tomb-stone" advertisement expenses, (vi) costs and expenses in
connection with due diligence investigations, including but not limited to the
fees of any independent counsel or consultant retained, (vii) fees and expenses
of the transfer agent and registrar, (viii) applications for assignments of a
rating of the Securities by qualified rating agencies, (ix) the fees payable to
the Commission and the NASD, and (x) the fees and expenses incurred in
connection with the quotation of the Securities on Amex and any other exchange.
(b) If this Agreement is terminated by the Underwriters in accordance with
the provisions of Section 6 or Section 12, the Company shall reimburse and
indemnify the Underwriters for all of their actual out-of-pocket expenses,
including the fees and disbursements of Underwriters' Counsel, less any amounts
already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this Section 5, it will pay to the Representative
on the Closing Date by certified or bank cashier's check or, at the election of
the Representative, by deduction from
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the proceeds of the offering of the Firm Securities 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 Representative elects to exercise the over-allotment
option described in Section 2(b) hereof, the Company agrees to pay to the
Representative on the Option Closing Date (by certified or bank cashier's check
or, at the Representative's election, by deduction from the proceeds of the
Option Securities) 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.
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 it 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
12:00 Noon, New York time, on the date of this Agreement or such later date and
time as shall be consented to in writing by the Representative, and, at 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 Shares 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 is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(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
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Company, the validity of the Securities, the Representative's Warrants, 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 Underwriter shall have received the favorable
opinion of Ehrenreich Eilenberg Krause & Zivian LLP, 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 organized and is validly existing as
a corporation in good standing under the laws of its jurisdiction, (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 the failure to be so qualified or licensed would not have a
Material Adverse Effect, and (C) has all requisite corporate power and
authority; and the Company 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, except where the
failure to do so would not have a Material Adverse Effect; 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. 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 material respects and do not omit to state a fact necessary to make
the statements contained therein not misleading in light of the
circumstances in which they were made;
(ii) the Company does not own an interest in any other 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 "Capitalization" and "Description of Securities,"
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, the
Representative's Warrant Agreement and the Warrant Agreement and as
described in the Prospectus. The Securities, and all other securities
issued or issuable by the Company conform in all material respects to all
statements with respect thereto contained in the
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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 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 holders of any security of the
Company or any similar rights granted by the Company. The Securities to be
sold by the Company hereunder and under the Representative's Warrant
Agreement and the Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, 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 and
conform to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale
of the Securities has been duly and validly taken; and the certificates
representing the Securities are in due and proper form. The
Representative's Warrants and the Redeemable Warrants constitute valid and
binding obligations of the Company to issue and sell, upon exercise thereof
and payment therefor, the number and type of securities of the Company
called for thereby. Upon the issuance and delivery pursuant to this
Agreement, Representative's Warrant Agreement and the Warrant Agreement of
the Securities to be sold by the Company, the Underwriters and the
Representative, respectively, will acquire good and marketable title to
such Securities free and clear of any pledge, lien, charge, claim,
encumbrance, pledge, security interest, or other restriction or equity of
any kind whatsoever. No transfer tax is payable by or on behalf of the
Underwriters in connection with (A) the issuance by the Company of the
Securities, (B) the purchase by the Underwriters of the Firm Securities and
the Option Securities from the Company and the purchase by the
Representative of the Representative's Warrants from the Company, (C) the
consummation by the Company of any of its obligations under this Agreement,
the Representative's Warrant Agreement or the Warrant Agreement, or (D)
resales of the Firm Securities and the Option 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
the Preliminary Prospectus, the Registration Statement or Prospectus or any
part of any thereof 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 knowledge,
threatened or contemplated under the Act;
(v) each of the 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) (A) to the best of such counsel's knowledge, 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
<PAGE>
Statement other than those described in the Registration Statement (or
required to be filed under the Exchange Act if upon such filing they would
be incorporated, in whole or in part, by reference therein) 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 and fairly represent the information
required to be shown by Form SB-2; (C) there is not pending or, to the best
of such counsel's knowledge, 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, pending or threatened against (or circumstances that may give rise
to the same), or involving the properties or business of the Company which
(x) 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 summarized in all respects), (y) questions the
validity of the capital stock of the Company or this Agreement, the
Representative's Warrant Agreement or 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 is not
described as required; and (E) there is no action, suit or proceeding
pending, or, to the best of such counsel's knowledge, 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 a decision which may result in a
material adverse change in the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of the Company, which could
adversely affect the present or prospective ability of the Company to
perform its obligations under this Agreement, the Representative's Warrant
Agreement or the Warrant Agreement or which in any manner draws into
question the validity or enforceability of this Agreement, the
Representative's Warrant Agreement or the Warrant Agreement;
(vii) the Company has full legal right, power and authority to enter
into each of this Agreement, the Representative's Warrant Agreement and the
Warrant Agreement and to consummate the transactions provided for herein
and therein; and each of this Agreement, the Representative's Warrant
Agreement and the Warrant Agreement has been duly authorized, executed and
delivered by the Company. Each of this Agreement, the Representative's
Warrant Agreement and the Warrant Agreement, assuming due authorization,
execution and delivery by each other party thereto constitutes a legal,
valid and binding agreement of the Company enforceable against the Company
in accordance with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law), and none of the Company's
execution or
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delivery of this Agreement, the Representative's Warrant Agreement and the
Warrant Agreement, its performance hereunder or thereunder, its
consummation of the transactions contemplated herein or therein, or the
conduct of its business 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 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 pursuant to the terms of, (A) the certificate of
incorporation 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 respective 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 activities or
properties;
(viii) no consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic
or foreign (other than such as may be required under Blue Sky laws, as to
which no opinion need be rendered) is required in connection with the
issuance of the Securities pursuant to the Prospectus, the Registration
Statement, the issuance of the Representative's Warrants, the performance
of this Agreement, the Representative's Warrant Agreement and the Warrant
Agreement, and the transactions contemplated hereby and thereby;
(ix) to the best of such counsel's knowledge, except as described in
the Prospectus, the Company is not in breach of, or in default under, any
term or provision of any license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust agreement,
stockholders' agreement, partnership agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an obligation for
borrowed money, or any other 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; and
the Company is not in violation of any term or provision of (A) its
certificate of incorporation or by-laws, (B) any order, license,
certificate, franchise or permit of any governmental or regulatory official
or body or (C) any judgment, decree, order, statute, rule or regulation to
which it is subject;
(x) the statements in the Prospectus under "PROSPECTUS SUMMARY," "THE
COMPANY," "RISK FACTORS," "BUSINESS," "MANAGEMENT," "PRINCIPAL
STOCKHOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION OF SECURITIES," and
"SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed by such counsel, and
insofar as they refer to
26
<PAGE>
statements of law, descriptions of statutes, licenses, rules or regulations
or legal conclusions, are correct in all material respects;
(xi) the Firm Securities and Option Securities have been accepted for
quotation on Amex;
(xii) the persons listed under the caption "PRINCIPAL STOCKHOLDERS" 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;
(xiii) to the best of such counsel's knowledge, except as described in
the Prospectus, other than the Selling Stockholders, 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;
(xiv) assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding obligations of
parties thereto, enforceable against the party and any subsequent holder of
the securities subject thereto in accordance with their terms;
(xv) except as described in the Prospectus or as set forth in Section
1(a)(xvii) hereof, the Company does not (A) maintain, sponsor or contribute
to any ERISA Plans, (B) maintain or contribute, now or at any time
previously, to a defined benefit plan, as defined in Section 3(35) of
ERISA, and (C) has never completely or partially withdrawn from a
"multiemployer plan";
(xvi) the Company is in compliance with all provisions of Section 1 of
Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing
Business with Cuba;
(xvii) none of the Company or any of its affiliates shall be subject
to the requirements of or shall be deemed an "Investment Company," pursuant
to and as defined under, respectively, the Investment Company Act; and
(xviii) Except as described in the Prospectus, the Company is not
under any obligation to pay to any third party, royalties or fees of any
kind whatsoever with respect to any technology or intellectual properties
developed, employed, licensed or used, except where the failure to do so
would not have a Material Adverse Effect.
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 such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, the
27
<PAGE>
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
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which 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
Preliminary Prospectus or 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 and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus), or any supplements or
amendments thereto. Such counsel shall further state that its opinions may be
relied upon by Underwriter's Counsel in rendering its opinion to the
Underwriters.
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, 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 shall also
state that the Underwriters' Counsel is entitled to rely thereon. 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 Representative,
Underwriters' counsel and they are justified in relying thereon. Such opinion
shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991), or any comparable State bar accord.
At each Option Closing Date, if any, the Underwriters shall have received
the favorable opinion of Ehrenreich Eilenberg Krause & Zivian LLP, 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 Ehrenreich Eilenberg Krause & Zivian
LLP in their opinion delivered on the Closing Date.
(e) On or before the Closing Date, the Underwriters shall have received the
favorable opinion of ____, special intellectual property counsel to the Company,
dated the Closing Date, addressed to the Underwriters, in form and substance
satisfactory to Underwriters' Counsel, to the effect that the Company owns or
possesses, free and clear of all liens or encumbrances and rights thereto or
therein by third parties, the requisite licenses or other rights to use all
trademarks, service marks, copyrights, service names, trade names, patents,
patent applications and licenses necessary to conduct its business (including,
without limitation, any such licenses or rights described in the Prospectus as
being owned or possessed by the Company), and there is no claim or action by any
person pertaining to, or proceeding, pending or threatened, which challenges the
exclusive rights of the Company with respect to any trademarks, service marks,
copyrights, service names, trade names, patents, patent applications
28
<PAGE>
and licenses used in the conduct of the Company's business (including, without
limitation, any such licenses or rights described in the Prospectus as being
owned or possessed by the Company); and the Company's current products, services
and processes do not and will not infringe on the patents currently held by
third parties.
(f) 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 for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(g) Prior to each 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 change in the condition, financial or otherwise, earnings, position,
value, properties, results of operations, prospects, stockholders' 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) except as described in the Prospectus, the Company
shall not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) except as described in the Prospectus, the
Company shall not have issued any securities (other than the Securities); the
Company shall not have 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 of the Company, or any material 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, ruling or finding may adversely affect the
business, operations, prospects or financial condition or income 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.
(h) At each of the Closing Date and each Option Closing Date, if any, the
Underwriters 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
29
<PAGE>
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, the Prospectus nor any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading and neither the Preliminary Prospectus or any supplement
thereto included any untrue statement of a material fact or omitted 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, (a) the Company has
not incurred up to and including the Closing Date or the Option Closing
Date, as the case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent;
(b) the Company has not paid or declared any dividends or other
distributions on its capital stock; (c) the Company has not entered into
any transactions not in the ordinary course of business; (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 case of business) of the Company; (e) the
Company has not sustained any material loss or damage to its property or
assets, whether or not insured; (g) there is no litigation which is pending
or threatened (or circumstances giving rise to same) against the Company,
or any affiliated party of any of the foregoing which is required to be set
forth in an amended or supplemented Prospectus which has not been set
forth; and (h) 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.
(i) By the Closing Date, the Underwriters will have received clearance from
the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters shall have
received a letter, dated such date, addressed to the Underwriters in form and
substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Pricewaterhouse Coopers LLP;
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(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 Pricewaterhouse
Coopers LLP with respect to such financial statements and supporting
schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which included a
reading of the latest available unaudited interim financial statements of
the Company, a reading of the latest available minutes of the stockholders
and board of directors and the various committees of the boards 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 pro forma 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 the unaudited pro forma financial information included in
the Registration Statement, (B) the unaudited financial statements and
supporting schedules of the Company included in the Registration Statement
do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the
audited financial statements of the Company included in the Registration
Statement, or (C) at a specified date not more than five (5) days prior to
the effective date of the Registration Statement, there has been any change
in the capital stock of the Company, any change in the long-term debt of
the Company, or any decrease in the stockholders' equity of the Company or
any decrease in the net current assets or net assets of the Company as
compared with amounts shown in the September 30, 1998 balance sheets
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 from September 30, 1998 to a specified date not more than
five (5) days prior to the effective date of the Registration Statement,
there was any decrease in net revenues or net earnings of the Company or
increase in net earnings per common share of the Company, in each case as
compared with the corresponding period beginning September 30, 1998 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) setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of the
Company (including a break-down of commercial paper and notes payable to
banks);
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<PAGE>
(v) 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
(vi) statements as to such other matters incident to the transaction
contemplated hereby as the Underwriters may request.
(k) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Pricewaterhouse Coopers 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 the statements made in the letter furnished
pursuant to subsection (i) of this Section hereof except that the specified date
referred to shall be a date not more than five days prior to the 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 (v) of subsection (i) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Underwriters 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 (v).
(l) On each of the Closing Date and Option Closing Date, if any, there
shall be duly tendered to the Representative the appropriate number of
Securities.
(m) No order suspending the sale of the Securities in any jurisdiction
designated by the Representative pursuant to subsection (e) of Section 4 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.
(n) On or before the Closing Date, the Company shall have executed and
delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit 4(c); to the Registration Statement
in final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(o) On or before the Closing Date, the Common Stock and the Redeemable
Warrants shall have been duly approved for quotation on Amex, subject to
official notice of issuance.
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(p) On or before the Closing Date, there shall have been delivered to the
Representative all of the Lock-up Agreements, in form and substance satisfactory
to Representative's Counsel.
(q) On or before the effective date of the Registration Statement, the
Company shall have executed and delivered to the Representative and the Transfer
Agent the Warrant Agreement, substantially in the form filed as Exhibit 4(b) to
the Registration Agreement in final form and 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, employees, agents and counsel 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 claims,
actions, proceedings, investigations, inquiries, suits and litigation in respect
thereof), whatsoever (including but not limited to any and all costs and
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any such claim, action, proceeding, investigation, inquiry, suit or
litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which the Underwriter or such controlling person may become subject
under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
(A) 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 filed, delivered or used 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, Amex or any other securities exchange,
(B) 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 Prospectus, in the light of the circumstances under which they
were made), or (C) any breach of any representation, warranty, covenant or
agreement of the Company contained herein or in any certificate by or on behalf
of the Company or any of its officers delivered pursuant hereto unless, in the
case of clause (A) or (B) above, such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company with
respect to any Underwriter by or on behalf of such Underwriters expressly for
use in any Preliminary Prospectus, the Registration Statement or any Prospectus,
or any amendment thereof or supplement thereto, or in
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any application, as the case may be. The indemnity agreement in this subsection
(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 Underwriter 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, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriter expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Prospectus. The indemnity
agreement in this subsection (b) shall be in addition to any liability which the
Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any claim, action, suit, investigation, inquiry,
proceeding or litigation, 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 any liability which it may have
under this Section 7 except to the extent that it has been prejudiced in any
material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, investigation, inquiry, suit,
proceeding or litigation, 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 thereof of
such action, on behalf of the indemnified party or parties), in any of
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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 claim, action, investigation, inquiry, suit, proceeding
or litigation or separate but similar or related claims, actions,
investigations, inquiries, suits, proceedings or litigation 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, suit, action,
investigation, inquiry, proceeding or litigation effected without its written
consent; provided, however, that such consent was not unreasonably withheld. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, investigation, inquiry,
suit, proceeding or litigation in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim, action, suit, investigation, inquiry,
proceeding or litigation), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party form all liability
arising out of such claim, action, suit, investigation, inquiry, proceeding or
litigation and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(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 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. In any case where the Company is the contributing
party and the Underwriters are the indemnified party, the relative benefits
received by 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 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
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<PAGE>
actions, investigations, inquiries, suits or proceedings in respect thereof)
referred to above in this subdivision (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, investigation, inquiry,
suit or proceeding. Notwithstanding the provisions of this subdivision (d) the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the Underwriters
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 subparagraph (d). Any party entitled
to contribution will, promptly after receipt of notice of commencement of any
action, suit, inquiry, investigation or proceeding against such party in respect
to which a claim for contribution may be made against another party or parties
under this subparagraph (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
subparagraph (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 and the 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
Securities to the Underwriters and the Representative, as the case may be.
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 Securities for sale to the public; provided,
however, that the provisions of 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 Representative for publication of the
first newspaper advertisement which is subsequently published relating to the
Securities.
10. Termination.
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(a) Subject to subsection (b) of this Section 10, the Representative shall
have the right to terminate this Agreement, after the date hereof, (i) any
change, or any development involving a prospective change, in or affecting
particularly the business or properties of the Company or its subsidiaries
which, in the judgement of a majority in interest of the Underwriters including
the Representative, materially impairs the investment quality of the Securities;
or (ii) if trading generally shall have been suspended or materially limited on
or by, as the case may be, any of the New York Stock Exchange, the American
Stock Exchange, the National Association of Securities Dealers, Inc., the Boston
Stock Exchange, the Chicago Board of Trade, the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange, the Commission or any other
government authority having jurisdiction; or (iii) if trading of any of the
securities of the Company shall have been suspended, or any of the securities of
the Company shall have been delisted, on any exchange or in any over-the-counter
market; or (iv) if the United States shall have become involved in a war or
major hostilities, or if there shall have been an escalation in an existing war
or major hostilities or a national emergency shall have been declared in the
United States; or (v) if a banking moratorium has been declared by a state or
federal authority; or (vi) if a moratorium in foreign exchange trading has been
declared; or (vii) if the Company shall have sustained a loss material or
substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Representative's opinion, make it
inadvisable to proceed with the delivery of the Securities; or (viii) if there
shall have occurred any outbreak or escalation of hostilities or any calamity or
crisis or there shall have been such a material adverse change in the conditions
or prospects of the Company, or such material adverse change in the general
market, political or economic conditions, in the United States or elsewhere as
in the Representative's judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities.
(b) If this Agreement is terminated by the Representative in accordance
with the provisions of Section 10(a) the Company shall promptly reimburse and
indemnify the Representative for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to Section 5(c) above). Notwithstanding any
contrary provision contained in this Agreement, 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 or
Section 12) then, the Company shall promptly reimburse and indemnify the
Underwriter for all of their actual out-of-pocket expenses, including the fees
and disbursements of counsel for the Underwriter (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 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 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 Securities which it or
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<PAGE>
they are obligated to purchase on such date under this Agreement (the "Defaulted
Securities"), the Representative shall have the right, within 24 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 24-hour period, then:
(a) 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
(b) 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 (or, if such default shall occur with respect
to any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date).
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 (7) days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
12. Default by the Company. If the Company shall fail at the Closing Date
or at 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 Underwriters
may at the Representative's option, by notice from the Underwriters or 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 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, sent by Federal Express or other recognized courier
or transmitted by any standard form of telecommunication. Notices to the
Representative shall be directed to the Representative c/o Dirks & Company, Inc.
at 520 Madison Avenue, 10th Floor, New York, New York 10022, Attention: Jessy W.
Dirks, with a copy to Orrick, Herrington & Sutcliffe LLP, 30 Rockefeller Plaza,
New York, New York 10112, Attention: Lawrence B. Fisher, Esq. Notices to the
Company shall be directed to the Company at 10850 Wilshire Boulevard, Suite
1260, Los
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Angeles, California 90024, Attention: Joshua D.J. Sharfman, with a copy to
Ehrenreich Eilenberg Krause & Zivian LLP, 11 East 44th Street, New York, New
York 10017, Attention: Adam D. Eilenberg, 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 the Underwriters 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 Representative's
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.
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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,
DIGITAL LAVA INC.
By: ___________________________________
Name:
Title:
Confirmed and accepted as of the date first above written.
DIRKS & COMPANY, INC.
By: ___________________________________
Name:
Title:
<PAGE>
SCHEDULE A
Number of
Number of Shares Redeemable Warrants
Underwriter to be Purchased to be Purchased
- ----------- ---------------- -------------------
Dirks & Company, Inc.
TOTAL 2,400,000 1,200,000
A-1
January 8, 1998
Mr. Joshua D. J. Sharfman
CEO, Digital Lava Inc.
10850 Wilshire Boulevard, Suite 1260
Los Angeles, CA 90024
Dear Josh:
This letter shall serve as a formal Agreement between RealNetworks, Inc. ("RN")
and Digital Lava ("Customer"). Customer desires that RN perform consulting
services in connection with the Digital Lava RMA Client Renderer ("DL RMA
Renderer") as set forth below.
1. Services. RN shall provide the Services set forth on Attachment A hereto and
shall deliver to Customer all work product and results of such Services (the
"Deliverables") according to the Delivery Schedule set forth on Attachment A.
Customer will provide RN with unimpeded access to required hardware, software
and communications systems required to complete the Services during the
timeframe set forth in this Agreement. With respect to the performance of
Services, Customer will not direct or supervise RN's employees or staff with
respect to said individuals tasks or responsibilities without RN's express
written consent. RN intends to perform the substantial majority of the Services
at RN's premises.
2. Acceptance. Customer shall have [10] business days after delivery and
installation of the Deliverables (or re-installation resulting from correction
of defects by repair or replacement of the Deliverables) to evaluate and test
the Deliverables to determine that they conform with Attachment A hereto. If
Customer, in its best business judgment, determines that the Deliverables fail
to conform to the requirements of Attachment A, it shall immediately notify RN
in writing, specifying in detail the reasons that Customer believes the
Deliverables fail to conform. RN shall have [15] business days in which to
correct and resubmit the Deliverables to Customer. Customer shall then have [3]
business days in which to re-evaluate and test the Deliverables for conformance
with Attachment A, and shall notify RN as set forth above of any nonconformance.
RN shall have [5] business days in which to correct and resubmit the
Deliverables to Customer. Customer shall then have [2] business days to re-test
the Deliverables, and to provide RN with notice rejection of the Deliverables
for nonconformance. Silence shall be deemed to be acceptance. If RN fails to
correct the Deliverables to conform to Attachment A within such time period,
Customer may terminate this Agreement. Upon acceptance of such Deliverables, RN
shall provide ongoing maintenance and support pursuant to Section 3 of
Attachment A and Section 3 (b) of this Agreement.
3. Fees and Payment.
a. Progress Payments. In consideration for the rights and obligations set
forth herein, Customer will pay RN according to the Payment Schedule set forth
on Attachment A. By executing this Agreement, Customer confirms the budget for
the work, and the charges and purchases set forth in Appendix A hereto. If
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Customer wishes to enlarge the scope of the Services or implement additional
features or subtasks, the parties shall agree upon the costs therefor in advance
in writing.
b. Upgrades and Support. If Customer desires to receive continuing support
and upgrades as set forth on Attachment A, it shall pay RN an amount equal to
*****(1) of Payments due for Services. Payment for upgrades and support shall be
payable through royalty/commission recovery. Any support and upgrade fees for
the first year not recovered by the anniversary date of the commencement of the
upgrade and support period will be due in cash at the anniversary date.
Subsequent year support and upgrade fees shall be payable in cash only on the
anniversary date of the commencement of the first year of support.
c. Expenses. Customer will reimburse RN for incidental expenses and
disbursements incurred by RN related to supplies, media (disks and CD-ROM
costs), travel and lodging, shipping, telephone charges, and any other
incidental expenses incurred in the performance of the Services. Customer will
reimburse RN for incidental expenses. RN shall bear sole responsibility for
expenses incurred to acquire the necessary tools to perform the Services. If RN
needs to procure any third party computer software, hardware, other office
supplies or any other subcontracted services or products to implement, perform,
or install items set forth in Attachment A, which purchase will exceed $1000, RN
will notify Customer in advance, and obtain approval for the amount of the
purchase plus any applicable sales tax.
d. Billing. RN will invoice Customer for expenses and any third party
purchases on a monthly basis. The invoice will include a report itemizing the
expenses and third party purchases. Customer shall pay all invoices within 30
days of receipt, and shall not make any deductions thereto.
e. Taxes. As RN is not an employee of Customer, RN understands that
Customer will not take any action or provide RN with any benefits or commitments
inconsistent with any of such undertakings by RN. In particular, Customer will
not: (i) withhold FICA (Social Security) from RN's payments; (ii) make state or
federal unemployment insurance contributions on behalf of RN; (iii) withhold
state and federal income tax from payments to RN; (iv) make disability insurance
contributions on behalf of RN; or (v) obtain workers' compensation insurance on
behalf of RN.
4. Termination.
a. By RN. Failure of Customer to make payments to RN in accordance with
this Agreement shall be considered substantial nonperformance and cause for
termination. If Customer fails to make payments when due, RN may, upon seven
days' written notice to Customer suspend performance under this agreement.
Unless payment in full is received by RN within seven days of the date of the
notice, the suspension shall take effect without further notice. In the event of
a suspension of services, RN shall have no liability to Customer for delay or
damage caused Customer because of such suspension of services.
b. By Customer. Customer shall have the right at any time to terminate this
Agreement on twenty one (21) days' written notice. In the event of such
termination, and provided termination is not as a result of RN's unremedied
breach of this Agreement, Customer shall pay RN then accrued payments due under
the Delivery Schedule, plus the pro-rated portion of the next payment, if any,
due with respect to items being worked on up to the time of termination, plus
reimbursable expenses, plus twenty percent (20%) of the total charges due
through the date of the termination. Should Customer wish to delete specific
subtasks,
- --------
(1) Confidential information is omitted and identified by a * and filed
separately with the SEC pursuant to a request for Confidential Treatment.
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Customer will notify RN immediately in writing. As long as said deletions
represent less than twenty percent of the labor cost for the project, Customer
shall not be liable for the twenty percent termination penalty.
c. Termination for Breach. Either party may terminate this Agreement upon
seven (7) days' written notice to the other party in the event the other party
materially breaches this Agreement and fails to cure such breach within fifteen
(15) days' written notice from the non-breaching party.
5. RMA Agreement. RN and Customer are concurrently negotiating RN's RealMedia
Architecture ("RMA") Partner Program Agreement (the "RMA Agreement"), which RN
has offered to Customer on its standard terms and conditions, and pursuant to
which RN will grant Customer a license to distribute the Deliverables within its
RMA-Enabled Applications. The Services and Deliverables to be provided by RN
under this Agreement have been requested by Customer to enable Customer to
finalize development of its RMA-Enabled Applications. Customer acknowledges that
the Deliverables provided hereunder may only be used by Customer subject to the
terms of the RMA Agreement. If RN and Customer fail, after good faith
negotiations, to finalize the RMA Agreement, all of Customer's rights in and to
the Deliverables shall immediately terminate.
6. Ownership. All right, title and interest in and to the object code only of
the Deliverables shall be owned by RN; provided, however, that Customer shall
have the perpetual, non-exclusive right to use the Deliverables as set forth in
this Agreement; and further provided that if Customer incorporates the
Deliverables into an RMA-Enabled Application, Customer's use of and rights in
and to the Deliverables for that purpose will be governed by the RMA Agreement.
No license or other rights in the Deliverables is granted hereby.
7. Warranties of RN. RN represents, warrants and covenants that: (i) it has the
full power to enter into this Agreement and perform the Services provided for
herein, and that such ability is not limited or restricted by any agreements or
understandings between RN and other persons or companies; (ii) any Deliverables,
information or materials developed for, or any advice provided to RN, shall not
rely or in any way be based upon confidential or proprietary information or
trade secrets obtained or derived by RN from sources other than RN unless RN has
received specific authorization in writing to use such proprietary information
or trade secrets; (iii) RN will not enter into any contracts or otherwise
obligate Customer in any way without Customer's express approval; and (iv) RN
will use its best efforts to complete the Services in a timely, competent and
professional manner.
8. Indemnification. Customer hereby agrees to indemnify, hold harmless and
defend RN and its employees, contractors and agents from all claims, damages,
costs and expenses, including reasonable attorneys' fees and litigation
expenses, arising out of or in connection with any Customer product by the
Customer, Customer's content, Customer's website or Customer's materials (not
including the Customer's client parties), including, without limitation: (i)
infringement or violation, or alleged infringement or violation, of any
copyright, patent, trademark, trade secret, right of publicity, right of
privacy, or other proprietary rights of any third party; and (ii) unfair trade
practice, defamation or misrepresentation. RN hereby agrees to indemnify, hold
harmless and defend Customer and its employees, contractors and agents from all
claims, damages, costs and expenses, including reasonable attorneys' fees and
litigation expenses, arising out of or in connection with the Deliverables,
including, without limitation: (i) infringement or violation, or alleged
infringement or violation, of any copyright, patent, trademark, trade secret,
right of publicity, right of privacy, or other proprietary rights of any third
party; and (ii) unfair trade practice, defamation or misrepresentation.
3
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9. Limitation of Liability. NEITHER PARTY SHALL, UNDER ANY CIRCUMSTANCES, BE
LIABLE FOR LOSS OF PROFITS OR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY
DAMAGES, ARISING FROM OR RELATED TO THIS AGREEMENT, WHETHER SUCH CLAIM ARISES IN
TORT OR IN CONTRACT, AND EVEN IF THE PARTIES HAVE BEEN APPRISED OF THE
LIKELIHOOD OF SUCH DAMAGES OCCURRING. EXCEPT IN RESPECT OF LIABILITY WHICH IS BY
LAW INCAPABLE OF EXCLUSION, IN NO EVENT SHALL EITHER PARTY'S LIABILITY FOR ANY
REASON EXCEED THE TOTAL SUMS PAID UNDER THIS AGREEMENT.
10. Confidential Information. From the date of execution hereof for a period of
five (5) years from termination of this Agreement, neither party shall use,
disclose, or permit any person to obtain any confidential information of the
other party, including any materials developed or generated hereunder (whether
or not such confidential information is in written or tangible form), except as
specifically authorized by such party. As used herein, confidential information
shall mean a whole or any portion or phase of any marketing plans, business
plans, sales information, customer lists, scientific or technical information,
design, process, procedure, formula, or improvement relating to the development,
design, construction, and operation of a program that is valuable and not
generally known to a party's competitors and any other information of a party of
which the other party becomes aware of as a result of this Agreement and which
is indicated to be confidential or, if not so indicated, which could reasonably
be interpreted to be confidential. The parties agree that, in the event of a
breach or threatened breach of the terms of this confidentiality provision, the
non-breaching party shall be entitled to an injunction prohibiting any such
breach. Any such relief shall be in addition to and not in lieu of any
appropriate relief in the way of money damages. The parties acknowledge that
Confidential Information is valuable and unique and that disclosure in breach of
this confidentiality provision will result in irreparable injury to its owner.
11. No Assignment. Neither party shall assign, transfer or otherwise dispose of
this Agreement or any rights or duties hereunder without the prior written
consent of the other, provided that either party may assign this Agreement
pursuant to a sale of substantially all of its assets, a merger, or
consolidation. Notwithstanding the foregoing, if in the course of an authorized
assignment, Customer desires to assign the Customer product containing the
Deliverables to *****(1) , RN shall have a right of first refusal for the
exclusive rights to purchase such product on the same terms as the best offer
from *****(1)
12. Arbitration. Any controversy, dispute or question arising out of, in
connection with or in relation to this Agreement or its interpretation,
performance or nonperformance, or any breach thereof, shall be determined by
arbitration in the County of King, State of Washington, in accordance with the
rules then obtaining of the American Arbitration Association. The cost and
expenses of such arbitration including the compensation of the arbitrator(s),
the prevailing party's attorney's fees, and the stenographer employed by them,
shall be paid by the party against whom the arbitrator renders a decision. The
decision of the arbitrator shall be final and binding upon the parties hereto
and may be entered as a final decree or judgment in any court of competent
jurisdiction.
13. Miscellaneous. This Agreement and Attachment A attached hereto and
incorporated herein constitute the entire agreement between the parties, and
supersedes any and all agreements, whether written or oral, and may only be
amended or modified by a written instrument signed by both parties.
- --------
(1) Confidential information is omitted and identified by a * and filed
separately with the SEC pursuant to a request for Confidential Treatment.
4
<PAGE>
If the terms of this Letter Agreement are acceptable to you, please sign and
date where indicated below and return to RN.
Sincerely,
RealNetworks, Inc.
By: /s/ Ian Freed
-----------------------------
Ian Freed
General Manager, Consulting Group
Accepted and Agreed to this 8th day of January, 1998.
DIGITAL LAVA INC.
By: /s/ Joshua D.J. Sharfman
-----------------------------
Joshua D. J. Sharfman
CEO
5
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Attachment A: RMA Client
Development
Prepared for Digital Lava
January 21, 1998
This document contains trade secrets and proprietary information belonging to
RealNetworks, Inc. No use or disclosure of the information contained herein is
permitted without the prior written consent of RealNetworks, Inc.
6
<PAGE>
(C) 1997 RealNetworks, Inc. All rights reserved
Real Audio and RealVideo are registered trademarks of RealNetworks,
Inc., in the United States and other countries
Basic Server, Basic Server Plus, RealDeveloper, RealEncoder
RealFlash, RealMedia, RealNetwork, RealNetworks, RealPlayer,
RealPlayer Plus, RealPublisher, RealServer, RealSystem, the Real
Bubble, and the RealNetworks Media Type logotypes are trademarks of
RealNetworks, Inc., in the United States and other countries.
All other trade names, trademarks or registered trademarks are trade
names, trademarks or registered trademarks of their respective
companies.
The computer file for this document is
Digital Lava-attachement a -revision 1.doc
RealNetworks, Inc.
1111 Third Avenue, Suite 2900
Seattle, Washington 98101
(206) 674-2700.
7
<PAGE>
Table of Contents
Introduction.................................................................. 4
Section 1 Tasks and Deliverables.............................................. 5
1.1 System Design........................................................ 5
1.2 Software Development................................................. 6
1.3 Testing.............................................................. 7
1.4 Documentation........................................................ 7
1.5 Pre-Acceptance Support .............................................. 7
1.6 Post-Acceptance Support.............................................. 8
Section 2 Project Schedule.................................................... 9
2.1 Task Table .......................................................... 9
Section 3 Project Cost .......................................................10
8
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- --------------------------------------------------------------------------------
Introduction
- --------------------------------------------------------------------------------
Introduction
Digital Lava's VideoVisorTM product permits users to navigate, manipulate, and
integrate video content with other information including documents, images, and
web sites. Currently, VideoVisorTM can render DirectShow (ActiveMovie) video
files. Digital Lava would like to add the capability to render standard
RealVideo files (RM files) delivered via Real Media Architecture (RMA) servers
to their VideoVisorTM product. Digital Lava has asked the RealNetworks
Consulting Group (RN) to perform the software development required to design and
build the RM file rendering capability such that Digital Lava use RM file
rendering capability in any product that employs the RM file rendering
interface. To accomplish this, RN will create a "pure COM" version of the player
controls requested by Digital Lava.
We describe the project below in the following sections:
Tasks and Deliverables
o Project Schedule
o Project Cost
9
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Section 1 Tasks and Deliverables
Digital Lava's VideoVisorTM product is a viewer currently implemented in
Visual Basic 5.0 running over COM objects supplied by Microsoft's
ActiveMovie 1.0 SDK. In developing a RM file renderer for this system, RN
will perform the following major tasks:
o System Design
o Software Development
o Testing
o Documentation
o Pre-Acceptance Support
o Post-Acceptance Support
Each task is identified below in more detail
- --------------------------------------------------------------------------------
1.1 System Design
Digital Lava has provided RN with a specification for an Abstract Video Renderer
Interface (see Attachment B). Digital Lava needs to provide RN with access to
all the relevant code for the VideoVisorTM product prior to starting the project
so that we may build the RM file renderer for VideoVisorTM. This can be
accomplished by providing RN with test code that employs the same API calls as
the full VideoVisorTM application.
Based on our current understanding of the specification, the RM file will
include:
1. ability to pass through text messages such as errors
2. a video window interface for rendering streaming video
3. a file specification, URL, or other string for playing video
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4. ability to do random seeking based on time
5. ability to respond to current state requests
6. start, stop, and pause capability from and "seek" location
7. resizeable window
8. ability to reroute windows messages via subclassing (if necessary)
9. full screen mode using DirectDraw
10. ability to set or interrogate other properties or methods as identified in
Attachment B
11. ability to close the video file, eliminate visual artifacts in the window,
and disconnect programmatic hooks associated with the video window
Additionally, the RM file renderer will be able to be invoked from Microsoft
Visual Basic 5.0.
RN will use the aforementioned specification as well as the current VideoVisorTM
product and code as a basis for the RM renderer system design. The system design
will include a description of the major sections of code required for the RM
renderer. Once the System Design Document has been delivered and Digital Lava
has had an opportunity to review the design document, RN will build the RM file
renderer based on the system design.
Deliverable: System Design Document
- --------------------------------------------------------------------------------
1.2 Software Development
The software development phase of the project begins upon Digital Lava's review
of the system design document. The RM file renderer will be built so that it can
be fully integrated into the VideoVisorTM product developed in Microsoft Visual
Basic 5.0. The file renderer will recognize and render RealVideo files encoded
using RealNetworks' authoring tools supported by the RMA architecture. Currently
RealNetworks offers a free RealEncoder and a nominally priced RealPublisher for
authoring RealVideo content. These files may either be played locally or by
streaming them via an RMA server. Rendering of local files does not require
completion of the RMA server product. Rendering of files via streaming does
require completion of the RMA server application, which we currently anticipate
in late Q1 of 1998. As a result, delivery of a system that has been tested for
local files will occur prior to delivery of a system that has been tested for
streaming files.
Deliverables:
o RM file renderer for local files (in early February)
o RM file renderer for streaming files (in late March - dependent on RMA
server product completion)
11
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1.3 Testing
Once the RM file renderer for local files has been developed, RN will test the
application across a wide range of files encoded using different audio codecs,
different video framerates, image sizes, quality settings and types of content.
We will test all capabilities of the file renderer as identified in the system
design document. Once testing has occurred, we will deliver a result of these
tests to Digital Lava. Should test results require additional development work,
RN will perform this work and retest the RM file renderer.
Deliverables:
o Test results for local file system RM renderer
o Test results for streaming RMA RM renderer
- --------------------------------------------------------------------------------
1.4 Documentation
Concurrent with development of the RM file renderer for VideoVisorTM, RN will
provide documentation to Digital Lava for the RM file renderer. The
documentation includes end user documentation that can be incorporated in
VideoVisorTM manuals, as well as documentation for each major routine in the
code. The end user documentation explains how to open and view RealVideo files
using the VideoVisorTM either in local mode or streamed via the RMA server.
Application documentation includes a description of all relevant inputs and
outputs for each major subroutine, as well as any critical flags that need to be
set or can be interrogated. The documentation will also cover whatever steps are
required to integrate the installation of the Real Networks Renderer with the
VideoVisor installation process.
Deliverables:
o End-user manual sections
o Application documentation
- --------------------------------------------------------------------------------
1.5 Pre-Acceptance Support
Once the RM renderer for VideoVisorTM has been delivered and prior to
acceptance, RN will provide support required to meet the requirements identified
in the system design, or otherwise mutually agreed upon in writing. This support
will be provided until the time of acceptance of the RM renderer by Digital
Lava. Legal requirements of both parties governing acceptance are identified in
section 2 of the contract signed by both parties.
12
<PAGE>
- --------------------------------------------------------------------------------
1.6 Post-Acceptance Support
After acceptance, RN can provide both on-site and off-site support on an ongoing
basis at various rates. Support can be provided in any of the following ways:
o On-site support for a predetermined period of time for various rates.
o On-site support on an as-needed basis with various lead times for various
rates.
o Off-site telephone support on an as needed basis with 4-24 hour response at
various rates.
Provided Digital Lava purchases and pays for the yearly support and upgrades
option (see below for pricing), RN will provide any and all custom programming
required to keep the RM rendering capability up-to-date with additional versions
of our standard Intranet server product.
Section 2 Project Schedule
This section contains the proposed project schedule for deliverables. We assume
the project begins on December 22, 1997.
- --------------------------------------------------------------------------------
2.1 Tasks Table
The following table shows the estimated delivery date of the project tasks.
Table 2-1 - Tasks Schedule
- --------------------------------------------------------------------------------
Estimated
Task completion
Date
- --------------------------------------------------------------------------------
1. System Design January 27
2. Software Development February 16
3. Testing of local file delivery system by RN February 23
4. Documentation February 23
5. Acceptance testing of local file delivery system completed March 10
by Digital Lava
6. Software Development modifications for RMA streaming March 17*
system
7. Testing of RMA streaming delivery system by RN March 20*
8. Acceptance testing of RMA streaming system completed March 27*
by Digital Lava
* Note: Dependent on RMA server beta general availability delivery by RN
development
13
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Section 3 Project Costs
The following table shows the estimated milestone payments for the project.
Table 3-1 - Tasks Schedule
- --------------------------------------------------------------------------------
Estimated Estimated
Completion Milestone
Task Date Payments
- --------------------------------------------------------------------------------
Deposit January 27 *****(1)
- --------------------------------------------------------------------------------
1. System Design February 3 *****(1)
- --------------------------------------------------------------------------------
2. Software Development February 23 *****(1)
- --------------------------------------------------------------------------------
3. Testing of local file delivery system March 2
- --------------------------------------------------------------------------------
4. Documentation March 2
- --------------------------------------------------------------------------------
5. Acceptance testing of local file delivery March 10t *****(1)
system completed by Digital Lava
- --------------------------------------------------------------------------------
6. Software Development modifications for March 17*
RMA streaming system
- --------------------------------------------------------------------------------
7. Testing of RMA streaming delivery March 20* *****(1)
system
- --------------------------------------------------------------------------------
8. Acceptance testing of RMA streaming March 27* *****(1)
system completed by Digital Lava
- --------------------------------------------------------------------------------
Total *****(1)
- --------------------------------------------------------------------------------
Note: Digital Lava actually has until March 16 to complete acceptance testing,
but a preliminary indication from DL by March 10 will increase the likelihood of
final delivery by March 27.
The following table shows the optional upgrades and support payments for the
project.
Table 3-2 - Upgrades and Support
- --------------------------------------------------------------------------------
Estimated Last Payments
Task Payment
Date
- --------------------------------------------------------------------------------
1. 1st Year Upgrades and Support March 27, 1999'* *****(1)
- --------------------------------------------------------------------------------
2. 2nd Year Upgrades and Support March 27, 1999* *****(1)
- --------------------------------------------------------------------------------
3. 3rd Year Upgrades and Support March 27, 2000* *****(1)
- --------------------------------------------------------------------------------
* Note: Dependent on RMA server beta-general availability delivery by RN
development
- --------
(1) Confidential information is omitted and identified by a * and filed
separately with the SEC pursuant to a request for Confidential Treatment.
14
<PAGE>
<TABLE>
<CAPTION>
- ------------ -------------------------------------- ----------------------- ---------------------------------------
FILENAME Digital Lava-attachement a-revision LOCATION C:/ifreed/Proposals/Digital Lava-
1.doc (system:[drive] attachment a-revision 1.doc
:\directory\...)
- ------------ -------------------------------------- ----------------------- ---------------------------------------
------------------ ---------------
NAME/TITLE INITIAL
------------------ ---------------
- ------------ -------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
CLIENT Digital Lava PREPARED BY
PROJECT RMA Client Renderer REVIEWD BY (1) Ian Freed
- ------------ -------------------------------------- ---------------------------- ------------------ ---------------
TITLE Attachment A:RMA (2)
Client Development
- ------------ -------------------------------------- ---------------------------- ------------------ ---------------
VERSION 1.0 (3)
- ------- --- ---
- ------------ -------------------------------------- ---------------------------- ------------------ ---------------
DATE 12/10/97 5:54 APPROVAL AUTHORITY
- ------------ -------------------------------------- ---------------------------- ------------------ ---------------
</TABLE>
Document Summary
Record of Changes
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15
RealMedia Architecture Partner Program Agreement with Digital Lava, Inc.
for Corporate Intranet Products and Internet Products
This Agreement is entered into as of April 1, 1998 (the "Effective Date") by and
between Real Networks, Inc., a Washington corporation with a principal place of
business at 1111 Third Avenue, Suite 2900, Seattle, Washington 98101 CRN') and
Digital Lava, Inc., a Delaware corporation with an address at 10850 Wilshire
Boulevard, Suite 1260, Los Angeles, CA 90024 ("Partner").
WHEREAS, RN has developed and owns all right, title and interest in the
RealMedia Architecture ("RMA", as further defined below), an open platform for
development of streaming media applications and tools, which allows software
developers to build new applications and extend current applications to
inter-operate with a wide variety of datatypes;
WHEREAS, RN has established a licensing program (the "Partner Program") which
would allow a partner participating in the Partner Program to create, market and
sublicense for distribution in corporate intranets and the internet,
applications based on RMA, and to receive other benefits of participating in the
Partner Program; and
WHEREAS, Partner desires to participate in the Partner Program and to receive
the attendant rights and benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
1.1 License Key" means the authorization code that is generated by the License
Key Tool and that enables RMA Server Software to stream RealMedia datatypes.
License Keys that generate User-Streams and enable features of a Partner Product
are licensed to a Partner's end-user customers
1.2 "License Key Tool" means the version of the License Key Tool that is
provided to Partner by RN which is specific and unique to the Partner Product.
The License Key Tool is used to generate unique License Keys for a Partner
Product.
1.3 "Licensed Software" means RMA Players, the RealMedia SDK, including
associated RealMedia Libraries, RMA Server Software, in Object Code and/or
Source Code form, as applicable, License Key Tools and License Keys, and related
User Documentation and specifications.
1.4 "New Release" means a new major release of the RMA Servers or the Partner
1
<PAGE>
Products in which major new functionality has been added in addition to any
complement of bug fixes supplied, and which is designated as a change in the
digit to the left of the decimal point in the product version number [(x).x.x].
"Update" means a minor release, enhancement, revision, modification or upgrade
of the RMA Servers or Partner Products, designated as a change in the tenths
digit in the product version number [x.(x).x], or in the digit to the right of
the tenths digit in the product version number [x.x.(x)]. By way of
clarification, if either party markets a new and distinct product along with and
in addition to an existing program, then such new and distinct product shall be
treated as a New Release, not an Update.
1.5 "Object Code" means computer code assembled or compiled in magnetic binary
form on software media, which are readable and useable by machines, but not
generally readable by humans without reverse-engineering, reverse-compiling or
reverse-assembly.
1.6 "Partner Product(s)" means the products and applications developed by
Partner which are compatible with Licensed Software, as further described on
Exhibit A hereto. Partner Products shall include:
(a) "Partner Client Software," which means software that contains an RMA Player
as defined in Section 1.7(a), or that utilizes the RMA application programming
interfaces ("APIs");
(b) "Digital Lava Client Software" which means the products listed in Exhibit A
which incorporate the custom COM-component being built by RN under contract to
Partner;
(c) "Partner Tools," which means software tools that may import datatypes and
export datatypes using the RealMedia Libraries; and/or that are used to perform
RMA-related functions including, but not limited to, server administration,
plug-in file systems, server monitoring, and assembly; and
(d) "Partner Server Applications," which means software that interfaces with an
RMA Server and adds datatypes that can be streamed from an RMA Server.
1.7 "RealMedia Architecture" or "RMA' means the software platform developed by
RN that allows for the development of streaming media products and tools, and
which is designed specifically for use in the infrastructure of the internet and
corporate intranets. RMA includes the following components:
(a) "RMA Players," which are stand-alone applications that use an RMA Server or
any components of the RMA Player embedded in other applications of Partner that
play media files.
2
<PAGE>
(b) "RealMedia Datatypes," which are datatypes that can be streamed using RMA
Server APIs and played using RMA Player APIs.
(c) "RealMedia Libraries," which are contained in the RealMedia SDK and are
Object Code implementations of various APIs.
(d) "RealMedia SDK" or "SDK," which contains the tools and information used by
software developers to create tools for use in producing streaming media and to
adapt or build applications that stream from RMA Servers and play in RMA
Players. The SDK contains an RMA Player, RMA Player APIs, Server APIs, RealMedia
Libraries, Sample Source Code and RealMedia Server Software.
(e) "RMA Server Software" or "RMA Server" in Object Code form, which streams
files over networks, and which has the capabilities set forth on Exhibit B
hereto.
(f) "Sample Source Code," which provides an example of how to develop an RMA
application.
1.8 "RN Products" means the RealAudio and RealVideo intranet and internet
products.
1.9 "Term" is defined in Section 6.1.
1.10 "Territory" means the world, except as otherwise agreed by the parties.
1.11 "User Documentation" means RN's user manuals, technical manuals, release
notes including advertisements for RMA Servers, RMA Players, installation and
operation instructions, and other data and documentation describing the use of
RMA Servers and RMA Players normally supplied to RN's customers.
1.12 "User-Stream" means the stream of media-compatible data necessary to
deliver the media type associated with a Partner Product from an RMA Server to a
single end-user client computer. The number of User-Streams being delivered by a
given RMA Server is measured by counting the number of end-users simultaneously
served by User-Streams originating at that RMA Server.
2. GRANT OF LICENSES AND DISTRIBUTION RIGHTS.
2.1 License Grants to Partner.
(a) License to Use Real Media SDK to customize Partner Products for use with
Licensed Products.
3
<PAGE>
Subject to the terms and conditions of this Agreement, RN grants to Partner a
non-exclusive, non-assignable license to use and install the RealMedia SDK,
whether in Object Code or Source Code form, for the sole purpose of developing
Partner Products that interoperate with Licensed Products. Partner shall use the
SDK on a single computer or on a computer network. Partner may download
associated online documentation for purposes of using the SDK, but may not make
further copies of the documentation.
(b) License to Distribute Certain Products to Corporate lntranet Customers Only.
(i) License to Distribute Partner Products. Subject to the terms and
conditions of this Agreement, and payment of the applicable License Fees set
forth in Section 5.1, RN grants Partner a non-exclusive, non-assignable license
to market, sublicense, promote and distribute, to end-user corporate customers
only, directly or through authorized distributors who have agreed to comply with
the terms and conditions of this Agreement ("Authorized Distributors"), the
version of Partner Products containing any Licensed Software. The license to any
such end-user corporate customer is limited to such customer's intranet purposes
only, and is subject to such end-user corporate customer signing a EULA as
defined in Section 2.3 (b).
(ii) License to Use and Sublicense the Licensed Software. Subject to the
terms and conditions of this Agreement, and payment of the applicable License
Fees set forth in Section 5.1, RN also grants Partner a non-exclusive,
non-assignable license to market, sublicense, promote and distribute, to
end-user corporate customers only, directly or through Authorized Distributors,
pursuant to an executed EULA as defined in Section 2.3(b), only Object Code
copies of the Licensed Software, and only in combination with Partner Products,
for such customers' intranet purposes only.
(iii) License to Use and Sublicense the RealAudio and/or RealVideo Intranet
Products. Subject to the terms and conditions of this Agreement, and payment of
the applicable License Fees set forth in Section 5.1, RN also grants Partner a
non-exclusive, non-assignable license to market, sublicense, promote, and
distribute the RealVideo intranet products, to end-user corporate customers
only, directly or through Authorized Distributors, for such customers' intranet
purposes only, and only in combination with the Partner Products.
(c) License to Distribute RealVideo and RealAudio Internet Products. Subject to
the terms and conditions of this Agreement, and payment of the applicable
License Fees set forth in Section 5.1, RN also grants to Partner a
non-exclusive, non-assignable license to market, sublicense, promote, and
distribute, to internet web site customers, directly or through Authorized
Distributors, and only in combination with the Partner Products, the RealAudio
and/or RealVideo internet products, without the RMA Player.
(d) License to Display an RMA Server. RN grants to Partner and its Authorized
Distributors the non-exclusive, royalty-free right to license and publicly
display an RMA Server with 10 streams for the purpose of: 1) internal
development and testing, 2) demonstration; and 3) marketing.
4
<PAGE>
2.2 License Grant to RN. License to Use Partner Tools, Partner Client Software
and Partner Server Applications; License to Use and Distribute the Partner
Products. Partner hereby grants RN a non-exclusive, royalty-free license to use
and publicly display the Partner Tools, Partner Client Software, and Partner
Server Applications for internal testing, demonstration and marketing purposes.
2.3 Limitations. The grant of licenses, including Partner's right to sublicense
and distribute the Licensed Software and the RN Products as set forth above, are
subject to the following limitations:
(a) Except as provided in Section 2.1(b), the SDK may be used solely to develop
and test a Partner Product. It may not be used for any commercial,
non-commercial, educational or internal purpose, and may not be used in any way
that allows or causes the transmission of audio, video or other media files
across the Internet an intranet, or any computer network, unless the parties
otherwise agree.
(b) As a condition of receiving the sublicense from Partner to use and/or
distribute any of the Licensed Software and/or RN Products, Partner shall
require its Authorized Distributors and end-user customers to sign RN's standard
end-user License Agreement ("EULA"), which is contained in RN's product
packaging. The license granted in such EULA shall be between RN and Partner's
end-users and/or Authorized Distributors. Accordingly, Partner agrees that it
shall promptly provide to RN the names and addresses of all end-users and
Authorized Distributors to whom Partner distributes any Licensed Software or RN
Products, concurrently with the provision of monthly reports, as set forth in
Section 5.2.
(c) Except as expressly provided herein, Partner shall not directly or
indirectly, or allow third parties to, copy, modify, reproduce, display,
decompile, reverse engineer, disassemble, store, translate, sublicense, assign,
sell, lease or otherwise transfer or distribute any of the Licensed Software
(which includes the SDK and components of the Licensed Software) or RN Products,
or any of Partner's rights therein, in whole or in part, nor may Partner use any
of the Licensed Software or RN Products, to clone any client, server or other RN
product. Except as expressly provided herein, no license or right is hereby
granted, by implication or otherwise, with respect to the Licensed Software or
any other RN Products or any rights thereto.
(d) Nothing contained in this Agreement shall be deemed or construed to grant
Partner the exclusive right to develop, or have distributed by RN, Partner
Products for any particular category of datatypes.
(e) Partner's end-user license agreements for the Partner Products shall
prohibit further distribution of the RMA Libraries, any RMA files or other
components of RMA by Partner's end-users.
5
<PAGE>
(f) Partner shall include a prominent and valid copyright notice, in the form
requested by RN, in RMA-Compatible Partner Products specifying that components
of such products are owned by and used under license from RN and its suppliers.
Partner shall not alter or remove any copyright or trademark notices contained
in any Licensed Software, RN Products, or User Documentation or use such
copyright or trademark notices in combination with any other copyright or
trademark notices. In addition, Partner shall prominently display RN's "RMA
logo" and the words "RMA Compatible" on the product packaging and all product
manuals and documentation, in accordance with any Trademark Usage Guidelines
provided by RN.
(g) Partner may only distribute Partner Products that have been designed,
developed, and tested to function with an RMA Server. In creating the Partner
Products, Partner shall ensure that such Partner Products will enable any
datatypes to be played in the RMA Player. To ensure that all components of the
Partner Products interoperate properly and are compatible with the RMA Server,
RN may elect to test the Partner Products (excluding 1.6b), or, at RN's option,
will have the Partner Products (excluding 1.6b) tested by a third party testing
lab at Partner's expense. RN shall provide development support to Partner to aid
in Partner's resolution of problems discovered in the testing process, as set
forth in Section 4.1.
(h) Partner agrees to promptly deliver to RN all releases, including beta
releases, of its Partner Products, for use by RN.
(i) Partner or its Authorized Distributors shall market, sublicense and
distribute Object Code copies only of the RMA Server Software or RMA Player
Software and User Documentation to end-user corporate customers for their
internal corporate intranet use only either as (i) bundled with a Partner
Product on the same media (such as CD-ROM or diskette), or (ii) in the same
finished packaging as the Partner Product (a "Bundle").
(j) Partner shall generate License Keys with an authorized, RN-provided License
Key Tool, and duplicate, market and distribute License Keys associated with
Partner Products to end-user customers.
(k) Partner will determine the price at which it or its Authorized Distributors
will license and distribute the Partner Products, RMA Server Software and
License Keys to end-user customers, independent of any License Fee payable by
Partner to RN.
(l) Partner may either: (i) download RMA Servers from a private RN download
site; or (ii) place an order with RN for physical pre-packaged copies of the RMA
Servers. RN will ship all physical product to Partner or Partner's authorized
designee, by shipment method specified by Partner. All orders are shipped F.O.B.
RN's designated fulfillment location. As a convenience, RN may prepay freight
charges, and such charges will be billed to Partner. All risk of loss or damage
in transit will be borne by Partner. Partner shall inspect the RMA Servers upon
receipt at the delivery location. Acceptance shall be deemed to occur unless
Partner provides RN with notice of nonacceptance within three (3) days of
receipt. A Partner may only reject an RMA Server for one of the following
reasons: (i) missing labels or User Documentation, (ii) defective media,
performance.
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(m) Partner will deposit with Data Securities International, Inc. (the "Escrow
Agent", a complete and correct set of the Source and Object Code version of the
Partner Products (excluding 1.6b) to be held in escrow (the "Escrow Products")
and shall enter into the Escrow Agent's Master Preferred escrow agreement,
pursuant to which RN shall have the right to require that the Escrow Agent
provide some or all of the Escrow Products to RN or third parties if so required
by a governmental agency or court with jurisdiction over RN; in the event that
Partner undertakes or is subject to any of the actions set forth in Section
6.2(b); or in the event of Partner's material breach of this Agreement. Partner
shall pay any required escrow fee directly to the Escrow Agent.
(n) If Partner or its Authorized Distributors distributes the RMA Server
Software as part of a Bundle, RN's "RMA logo" and the words "RMA Compatible"
shall be prominently displayed on the product packaging and all product manuals
and documentation, in accordance with any Trademark Usage Guidelines provided by
RN.
(o) During the Term, Partner shall make available to RN at no charge, upon
release by Partner, a copy of all Updates and New Releases to the Partner
Products. Each Update or New Release shall, upon release by Partner, be subject
to all of the terms and conditions of the Agreement.
3. MARKETING CONSIDERATIONS
In consideration for participating in the Partner Program, and subject to the
terms and conditions of this Agreement, Partner shall be entitled to receive the
following marketing considerations from RN:
3.1 Trademark License. Partner shall have a non-exclusive non-transferable
license to use RN's trademarks and logos solely in connection with Partner's
user interfaces, packaging, collateral material and website, subject to
compliance with RN's Trademark Usage Guidelines, or as otherwise designated in
writing by RN from time to time. Partner agrees to furnish RN with samples of
any proposed usage of RN's trademarks or logos, and obtain RN's prior approval
for such usage, which approval will not be unreasonably withheld.
3.2 Customer Mailings. RN will send semi-annual e-mails to RN's customers
promoting the Partner Products. Such emails may list Partner's universal
resource locators ("URL's") so that prospective customers can obtain additional
information about the Partner Products. Additionally, RN will solicit from
existing RN customers their desire to receive
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collateral material from Partner. On Partner's behalf, providing that Partner
reimburses RN for its costs of mailing and supplies all collateral material, RN
will make one "bonded" mailing during the Term to RN's customers who indicate a
desire to receive collateral material about the Partner Products.
3.3 Participation in RN Events. RN agrees to feature Partner in the Partner Lab
at RN's RealMedia user conference. From time to time, RN will also include
Partner in RN press releases, and offer Partner the opportunity to participate
in trade shows and conference displays as RN deems appropriate.
3.4 Real Developer Program. RN will provide partner a complimentary membership
in the Real Developers program at the "Apps Developer" level for one year from
the Effective Date.
3.5 Advertising Impressions. During the Term, RN will provide Partner, without
charge, 5,000 page impressions of advertising on RN's website in such location
as RN determines in its discretion.
3.6 No Obligation to Include Partner Products. RN shall not be obligated to
include the Partner Client Software in any special versions of the RMA Player
provided to an RN-third party licensee if such licensee will not accept the
Partner Client Software.
4. SOFTWARE SUPPORT; UPGRADES
4.1 Development Support. RN shall provide complimentary technical support to
Partner in connection with Real Developers program for ninety (90) days from the
Effective Date. Such support includes unlimited telephone support and priority
e-mail support, and five (5) additional support calls after the expiration of
the 90-day period.
4.2 Technical Support by Partner. Partner shall be solely responsible for
providing, and agrees that it will provide, all technical and customer support
for any Partner Products licensed by Partner or for any Partner Products
licensed and distributed by RN pursuant to Section 2.2. Partner agrees that it
will provide primary technical and customer support, by telephone and e-mail and
in accordance with RN's minimum support requirements, for any Licensed Software
(excluding the RN Products which are subject to Section 4.3), licensed and
distributed by or for Partner pursuant to Section 2.1. RN will enroll Partner,
without charge, in a one-day RealMedia technical training seminar at RN's
facilities, to train Partner to provide technical support to its end-user
customers for the Licensed Software, excluding the RN
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Products. Partner shall be responsible for all out-of-pocket costs it incurs to
attend such seminar. RN shall provide back-up technical support, in the form of
telephone and e-mail, from 8:00 A.M. to 5:00 P.M. PST Monday through Friday to
Partner's primary support contact for the Licensed Software, excluding the RN
Products.
4.3 Technical Support by RN. RN will be solely responsible for providing
technical and customer support to those end-user customers to whom Partner has
licensed and distributed any RN Products pursuant to Section 2.1, in accordance
with the terms and conditions of a separate support agreement between RN and
each such end-user customer.
4.4 Updates; New Release. During the Term, each party shall make available to
the other party at no charge, upon public release by the party that created such
Updates and/or New Releases, a copy of all corresponding Updates or New
Releases, on the RN or Partner website, as applicable. Each Update or New
Release, upon release to either Partner or RN, shall be subject to all of the
terms and conditions of the Agreement.
5. PAYMENT
5.1(a) License Fees Paid by Partner. In consideration of the rights and licenses
granted herein, Partner agrees to pay RN certain license fees as follows:
(1) Partner shall pay RN the applicable license fees as set forth in
Schedules I and 2 ("License Fees").
(2) Notwithstanding Section 5.1 (a), Partner shall not owe RN any License
Fee on the sale of Partner Products and License Keys that enable datatypes,
other than *****(1) or *****(1), to customers who have also purchased either
*****(1) or *****(1), provided Partner does not distribute any additional
streams or New Releases to such customers.
(3) RN reserves the right to revise the License Fees set forth above within
thirty (30) days of the start of each calendar year and again upon the
commercial release of each New Release. RN shall provide Partner thirty (30)
days' written notice of any change in the License Fee.
5.2 Payment Terms. Partner will provide RN with a written report by the 20th day
of each month for the preceding calendar month setting forth: (a) the number of
RMA Servers distributed; (b) the number of Partner clients distributed; (c) the
names and address to whom the RMA Servers and/or RealAudio and/or RealVideo
products were distributed; (d) the number of Partner Products distributed; (e)
the number of License Keys distributed; (f) the number of RealAudio and/or
RealVideo products distributed; (g) the type and number of any other RMA-based
products or related licenses distributed; (h) the price per unit charged for
each of the foregoing; (i) gross revenue receivable by Partner (whether or not
actually collected); and (j) the amount due to RN pursuant to Section 5.1 for
the preceding month. The report shall be accompanied by the payment due.
Payments shall be calculated based on sales invoiced by Partner and its
Authorized Distributors, whether or not the revenue is actually collected. All
payments due hereunder
- --------
(1) Confidential information is omitted and identified by an * and filed
separately with the SEC pursuant to a request Confidential Treatment.
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shall be made in United States Dollars, without withholding or offset of any
kind. Interest shall accrue on all amounts past due hereunder at the monthly
rate of one and one-half percent (1.5%) or at the maximum legal rate, whichever
is less.
5.3 Books and Records. Partner shall keep books of account with respect to the
amounts due and the calculations required to be made under Section 5.1. Upon
RN's reasonable written request, and no more than once per year of the Term, RN
may audit and inspect all such books of account, through an independent third
party auditor and during normal business hours, provided that such auditor shall
undertake in writing to protect the confidentiality of the business data and
records of Partner. The cost of any such audit shall be paid by RN; provided,
however, that in the event RN initiates an audit under this Section 5.3 and it
is finally determined that the amount reported and paid by Partner pursuant to
Section 5.1 for the period(s) audited is, in the aggregate, less than
ninety-five per cent (95%) of the aggregate amount actually due, then Partner
shall pay the reasonable costs and expenses of said audit. If any such audit
reveals an underpayment of license fees, Partner shall make any correcting
payment within thirty (30) days. Any underpayment shall be subject to interest
of one and one-half percent (1.5%) per month or the maximum amount allowed by
law, whichever is less. Partner will maintain the books and records to each
reporting period for at least three years following the close of such period
6. TERM AND TERMINATION
6.1 Term. This Agreement shall commence as of the Effective Date, and terminate
on the earlier of eighteen (18) months from the commercial release of a Partner
Product or two (2) years from the Effective Date (the "Term"), unless earlier
terminated as provided herein. This Term shall automatically be extended for
additional one year periods (each a "Renewal Term") unless either party notifies
the other of its election not to so extend this Agreement no later than 90 days
prior to the end of the Term or a Renewal Term.
6.2 Termination by Either Party. Either party may terminate this Agreement
immediately upon written notice to the other party in the event of any of the
following:
(a) should the other party fail to perform any material term or condition
of this Agreement, which shall constitute a default of this Agreement, and such
default has not been corrected within thirty (30) days of written notice from
the non-breaching party. In the event of a breach of Section 9 no cure period
need be provided.
(b) should the other party (i) make a general assignment for the benefit of
creditors; (ii)institute proceedings to be adjudicated a voluntary bankrupt, or
consent to the filing of a petition of bankruptcy against it; (iii) be
adjudicated by a court of competent jurisdiction as being bankrupt or insolvent;
(iv) seek reorganization under any bankruptcy act, or
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consent to the filing of a petition seeking such reorganization; or (v) have a
decree entered against it by a court of competent jurisdiction appointing a
receiver, liquidator, trustee, or assignee in bankruptcy or in insolvency
covering all or substantially all of such party's property or providing for the
liquidation of such party's property or business affairs.
6.3 Termination by RN. RN may terminate this Agreement immediately upon written
notice to Partner in the event of any of the following:
(a) any attempted transfer or assignment of this Agreement or any right or
obligation hereunder, or any sale, transfer, relinquishment, voluntary or
involuntary, by operation of law or otherwise, of any interest in the direct or
indirect ownership or control of Partner without RN's prior written approval;
(b) any failure of Partner to pay, when due, any indebtedness owing by
Partner to RN, unless expressly waived in writing by RN.
6.4 Effect of Termination.
(a) Upon the effective date of termination of this Agreement for a material
breach by Partner, the licenses granted hereunder shall terminate immediately.
Partner will either immediately return all Licensed Software to RN or certify in
writing to RN that all copies of all Licensed Software have been destroyed. RN
may discontinue promotion and distribution of Partner Products or continue to
distribute Partner Products during the Sell-Off Period, set forth in Section
6.4(b), at its sole discretion. Notwithstanding anything in this Agreement to
the contrary, under no circumstances may Partner distribute Partner Client
Software after the expiration or termination of this Agreement, for any reason,
without RN's express written consent.
(b) For two (2) months after the expiration or termination of this
Agreement other than by reason of Partner's material breach ("Sell-Off Period"),
Partner may advertise and sell the Partner Products, Licensed Software, or RN
Products, in its inventory or necessary to fulfill orders confirmed as of the
expiration or termination date, and shall pay License Fees and render statements
in the same manner as during the Term. After the end of the Sell-Off Period,
Partner shall return to RN, at Partner's expense, all copies of the Partner
Products, Licensed Software and RN Products, or RN may instruct Partner to
destroy them. Partner shall furnish RN with affidavits certified by an officer
of Partner attesting to such destruction.
(c) Any termination of this Agreement shall not release Partner from paying
any amount that may then be owing to RN, or that may become due to RN in the
future.
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(d) Notwithstanding any other terms or conditions of the Agreement, the
rights of end-user customers to use any Licensed Software, RN Products and/or
Partner Products distributed by Partner shall survive any termination or
expiration of the Agreement, provided that License Fees for said Licensed
Software or RN Products or Partner Products have been paid to RN.
7. CONFIDENTIALITY
"Confidential Information" means any trade secret information or information
otherwise designated by a party as being confidential relating to either party's
products, product plans, designs, computer code, technical information, costs,
pricing, financing, marketing plans, business opportunities, personnel, research
and development or know-how. Confidential Information shall not include
information that (i) is or becomes generally known or available through no fault
of the receiving party, (ii) was known by or disclosed to the receiving party
prior to disclosure, (iii) is independently developed by the receiving party, or
(iv) is made generally available by the disclosing party without any
restriction. The parties shall use reasonable efforts and at least the same care
that each uses to protect its own Confidential Information of like importance,
to prevent unauthorized dissemination or disclosure of the other party's
confidential information during and for three (3) years following the last day
of the Term. Neither party will use the other's Confidential Information for
purposes other than those necessary to directly further the purposes of this
Agreement. Neither party will disclose to third parties the other's Confidential
Information without the prior written consent of the other party, provided,
however, that nothing will preclude a party from making disclosure to a third
party for the purpose of due diligence in a financing transaction, merger,
acquisition, business combination or other similar transaction, or from making
any disclosures to any governmental agency having jurisdiction over the
disclosing party, or unless otherwise required by law, government order or court
proceeding. Each party shall return the Confidential Information to the other
party upon termination of the Agreement or upon the request of the other party.
Except as expressly provided in this Agreement, no ownership or license right is
granted in any Confidential Information.
8. PROPRIETARY RIGHTS
8.1 Partner. Partner shall retain all right, title and interest in and to the
Partner Products, including any copyright, trademarks, patent, trade secret, or
other intellectual property rights therein, subject to RN's underlying ownership
in any Licensed Software or RN Products included therein, and in and to Partner
Confidential Information, regardless of the media or form on or in which the
Partner Products or Partner Confidential Information, or copies thereof, may
exist. Notwithstanding the foregoing, Partner agrees that it shall not register
or attempt to register any copyrights or trademarks, or to seek to obtain any
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patents in connection with any Partner Product, including, but not limited to,
in any device, process, method, function or invention included therein or
necessary for the operation thereof, which would in any way interfere with,
limit or prohibit RN's continued use, development or ownership of RMA.
8.2 RN. RN shall retain all right, title and interest in and to the Licensed
Software and RN Products, including any copyright, trademarks, patent, trade
secret, or other intellectual property rights therein, all RN trademarks and in
and to all RN Confidential Information, regardless of the media or form on or in
which the Licensed Software, the RN Products, or the RN Confidential
Information, or copies thereof, may exist. Partner acknowledges and agrees that
the Licensed Software and the RN Products are proprietary to RN, and is
protected by the copyright laws of the United States and international copyright
treaties. Unauthorized copying of the Licensed Software, or the RN Products,
including modification, merger or inclusion with any other software or products,
is expressly forbidden. Partner shall not be deemed, by anything contained in or
done pursuant to this Agreement, including by implication, to acquire any right,
title or interest in any trademark, copyright, patent or other intellectual
property of RN, and shall do nothing to prejudice the value or validity of RN's
rights therein or ownership thereof.
9. LIMITED WARRANTY
9.1 Limited Warranty. RN warrants, solely for the benefit of Partner, that for a
period of ninety (90) days from the date of delivery to Partner: (i) the
Licensed Software, if operated as directed, will substantially achieve the
functionality described in the User Documentation, and (ii) that the media
containing the Licensed Software, if provided by RN, is free in material
respects from defects in material and workmanship; provided, however, that the
foregoing warranty is expressly contingent (and shall be otherwise void) upon:
(1) the use of the Licensed Software strictly in accordance with the
instructions and User Documentation therefor; (2) the absence of misuse or
damage thereto; (3) the absence of any alteration or modification thereto; and
(4) Partner's acceptance of Licensed Software for distribution with knowledge
that the media upon which the Licensed Software are reproduced by Partner may
contain certain defects. RN makes no representation or warranty that the
information or functions contained in the Licensed Software will meet Partner's
requirements or that the use or operation of the Licensed Software will be
uninterrupted, error free or secure, or that any Licensed Software defects are
correctable or will be corrected. THE FOREGOING WARRANTY SHALL NOT APPLY TO THE
SAMPLE SOURCE CODE, WHICH IS PROVIDED TO PARTNER AS IS, WITHOUT WARRANTY OF ANY
KIND.
9.2 NO OTHER WARRANTIES. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, RN
AND ITS LICENSORS DISCLAIM ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTIBILITY AND FITNESS
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FOR A PARTICULAR PURPOSE, WHICH ARE EXPRESSLY DISCLAIMED, WITH REGARD TO THE
LICENSED SOFTWARE, THE RN PRODUCTS, AND THE USER DOCUMENTATION. THIS LIMITED
WARRANTY GIVES PARTNER SPECIFIC LEGAL RIGHTS. PARTNER MAY HAVE OTHERS, WHICH
VARY FROM STATE/JURISDICTION TO STATE/JURISDICTION.
9.3 Remedies. RN's entire liability and Partner's exclusive remedy for any
breach of the limited warranty set forth in Section 9.1 shall be, in RN's sole
discretion: (i) to exercise reasonable efforts to replace in a timely manner,
defective media provided by RN to Partner, or defective media that is
sublicensed by Partner to a Partner's end-user corporate customer pursuant to
Section 2.1; or (ii) to advise Partner or Partner's corporate end-user, within a
reasonable period of time after notice is received from Partner of the defect,
how to achieve substantially the same functionality with the Licensed Software
as described in the User Documentation through a procedure different from that
set forth in the User Documentation. Repaired, corrected or replaced Licensed
Software and User Documentation shall be covered by this limited warranty for
the period remaining under the warranty that covered the original Licensed
Software, or if longer, for thirty (30) days after the date RN either shipped to
Partner the repaired or replaced Licensed Software or RN advised Partner as to
how to operate the Licensed Software so as to achieve the functionality
described in the Documentation, whichever is applicable.
10. INDEMNIFICATION
10.1 RN's Indemnification. RN shall defend Partner and its directors, officers,
agents, employees and representatives, in any third party action for
infringement by, or alleged infringement by the Licensed Software of any
trademark, service mark, patent, copyright, or misappropriation of any trade
secret by the Licensed Software, and will pay any final judgments awarded or
settlements entered into in any such action. Partner agrees that it shall notify
RN of all threats, claims and proceedings related to any such suit promptly
after such threat, claim or proceeding comes to the attention of Partner. RN
shall have sole control of the defense and/or settlement of any such suit, and
Partner shall furnish to RN, upon request, information available to Partner for
such defense, and shall provide RN with such assistance in defending such suits
as is requested by RN, at RN's expense. If Partner's use of the Licensed
Software under the terms of this Agreement is, or in RN's opinion is likely to
be, enjoined due to the type of infringement or misappropriation specified
above, then RN may, at its sole option and expense, either (i) procure for
Partner the right to continue using the Licensed Software under the terms of
this Agreement; or (ii) replace or modify the affected Licensed Software so that
it is noninfringing and substantially equivalent in function to the enjoined
Licensed Software. The foregoing obligation of RN does not apply (i) with
respect to versions of the Licensed Software or portions or components thereof:
(a) which are modified after shipment, if the alleged infringement relates to
such modification, and if such modification was not authorized, expressly
permitted or performed by RN; (b) which are combined with other products,
processes or materials, if the alleged infringement relates
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to such combination and if RN did not authorize or expressly permit the
combination; or (c)where Partner's use of the Licensed Software is not in
accordance with the license granted under this Agreement; or (ii) for use or
distribution of Licensed Software or otherwise not in accordance with the terms
and conditions of this Agreement.
10.2 Partner Indemnification. Partner shall defend RN and its directors,
officers, agents, employees and representatives, in any third party action for
infringement by, or alleged infringement by the Partner Products of any
trademark, service mark, patent, copyright, or misappropriation of any trade
secret by the Partner Products, and will pay any final judgments awarded or
settlements entered into in any such action. RN agrees that it shall notify
Partner of all threats, claims and proceedings related to any such suit promptly
after such threat, claim or proceeding comes to the attention of RN. Partner
shall have sole control of the defense and/or settlement of any such suit, and
RN shall furnish to Partner, upon request, information available to RN for such
defense, and shall provide Partner with such assistance in defending such suits
as is requested by Partner, at Partner's expense. If RN's use of the Partner
Products under the terms of this Agreement is, or in Partner's opinion is likely
to be, enjoined due to the type of infringement or misappropriation specified
above, then Partner may, at its sole option and expense, either (i) procure for
RN the right to continue using the Partner Products under the terms of this
Agreement; or (ii)replace or modify the affected Partner Products so that it is
noninfringing and substantially equivalent in function to the enjoined Partner
Products. The foregoing obligation of Partner does not apply (i) with respect to
versions of the Partner Products or portions or components thereof: (a)that are
modified after shipment, if the alleged infringement relates to such
modification, and if such modification was not authorized, expressly permitted
or performed by Partner; (b)that are combined with other products, processes or
materials, if the alleged infringement relates to such combination and if
Partner did not authorize or expressly permit the combination; or (c) where RN's
use of the Partner Products is not in accordance with the license granted under
this Agreement; or (ii) for use or distribution of Partner Products or otherwise
not in accordance with the terms and conditions of this Agreement.
11. LIMITATION OF LIABILITY
IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INDIRECT,
INCIDENTAL, OR CONSEQUENTIAL OR PUNITIVE DAMAGE OR LOSS OF ANY NATURE (E.G.,
DAMAGE TO PROPERTY, LOSS OF PROFITS, BUSINESS INTERRUPTION, LOST SAVINGS, LOSS
OF USE, LOST OR DAMAGED FILES OR DATA, INJURY TO PERSON, OR ANY CLAIMS OF THOSE
NOT A PARTY TO THE AGREEMENT)WHICH MAY ARISE IN CONNECTION WITH THE USE,
ADAPTATION, MERGER, CORPORATION,DISTRIBUTION, INSTALLATION, REMOVAL OR SUPPORT
OF THE LICENSED SOFTWARE, THE RN PRODUCTS, AND/OR THE PARTNER PRODUCTS PURSUANT
TO THIS AGREEMENT, REGARDLESS OF WHETHER SUCH CLAIMS ARE BASED IN WARRANTY,
CONTRACT, NEGLIGENCE, TORT, PRODUCTS LIABILITY OR OTHERWISE, EVEN IF THE PARTY
HAS BEEN ADVISED OF THE POSSIBILITY
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OF SUCH DAMAGE OR LOSS. BECAUSE SOME STATES/JURISDICTIONS DO NOT ALLOW THE
EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL, DAMAGES,
THE ABOVE LIMITATION MAY NOT APPLY, AND THE PARTIES MAY ALSO HAVE OTHER RIGHTS
WHICH VARY FROM STATE TO STATE.
12. DISPUTE RESOLUTION
12.1 Coverage. Any dispute arising out of or relating to this Agreement shall be
resolved in accordance with the procedures specified in this Section, which
shall be the sole and exclusive procedures for the resolution of any such
dispute. Other than actual or imminent material breaches of Sections 2, 7 and 8,
any dispute between the parties with respect to this Agreement shall be
submitted for structured negotiation. The commencement, and any resolution
reached as a result, of any dispute resolution under this Section shall be
considered Confidential Information and shall be treated as compromise and
settlement negotiations.
12.2 Structured Negotiation. Either party may invoke this procedure by giving
written notice set forth the details of and its position with respect to the
dispute to the other party, and designating therein a corporate officer with
appropriate authority to be its representative in negotiations relating to the
dispute. The other party shall designate a corporate officer with similar
authority within three (3) business days of its receipt of such notice. The
designated officers shall, following whatever investigation each deems
appropriate, but no event later than twenty (20) business days after the
original notice, enter into discussions concerning the dispute. If the
representatives do not resolve the dispute within an additional twenty (20)
business days of their initial meeting, either party may submit the matter to
binding arbitration under Section 12.3.
12.3 Binding Arbitration.
(a) Any dispute not settled by the parties by structured negotiation (other
than actions for injunctive relief including specific performance) shall be
submitted only to binding arbitration. The arbitration will be conducted in
accordance with the procedures set forth herein and the Arbitration Rules for
Commercial Arbitration Rules of the AAA. In the event of a conflict with such
rules, this Agreement will control.
(b) The arbitration shall take place in Seattle, Washington, before a panel
of three arbitrators appointed as follows: each party shall select a single
arbitrator, and the two (2) selected arbitrators shall mutually agree upon a
third. The arbitrators selected shall have knowledge and experience in the
computer software business. The arbitrators shall rule on the dispute by issuing
a written opinion setting forth findings of fact and the rationale for their
decision within thirty (30) days after the close of hearings. The decision
rendered by the arbitrators shall be final and binding and may be entered as a
judgment in any court of competent jurisdiction. The arbitrators shall control
the scheduling so as to process the matter expeditiously. The times specified in
this Section may be extended
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upon mutual agreement of the parties upon a showing of good cause. The parties
may submit written briefs. Discovery shall be controlled by the arbitrators and
shall be permitted as follows: each party may submit in writing to the other
party, and that party shall so respond, to a maximum of any combination of
thirty-five (35) (none of which may have subparts) of interrogatories, demands
to produce documents, and requests for admission. Unless provided otherwise in
the Agreement, the arbitrators may not award non-monetary or equitable relief of
any sort. They will have no power to award damages inconsistent with the
Agreement. In no event, even if any other portion of these provisions is held to
be invalid or unenforceable, shall the arbitrators have power to make an award
or impose a remedy that could not be made or imposed by a court deciding the
matter in the same jurisdiction.
(c) Any issue concerning the extent to which any dispute is subject to
arbitration, or concerning the applicability, interpretation, or enforceability
of these procedures, including any contention that all or part of these
procedures are invalid or unenforceable, shall be governed by the Federal
Arbitration Act and resolved by the arbitrators. No potential arbitrator may
serve on the panel unless he or she has agreed in writing to abide and be bound
by these.
(d) Each party shall bear its own costs of arbitration. A party seeking
discovery shall reimburse the responding party the costs of production of
documents (to include search time and reproduction costs). The parties shall
equally split the fees of the arbitration and the arbitrators.
12.4 Provisional Remedies. The procedures specified in this Section shall be the
sole and exclusive procedures for the resolution of disputes between the parties
arising out of or relating to this Agreement; provided, however that a party,
without prejudice to the mandatory procedures of this Section, may file a
complaint for statute of limitations or venue reasons, or seek a preliminary
injunction or other provisional judicial relief, if in its sole judgment such
action is necessary to avoid irreparable damage or to preserve the status quo.
Notwithstanding such action, the parties will continue to participate in good
faith in the procedures specified in this Section.
12.5 Tolling, Statute of Limitations. All applicable statutes or limitation and
defenses based upon the passage of time shall be tolled while the procedures
specified in this Section are pending. The parties will take such action, if
any, required to effectuate such tolling.
12.6 Performance to Continue. Each party agrees, and is required, to continue to
perform its obligations under this Agreement pending final resolution of any
dispute arising out of or relating to this Agreement.
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13. GENERAL
13.1 Notice. Any notice or other communication permitted or required under this
Agreement shall be given in writing and shall be deemed effective upon personal
delivery (including courier service), overnight mail delivery, upon confirmed
facsimile transmission, or five (5) days after deposit, postage prepaid, in the
first class mail of the United States properly addressed to the appropriate
party at the address set forth below:
RN: Real Networks, Inc.
1111 Third Avenue, Suite 2900
Seattle, Washington 98101
Point of contact: Len Jordan
Facsimile No.: 206-674-2699
With a copy to: General Counsel
Facsimile No.: 206-674-2695
Partner: Digital Lava Inc.
10850 Wilshire Boulevard, Suite 1260
Los Angeles, CA 90024
Point of contact: Danny Gampe, CFO
Facsimile No.: (310) 470-1769
Either party may from time to time change such address by giving the
other party notice of such change in accordance with this Section.
13.2 Independent Contractors. RN and Partner are independent contractors in all
relationships and actions under and contemplated by the Agreement.
Notwithstanding anything in this Agreement to the contrary, the parties do not
by this Agreement intend to form, nor shall this Agreement be construed to
constitute, a partnership, joint venture, employment, or agency relationship
between them, or to authorize Partner or any Authorized Distributors to enter
into any commitment or agreement binding on RN or to allow one party to accept
service of any legal process addressed to, or intended for, the other party.
Partner and Authorized Partners shall not make any warranties, guarantees or any
other commitments on behalf of RN pursuant to the Agreement.
13.3 No Assignment. Partner shall not assign, transfer or otherwise dispose of
this Agreement or any rights or duties hereunder without the prior written
consent of RN, provided that Partner may assign this Agreement without RN's
prior written consent pursuant to a sale of substantially all of Partner's
assets, or in connection with a merger, or consolidation. However, if the sale,
merger or consolidation by Partner is to or with a competitor of RN, Partner is
required to obtain RN's prior written consent. If the contemplated sale, merger
or consolidation by Partner is with *****(1), in addition to having the right to
refuse to consent, RN shall have a right of first refusal for the
- --------
(1) Confidential information is omitted and identified by an * and filed
separately with the SEC pursuant to a request Confidential Treatment.
18
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exclusive rights to purchase Partner's assets or stock on the same terms as the
best offer from *****(1).
13.4 Survival. The following provisions shall survive the expiration or
termination of this Agreement: the applicable provisions of Sections 2.3, 5.3,
6.4, and 7 through 12.
13.5 U.S. Government Restricted Rights and Export Restriction. The Licensed
Software, RN Products, and User Documentation are provided with RESTRICTED
RIGHTS. Use, duplication or disclosure by the Government is subject to
restrictions set forth in subparagraphs (a) through (d) of the Commercial
Computer Software--Restricted Rights at FAR 52.227-19 when applicable, or in
subparagraph (c)(l)(ii) of the Rights in Technical Data and Computer Software
clause at DFARS 252.227-7013, and in similar clauses in the NASA FAR supplement,
as applicable. Manufacturer is Real Networks, Inc./1111 Third Avenue, Suite 500/
Seattle, Washington, 98101. Partner acknowledges that none of the Licensed
Software, RN Products, or underlying information or technology may be downloaded
or otherwise exported or re-exported: (i) into (or to a national or resident of)
Cuba, Iran, Iraq, Libya, North Korea, Syria, Sudan or Angola or any other
country to which the U.S. has embargoed goods; or (ii) to anyone on the U.S.
Treasury Department's list of Specially Designated Nationals or the U.S.
Commerce Department's Table of Denial Orders.
13.6 Miscellaneous. This Agreement, and any exhibits and schedules attached
hereto and incorporated herein, constitute the complete and exclusive agreement
between RN and Partner with respect to the subject matter hereof, and supersedes
all oral or written understandings, communications or agreements not
specifically incorporated herein. If any provision in this Agreement is held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions will continue in full force without being impaired or
invalidated in any way. No waiver, amendment or modification of any provision of
this Agreement shall be effective unless it is in a document which expressly
refers to this Agreement and is signed by authorized representatives of both
parties. Except as specifically provided herein, failure or delay by either
party in exercising any rights or remedy under this Agreement shall not operate
as a waiver of any such right or remedy. Headings shall not be considered in
interpreting this Agreement. This Agreement shall be governed by the laws of the
State of Washington, without regard to its conflict of laws rules. The United
Nations Convention of Contracts for the International Sale of Goods is expressly
excluded.
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IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
Effective Date written above.
REAL NETWORKS, INC. DIGITAL LAVA INC.
By: /s/ Len Jordan By: /s/ Joshua D.J. Sharfman
----------------------- --------------------------
Name: Len Jordan Name: Joshua D. J. Sharfman
Title: Senior Vice President MSDIV Title: CEO
Date: 4/13/98 Date: 6 April '98
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EXHIBIT A
Partner Products
VideoVisor
vPrism
VideoVisor Publisher
21
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EXHIBIT B
RMA Server
The RMA Server includes the following:
1) installer for the appropriate operating system platform
2) operators manual
3) exposed interfaces to plug-in a monitor, administrator, file system,
datatype or broadcast datatype
4) base-level monitoring tool
5) ability to stream a datatype given a file format plug-in or broadcast
plug-in and license key
6) supports the following platforms: Windows NT; UNIX (Free BSD, Solaris 2.5,
Linux, DEC UNIX, BSDI, HP/UX, SunOS 4.1, IRIX and AIX)
22
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SCHEDULE I
Except for the RN Products, which are subject to Schedule 2, Partner shall pay
RN at the rate of *****(1) plus *****(1) of the total gross revenue receivable
by Partner from the sale, license or distribution of all RMA-based products,
including Partner Products, RMA Players, RMA Servers, License Keys, Updates, New
Release and any site licenses.
- --------
(1) Confidential information is omitted and identified by an * and filed
separately with the SEC pursuant to a request Confidential Treatment.
23
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SCHUEDULE 2
Partner shall pay RN at the discounted rate of *****(1) off from RN's listed
retail price for the RN Products.
- --------
(1) Confidential information is omitted and identified by an * and filed
separately with the SEC pursuant to a request Confidential Treatment.
24
SOFTWARE LICENSE AGREEMENT
This Agreement made effective as of the 31th day of March, 1997 between Cinax
Designs Inc. ("Cinax") having an office at #150-1152 Mainland Street, Vancouver,
B.C. Canada, V6B 4X2 and Digital LAVA (identified in subsection 3.1) on the
following terms and conditions:
1. SCOPE
1.1 Cinax shall create and license software to Digital LAVA who shall utilize
the software as defined below. The software to be supplied is set out in
Schedule A which may be amended from time to time by listing any additional
software to be licensed to Digital LAVA by Cinax on a replacement Schedule A
signed by the parties.
2. DEFINITIONS
2.1 "Engine" shall mean the MPEG software engine developed by Cinax to crop and
concatenate a series of MPEG clips plus the APl documentation. The purpose of
this Engine is to add an editing functionality into the Digital LAVA Product.
2.2 "Product" means the current production version of the Digital LAVA vPrism
software listed in Schedule A to this Agreement, and any future fixes, updates,
enhancements and modifications to those programs created by or for Digital LAVA,
but excluding any subsequent releases or enhancements of the Product which do
not incorporate the Engine.
2.3 "Services" means the design and development of the Engine in accordance with
the Specifications and delivery of the Deliverables.
2.4 "Specifications" means the Specifications for the engine and the contracted
Services, attached to this Agreement as Exhibit A. "Schedule" means the schedule
for completion of the Services, as set forth in the Specifications.
2.5 "Deliverables" means the various alpha, beta and final versions of the
Engine, and supporting documentation, as more fully described in the
Specifications.
2.6 "Errors" means defect(s) in a deliverable which prevent it from performing
in accordance with the Specifications and or a Severity Level 1, 2 or 3 error,
as such errors are described in Schedule B.
2.7 "Library" means the software development library developed by Cinax and used
in the development of the Engine under this Agreement.
2.8 "Derivative Technology" means: (i) for copyrightable or copyrighted
material, any translation (including translation into other computer languages)
portation, modification, correction, addition, extension, upgrade, improvement
compilation, abridgment, or other
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form in which an existing work may be recast, transformed or adapted; (ii) for
patentable or patented material, any improvement thereon; and (iii) for material
which is protected by trade secret, any new material derived from such existing
trade secret material, including any new material which may be protected by
copyright, patent and/or trade secret.
2.9 "Customer" means resellers, system integrators and software wholesale or
retail outlets, and, in the event of Digital LAVA direct sales, end-users.
3. PARTICULARS
3.1 Licensee - Licensee's name and key particulars are:
(a) full name: Digital LAVA Inc
(b) full address: Suite 1260, 10850 Wilshire Boulevard, Los Angeles, CA, USA,
90024
(c) telephone number: 310-470-1149
(d) fax number: 310-470-1769
(e) contact person: Josh Sharfman
(f) e-mail address: [email protected]
4 DEVELOPMENT
4.1 Services - Digital LAVA hereby retains Cinax to design, develop and test the
Engine. Cinax shall use their best efforts to perform the Services in a
workmanlike manner and in accordance with the Schedule and the Specifications.
Cinax is not obligated to perform any Services, and Digital LAVA has not
contracted for any Services, unless and until Exhibit A is executed by both
parties and attached hereto.
4.2 Acceptance of Software - For software executable code deliverables, where
Cinax delivers to Digital LAVA the alpha, beta and final versions of each
Deliverable, Digital LAVA shall evaluate and submit a written acceptance or
rejection to Cinax within five (5) business days of receipt of the alpha and
beta versions and seven (7) business days after receipt of the final version of
the Deliverables. Acceptance shall be in writing, and Digital LAVA shall not
unreasonably withhold its acceptance unless a Deliverable is not according to
the Specifications or is not according to Schedule A. If Digital LAVA identifies
Errors in a deliverable within the acceptance period, Cinax shall correct such
Errors following receipt thereof. Cinax shall use its best efforts to correct
Errors during acceptance testing for the alpha and beta versions of each
Deliverable and within the time specified in Schedule B with respect to errors
discovered during acceptance testing for the final version of each Deliverable.
4.3 Documentation- For documentation or report Deliverables, Digital LAVA shall
evaluate each version of such deliverable and in the event that corrections are
required Digital LAVA shall specify the corrections needed and Cinax shall
deliver an amended version of such documentation within five (5) business days.
4.4 Errors- If Cinax fails to deliver to Digital LAVA any deliverable within the
dates
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specified in the Schedule A or if any Errors discovered within the acceptance
period cannot be eliminated in the correction period specified in the
Specifications then Digital LAVA may, at its option: (i) retain the Deliverables
to date with rights as set forth in Section 10, and pay Cinax for all
outstanding payment milestones for which Digital LAVA has accepted corresponding
deliverables; (ii) extend a correction period to Cinax; or (iii) suspend Digital
LAVA's obligations under this Agreement and/or terminate this Agreement for
cause pursuant to paragraph 12.2.
4.5 Design Review and Specification Changes- Cinax understands that there may be
additions, deletions or other changes which may affect the Specifications at any
time during the term of this Agreement. Upon notice of any such changes by
Digital LAVA, Cinax and Digital LAVA agree to work together to make any
necessary changes to the Specifications, and Cinax shall alter the services in
order to accommodate any such changes to the Specifications.
5. GRANT OF LICENSE
5.1 License to Digital LAVA- Cinax hereby grants to Digital LAVA the
non-exclusive, non-transferable worldwide right and license of renewable term
to:
(i) use, copy, demonstrate and sub-license the Engine as a part of its
Product; and otherwise carry on the activities contemplated by and as set out in
this Agreement subject to the termination provisions contained in this
Agreement.
5.2 Royalty to Cinax - In return for such license Digital LAVA agrees to pay
Cinax a royalty based on the revenues or any portion thereof derived by Digital
LAVA from the resale, distribution or sub-license of the Digital LAVA-developed
Product or third party products using the Engine.
6. PURCHASE AND SALE OF PRODUCT
6.1 Reporting- Digital LAVA shall notify Cinax of all Product sales made on a
quarterly basis, in the format specified in Schedule C.
6.2 Title/Security Interest in Engine - Title to Engine shall remain in Cinax
and Cinax shall have a security interest in such units until Digital LAVA pays
Cinax in full for all amounts owing from Digital LAVA to Cinax in connection
with shipments of which the Engine forms a part. Digital LAVA shall sign all
instruments and do all acts that Cinax, acting reasonably, requires to effect,
perfect, register or record such retention of title and security interest.
3
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7. PAYMENT
7.1 Services - Digital LAVA shall pay Cinax for the Services performed as set
forth and in accordance with the applicable Schedule A, not to exceed *****(1)
provided that (i) Cinax has completed the milestones and delivered the
Deliverable; and (ii) Digital LAVA has accepted the Deliverables. Such payments
will be due net five (5) days from the later of (i) acceptance by Digital LAVA
of the Deliverable associated with any payment milestone or (ii) receipt by
Digital LAVA of a Cinax invoice associated with any payment milestone.
7.2 Up Front License Fee - Digital LAVA shall pay to Cinax an up front licensing
fee of *****(1) for use of the Engine. *****(1) will be due net thirty (30) days
from the later of (i) acceptance by Digital LAVA of the Final Deliverable or
(ii) receipt by Digital LAVA of a Cinax invoice associated with the Final
Deliverable, and the balance of *****(1) on the first reporting date as per
Schedule A.
7.3 Royalty free copies- The first seventy five (75) copies of the Product
shipped, including upgrades of the Product shipped to existing users, shall not
be subject to royalties.
7.4 Royalties Payable and Base - For each subsequent unit of the Product shipped
Digital LAVA shall pay to Cinax a royalty as set out in Schedule A. which amount
shall reflect the most of: *****(1) of the Product Net Sales Price invoiced by
Digital LAVA to the Customer, or at the royalty floor price of fifty dollars
($50) U.S.
7.5 Minimum Royalty - During each year the Agreement is in effect, Digital LAVA
shall license from Cinax not less than 200 copies of the Engine at the royalty
floor price of *****(1) U.S . Digital LAVA shall have the right to prepay
royalties to achieve the minimum in any given year. Failure by Digital LAVA to
license the minimum copies in a particular year of the Agreement shall be a
default of this Agreement on the part of Digital LAVA entitling Cinax to
terminate the Agreement.
7.6 The royalty charges applicable to Product are due upon invoice by Cinax and
Cinax shall invoice the Digital LAVA for such charges and all such invoices
according to Schedule C. Invoices are payable within 30 days of the invoice
receipt. Any amounts outstanding for 30 days shall be subject to interest at a
rate of 1% per month (12% per annum).
7.7 Digital LAVA shall pay all applicable sales, use, withholding and excise
taxes, and any other assessments against the Digital LAVA in the nature of
taxes, duties or charges however designated on the Product or its license or
use, on or resulting from this Agreement, exclusive of taxes based on the net
income of Cinax.
7.8 Inspection Rights - Cinax shall have the right to audit Digital LAVA's
records and
- --------
(1) Confidential information is omitted and identified by an * and filed
separately with the SEC pursuant to a request for Confidential Treatment.
4
<PAGE>
papers which are relevant to the resale, distribution or sub licensing of the
Product once per year. Such audits shall be performed by an independent
accounting firm and shall be conducted at Digital LAVA's headquarters. Written
notification of such audits shall be received by Digital LAVA at least thirty
(30) days prior to such audit. Audit costs shall be Cinax's responsibility,
unless audit determines a discrepancy of 25% or greater between Product shipped
and reported, in which case Digital LAVA shall be responsible for audit costs.
8. SUPPORT
8.1 Software Maintenance - Cinax shall provide software support and maintenance
services relative to the product as described herein:
a) Software Maintenance: Cinax shall use its best efforts to rectify any
problem with the Product which results in the Product not being in
substantial conformance to the functional specifications as contained in
the documentation in Schedule A;
b) Support Availability: Cinax shall provide reasonable telephone and e-mail
support for the Engine between the hours of 8:30 a.m. and 5:00 p.m.,
Pacific Standard Time, excluding weekends and Canadian statutory' holidays,
to Digital LAVA only.
c) Cost; there will be no support costs charged.
8.2 Suspension of Support- if Cinax terminates Agreement under Section 12.2 (b)
Cinax shall provide Digital LAVA with a copy of the Engine source code for the
express purpose of providing support, as described above, to end users of its
Product. Digital LAVA will not use the source for any other purpose, or in any
way use this source code to impinge the rights of Cinax as set out in Section
10- Rights and Ownership.
9. WARRANTY
9.1 Limited Warranty of Engine - Cinax warrants that Engine supplied hereunder
shall perform in accordance with the functional specifications as set out in the
documentation accompanying the Engine provided for 90 days following acceptance
of the Product. Cinax's sole obligation and liability hereunder shall be to use
reasonable efforts to remedy any such functional non-conformance which is
reported to Cinax in writing by Digital LAVA within the warranty period. In the
event such non-conformance is unable to be remedied by Cinax, using reasonable
efforts, Cinax shall, in its sole discretion, refund to Digital LAVA the royalty
payment and use reasonable efforts to find a replacement and this Agreement will
be automatically terminated.
9.2 SPECIFIC EXCLUSION OF OTHER WARRANTIES - THE WARRANTIES SET OUT IN SECTION
9.1 AND 10.1 ARE IN LIEU OF ALL OTHER WARRANTIES, AND THERE ARE NO OTHER
WARRANTIES, REPRESENTATIONS, CONDITIONS, OR GUARANTEES OR ANY KIND WHATSOEVER,
EITHER EXPRESS OR IMPLIED BY LAW (in contract or tort) OR CUSTOM, INCLUDING, BUT
NOT LIMITED TO THOSE REGARDING MERCHANTABILITY, FITNESS FOR PURPOSE,
CORRESPONDENCE TO SAMPLE, TITLE, DESIGN, CONDITION,
5
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OR QUALITY. WITHOUT LIMITING THE ABOVE, CINAX DOES NOT WARRANT THAT THE PRODUCT
SHALL MEET THE REQUIREMENT OF DIGITAL LAVA OR THAT THE OPERATION OF PRODUCT
SHALL BE FREE FROM INTERRUPTION OR ERRORS.
9.3 RESTRICTIONS ON WARRANTY - CINAX SHALL HAVE NO OBLIGATION TO REPAIR OR
REPLACE PRODUCT DAMAGED BY ACCIDENT OR OTHER EXTERNAL CAUSE, OR THROUGH THE
FAULT OR NEGLIGENCE OF ANY PARTY OTHER THAN CINAX.
9.4 NO INDIRECT DAMAGES - IN NO EVENT SHALL CINAX BE LIABLE TO DIGITAL LAVA OR
TO ANY OTHER PARTY FOR INDIRECT DAMAGES OR LOSSES (in contract or tort) IN
CONNECTION WITH PRODUCT, SOFTWARE SUPPORT SERVICES OR THIS AGREEMENT, INCLUDING
BUT NOT LIMITED TO DAMAGES FOR LOST PROFITS, LOST SAVINGS, OR INCIDENTAL,
CONSEQUENTIAL, OR SPECIAL DAMAGES, EVEN IF ClNAX SELLER HAS KNOWLEDGE OF THE
POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE.
9.5 LIMITS ON LIABILITY - IF FOR ANY REASON, CINAX BECOMES LIABLE TO DIGITAL
LAVA OR ANY OTHER PARTY FOR DIRECT OR ANY OTHER DAMAGES FOR ANY CAUSE
WHATSOEVER, AND REGARDLESS OF THE FORM OF ACTION (in contract or tort), INCURRED
IN CONNECTION WITH THIS AGREEMENT, THE PRODUCT, OR SOFTWARE SUPPORT SERVICES
THEN:
(A) THE AGGREGATE LIABILITY OF ClNAX FOR ALL DAMAGES, INJURY, AND LIABILITY
INCURRED BY DIGITAL LAVA AND ALL OTHER PARTIES IN CONNECTION WITH PRODUCT
AND SOFTWARE SUPPORT SERVICES SHALL BE LIMITED TO AN AMOUNT EQUAL TO THE
FEES AND ROYALTIES PAID TO CINAX FOR THE PRODUCT OR SOFTWARE SUPPORT
SERVICES WHICH GAVE RISE TO THE CLAIM FOR DAMAGES; AND
(B) DIGITAL LAVA MAY NOT BRING OR INITIATE ANY ACT OR PROCEEDING AGAINST SELLER
ARISING OUT OF THIS AGREEMENT OR RELATING TO PRODUCT OR SOFTWARE SUPPORT
SERVICES MORE THAN TWO YEARS AFTER THE CAUSE OF ACTION HAS ARISEN.
9.6 SEPARATE ENFORCEABILITY - SECTIONS 9.2, 9.3, 9.4 AND 9.5 ARE TO BE CONSTRUED
AS SEPARATE PROVISIONS AND SHALL EACH BE INDIVIDUALLY ENFORCEABLE.
9.7 Indemnity - Except to the extent of Cinax's obligations under sections 9.1
and 10.1, Digital LAVA shall defend, indemnify and save harmless Cinax, its
affiliates and their respective directors, officers and employees and each of
them from and against all actions, proceedings, demands, claims, liabilities,
losses, damages, judgments, costs and expenses including, without limiting the
generality of the foregoing, legal fees and disbursements on a solicitor and
client basis (together with all applicable taxes) which any indemnified person
hereunder may be liable to pay or may incur by reason of, or directly or
indirectly arising out of, any claim which may be advanced by any Customer
obtaining Product directly or indirectly through Digital LAVA.
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10. RIGHTS AND OWNERSHIP OF PRODUCT
10 1 Warranty of Title - Cinax warrants that it has all rights necessary to make
the grant of license herein by having all right, title and interest in and to
the Library and any other software libraries used to develop and/or implement
the Engine.
10 2 Retention of Rights by Cinax - All proprietary and intellectual property
rights, title and interest including copyright in and to the original and all
copies of the Engine and the documentation or any changes or modifications made
to the Engine or related documentation shall be and remain that of Cinax or its
licensor as the case may be. Digital LAVA has no proprietary and intellectual
property rights, title or interest in or to the Engine or related documentation
except as granted herein and Digital LAVA shall not at any time whether before
or after the termination of this Agreement contest or aid others in contesting,
or doing anything which otherwise impairs the va}idity of any proprietary and
intellectual property rights, title or interest of Cinax in and to the Engine or
related documentation.
10.4 Intellectual Property Indemnity - Cinax shall defend or settle any claim
made or any suit or proceeding brought against Digital LAVA insofar as such
claim, suit or proceeding is based on an allegation that any of the Product
supplied to Digital LAVA pursuant to this Agreement infringes the proprietary
and intellectual property rights of any third party in or to any invention,
patent, copyright or any other rights, provided that Digital LAVA shall notify
Cinax in writing promptly after the claim, suit or proceeding is known to
Digital LAVA and shall give Cinax information and such assistance as is
reasonable in the circumstances. Cinax shall have sole authority to defend or
settle the same at Cinax's expense. Cinax shall indemnify and hold Digital LAVA
harmless from and against any and all such claims and shall pay all damages and
costs finally agreed to be paid in settlement of such claim, suit or proceeding.
This indemnity does not extend to any claim, suit or proceeding based upon any
infringement or alleged infringement of copyright by the combination of the
Product with other elements not under Cinax's sole control nor does it extend to
any Product altered by Digital LAVA either by enhancement or by combination with
product(s) of the Digital LAVA's design or formula. The foregoing states the
entire liability of Cinax for proprietary and intellectual proprietary rights
infringement related to the Product. If the Product in any claim, suit or
proceeding are held to infringe any proprietary or intellectual property rights
of any third party and the use thereof is enjoined or, in the case of settlement
as referred to above, prohibited, Cinax shall have the option, at its own
expense, to either (i) obtain for Digital LAVA the right to continue using the
infringing item, or (ii) replace the infringing item or modify it so that it
becomes non-infringing; provided that no such replacement or modification shall
diminish the performance of the Product.
10.4 Infringement by Third Parties - Should either party become aware of
possible or
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threatened infringement of the Engine or the Library, or any patents or patent
applications in the same, it shall notify the other party forthwith. Each party
undertakes to cooperate fully with the other party in any action against any
such possible or threatened infringer. Cinax shall have the exclusive discretion
to determine whether to take action, and what action to take, to enter into any
settlement and to receive any proceeds or awards in respect of alleged
infringements of the Engine or Library.
10.5 Infringement of Third Party Rights- In the event either party becomes aware
of the threatened infringement of any third party patent rights or copyrights of
the Engine or the Library, it shall promptly notify the other party of such a
claim. Each party shall have the right to negotiate, settle or defend any claim
by a third party alleging infringement by the Engine or the Library of any
copyrights or patents.
11. CONFIDENTIALITY AND USE LIMITATION
11.1 Confidentiality - Digital LAVA shall not at any time whether before or
after the termination of this Agreement disclose, furnish, or make accessible to
anyone any confidential information, which confidential information is deemed to
include the source code of the Product or related technical documentation or any
part thereof, or permit the occurrence of any of the above.
11.2 Safeguards - Digital LAVA shall take reasonable precautions to prevent
Product in its care and control from being duplicated, stolen, disclosed or used
for unauthorized purposes.
11.3 Non-disclosure of Agreement - Digital LAVA shall not disclose the terms,
content or nature of this Agreement to any third party unless Digital LAVA must
disclose such information as a result of a duly issued legal process or a formal
due diligence process.
11.4 References - Digital LAVA agrees that the fact of its use of the Engine may
be disclosed to others and Digital LAVA shall become a reference account for
Cinax and the Engine.
11.5 Competition - The parties acknowledge that this Agreement does not restrict
or prohibit either party from making arrangements with any third parties or
dealing in any way with any other software or hardware even if such party or
said other software or hardware competes with the Engine or services offered by
Cinax or Digital LAVA. Nothing contained in this Agreement shall prevent Digital
LAVA from developing or having developed or from acquiring from third parties,
products similar to and competitive with the Engine. Furthermore, nothing herein
shall preclude Digital LAVA from marketing such Digital LAVA-developed or third
party acquired products to others.
12. TERM AND TERMINATION
12.1 Term - This Agreement shall subsist for an initial term of two (2) years
commencing on the execution date of this Agreement ("Initial Term"). This
Agreement shall be reviewed in one-year periods ("Renewal Terms"), provided that
Digital LAVA is
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not in default under this Agreement at the time of renewal. Renewal shall be on
the same terms and conditions as are set out herein.
12.2 Termination - This Agreement shall terminate in each of the following
events:
(a) at the option of either party if the other party materially defaults in the
performance or observance of any of its obligations hereunder and fails to
remedy the default within 60 days after receiving written demand therefor;
or
(b) at the option of either party if the other party becomes insolvent or
bankrupt or makes an assignment for the benefit of creditors, or if a
receiver or trustee in bankruptcy is appointed for the other party, or if
any proceeding in bankruptcy, receivership, or liquidation is instituted
against the other party and is not dismissed within 30 days following
commencement thereof;
provided that the right of termination shall be in addition to all other rights
and remedies available to the parties for default or wrong-doing by each other.
12.3 Suspension of Obligations - If either party should default in the
performance or observance of any of its obligations hereunder then in addition
to all other rights and remedies available to the non-defaulting party, the non
defaulting party may suspend performance and observance of any or all its
obligations under this Agreement, without liability, until the other party's
default is remedied, but this section shall not permit Digital LAVA to suspend
its obligation to make payments owing in respect of Product.
12.4 Return of Engine - If Digital LAVA discontinues sales of the Product or use
of the Engine, or in the event of termination of this Agreement by either party,
Digital LAVA shall immediately return to Cinax all copies of the Engine thereof
and certify in writing to Cinax that Digital LAVA has done so,
13. GENERAL
13.1 Complete Agreement
This is the complete and exclusive statement of the Agreement between the
parties with respect to the subject matter contained herein and supersedes and
merges all prior representations, proposals, understandings and all other
agreements, oral or written, express or implied, between the parties relating to
the matters contained herein. This Agreement may not be modified or altered
except by written instrument duly executed by both parties.
13.2 Force Majeure
Dates or times by which either party is required to perform under this Agreement
excepting the payment of any fees or charges due hereunder shall be postponed
automatically to the extent that any party is prevented from meeting them by
causes beyond its reasonable control.
13 3 Notices
All notices and requests in connection with this Agreement shall be given or
made upon
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the respective parties in writing and shall be deemed given as of the third day
following the day the notice is faxed, providing hard copy acknowledgment of
successful faxed notice transmission is retained Notice may also be deposited in
the Canadian or US mails, postage pre-paid, certified or registered, return
receipt requested, and addressed to the respective parties at the party's
address as indicated above
13.4 Governing Law
This Agreement and performance hereunder shall be governed by the taws of
British Columbia.
13.5 Enforceability
If any provision of this Agreement shall be held to be invalid, illegal or
unenforceable under any applicable statute or rule of law, the validity,
legality and enforceability of the remaining provisions shall in no way be
affected or impaired thereby.
13.6 Non-Assignment
Digital LAVA may not assign its rights, duties or obligations under this
Agreement except to a related, affiliated or associated company by way of
reorganization of Digital LAVA or a successor to substantially all of the assets
and undertaking of Digital LAVA, without the prior written consent of Cinax.
Digital LAVA's obligation to pay any fees or charges due hereunder is not
assignable.
13.7 Non-Waiver
The waiver or failure of either party to exercise in any respect any right
provided for herein shall not be deemed a waiver of any further right hereunder.
13.8 No Aqency
The parties acknowledge that each as an independent contractor and nothing
herein constitutes a joint venture or partnership and neither party has the
right to bind nor act for the other as agent or in any other capacity.
13.9 Enurement
All covenants, representatives, warranties and agreements of the parties
contained herein shall be binding upon and shall enure to the benefit of the
parties and their respective successors and permitted assigns.
13.10 Survival
Sections 6 and subsections 5.2, 9.2, 9.3, 9.4, 9.5, 9.7, 10.2, 11.1, 11.2, 11.3,
11.4 and 12.3 shall survive termination and expiration of the agreement.
13.11 Interlocutory Remedy
Both parties acknowledge that irreparable harm shall result to the other if
either breaches their obligations under sections 6 and 10 and both parties
acknowledge that such a breach would not be properly compensable by an award of
damages. Accordingly, each party agrees that remedies for any such breach may
include, in addition to other available remedies and damages, injunctive relief
or other equitable relief enjoining such breach at the earliest possible date.
13.12 Disputes - Except with respect to applications for injunctions, any
dispute arising out of or in connection with this Agreement or any legal
relationship associated therewith shall be finally resolved at the British
Columbia International Commercial Arbitration Center (BClCAC) by a sole
arbitrator pursuant to the rules of the BClCAC.
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<PAGE>
IN WITNESS WHEREOF the parties thereto have executed this Agreement, through
their respective officers, duly authorized for such purpose, as they so declare
and represent, as the Effective Date.
Digital Lava Inc. Cinax Designs Inc.:
By: /s/ Joshua D.J. Sharfman By: /s/ Eric Camirand
------------------------------ ----------------------------
Joshua D.J. Sharrfman Eric Camirand
Authorized Signature Authorized Signature
Title: CEO Title: President
office of Company's representative office of Company's representative
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<PAGE>
SCHEDULE A
SPECIFICATIONS, DELIVERABLES AND SCHEDULE
PRODUCT
Item Description Ownership List Price
- ---- ----------- --------- ----------
1. vPrism, Video Computing Suite Digital Digital Lava $16,500
PRODUCT FOR LICENSE
Item Description Documentation
- ---- ----------- -------------
1. Windows Engine MPEGEDIT.DLL APl doc
(MPEG crop and concat based on timecode inputs)
2. MAC Engine (Shared Library) APl doc
(MPEG crop and concat based on timecode inputs)
GENERAL SPECIFICATIONS
The APl specification, characterized as a C header file:
// The return information from crop(); supplies caller with all information
// required to locate in the output file the beginning and end of the
// section of video that was cropped from the source input video file.
Time values
// are in floating-point seconds.
//
// outputMarklnTimeCode output-file-relative time value of the first frame
cropped
// outputMarkOutTimeCode output-file-relative time value of the last frame
cropped
// outputFileLengthTime output file length in units of time struct cropInfo
{
double output MarklnTimeCode;
double outputMarkOutTimeCode;
double outputFileLengthTime;
};
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// Crop a section of video from a source file and create
// a video file containing the cropped video stream.
I// Input arguments:
// sourceFile source file specification
// destinationFile destination file specification
// marklnTimeCode time value of first frame to crop, in sourceFile
// markOutTimeCode time value of last frame to crop, in sourceFile
// Output argument:
// results a cropInfo record, containing output
// file-relative information and describing
// the location in the output file of the
// cropped section and the total length in time of the output file
// Function return value: zero if successful, else an error code
//
long crop(char *sourcefile,
char *destinationfile,
double markintimecode,
double markouttimecode,
struct cropInfo *results);
//
// Concatenate two video files into a single file.
//
// Input arguments:
// sourceFile1 file specification of the video file to be
// placed first in the concatenated output file
// sourceFile2 file specification of the video file to be
// placed second in the concatenated output fife
// destinationFile file
specification to be used for the output
// video file
// Function return value: zero if successful, else an error code
// Notes:
//.sourceFile1 and destinationFile may refer to the same file. If so,
// sourceFile2 is concatenated to the end of sourceFile1;
// If sourceFile1 and sourceFile2 are incompatible for concatenation,
// the error situation should be determined as nearly immediately as
// possible.
// long concat(char *sourceFile1,
char *sourceFile2,
char *destinationFile);
//
//Crop a section of video from a source file and append
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//it to an existing video file.
// Input arguments:
// sourceFile source file specification
// destinationFile file specification of video file to append
// the cropped section to
// marklnTimeCode time value of first frame to crop, in sourceFile
// markOutTimeCode time value of last frame to crop, in sourceFile
// Output argument:
// results a cropInfo record, containing output
// file-relative information and describing
// the location in the output file of the
// cropped section and the total length in
// time of the output file
// Function return value: zero if successful, else an error code
long cropAppend(char *sourceFile,
char *destinationFile,
double markintimecode,
double markouttimecode,
struct cropinfo *results);
PLATFORMS SUPPORTED:
1. Windows 95 and Windows NT compatible.
2. Mac OS System compatible
3. ActiveMovie MPEG-1 playback
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Stream supported:
1. Any ISO 11172 compliant MPEG system streams
DELIVERABLES
Alpha/Project Design- as per specifications
Beta- Mac and Windows version
Final Product- Working version of both Mac and Windows version
<TABLE>
<CAPTION>
SCHEDULE PRIME
TARGET DATE MILESTONE INVOICE AMOUNT (USD) RESPONSIBILITY
- ----------- --------- -------------------- ---------------
<S> <C> <C> <C>
March 31, 1997 Contract Start *****(1) Cinax
Project Design
April 15, 1997 Delivery of Windows Beta *****(1) Cinax
May 2, 1997 Delivery of MAC Beta *****(1) Cinax
May 12, 1997 Delivery of Documentation Delivery of *****(1) Cinax
Windows and MAC Final Product
May 16, 1997 License Commences *****(1) Digital LAVA
June 30, 1997 First Reporting Date *****(1) Digital LAVA
</TABLE>
- --------
(1) Confidential information is omitted and identified by an * and filed
separately with the SEC pursuant to a request for Confidential Treatment.
15
<PAGE>
SCHEDULE C
PRODUCT SALE REPORTING
Digital LAVA shall notify Cinax of all Product sales made on a quarterly basis,
on March 31, June 30, September 30 and December 31, in writing, in the format
specified below :
(i) the number of Product shipped (both Evaluation Copies and Production
Versions);
(ii) the date of shipment from Digital LAVA to third parties including Customers
(iii) the Extended Price of the Product, before shipping and taxes.
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