Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents
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1: SB-2 C:\Myfiles\Playco\Sb-2.Fin 80 383K
2: EX-1 C:Myfiles\Playco-Ex1 24 133K
3: EX-3.(I) C:\Myfiles\Playco-Ex3 5 18K
4: EX-4 C:\Myfiles\Playco-Ex4.5 1 4K
5: EX-10 C:\Myfiles\Playco-Ex10.82 6 22K
6: EX-10 C:\Myfiles\Playco-Ex10.86 5 17K
7: EX-23 C:\Myfiles\Playco-Ex23.01 1 6K
EX-1 — C:Myfiles\Playco-Ex1
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Exhibit 1.1
Form of Underwriting Agreement
PLAY CO. TOYS & ENTERTAINMENT CORP.
750,000 Shares of Series E Preferred Stock
and
1,500,000 Redeemable Series E Preferred Stock Purchase Warrants
UNDERWRITING AGREEMENT
_____________ ___, 1997
West America Securities Corp.
4510 E. Thousand Oaks Blvd.
Suite 100
West Lake Village, CA 91362
Dear Sirs:
PLAY CO. TOYS & ENTERTAINMENT CORP., a Delaware corporation (the "Company")
hereby confirms the agreement made with respect to the retention of West America
Securities Corp. (the "Underwriter") as the exclusive agent of the Company to
publicly offer and sell, pursuant to the terms of this Underwriting Agreement
(the "Agreement"), an aggregate of 750,000 shares of Series E Preferred Stock,
$.001 par value per share (the "Series E Preferred Stock"), and 1,500,000
redeemable Series E Preferred Stock purchase warrants (the "Warrants," and
collectively with the Series E Preferred Stock, the "Securities") of the Company
on a "best efforts, all or none" basis. The offering of the Securities
contemplated hereby may sometimes be referred to as the "Offering."
1. Description of the Securities.
(a) The Warrants.
Each Warrant entitles the holder thereof to purchase one share of
Series E Preferred Stock at a price of $5.00 for a period of four years
commencing one year from the date the Offering closes (the "Closing Date"),
subject to prior redemption by the Company. The shares of Series E Preferred
Stock issuable upon the exercise of the Warrants are hereinafter referred to as
the "Warrant Shares."
The Warrants are redeemable by the Company at any time, commencing one
year from the Closing Date, upon 30 days' prior notice, at a redemption price of
$.05 each, provided that the closing bid quotation of the Series E Stock for at
least 20 consecutive trading days, ending on the third day prior to the date on
which the Company gives notice, has been at least 170% of the exercise price of
the Warrants being redeemed. The Warrants will remain exercisable during the 30
day notice period.
(b) Underwriter's Warrants. Intentionally left blank.
2. Representations and Warranties of the Company.
The Company represents and warrants to the Underwriter that:
(a) The Company has filed with the Securities and Exchange Commission (the
"Commission"), a registration statement on Form SB-2 (File No. 333- ), including
any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Securities under the Securities Act of 1933 (the "Act"). The
Company will file further amendments to said registration statement in the form
to be delivered to you and will not, before the registration statement becomes
effective, file any other amendment thereto to which you shall have objected in
writing after having been furnished with a copy thereof. Except as the context
may otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, exhibits and all other documents filed as
a part thereof or incorporated therein), is hereinafter called the "Registration
Statement", and the prospectus, in the form filed with the Commission pursuant
to Rule 424(b) of the General Rules and Regulations of the Commission under the
Act (the "Regulations") or, if no such filing is made, the definitive prospectus
used in the Offering, is hereinafter called the "Prospectus". The Company has
delivered to you copies of each Preliminary Prospectus as filed with the
Commission and has consented to the use of such copies for purposes permitted by
the Act.
(b) The Commission has not issued any orders preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects with the requirements of the
Act and has not 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, subject to the provisions set forth below and except as such
untrue statement or omission has been cured in the a subsequent preliminary
prospectus or in the final prospectus.
(c) When the Registration Statement becomes effective under
the Act and at all times subsequent thereto including the Closing Date
(hereinafter defined) and for such longer periods as in the opinion of counsel
for the Underwriter, a Prospectus is required to be delivered in connection with
the sale of the Securities by the Underwriter, the Registration Statement and
Prospectus, and any amendment thereof or supplement thereto, will contain all
material statements which are required to be stated therein in accordance with
the Act and the Regulations, and will in all material respects conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty does not apply to
statements or omissions made in reliance upon and in conformity with written
information furnished to the Company by you, for use in connection with the
preparation of the Registration Statement or Prospectus, or in any amendment
thereof or supplement thereto. It is understood that the statements set forth
under the heading "Underwriting" in the Prospectus with respect to (i) the
amounts of the selling concession; (ii) the identity of counsel to the
Underwriter under the heading "Legal Matters"; and (iii) the information
concerning the NASD affiliation of the Underwriter constitute for purposes of
this Section the only information furnished in writing by or on behalf of the
Underwriter for inclusion in the Registration Statement and Prospectus, as the
case may be.
(d) The Company and each of its subsidiaries (each a
"Subsidiary") are, and at the Closing Date will be, corporations duly organized,
validly existing and in good standing under the laws of the jurisdiction of
their incorporation. The Company and each of its Subsidiaries are duly qualified
or licensed and in good standing as foreign corporations in each jurisdiction in
which their ownership or leasing of any properties or the character of their
operations requires such qualification or licensing, except those jurisdictions
in which the failure to so qualify would not have a material adverse effect. The
Company and each of its Subsidiaries have all requisite corporate powers and
authority, and, except as set forth in the Registration Statement, the Company
and each of its Subsidiaries and their employees' have all material and
necessary authorizations, approvals, orders, licenses, certificates and permits
of and from all governmental regulatory officials and bodies to own or lease
their properties and conduct their businesses as described in the Prospectus,
and the Company and each of its Subsidiaries are doing business and have been
doing business during the period described in the Registration Statement in
compliance with all such material authorizations, approvals, orders, licenses,
certificates and permits and all material federal, state and local laws, rules
and regulations concerning the businesses in which the Company or its
Subsidiaries are engaged. The disclosures in the Registration Statement
concerning the effects of federal, state and local regulation on the Company's
or its Subsidiaries' businesses as currently conducted and as contemplated are
correct in all material respects and do not omit to state a material fact. The
Company has all corporate power and authority to enter into this Agreement and
carry out the provisions and conditions hereof, and all consents,
authorizations, approvals and orders required in connection therewith have been
obtained or will have been obtained prior to the Closing Date.
(e) This Agreement has been duly and validly authorized and executed by the
Company. The Securities (including the Series E Preferred Stock and the
Warrants), the Warrant Shares have been duly authorized (and, in the case of the
Series E Preferred Stock and the Warrant Shares, have been duly reserved for
issuance) and, when issued and paid for in accordance with this Agreement (and,
in the case of the Warrant Shares, upon exercise of the Warrants and payment to
the Company of the exercise price therefor), the Series E Preferred Stock and
Warrant Shares will be validly issued, fully paid and non-assessable; the Series
E Preferred Stock, Warrants and Warrant Shares are not and will not be subject
to the preemptive rights of any stockholder of the Company and conform and at
all times up to and including their issuance will conform in all material
respects to all statements with regard thereto contained in the Registration
Statement and Prospectus; and all corporate action required to be taken for the
authorization, issuance and sale of the Series E Preferred Stock, Warrants and
Warrant Shares has been taken, and this Agreement constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms, to
issue and sell, upon exercise in accordance with the terms thereof, the number
and kind of securities called for thereby.
(f) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
the Certificate of Incorporation, as amended, or Bylaws of the Company or any of
its Subsidiaries or of any evidence of indebtedness, lease, contract or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their
properties is bound, or under any applicable law, rule, regulation, judgment,
order or decree of any government, professional advisory body, administrative
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its Subsidiaries or their properties, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the properties or
assets of the Company or any of its Subsidiaries; and no consent, approval,
authorization or order of any court or governmental or other regulatory agency
or body is required for the consummation by the Company or any of its
Subsidiaries of the transactions on their part herein contemplated, except such
as may be required under the Act or under state securities or blue sky laws,
except where a breach, violation or failure to obtain such consent would not
have a material adverse effect upon the business or operation of the Company or
its Subsidiaries.
(g) Subsequent to the date hereof, and prior to the Closing
Date the Company will not issue or acquire any equity securities except that the
Company may make short-term investments as contemplated in the "Use of Proceeds"
section of the Prospectus. Except as described in the Registration Statement,
the Company does not have, and at the Closing Date will not have, outstanding
any options to purchase or rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell shares of its Preferred Stock, Series E Preferred Stock or any
such options, warrants, convertible securities or obligations.
(h) The financial statements and notes thereto included in the
Registration Statement and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved.
(i) Except as set forth in the Registration Statement, the
Company and each Subsidiary are not, and at the Closing Date will not be, in
violation or breach of, or default in, the due performance and observance of any
term, covenant or condition of any indenture, mortgage, deed of trust, 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 or any of its Subsidiaries are a party or by which the Company or any of
its Subsidiaries may be bound or to which any of the property or assets of the
Company or any of its Subsidiaries are subject, which violations, breaches,
default or defaults, singularly or in the aggregate, would have a material
adverse effect on the Company or any of its Subsidiaries. The Company and each
of its Subsidiaries have not and will not have taken any action in material
violation of the provisions of the Certificate of Incorporation, as amended, or
the Bylaws of the Company or its Subsidiaries or any statute or any order, rule
or regulation of any court or regulatory authority or governmental body having
jurisdiction over or application to the Company or its Subsidiaries, their
businesses or properties.
(j) The Company and each of its Subsidiaries have, and at the Closing Date
will have, good and marketable title to all properties and assets described in
the Prospectus as owned by them, free and clear of all liens, charges,
encumbrances, claims, security interests, restrictions and defects of any
material nature whatsoever, except such as are described or referred to in the
Prospectus and liens for taxes not yet due and payable. All of the material
leases and subleases under which the Company or any of its Subsidiaries are the
lessor or sublessor of properties or assets or under which the Company or any of
its Subsidiaries hold properties or assets as lessee as described in the
Prospectus are, and will on the Closing Date be, in full force and effect, and
except as described in the Prospectus, the Company and its Subsidiaries are not
and will not be in default in respect to any of the terms or provisions of any
of such leases or subleases (which would have a material adverse effect on the
business, business prospects or operations of the Company or any of its
Subsidiaries taken as a whole), and no claim has been asserted by anyone adverse
to rights of the Company or any of its Subsidiaries as lessor, sublessor, lessee
or sublessee under any of the leases or subleases mentioned above, or affecting
or questioning the right of the Company or any of its Subsidiaries to continue
possession of the leased or subleased premises or assets under any such lease or
sublease except as described or referred to in the Prospectus, and the Company
and each of its Subsidiaries owns or leases all such properties as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted set forth in the Prospectus (which would
have a material adverse effect on the business, business prospects or operations
of the Company or any of its Subsidiaries taken as a whole).
(k) The authorized, issued and outstanding capital stock of
the Company as of , 1997 and as of the date of the Prospectus is as set forth in
the Prospectus under "Capitalization"; the shares of issued and outstanding
capital stock of the Company set forth thereunder have been duly authorized,
validly issued and are fully paid and non-assessable; except as set forth in the
Prospectus, no options, warrants or other rights to purchase, agreements or
other obligations to issue, or agreements or other rights to convert any
obligation into, any shares of capital stock of the Company have been granted or
entered into by the Company; and the Series E Preferred Stock, the Warrants and
all such options and warrants conform in all material respects, to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(l) Except as described in the Prospectus, the Company does
not own or control any capital stock or securities of, or have any proprietary
interest in, or otherwise participate in any other corporation, partnership,
joint venture, firm, association or business organization; provided, however,
that this provision shall not be applicable to the investment, if any, of the
net proceeds from the sale of the Securities sold by the Company in certificates
of deposits, savings deposits, short-term obligations of the United States
Government, money market instruments or other short-term investments.
(m) Haskell & White LLP who has given its report on certain
financial statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, are with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
(n) Subsequent to the respective dates as of which information
is given 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; or (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 to its capital stock.
(o) There is no litigation or governmental proceeding pending
or to the knowledge of the Company or any Subsidiary threatened against, or
involving the properties or business of the Company or any Subsidiary which
might materially adversely affect the value, assets or the operation of the
properties or the business of the Company or any Subsidiary, except as referred
to in the Prospectus. Further, except as referred to in the Prospectus, there
are no pending actions, suits or proceedings related to environmental matters or
related to discrimination on the basis of age, sex, religion or race, nor is the
Company or any Subsidiary charged with or, to its knowledge, under investigation
with respect to any violation of any statutes or regulations of any regulatory
authority having jurisdiction over its business or operations, and no labor
disturbances by the employees of the Company or any Subsidiary exist or, to the
knowledge of the Company or any Subsidiary, have been threatened.
(p) The Company has, and at the Closing Date will have, filed
all necessary federal, state and foreign income and franchise tax returns or has
requested extensions thereof (except in any case where the failure to so file
would not have a material adverse effect on the Company), and has paid all taxes
which it believes in good faith were required to be paid by it except for any
such tax that currently is being contested in good faith or as described in the
Prospectus.
(q) The Company has not at any time (i) made any contribution
to any candidate for political office, or failed to disclose fully any such
contribution, in violation of law, or (ii) made any payment to any state,
federal, foreign governmental or professional regulatory agency, officer or
official or other person charged with similar public, quasi-public or
professional regulatory duties, other than payments or contributions required or
allowed by applicable law.
(r) Except as set forth in the Registration Statement, to the
knowledge of the Company, neither the Company nor any of officer, director,
employee or agent of the Company has made any payment or transfer of any funds
or assets of the Company or conferred any personal benefit by use of the
Company's assets or received any funds, assets or personal benefit in violation
of any law, rule or regulation, which is required to be stated in the
Registration Statement or necessary to make the statements therein not
misleading.
(s) On the Closing Date all transfer or other taxes, if any
(other than income tax) which are required to be paid, and are due and payable,
in connection with the sale and transfer of the Securities by the Company to the
Underwriters will have been fully paid or provided for by the Company as the
case may be, and all laws imposing such taxes will have been fully complied with
in all material respects.
(t) There are no contracts or other documents of the Company
which are of a character required to be described in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement which have not
been so described or filed.
(u) The Company will apply the net proceeds from the sale of
the Securities sold by it for the purposes and in the manner set forth in the
Registration Statement and Prospectus under the heading "Use of Proceeds."
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specified authorizations;
(2) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (3) access to assets is permitted only in
accordance with management's general or specific authorizations; and (4) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) Except as set forth in the Prospectus, no holder of any
securities of the Company has the right to require registration of any
securities because of the filing or effectiveness of the Registration Statement.
(x) The Company has not taken and at the Closing Date will not
have taken, directly or indirectly, any action designed to cause or result in,
or which has constituted or which might reasonably be expected to constitute,
the stabilization or manipulation of the price of the Series E Preferred Stock
or the Warrants to facilitate the sale or resale of such securities.
(y) To the Company's knowledge, there are no claims for
services in the nature of a finder's origination fee with respect to the sale of
the Securities hereunder, except as set forth in the Prospectus.
(z) Other than the right of first refusal granted by the
Company to the Underwriter (as set forth in Section 3(aa) hereof), no right of
first refusal exists with respect to any sale of securities by the Company.
(aa) No statement, representation, warranty or covenant made
by the Company in this Agreement or made in any certificate or document required
by this Agreement to be delivered to Underwriter was, when made, or as of the
Closing Date or as of the Option Closing Date will be materially inaccurate,
untrue or incorrect.
3. Covenants of the Company.
The Company covenants and agrees that:
(a) It will deliver to the Underwriter, without charge, two
conformed copies of each Registration Statement and of each amendment or
supplement thereto, including all financial statements and exhibits.
(b) The Company has delivered to the Underwriter, and each of
the Selected Dealers (as hereinafter defined) without charge, as many copies as
have been requested of each Preliminary Prospectus heretofore filed with the
Commission in accordance with and pursuant to the Commission's Rule 430 under
the Act and will deliver to the Underwriter and to others whose names and
addresses are furnished by the Underwriter or a Selected Dealer, without charge,
on the Effective Date, and thereafter from time to time during such reasonable
period as you may request if, in the opinion of counsel for the Underwriter, the
Prospectus is required by law to be delivered in connection with sales by the
Underwriter or a dealer, as many copies of the Prospectus (and, in the event of
any amendment of or supplement to the Prospectus, of such amended or
supplemented Prospectus) as the Underwriter may request for the purposes
contemplated by the Act. The Company will take all necessary actions to furnish
to whomever directed by the Underwriter, when and as requested by the
Underwriter, all necessary documents, exhibits, information, applications,
instruments and papers as may be reasonably required or, in the opinion of
counsel to the Underwriter desirable, in order to permit or facilitate the sale
of the Securities.
(c) The Company has authorized the Underwriter to use, and
make available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriter, all dealers selected by you in connection with the
distribution of the Securities (the "Selected Dealers") to be purchased by the
Underwriter and all dealers to whom any of such Securities may be sold by the
Underwriter or by any Selected Dealer, to use the Prospectus, as from time to
time amended or supplemented, in connection with the sale of the Securities in
accordance with the applicable provisions of the Act, the applicable Regulations
and applicable state law, until completion of the distribution of the Securities
and for such longer period as you may request if the Prospectus is required
under the Act, the applicable Regulations or applicable state law to be
delivered in connection with sales of the Securities by the Underwriter or the
Selected Dealers.
(d) The Company will use its best efforts to cause the
Registration Statement to become effective and will notify the Underwriter
immediately, and confirm the notice in writing: (i) when the Registration
Statement or any post-effective amendment thereto becomes effective; (ii) of the
issuance by the Commission of any stop order or of the initiation, or to the
best of the Company's knowledge, the threatening, of any proceedings for that
purpose; (iii) the suspension of the qualification of the Securities and the
Underwriter's Warrants, or underlying securities, for offering or sale in any
jurisdiction or of the initiating, or to the best of the Company's knowledge the
threatening, of any proceeding for that purpose; and (iv) of the receipt of any
comments from the Commission. If the Commission shall enter a stop order at any
time, the Company will make every reasonable effort to obtain the lifting of
such order at the earliest possible moment.
(e) During the time when a prospectus is required to be
delivered under the Act, the Company will comply with all requirements imposed
upon it by the Act and the Securities Exchange Act of 1934 (the "Exchange Act"),
as now and hereafter amended and by the Regulations, as from time to time in
force, as necessary to permit the continuance of sales of or dealings in the
Securities in accordance with the provisions hereof and the Prospectus. 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 counsel for the Underwriter, 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 you
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act and will furnish to you
copies thereof.
(f) The Company will endeavor in good faith, in cooperation with you, at or
prior to the time the Registration Statement becomes effective, to qualify the
Securities for offering and sale under the securities laws or blue sky laws of
such jurisdictions as you may reasonably designate. In each jurisdiction where
such qualification shall be effected, the Company will, unless you agree that
such action is not at the time necessary or advisable, file and make such
statements or reports at such times as are or may reasonably be required by the
laws of such jurisdiction.
(g) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than the first day of the
fifteenth full calendar month following the Effective Date of the Registration
Statement, an earnings statement of the Company, which will be in reasonable
detail but which need not be audited, covering a period of at least twelve
months beginning after the Effective Date of the Registration Statement, which
earnings statements shall satisfy the requirements of Section 11(a) of the Act
and the Regulations as then in effect. The Company may discharge this obligation
in accordance with Rule 158 of the Regulations.
(h) During the period of five years commencing on the
Effective Date of the Registration Statement, the Company will furnish to its
stockholders an annual report (including financial statements audited by its
independent public accountants), in reasonable detail, and, at its expense,
furnish each of the Underwriters (i) within 90 days after the end of each fiscal
year, or as soon thereafter as is practicable, of the Company, a consolidated
balance sheet of the Company and its consolidated subsidiaries and a separate
balance sheet of each subsidiary of the Company the accounts of which are not
included in such consolidated balance sheet as of the end of such fiscal year,
and consolidated statements of operations, stockholders' equity and cash flows
of the Company and its consolidated subsidiaries and separate statements of
operations, stockholders' equity and cash flows of each of the subsidiaries of
the Company the accounts of which are not included in such consolidated
statements, for the fiscal year then ended all in reasonable detail and all
certified by independent accountants (within the meaning of the Act and the
Regulations), (ii) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, similar balance sheets as of the end of
such fiscal quarter and similar statements of operations, stockholders' equity
and cash flows for the fiscal quarter then ended, all in reasonable detail, and
subject to year end adjustment, all certified by the Company's principal
financial officer or the Company's principal accounting officer as having been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, (iii) as soon as available, each report furnished to or
filed with the Commission or any securities exchange and each report and
financial statement furnished to the Company's shareholders generally and (iv)
as soon as available, such other material as the Underwriter may from time to
time reasonably request regarding the financial condition and operations of the
Company.
(i) For a period of eighteen months from the Closing Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit), the Company's financial statements
for each of the first three quarters prior to the announcement of quarterly
financial information, the filing of the Company's 10-Q quarterly report and the
mailing of quarterly financial information to stockholders.
(j) Intentionally left blank.
(k) The Company will deliver to you prior to filing, any
amendment or supplement to the Registration Statement or Prospectus proposed to
be filed after the Effective Date of the Registration Statement and will not
file any such amendment or supplement to which you shall reasonably object after
being furnished such copy.
(l) During the period of 120 days commencing on the date
hereof, the Company will not at any time take, directly or indirectly, any
action designed to, or which will constitute or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Securities to facilitate the sale or resale of any of the Securities.
(m) The Company will apply the net proceeds from the Offering
received by it in the manner set forth under "Use of Proceeds" in the
Prospectus.
(n) Counsel for the Company, the Company's accountants, and the officers
and directors of the Company will, respectively, furnish the opinions, the
letters and the certificates referred to in subsections of Paragraph 10 hereof,
and, in the event that the Company shall file any amendment to the Registration
Statement relating to the offering of the Securities or any amendment or
supplement to the Prospectus relating to the offering of the Securities
subsequent to the Effective Date of the Registration Statement, such counsel,
such accountants, such officers and directors, respectively, will, at the time
of such filing or at such subsequent time as you shall specify, so long as
securities being registered by such amendment or supplement are being
underwritten by the Underwriter, furnish to you such opinions, letters and
certificates, each dated the date of its delivery, of the same nature as the
opinions, the letters and the certificates referred to in said Paragraph 10, as
you may reasonably request, or, if any such opinion or letter or certificate
cannot be furnished by reason of the fact that such counsel or such accountants
or any such officer or director believes that the same would be inaccurate, such
counsel or such accountants or such officer or director will furnish an accurate
opinion or letter or certificate with respect to the same subject matter.
(o) The Company will comply with all of the provisions of any undertakings
contained in the Registration Statement in all material respects.
(p) The Company will reserve and keep available for issuance that maximum
number of its authorized but unissued shares of Series E Preferred Stock which
are issuable upon exercise of the Warrants and issuable upon exercise of the
Underwriter's Warrants (including the underlying securities) outstanding from
time to time.
(q) Following the Effective Date and from time to time thereafter, so long
as the Warrants are outstanding, the Company will timely prepare and file at its
sole cost and expense one or more post-effective amendments to the Registration
Statement or a new registration statement as required by law as will permit
Warrant holders to be furnished with a current prospectus in the event Warrants
are exercised, and to use its best efforts and due diligence to have same be
declared effective. The Company will deliver a draft of each such post-effective
amendment or new registration statement to the Underwriter at least ten days
prior to the filing of such post-effective amendment or registration statement.
(r) Following the Effective Date and from time to time thereafter so long
as any of the Warrants remain outstanding, the Company will timely deliver and
supply to its warrant agent sufficient copies of the Company's current
Prospectus, as will enable such Warrant Agent to deliver a copy of such
Prospectus to any Warrant or other holder where such Prospectus delivery is by
law required to be made.
(s) So long as any of the Warrants remain outstanding, the Company shall
continue to employ the services of a firm of independent certified public
accountants reasonably acceptable to the Underwriter in connection with the
preparation of the financial statements to be included in any registration
statement to be filed by the Company hereunder, or any amendment or supplement
thereto (it being understood that Haskell & White LLP is acceptable to the
Underwriter). During the same period, the Company shall employ the services of a
law firm(s) acceptable to the Underwriter (it being understood that Klarman &
Associates is acceptable) in connection with all legal work of the Company,
including the preparation of a registration statement to be filed by the Company
hereunder, or any amendment or supplement thereto.
(t) So long as any of the Warrants remain outstanding, the Company shall
continue to appoint a Warrant Agent for the Warrants, who shall be reasonably
acceptable to the Underwriter.
(u) The Company agrees that it will, upon the Closing Date, for a period of
no less than three (3) years, engage a designee of the Underwriter as an advisor
(the "Advisor") to its Board of Directors where such Advisor shall attend
meetings of the Board, receive all notices and other correspondence and
communications sent by the Company to members of its Board of Directors and
shall be entitled to receive compensation therefor equal to the entitlement of
all non-employee directors. Such Advisor shall also be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings
including, but not limited to, food, lodging, and transportation. The Company
further agrees that during said three (3) year period, it shall schedule no less
than four (4) formal and "in person" meetings of its Board of Directors in each
such year and thirty (30) days advance notice of such meetings shall be given to
the Advisor. Further, during such three (3) year period, the Company shall give
notice to the Underwriter with respect to any proposed acquisitions, mergers,
reorganizations or other similar transactions. In lieu of the Underwriter's
right to designate an Advisor, the Underwriter shall have the right during such
three-year period, in its sole discretion, to designate one person for election
as a Director of the Company and the Company will utilize its best efforts to
obtain the election of such person who shall be entitled to receive the same
compensation, expense reimbursements and other benefits set forth above.
The Company agrees to indemnify and hold the Underwriter and such
Advisor or Director harmless against any and all claims, actions, damages, costs
and expenses, and judgments arising solely out of the attendance and
participation of your designee at any such meeting described herein. In the
event the Company maintains a liability insurance policy affording coverage for
the acts of its of officers and directors, it agrees, if possible, to include
the Underwriter's designee as an insured under such policy.
(v) Intentionally Left Blank.
(w) The Company's Series E Preferred Stock and Warrants shall
be listed on the Nasdaq SmallCap Market ("Nasdaq"), or on a stock exchange, not
later than the Closing Date. Prior to the Closing Date, the Company will make
all filings required, including registration under the Exchange Act, to obtain
the listing of the Series E Preferred Stock and Warrants on Nasdaq and any such
exchange, and will effect and use its best efforts to maintain such listings
(unless the Company is acquired) for at least five years from the date of this
Agreement.
(x) The Company will apply for listing in Standard and Poors
Corporation Reports or Moodys OTC Guide and shall use its best efforts to have
the Company included in such publications for at least five years from the
Closing Date.
(y) Intentionally Left Blank.
(z) Except for the issuance of shares of capital stock by the
Company in connection with a dividend, recapitalization, reorganization or
similar transactions or as result of the exercise of warrants or options
disclosed in or issued or granted pursuant to plans disclosed in the
Registration Statement, the Company shall not, for a period of twenty-four (24)
months following the Closing Date, directly or indirectly, offer, sell, issue or
transfer any shares of its capital stock, or any security exchangeable or
exercisable for, or convertible into, shares of the capital stock or register
any of its capital stock (under any form of registration statement, including
Form S-8), without the prior written consent of the Representative. Options
granted pursuant to plans must be exercisable at the fair market value on the
date of grant.
(aa) During the three-year period from the Effective Date, the
Underwriter shall have a right of first refusal to act as underwriter or agent
of any and all public or private offerings of the securities of the Company, or
any successor to or subsidiary of the Company or any other entity in which the
Company has an equity interest (collectively referred to herein as the
"Company"), by the Company or any secondary offering of the Company's securities
by any of its officers, directors and 5% or greater stockholders ("Principal
Stockholders"). The Company has caused such Principal Stockholders to deliver to
the Underwriter on or before the date of this Agreement, an agreement to this
effect, as it relates to any proposed secondary offering by such Principal
Stockholders, in form and substance satisfactory to the Underwriter and to
counsel for the Underwriter.
(bb) Intentionally Left Blank.
(cc) The Company will use its best efforts to obtain, as soon
after the Closing Date as is reasonably possible, liability insurance covering
its officers and directors.
(dd) The Company agrees that any conflict of interest arising
between a member of the Company's Board of Directors and the Company in
connection with such Director's dealing with, or obligations to, the Company,
shall be resolved by a vote of the majority of the independent members of the
Board of Directors.
(ee) The Company agrees that it will employ the services of a
financial public relations firm acceptable to the Underwriter for a period of at
least twelve months following the Effective Date.
4. Appointment of Agent to Sell the Securities.
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties, and agreements herein contained, the
Company hereby appoints the Underwriter as its
exclusive agent for a period of 90 days from the Effective Date, subject to
an extension by mutual agreement of the Company and the Underwriter for an
additional period not to exceed 90 days (the "Offering Period"), to sell the
Securities, and the Underwriter, on the basis of the representations and
warranties of the Company herein, accepts such appointment and agrees to use its
best efforts on an "all or none" basis to find purchasers for the Securities.
The price at which the Underwriter shall sell the Securities to the public as
agent for the Company, shall be $4.00 per share of Series E Preferred Stock and
$.10 per Warrant, less an underwriting discount of ten percent (10%) of the
offering price for each security. The Underwriter may allow a concession not
exceeding $ per share of ------- Common Stock and $ per Warrant to selected
dealers who are members of the National Association of Securities ------ Dealer,
Inc. ("NASD"), and to certain foreign dealers, but all such sales by selected
dealers shall be made by the Company, acting through the Underwriter as agent,
and not for the account of the Underwriter.
(b) Provided that all of the Securities offered hereby are
sold and paid for, the Company agrees to pay the Underwriter for its expenses a
non-accountable expense allowance equal to 3% of the gross proceeds of the
offering, subject to the provisions of Paragraph 9 herein.
(c) It is a condition of this Agreement that the Underwriter
shall use its best efforts to sell the Securities on behalf of the Company, that
any and all funds received from such sale, without any deduction therefrom
whatsoever, including, but not limited to, any underwriting commission or any
dealer concession or otherwise, shall be forthwith deposited into an escrow
account with Gotham Bank of New York, as Escrow Agent, pursuant to the terms of
an Escrow Agreement entered into by and among the Company, the Underwriter and
the Escrow Agent. In the event all of the Securities offered hereby are not sold
within the Offering Period, all funds will be promptly refunded to the
subscribes in full, without deduction therefrom or interest thereon.
Certificates will be issued to purchasers only if the proceeds from all of the
Securities offered hereby are released from escrow to the Company. Until such
time as the funds have been released and the certificates delivered to the
purchasers thereof, such purchasers, if any, will be deemed subscribers and not
stockholders. The funds in escrow will be held for the benefit of those
subscribers until released to the Company and will not be subject to creditors
of the Company or utilized for the expenses of this Offering. When certificates
for the Securities are to be issued in the name of a participating dealer for
the benefit of its customer, the Escrow Agent may hold such funds with the
dealer reflected as the subscriber.
5. Delivery and Payment.
(a) In the event all of the Securities offered hereby are sold
during the Offering Period, delivery of the Certificates representing the shares
of Series E Preferred Stock and Warrants against payment therefor shall take
place at the offices of West America Securities Corp., (or at such other place
as may be designated by agreement between you and the Company), at 10:00 a.m.,
New York time, on such date after the Offering has been completed as the
Underwriter shall designate, on at least five (5) full business days' prior
written notice, such time and date of payment and delivery of the Securities
being herein called the "Closing Date."
(b) The Company will make the certificates for the shares of
Series E Preferred Stock and Warrants sold hereunder available to the
Underwriter for checking at least two full business days prior to the Closing
Date at the offices of the Company's transfer agent. The certificates shall be
in such names and denominations as you may request, at least two full business
days prior to the Closing Date.
(c) The cost of original issue tax stamps, if any, in
connection with the issuance and delivery of the Securities by the Company to
the Underwriter shall be borne by the Company. The Company will pay and hold the
Underwriter, and any subsequent holder of the Securities, harmless from any and
all liabilities with respect to or resulting from any failure or delay in paying
federal and state stamp taxes, if any, which may be payable or determined to be
payable in connection with the original issuance or sale to the Underwriter of
the Securities or any portions thereof.
6. Offering of Securities on Behalf of the Company.
It is understood that the Underwriter proposes to offer the Securities to
the public solely as agent for the Company, upon the terms and conditions set
forth in the Registration Statement. The Underwriter shall commence making such
offer as agent for the Company on the Effective Date, or as soon thereafter as
the Underwriter deems advisable.
7. Warrant Solicitation Fee.
The Company agrees to pay to the Underwriter a fee of five percent (5%)
of the aggregate exercise price of the Warrants if: (i) the market price of the
Series E Preferred Stock is greater than the exercise price of the Warrants on
the date of exercise; (ii) the exercise of the Warrants are solicited by a
member of the NASD; (iii) the Warrants are not held in a discretionary account;
(iv) the disclosure of compensation arrangements was made both at the tie of the
Offering and at the time of the exercise of the Warrant; and (v) the
solicitation of the Warrant is not in violation of Regulation M promulgated
under the Exchange Act. The Company agrees not to solicit the exercise of any
Warrants other than through the Underwriter and will not authorize any other
dealer to engage in such solicitation without the prior written consent of the
Underwriter which will not be unreasonably withheld. The Warrant solicitation
fee will not be paid in a non-solicited transaction. No Warrant solicitation by
the Underwriter will occur prior to one year from the Effective Date.
8. Representations and Warranties of the Underwriter.
The Underwriter represents and warrants to the Company that:
(a) The Underwriter is a member in good standing of the
National Association of Securities Dealers, Inc., and has complied with all NASD
requirements concerning net capital and compensation to be received in
connection with the Offering.
(b) To the Underwriter's knowledge, there are no claims for
services in the nature of a finder's origination fee with respect to the sale of
the Securities hereunder to which the Company is, or may become, obligated to
pay.
9. Payment of Expenses.
(a) Whether or not this Agreement becomes effective or the
sale of the Securities by the Company is completed, the Company will pay and
bear all costs, fees, taxes and expenses incident to and in connection with: (i)
the issuance, offer, sale and delivery of the Securities, including all expenses
and fees incident to the preparation, printing, filing and mailing (including
the payment of postage with respect to such mailing) of the Registration
Statement (including all exhibits thereto), each Preliminary Prospectus, the
Prospectus, and amendments and post- effective amendments thereof and
supplements thereto, and this Agreement and related documents, Preliminary and
Final Blue Sky Memoranda, including the cost of preparing and copying all copies
thereof in quantities deemed necessary by the Underwriter; (ii) the costs of
preparing and printing all "Tombstone" and other appropriate advertisements;
(iii) the printing, engraving, issuance and delivery of the Series E Preferred
Stock, Warrants, Warrant Shares, Underwriter's Warrants and the securities
underlying the Underwriter's Warrant, including any transfer or other taxes
payable thereon in connection with the original issuance thereof; (iv) the
qualification of the Series E Preferred Stock and Warrants under the state or
foreign securities or "Blue Sky" laws selected by the Underwriter and the
Company, and disbursements and reasonable fees of counsel for the Underwriter in
connection therewith plus the filing fees for such states; (v) the preparation
of a secondary trading memorandum; (vi) fees and disbursements of counsel and
accountants for the Company; (vii) other expenses and disbursements incurred on
behalf of the Company (viii) the filing fees payable to the Commission and the
National Association of Securities Dealers, Inc. ("NASD"); and (ix) any listing
of the Series E Preferred Stock and Warrants on a securities exchange or on
NASDAQ.
(b) In addition to the expenses to be paid and borne by the Company
referred to in Paragraph 9(a) above, the Company shall reimburse you at the
Closing Date for expenses incurred by you in connection with the Offering (for
which you need not make any accounting), in the amount of 3% of the price to the
public of the Securities sold in the Offering. This 3% non-accountable expense
allowance shall cover the fees of your legal counsel, but shall not include any
expenses for which the Company is responsible under Paragraph 9(a) above,
including the reasonable fees and disbursements of your legal counsel with
respect to Blue Sky matters. As of the date hereof, no funds have been advanced
by the Company to the Underwriter with respect to such non-accountable expense
allowance.
(c) In the event that the Company does not or cannot, for any
reason whatsoever other than a default by the Underwriters, expeditiously
proceed with the Offering, or if any of the representations, warranties or
covenants contained in this Agreement are not materially correct or cannot be
complied with by the Company, or business prospects or obligations of the
Company are adversely affected and the Company does not commence or continue
with the Offering at any time or terminates the proposed transaction prior to
the Closing Date, the Company shall not be responsible to reimburse the
Underwriter for any out-of-pocket expenses in connection with the Underwriting.
10. Conditions of Underwriter's Obligations.
The obligations of the Underwriter to consummate the transactions
contemplated by this Agreement shall be subject to the continuing accuracy of
the representations and warranties of the Company contained herein as of the
date hereof and as of the Closing Date, the accuracy of the statements of the
Company and its officers and directors made pursuant to the provisions hereof,
and to the performance by the Company of its covenants and agreements hereunder
and under each certificate, opinion and document contemplated hereunder and to
the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York time, on the date following the date of this
Agreement, or such later date and time as shall be consented to in writing by
you and, on or prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Securities under the securities laws of any jurisdiction shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission or any such authorities of any jurisdiction and
any request on the part of the Commission or any such authorities for additional
information shall have been complied with to the reasonable satisfaction of the
Commission or such authorities and counsel to the Underwriter and after the date
hereof no amendment or supplement shall have been filed to the Registration
Statement or Prospectus without your prior consent.
(b) The Registration Statement or the Prospectus or any
amendment thereof or supplement thereto shall not contain an untrue statement of
a fact which is material, or omit to state a fact which 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) Between the time of the execution and delivery of this
Agreement and the Closing Date, there shall be no litigation instituted against
the Company or any of its officers or directors and between such dates there
shall be no proceeding instituted or, to the Company's knowledge, threatened
against the Company or any of its officers or directors before or by any
federal, state or county commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding would have a material adverse effect
on the Company or its business, business prospects or properties, or have a
material adverse effect on the financial condition or results of operation of
the Company.
(d) Each of the representations and warranties of the Company
contained herein and each certificate and document contemplated under this
Agreement to be delivered to you shall be true and correct at the Closing Date
as if made at the Closing Date, and all covenants and agreements contained
herein and in each such certificate and document to be performed on the part of
the Company, and all conditions contained herein and in each such certificate
and document to be fulfilled or complied with by the Company at or prior to the
Closing Date shall be fulfilled or complied with.
(e) At the Closing Date, you shall have received the opinion
of Klarman & Associates, counsel to the Company, dated as of such Closing Date,
addressed to the Underwriter and in form and substance satisfactory to counsel
to the Underwriter, to the effect that:
(i) The Company and each of its Subsidiaries are corporations
duly organized, validly existing and in good standing under the laws
of the jurisdiction of their incorporation with full corporate power
and authority, and all licenses, permits, certifications,
registrations, approvals, consents and franchises to own or lease and
operate their properties and to conduct their businesses as described
in the Registration Statement. The Company and each of its
Subsidiaries are duly qualified to do business as foreign corporations
and are in good standing in all jurisdictions wherein such
qualification is necessary and failure so to qualify could have a
material adverse effect on the financial condition, results of
operations, business or properties of the Company and each of its
Subsidiaries;
(ii) The Company has full corporate power and authority to
execute, deliver and perform the Underwriting Agreement and the
Warrant Agreement and to consummate the transactions contemplated
thereby. The execution, delivery and performance of the Underwriting
Agreement and the Warrant Agreement by the Company, the consummation
by the Company of the transactions therein contemplated and the
compliance by the Company with the terms of the Underwriting Agreement
and the Warrant Agreement have been duly authorized by all necessary
corporate action, and each of the Underwriting Agreement and the
Warrant Agreement have been duly executed and delivered by the
Company. Each of the Underwriting Agreement and the Warrant Agreement
is a valid and binding obligation of the Company, enforceable in
accordance with their respective terms, subject, as to enforcement of
remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the rights of creditors generally
and the discretion of courts in granting equitable remedies and except
that enforceability of the indemnification provisions and the
contribution provisions set forth in the Underwriting Agreement may be
limited by the federal securities laws or public policy underlying
such laws;
(iii) The execution, delivery and performance of the Underwriting
Agreement and the Warrant Agreement by the Company, the consummation
by the Company of the transactions therein contemplated and the
compliance by the Company with the terms of the Underwriting Agreement
and the Warrant Agreement do not, and will not, with or without the
giving of notice or the lapse of time, or both, (A) result in a
violation of the Certificate of Incorporation, as the same may be
amended, or Bylaws of the Company or any of its Subsidiaries, (B) to
the best of our knowledge, result in a breach of, or conflict with,
any terms or provisions of or constitute a default under, or result in
the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon
any of the properties or assets of the Company or any of its
Subsidiaries pursuant to, any indenture, mortgage, note, contract,
commitment or other material agreement or instrument to which the
Company or any of its Subsidiaries are a party or by which the Company
or any of its Subsidiaries or any of their properties or assets are or
may be bound or affected, except where any of the foregoing would not
result in a material adverse effect upon the Company's or any
Subsidiaries business or operations; (C) to the best of our knowledge,
violate any existing applicable law, rule or regulation or judgment,
order or decree known to us of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of
its Subsidiaries or any of their properties or businesses; or (D) to
the best of our knowledge, have any effect on any permit,
certification, registration, approval, consent, license or franchise
necessary for the Company or any of its Subsidiaries to own or lease
and operate their properties and to conduct their business or the
ability of the Company or any of its Subsidiaries to make use thereof;
(iv) To the best of our knowledge, no authorization, approval,
consent, order, registration, license or permit of any court or
governmental agency or body (other than under the Act, the Regulations
and applicable state securities or Blue Sky laws) is required for the
valid authorization, issuance, sale and delivery of the Securities,
the Series E Preferred Stock, the Warrants and the Warrant Shares, and
the consummation by the Company of the transactions contemplated by
the Underwriting Agreement and the Warrant Agreement or the
Underwriter's Warrants;
(v) The Registration Statement was declared effective under the
Act on , 1997; to the best of our knowledge, no stop order suspending
the effectiveness of the Registration Statement has been issued, and
no proceedings for that purpose have been instituted or are pending,
threatened or contemplated under the Act or applicable state
securities laws;
(vi) The Registration Statement and the Prospectus, as of the
Effective Date (except for the financial statements and other
financial data included therein or omitted therefrom, as to which we
express no opinion), comply as to form in all material respects with
the requirements of the Act and Regulations and the conditions for use
of a registration statement on Form SB-2 have been satisfied by the
Company;
(vii) The description in the Registration Statement and the
Prospectus of statutes, regulations, contracts and other documents
have been reviewed by us, and, based upon such review, are accurate in
all material respects and present fairly the information required to
be disclosed, and to the best of our knowledge, there are no material
statutes or regulations, or, to the best of our knowledge, material
contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement, which are not so described or filed as
required.
To the best of our knowledge, none of the material provisions of
the contracts or instruments described above violates any existing
applicable law, rule or regulation or judgment, order or decree known
to us of any United States governmental agency or court having
jurisdiction over the Company or any of its assets or businesses;
(viii) The outstanding Series E Preferred Stock and Warrants have
been duly authorized and validly issued. The outstanding Series E
Preferred Stock is fully paid an nonassessable. To the best of our
knowledge, none of the outstanding Series E Preferred Stock has been
issued in violation of the preemptive rights of any stockholder of the
Company. None of the holders of the outstanding Series E Preferred
Stock is subject to personal liability solely by reason of being such
a holder. The authorized Series E Preferred Stock conforms to the
description thereof contained in the Registration Statement and
Prospectus. To the best of our knowledge, except as set forth in the
Prospectus, no holders of any of the Company's securities has any
rights, "demand," "piggyback" or otherwise, to have such securities
registered under the Act;
(ix) The issuance and sale of the Securities, the Series E
Preferred Stock, the Warrants, the Warrant Shares and the
Underwriter's Warrants have been duly authorized and when issued will
be validly issued, fully paid and non-assessable, and the holders
thereof will not be subject to personal liability solely by reason of
being such holders. Neither the Securities, nor the Series E Preferred
Stock are subject to preemptive rights of any stockholder of the
Company. The certificates representing the Securities are in proper
legal form;
(x) The issuance and sale of the Warrant Shares have been duly
authorized and, when paid for, issued and delivered pursuant to the
terms of the Warrants, the Warrant Shares will constitute the valid
and binding obligations of the Company, enforceable in accordance with
their terms, to issue and sell the Warrants and the Warrant Shares.
All corporate action required to be taken for the authorization,
issuance and sale of the securities has been duly, validly and
sufficiently taken. The Series E Preferred Stock and the Warrants have
been duly authorized by the Company to be offered in the form of the
Securities. The Warrants and the Warrant Shares conform to the
descriptions thereof contained in the Registration Statement and
Prospectus;
(xi) The Underwriter has acquired good title to the Securities,
free and clear of all liens, encumbrances, equities, security
interests and claims, provided that the Underwriter are bona fide
purchasers as defined in '8-302 of the Uniform Commercial Code;
(xii) To the best of our knowledge, there are no claims, actions,
suits, proceedings, arbitrations, investigations or inquiries before
any governmental agency, court or tribunal, foreign or domestic, or
before any private arbitration tribunal, pending or threatened against
the Company or any of its Subsidiaries or involving their properties
or businesses, other than as described in the Prospectus, such
description being accurate, and other than litigation incident to the
kind of business conducted by the Company or any of its Subsidiaries
which, individually and in the aggregate, is not material, and, except
as otherwise disclosed in the Prospectus and the Registration
Statement, the Company and its Subsidiaries have complied with all
federal and state laws, statutes and regulations concerning its
business;
(xiii) We have participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus. Although we are not passing upon and do not assume
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement, no facts came to
our attention which lead us to believe that (A) the Registration
Statement (except as to the financial statements and other financial
data contained therein, as to which we express no opinion), on the
Effective Date,
contained any untrue statement of a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, or
that (B) the Prospectus (except as to the financial statements and
other financial data contained therein, as to which we express no
opinion) contains any untrue statement or a material fact or omits to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(f) Intentionally Left Blank.
(g) On or prior to the Closing Date, counsel for the
Underwriter shall have been furnished such documents, certificates and opinions
as they may reasonably require for the purpose of enabling them to review the
matters referred to in subparagraphs (e) and (f) of this Paragraph 10, or in
order to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(h) Prior to the Closing Date:
(i) There shall have been no material adverse change in the
condition or prospects or the business activities, financial or
otherwise, of the Company 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, outside 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 material to the
Company, which is either (x) required to be disclosed in the
Prospectus or Registration Statement and is not so disclosed, or (y)
likely to have material adverse effect on the Company's business or
financial condition;
(iii) The Company shall not be in default under any material
provision of any instrument relating to any outstanding indebtedness,
except as described in the Prospectus;
(iv) No material amount of the assets of the Company shall have
been pledged, mortgaged or otherwise encumbered, except as set forth
in the Registration Statement and Prospectus;
(v) No action, suit or proceeding, at law or in equity, shall
have been pending or to its knowledge threatened against the Company
or affecting any of its properties or businesses before or by any
court or federal or state commission, board or other administrative
agency wherein an unfavorable decision, ruling or finding would
materially and adversely affect the business, operations, prospects or
financial condition or income of the Company, taken as a whole, except
as set forth in the Registration Statement and Prospectus; and
(vi) No stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated or, to the Company's
knowledge, threatened by the Commission.
(vii) Each of the representations and warranties of the Company
contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to you was, when
originally made and is at the time such certificate is dated, true and
correct.
(i) Concurrently with the execution and delivery of this Agreement and at
the Closing Date, you shall have received a certificate of the Company signed by
the Chief Executive Officer of the Company and the principal financial officer
of the Company, dated as of the Closing Date, to the effect that the conditions
set forth in subparagraph (h) above have been satisfied and that, as of the
Closing Date, the representations and warranties of the Company set forth in
Paragraph 2 herein and the statements in the Registration Statement and
Prospectus were and are true and correct. Any certificate signed by any of
officer of the Company and delivered to you or for counsel for the Underwriter
shall be deemed a representation and warranty by the Company to the Underwriter
as to the statements made therein.
(j) At the time this Agreement is executed, and at the Closing Date, you
shall have received a letter, addressed to the Underwriter and in form and
substance satisfactory in all respects to you and counsel for the Underwriter,
and including estimates of the Company's revenues and results of operations for
the period ending at the and of the month immediately preceding the Effective
Date and results of the comparable period during the prior fiscal year, from
Haskell & White LLP, dated as of the date of this Agreement and as of the
Closing Date.
(k) All proceedings taken in connection with the
authorization, issuance or sale of the Series E Preferred Stock, Warrants and
Warrant Shares as herein contemplated shall be satisfactory in form and
substance to you and to counsel to the Underwriter, and the Underwriter shall
have received from such counsel an opinion, dated as the Closing Date with
respect to such of these proceedings as you may reasonably require.
(l) The Company shall have furnished to you such certificates,
additional to those specifically mentioned herein, as you may have reasonably
requested in a timely manner as to the accuracy and completeness, at the Closing
Date, of any statement in the Registration Statement or the Prospectus, as to
the accuracy, at the Closing Date, of the representations and warranties of the
Company herein and in each certificate and document contemplated under this
Agreement to be delivered to you, as to the performance by the Company of its
obligations hereunder and under each such certificate and document or as to the
fulfillment of the conditions concurrent and precedent to your obligations
hereunder.
(m) On the Closing Date there shall have been duly tendered to
you for your account the appropriate number of shares of Series E Preferred
Stock and Warrants constituting the Securities.
11. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Underwriter and each person, if any,
who controls the Underwriter ("controlling person") within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, against any and all
losses, liabilities, claims, damages, actions and expenses or liability, joint
or several, whatsoever (including but not limited to any and all expense
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), joint or
several, to which it or such controlling persons may become subject under the
Act, the Exchange Act or under any other statute or at common law or otherwise
or under the laws of foreign countries, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any Preliminary Prospectus or the Prospectus (as from
time to time amended and supplemented); in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
the Warrant Shares of the Company issued or issuable upon exercise of the
Warrants, or Underwriter' Warrant Shares upon exercise of the Underwriter'
Warrants; or in any application or other document or written communication (in
this Paragraph 10 collectively called "application") executed by the Company or
based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Series E Preferred Stock, Warrants, Warrant
Shares, Underwriter's Warrants and Underwriter's Warrant Shares (including the
Shares issuable upon exercise of the Warrants underlying the Underwriter's
Warrants) under the securities laws thereof or filed with the Commission or any
securities exchange; or 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), unless such statement or omission was made in
reliance upon or in conformity with written information furnished to the Company
with respect to the Underwriter by or on behalf of the Underwriter expressly for
use in any Preliminary Prospectus, the Registration Statement or Prospectus, or
any amendment or supplement thereof, or in application, as the case may be.
Notwithstanding the foregoing, the Company shall have no liability under this
Paragraph 11(a) if any such untrue statement or omission made in a Preliminary
Prospectus, is cured in the Prospectus and the Underwriter failed to deliver to
the person or persons alleging the liability upon which indemnification is being
sought, at or prior to the written confirmation of such sale, a copy of the
Prospectus. This indemnity will be in addition to any liability which the
Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the Company and
each of the officers and directors of the Company who have signed the
Registration Statement and each other person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, to the same extent as the foregoing indemnity from the Company to the
Underwriter in Paragraph 11(a), but only with respect to any untrue statement or
alleged untrue statement of any material fact contained in or any omission or
alleged omission to state a material fact required to be stated in any
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereof or necessary to make the statements therein not
misleading or in any application made solely in reliance upon, and in conformity
with, written information furnished to the Company by you specifically expressly
for use in the preparation of such Preliminary Prospectus, the Registration
Statement or Prospectus directly relating to the transactions effected by the
Underwriter in connection with this Offering. This indemnity agreement will be
in addition to any liability which the Underwriter may otherwise have.
Notwithstanding the foregoing, the Underwriter shall have no liability under
this Paragraph 11(b) if any such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus, and the Prospectus is
delivered to the person or persons alleging the liability upon which
indemnification is being sought.
(c) If any action is brought against any indemnified party
(the "Indemnitee") in respect of which indemnity may be sought against another
party pursuant to the foregoing (the "Indemnitor"), the Indemnitor shall assume
the defense of the action, including the employment and fees of counsel
(reasonably satisfactory to the Indemnitee) and payment of expenses. Any
Indemnitee 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
Indemnitee unless the employment of such counsel shall have been authorized in
writing by the Indemnitor in connection with the defense of such action. If the
Indemnitor shall have employed counsel to have charge of the defense or shall
previously have assumed the defense of any such action or claim, the Indemnitor
shall not thereafter be liable to any Indemnitee in investigating, preparing or
defending any such action or claim. Each Indemnitee shall promptly notify the
Indemnitor of the commencement of any litigation or proceedings against the
Indemnitee in connection with the issue and sale of the Series E Preferred
Stock, Warrants and Warrants Shares or in connection with the Registration
Statement or Prospectus.
(d) In order to provide for just and equitable contribution
under the Act in any case in which: (i) the Underwriter makes a claim for
indemnification pursuant to Paragraph 11 hereof, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the time to appeal has expired or the last right of appeal has been denied)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Paragraph 11 provides for indemnification of such case; or (ii)
contribution under the Act may be required on the part of the Underwriter in
circumstances for which indemnification is provided under this Paragraph 11,
then, and in each such case, the Company and the Underwriter shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after any contribution from others) in such proportion so that the
Underwriter is responsible for the portion represented by dividing the total
compensation received by the Underwriter herein by the total purchase price of
all Securities sold in the public offering and the Company is responsible for
the remaining portion; provided, that in any such case, no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11 (f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company and the Underwriter. As used in this Paragraph 11,
the term "Underwriter" includes any officer, director, or other person who
controls the Underwriter within the meaning of Section 15 of the Act, and the
word "Company" includes any of officer, director or person who controls the
Company within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company to the full extent permitted by law. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement.
(e) Within fifteen (15) days after receipt by any party to
this Agreement (or its representative) of notice of the commencement of any
action, suit or proceeding, such party will, if a claim for contribution in
respect thereof is made against another party (the "contributing party"), notify
the contributing party of the commencement thereof, but the omission so to
notify the contributing party will not relieve it from any liability it may have
to any other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against any party,
and such party notifies a contributing party or his or its representative of the
commencement thereof within the aforesaid fifteen (15) days, the contributing
party will be entitled to participate therein with the notifying party and any
other contributing party similarly notified. Any such contributing party shall
not be liable to any party seeking contribution on account of any settlement of
any claim, action or proceeding effected by such party seeking contribution
without the written consent of such contributing party. The indemnification
provisions contained in this Paragraph 11 are in addition to any other rights or
remedies which either party hereto may have with respect to the other or
hereunder.
12. Representations Warranties Agreements to Survive Delivery.
The respective indemnity and contribution agreements by the Underwriter
and the Company contained in Paragraph 11 hereof, and the covenants,
representations and warranties of the Company and the Underwriter set forth in
this Agreement, shall remain operative and in full force and effect regardless
of (i) any investigation made by the Underwriter or on its behalf or by or on
behalf of any person who controls the Underwriter, or by the Company or any
controlling person of the Company or any director or any of officer of the
Company, (ii) acceptance of any of the Securities and payment therefor, or (iii)
any termination of this Agreement, and shall survive the delivery of the
Securities and any successor of the Underwriter or the Company, or of any person
who controls you or the Company or any other indemnified party, as the case may
be, shall be entitled to the benefit of such respective indemnity and
contribution agreements. The respective indemnity and contribution agreements by
the Underwriter and the Company contained in this Paragraph 12 shall be in
addition to any liability which the Underwriter and the Company may otherwise
have.
13. Effective Date of This Agreement and Termination Thereof.
(a) This Agreement shall become effective at 10:00 A.M., New
York time, on the first full business day following the day on which you and the
Company receive notification that the Registration Statement became effective.
(b) This Agreement may be terminated by the Underwriter by
notifying the Company at any time on or before the Closing Date, if any domestic
or international event or act or occurrence has materially disrupted, or in your
opinion will in the immediate future materially disrupt, securities markets; or
if trading on the New York Stock Exchange, the American Stock Exchange, or in
the over-the-counter market shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required on the over-the-counter market by the NASD
or NASDAQ, an exchange, or by order of the Commission or any other governmental
authority having jurisdiction; or if a moratorium in foreign exchange trading by
major international banks or persons has been declared; or if the Company shall
have sustained a loss material or substantial to the Company taken as a whole 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 your opinion, make it inadvisable to proceed with the delivery of the
Securities; or if there shall have been a material adverse change in the
conditions of the securities market in general, as in your reasonable judgment
would make it inadvisable to proceed with the offering, sale and delivery of the
Securities; or if there shall have been a material adverse change in the
financial or securities markets, particularly in the over-the-counter market, in
the United States having occurred since the date of this Agreement.
(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Paragraph 12, the
Company shall be notified promptly by you by telephone or facsimile, confirmed
by letter.
(d) If this Agreement shall not become effective by reason of
an election of the Representative pursuant to this Paragraph 13 or if this
Agreement shall not be carried out within the time specified herein by reason of
any failure on the part of the Company to perform any undertaking, or to satisfy
any condition of this Agreement by it to be performed or satisfied, the sole
liability of the Company to the Underwriter, shall be pursuant to Paragraph 8
herein.
Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement, and whether or not this
Agreement is otherwise carried out, the provisions of Paragraph 9 and 11 hereof
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.
14. Notices.
All communications hereunder, except as herein otherwise specifically
provided, shall be in writing and, if sent to the Underwriter, shall be mailed,
delivered or telegraphed and confirmed to the Underwriter at 4510 E. Thousand
Oaks Blvd., Suite 100, West Village 91362, attention: Robert Kay, with a copy
thereof to Eric Kloper, Esq., 315 West 57th Street New York, NY 10019, and, if
sent to the Company, shall be mailed, delivered or telegraphed and confirmed to
the Company at 550 Rancheros Drive, San Marcos, CA 92069, Attention: Richard
Brady, President, with a copy thereof to Klarman & Associates, 2694 Bishop
Drive, San Ramon, CA 94583, attention: David Klarman, Esq.
15. Parties.
This Agreement shall inure solely to the benefit of and shall be
binding upon, the Underwriter, the Company and the controlling persons,
directors and officers referred to in Paragraph 11 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 provision herein contained.
16. Construction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York and shall supersede any
agreement or understanding, oral or in writing, express or implied, between the
Company and you relating to the sale of any of the Securities.
17. Jurisdiction and Venue.
The Company agrees that the courts of the State of New York shall have
jurisdiction over any litigation arising from this Agreement, and venue shall be
proper in the Southern District of New York.
18. Counterparts.
This agreement may be executed in counterparts.
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
Play Co. Toys & Entertainment Corp.
By: ____________________________
Richard Brady, President
Accepted as of the date first above written:
West America Securities Corp.
By: _____________________________
Robert Kay, President
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