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EXHIBIT 1
SEL-DRUM INTERNATIONAL, INC.
000 Xxxxxxx Xxxxxx
Xxxxxxx, Xxx Xxxx 00000-0000
August ___, 1998
Pittsford Capital Markets, Inc.
00 Xxxxx Xxxxxxx Xxxxxx Xxxx
Xxxxxxxxx, Xxx Xxxx 00000
Dear Sirs:
Sel-Drum International, Inc., a New York corporation (Sel-Drum
International, Inc. and its Subsidiaries Sel-Drum Imaging, Inc. and each of
Sel-Drum Imaging, Inc.'s Subsidiaries, Sel-Drum Corporation and Sel-Drum Corp.
(U.S.A.) are referred to herein as the "Company" where the context requires),
hereby confirms its agreement with you (sometimes herein called the
"Underwriter") as follows:
1. INTRODUCTORY
The Company and certain Selling Shareholders propose to offer, through
the Underwriter acting as agent for the Company and certain Selling
Shareholders, up to an aggregate of 845,000 shares of common stock of Sel-Drum
International, Inc. (the "Common Stock"). If at least 250,000 shares of Common
Stock are not sold within 75 days after the date the Registration Statement (as
defined below) is declared effective by the Securities and Exchange Commission,
all subscription documents and funds together with any net interest thereon)
will be returned to subscribers and the offering will terminate. The Common
Stock will be sold pursuant to the provisions of an Escrow Agreement dated as of
September 1, 1998 (the "Escrow"), between the Company and FNB Rochester Corp.,
as Escrow Agent (the "Escrow Agent"). The Common Stock will be sold in
denominations of $1,000, with a minimum purchase of $1,000 (2,000 shares), and
is more fully described in the Prospectus referred to below. The Company hereby
appoints the Underwriter as its exclusive agent to sell the Common Stock,
subject to the terms and provisions of this Agreement, on a "best efforts" basis
with at least 250,000 shares of the Common Stock required to be sold within 75
days after the date the Registration Statement (as defined below) is declared
effective by the Securities and Exchange Commission (the "Termination Date"). If
at least 250,000 shares of the Common Stock are sold prior to the Termination
Date, any remaining shares may continue to be sold until 150 days after the
First Closing Date, as herein defined. In addition, the Company proposes to
grant to the Underwriters the Over-Allotment Option, referred to and defined in
Section 3(f), to purchase all or any part of an aggregate of 125,000
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additional shares, and to issue to you the Warrant, referred to and defined in
Section ____, to purchase certain further additional shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLING
SHAREHOLDERS
The Company and Selling Shareholders hereby represents and warrants
jointly and severally to, and agrees with, the Underwriter as follows:
(a) A Registration Statement on Form SB-2 (File No. 333-59897)
(the "Registration Statement") with respect to the Common Stock, including the
related Prospectus (the "Prospectus"), and any amendment thereto, copies of
which have heretofore been delivered by the Company to you, has been prepared by
the Company in conformity with the requirements of the Securities Act of 1933,
as amended (the "Act") and the published rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Act, and has been filed with the Commission under the Act. The Company may
file on or prior to the Effective Date (as defined in Section 3(a)) additional
amendments to said Registration Statement, including the final Prospectus.
(b) The Registration Statement and the Prospectus (other than the
financial statements and other financial data and schedules which are or should
be contained therein) conform as to form in all material respects to the
requirements of the Act and the Rules and Regulations and do not 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, and no event has
occurred which should have been set forth in the Registration Statement or the
Prospectus which has not been so set forth therein; provided, however, the
Company makes no representation or warranty as to statements or omissions made
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter expressly for use in the Registration
Statement, the Prospectus, or any amendment or supplement thereto.
(c) Neither the Commission nor the "blue sky" or state securities
authority of any jurisdiction has issued an order (a "Stop Order") suspending
the effectiveness of the Registration Statement, preventing or suspending the
use of the Prospectus, the Registration Statement or any amendment or supplement
thereto, refusing to permit the effectiveness of the Registration Statement or
suspending the registration of the Common Stock, nor have any of such
authorities instituted or threatened to institute any proceedings with respect
to a Stop Order.
(d) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York. The Company has
full power and authority to conduct its own business and own or lease its
properties as described in the Prospectus, and is duly qualified and in good
standing as a foreign corporation in each
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jurisdiction where the conduct of its business or its ownership or leasing of
property requires it to be qualified, except where the failure so to qualify
would not have a material adverse effect on the Company.
(e) The authorized capital stock of the Company is set forth in
the Prospectus under the caption "Capitalization". All of the outstanding shares
of Common Stock of the Company have been duly authorized and are validly issued,
fully paid and non-assessable.
(f) The financial statements of the Company together with related
schedules and notes as set forth in the Registration Statement and the
Prospectus fairly present the financial condition of the Company and the results
of its operations and the changes in its financial position as of the dates and
for the periods therein specified and such financial statements have been
prepared in conformity with generally accepted accounting principles
consistently applied throughout the periods involved.
(g) Except as reflected in or contemplated by the Registration
Statement or the Prospectus, since the date as of which information is given in
the Registration Statement or the Prospectus, there has not been any material
adverse change in the condition, financial or otherwise, of the Company. Since
the date as of which information is given in the Registration Statement or the
Prospectus, the Company has not entered into any transaction, other than
transactions in the ordinary course of business.
(h) There are no actions, suits or proceedings pending, or to the
knowledge of the Company threatened, against or with respect to the Company or
its business or assets, at law or in equity, or before or by any federal or
state commission, regulatory body or administrative agency or other governmental
body, domestic or foreign, in which an adverse decision might have a material
adverse effect on the business or assets of the Company or the business or
assets of the Subsidiary.
(i) The Company has good title to all properties and assets which
the Prospectus indicates are owned by them, free and clear of all liens,
security interests, pledges, charges, encumbrances and mortgages (except as may
be described in the Prospectus or such as in the aggregate will not have a
material adverse effect upon the business or assets of the Company).
(j) The Company is not in default in any material respect under,
and no event has occurred which, with the passage of time or the giving of the
notice, or both, would constitute a material default under, any contract,
agreement, instrument, lease or license to which the Company is a party or by
which any of them are bound, except as may be properly described in the
Prospectus or such as in the aggregate will not have a material adverse effect
on the business or assets of the Company. The Company is not in violation of its
certificates of incorporation or by-laws.
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(k) The Company has all requisite power and authority to execute,
deliver and carry out the terms and provisions of this Agreement and to issue,
sell and deliver the Common Stock in accordance with and upon the terms and
conditions set forth in this Agreement. All necessary corporate proceedings of
the Company have been duly taken to authorize the execution, delivery and
performance by the Company of this Agreement and the issuance, sale and delivery
of the Common Stock. This Agreement has been duly authorized, executed and
delivered by the Company and Selling Shareholders, is the legal, valid and
binding obligation of the Company and Selling Shareholders, and is enforceable
as to the Company in accordance with its terms, except as rights to indemnity
and contribution hereunder may be limited by federal or state securities laws,
court decisions or public policy.
(l) No consent, authorization, approval, order, license,
certificate or permit of or from, or declaration or filing with, any federal,
state, local or other governmental authority or any court or other tribunal is
required for the execution, delivery or performance by the Company of this
Agreement or the Escrow Agreement, or the execution, authentication, issuance,
sale or delivery of the shares of Common Stock (except (i) registration under
the Act and (ii) registration or qualification under "blue sky" or state
securities laws).
(m) No consent of any party to any contract, agreement,
instrument, lease or license to which the Company is a party, or to which any of
the Company's or its properties or assets are subject, is required for the
execution, delivery or performance of this Agreement, or the Escrow, or the
execution, authentication, issuance, sale or delivery of the Common Stock; and
the execution, delivery and performance of this agreement and the execution,
authentication, issuance, sale and delivery of the Common Stock, will not
violate, result in a material breach of, conflict with or (with or without the
giving of notice of the passage of time or both) result in a default under any
such contract, agreement, instrument, lease or license, or violate the
certificate of incorporation or by-laws of the Company, or violate or conflict
with any law, rule, regulation, order, judgment or decree binding on the Company
or to which any of the Company's properties or assets are subject or result in
the creation or imposition of any lien, charge or encumbrance upon any assets of
the Company pursuant to the terms of any contract, agreement, instrument, lease
or license to which the Company is a party or to which any of their properties
or assets are subject.
(n) The Company knows of no outstanding claims for services in
the nature of a finder's fee or origination fee with respect to the sale of the
Common Stock hereunder resulting from its acts for which the Underwriter may be
responsible.
(o) The Company has filed all federal and state tax returns which
were required to be filed by them and have paid all taxes shown on such returns
and all assessments received by them, to the extent such taxes or returns have
become due (after giving effect to applicable grace periods or extensions, if
any).
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3. EMPLOYMENT OF UNDERWRITER
(a) Subject to the terms and conditions herein set forth, the
effective date of this Agreement commences on the effective date under the Act
of the Registration Statement (the "Effective Date"), and the Company hereby
appoints the Underwriter as its exclusive agent as of the Effective Date, for
the purpose of offering the Common Stock as provided in this Agreement on a
"best efforts" basis with at least 250,000 shares of the Common Stock required
to sold within 75 days after the Effective Date if any Common Stock are sold.
The Underwriter agrees to use its best efforts to sell the Common stock as agent
for the Company and the Selling Shareholders. IT IS UNDERSTOOD AND AGREED THAT
THERE IS NO FIRM COMMITMENT ON THE PART OF THE UNDERWRITER TO PURCHASE ANY OF
THE COMMON STOCK.
(b) The Underwriter will offer the Common Stock hereunder at a
price of ($_____) per share. The Underwriter will be entitled to a commission of
ten percent (10%) of the purchase price on each share sold in the offering by
the Underwriter or any to is selected dealers. In addition, the Company will pay
the Underwriter a fee in an amount equal to one percent (1%) of the aggregate
gross amount of shares sold in the offering, such fee to be paid upon completion
of the offering. The Underwriter shall have the right to associate with other
dealers selected by the Underwriter who are members of the National Association
of Securities Dealers, Inc., pursuant to a written Selected Dealer Agreement,
and to offer a part of the Common Stock to such selected dealers for sale by
them at the offering price. In no event shall sales be made to accounts over
which the Underwriter or any dealer may exercise discretionary authority without
the written approval of the customer and the Underwriter prior to the execution
of any order, and the Selected Dealer Agreement will include provisions so as to
assure compliance with this restriction. The Selected Dealer Agreement will
provide that if a share is sold through any such selected dealer, the
Underwriter will allow to such selected dealer the entire commission paid by the
Company for such share. If a share is sold directly by the Underwriter, the
Underwriter will retain the entire commission paid by the Company for such
share. The Underwriter shall take such steps as it deems appropriate to assure
that purchasers of shares meet the suitability standards set forth in the
Prospectus or otherwise imposed by the Company and will maintain for a period of
at least four (4) years a record of the information obtained to indicate that
such standards have been met.
(c) The obligation of the Underwriter to offer the Common Stock
is subject to receipt by the Underwriter of a copy of written advice from the
Commission that the Registration Statement is effective. It is also subject to
the Common Stock being qualified for offering under applicable state securities
laws.
(d) (i) A special interest-bearing account (the "Escrow Account")
will be opened and maintained at FNB Rochester Corp (the "Bank") in Rochester,
New York, for the purpose of holding subscription funds in escrow until the
First Closing Date (as hereinafter defined). The title of the Escrow Account
will be "Sel-Drum International, Inc. Escrow Account". All subscription funds
shall be in the form of wire transfers of
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immediately available funds, or check, and all checks should be made payable to
"FNB Rochester Corp., as Escrow Agent for Sel-Drum International, Inc." After
the First Closing Date all checks for subscriptions of Common Stock shall be
made payable to "Sel-Drum International, Inc.", the Company. The Company, the
Underwriter and the Bank will, prior to the beginning of the offering of the
Common Stock, enter into an Escrow Agreement with respect to the Escrow Account
in form satisfactory to the parties. The parties hereto agree to faithfully
perform their obligations under such Escrow Agreement. Except to the extent that
interest earned on the funds in the Escrow Account may be applied to pay escrow
expenses in the event the offering is terminated prior to the First Closing
Date, all costs, expenses and charges incurred in connection with the Escrow
account shall be paid by the Company.
(ii) Until the First Closing Date all funds received from
subscribers by any selected dealer shall be promptly transmitted to the Bank
(for deposit in the Escrow Account), but in any event such funds shall be so
transmitted by noon of the next business day following the day such funds are
received from the subscriber by the selected dealer. The Underwriter shall
promptly transmit to the Bank all funds received by it from subscribers for
deposit in the Escrow account in accordance with Rule 15c2-4 under the
Securities Exchange Act of 1934, as amended, but in any event such funds shall
be so transmitted for deposit by noon of the next business day following the day
such funds are received. After the First Closing Date all funds received from
subscribers by any selected dealer shall be promptly transmitted to the
Underwriter for distribution to the Company, but in any event such funds shall
be transmitted by noon of the next business day following the day such funds are
received by the selected dealer.
(iii) The first closing of the offering will take place at
the offices of counsel to the Company on a date (the "First Closing Date") which
is within ten (10) business days after the date on which acceptable
subscriptions have been received in cleared, collected funds for at least
$125,000 (250,000 shares of Common Stock).
(iv) On the First Closing Date the Underwriter will cause
the Bank to distribute the funds on deposit in the Escrow Account to the
Company, selected dealers and the Underwriter, as their interests may appear.
The Underwriter will be entitled to cause the Bank to distribute to the
Underwriter from the Escrow Account an amount sufficient to pay all of the
commissions on the Common Stock sold to which the Underwriter and selected
dealers are entitled under the provisions of Section 3(c) hereof. Common Stock
may continue to be offered and sold for up to 150 days after the First Closing
Date. After the First Closing Date, the Underwriter will distribute the checks
for subscriptions of Common Stock directly to the Company within one business
day of receipt by the Underwriter. The Company shall, upon each subsequent
closing in which Common Stock are issued, remit to the Underwriter commissions
on the Common Stock sold to which the Underwriter and selected dealers are
entitled under the provisions of Section 3(c) hereof.
(v) In the event the offering pursuant to the Prospectus is
terminated prior to the First Closing Date for any reason whatsoever, the
Underwriter shall promptly cause
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the Bank to refund to the subscribers of the Common Stock all funds which have
been received from them by the Underwriter. Interest earned on funds in the
Escrow Account shall be applied to pay escrow expenses, with the balance of
interest, if any, to be paid to subscribers in proportion to the amount of funds
paid by each subscriber on subscription and without regard to the date when such
subscription funds were paid by the subscriber.
(e) In the event the offering is terminated prior to the First
Closing Date, this Agreement shall terminate, and upon the payments and refunds
to subscribers being made as provided in Section 3(a)(v), neither party hereto
shall have any further liability to the other hereunder. In such event, the
Underwriter shall not be entitled to any fees or commissions hereunder and none
of the Warrants described in Section 3(d) will be delivered or deliverable.
(f) In addition, subject to the terms and conditions of this
Agreement, and on the basis of the representations, warranties and agreements
herein contained, the Selling Shareholders hereby grant to the Underwriters an
option (the "Over-Allotment Option") to purchase from the Selling Shareholders
all or any part of an aggregate of an additional 125,000 shares of Common Stock
at the Purchase Price (the "Option Shares"). In the event that the
Over-Allotment Option is exercised by the Underwriters in whole or in part, each
Selling Shareholder shall sell Option Shares in the same proportion as the
number of Firm Shares sold by it or him bore to the total number of Firm Shares.
(g) The Company shall pay all costs and expenses incident to the
performance of the obligations of the Company hereunder, including the fees and
expenses of the Company's counsel and accountants, registration fees, the costs
and expenses incident to the preparation, printing and shipping of the
Registration Statement, each preliminary prospectus, if any, the final
Prospectus and all amendments and supplements thereto and this Agreement and
related documents, filing fees required to be paid to the National Association
of Securities Dealers, Inc., the costs incurred in connection with the
qualification of the Common Stock under applicable state securities laws and the
fee of Underwriter's legal counsel. The Underwriter shall pay all other costs
incurred or to be incurred by it, or by its personnel, in connection with the
offering of the Common Stock. The Company may be reimbursed up to $22,500 by the
Selling Shareholders for other various expenses.
4. COVENANTS OF THE COMPANY.
(a) The Company will furnish to the Underwriter, without charge,
as soon as the Registration Statement or any amendment thereto becomes effective
or a supplement is filed, two signed copies of the Registration Statement and
each amendment thereto, including all financial statements and exhibits, and two
copies of any supplement thereto. The Company will also furnish to the
Underwriter such number of conformed copies of the Registration Statement and of
each amendment thereto, including all financial statements but excluding
exhibits, and of each supplement thereto, as the Underwriter may reasonably
request.
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(b) The Company will furnish to the Underwriter as soon as
possible after the Effective Date and thereafter during the period required by
law for the Prospectus to be delivered in connection with sales of the Common
Stock, as many copies of the Prospectus (and of any amended or supplemented
Prospectus) as the Underwriter may reasonably request. If during such period any
event occurs as a result of which the Registration Statement or the Prospectus,
as then amended or supplemented, would include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made, in the light of the circumstances in which they were made, not misleading,
or it shall be necessary to amend or supplement the Registration Statement or
the Prospectus to comply with the Act or the Rules and Regulations, the Company
will forthwith notify the Underwriter thereof and prepare and furnish to the
Underwriter and dealers selected by the Underwriter, in such quantity as the
Underwriter and such dealers may reasonably request, an amendment or supplement
which will correct such statement or omission or cause the Registration
Statement and the Prospectus to comply with the Act and the Rules and
Regulations. The Company will not at any time prior to the expiration of such
period, whether before or after the Effective Date, file any amendment to the
Registration Statement of which the Underwriter will not have been advised and
furnished with a copy, or which is not in compliance with the Act and the Rules
and Regulations.
(c) The Company will use its best efforts to cause the
Registration Statement to become effective and will promptly advise the
Underwriter and will confirm such advice in writing, of the following: (i) when
the Registration Statement or any post-effective amendment thereto shall have
become effective, and when any amendment of or supplement to the Prospectus is
filed with the Commission; (ii) when the Commission shall make a request or
suggestion for any amendment to the Registration Statement or the Prospectus or
for additional information and the nature and substance thereof; and (iii) the
issuance by the Commission of a stop order suspending the effectiveness of the
Registration Statement or the suspension of the qualification of the Common
Stock for sale in any jurisdiction, or of the initiation of any proceeding for
that purpose.
(d) The Company will take all action necessary to permit the
offering of the Common Stock as contemplated hereby under the "blue sky" or
securities laws of the states in which it determines that Common stock shall be
sold; provided, however, that the Company shall not be required to qualify as a
foreign corporation or to file a consent to service of process in any state in
any action other than one arising out of the offering or sale of the Common
Stock. The Company shall furnish the Underwriter with written notice as to the
states in which the Common Stock is to be offered, together with such reasonable
documentation as may be requested by the Underwriter to establish that the
Common Stock has been duly registered for offer and sale in those states or are
exempt from the registration requirements of such states, including, among other
things, "blue sky" memoranda or surveys prepared by the Company's counsel with
respect to those states in which the Company has determined that the Common
Stock is being offered. Notwithstanding the foregoing, nothing in this Agreement
shall be construed as obligating the Underwriter or any selected dealers engaged
in the offering of the Common Stock to offer Common Stock in any
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states in which the Underwriter or selected dealer, as the case may be, is not
registered as a broker-dealer.
(e) The Company will make generally available (within the meaning
of Section 11(a) of the Act and the Rules and Regulations) to its security
holders, within 120 days of the first day of the fiscal year of the Company, an
earnings statement of the Company (which will be in reasonable detail and will
comply with the requirements of Section 11(a) of the Act, but need not be
audited) covering the prior fiscal year of the Company, commencing with the
fiscal year of the Company during which this Agreement is executed.
(f) For a period of five years after the termination of the
Offering, the Company will furnish the Underwriter without charge, within 90
days after the end of each fiscal year, a copy of its financial statements
certified by independent certified public accountants.
(g) The Company will apply the net proceeds received by it from
the offering in the manner set forth under "Use of Proceeds" in the Prospectus.
(h) The Company will furnish to the Underwriter as early as
practicable prior to the First Closing Date, but no less than two full business
days prior thereto, a copy of the latest available unaudited interim financial
statements of the Company which have been read by the Company's independent
certified public accountants, as stated in their letters to be furnished
pursuant to Section 5(f).
(i) The Company will comply with all registration, filing and
reporting requirements of the Securities Exchange Act of 1934, which may from
time to time be applicable to the Company, and, for a period of three years
after the termination of the Offering, the Company will furnish the Underwriter,
without charge, with copies of all filings made with the Commission pursuant to
the Securities Exchange Act of 1934.
(j) The Company will comply with all provisions of all
undertakings contained in the Registration Statement.
(k) Offers and sales of Common Stock by the Company shall only be
made by persons who meet the safe harbor provisions of Rule 3a4-1 under the
Securities Exchange Act of 1934.
5. CONDITIONS OF UNDERWRITER'S OBLIGATIONS
The obligations of the Underwriter as provided herein shall be subject
to the continuing accuracy of the representations and warranties of the Company
herein contained as of the date hereof and through and including the date of
termination of the offering, to the performance by the Company of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
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(a) The Registration Statement shall have become effective at the
time of any sale of Common Stock hereunder, no Stop Order suspending the
effectiveness of the Registration Statement shall have been and no proceeding
for that purpose shall have been initiated or threatened by the Commission or be
pending.
(b) The Company shall not have sustained after the date hereof
any material loss or interference with its business from any calamity, whether
or not covered by insurance, which in your reasonable judgment makes it
impracticable or inadvisable to sell the Common Stock as contemplated hereby.
(c) All corporate proceedings and related matters in connection
with the organization of the Company and the Subsidiary, and the registration,
authorization, issuance, sale and delivery of the Common Stock, and in
connection with this Agreement, shall be reasonably satisfactory to you and you
shall have been furnished with such papers and information as you may reasonably
have requested in this connection.
(d) Between the date hereof and the First Closing Date, there
shall have been no litigation instituted or threatened against the Company or
the Subsidiary and there shall have been no proceeding instituted or threatened
against the Company or the Subsidiary before or by any federal or state
commission, regulatory body or administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, operations or financial condition or
income of the Company or the Subsidiary.
(e) At the time of the execution of this Agreement, and at the
First Closing Date, counsel for the Company shall provide to the Underwriter its
written opinion, in form and substance satisfactory to counsel for the
Underwriter, with respect to the following matters:
(i) The matters set forth in Paragraph 2(d).
(ii) The matters set forth in Paragraph 2(e).
(iii) The matters set forth in Paragraph 2(k).
(iv) To the best of counsel's knowledge, the matters set
forth in Paragraphs 2(l) and (m).
(v) To the best of counsel's knowledge, the matters set
forth in Paragraph 2(h).
(vi) That the Registration Statement has become effective
and to the best of counsel's knowledge, the matters set forth in Paragraph 2(c).
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(vii) The matters set forth in Paragraph 2(b).
(viii) To the best of counsel's knowledge, there are no
contracts, agreements, or other understandings required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not so described or filed.
(f) At the First Closing Date, Xxxxxx Xxxxxxx Xxxx & Co. LLP
shall have furnished a letter addressed to you and dated as of the date it is
required to be delivered in form and substance reasonably satisfactory to you,
to the effect that: (i) with respect to the Company they are, and during the
period covered by their reports included in the Registration Statement and the
Prospectus they were, independent public accountants within the meaning of the
Act and the Rules and Regulations, and the response to Item 509 of Regulation
S-K as reflected by the Registration Statement is correct insofar as it related
to them; (ii) in their opinion, the financial statements of the Company examined
by them at all dates and for all periods referred to in their opinion and
included in the Registration Statement and Prospectus, comply in all material
respects with the applicable accounting requirements of the Act and Rules and
Regulations; (iii) on the basis of certain indicated procedures (but not an
examination in accordance with generally accepted accounting principles),
including, but not limited to, a reading of the latest available interim
unaudited financial statements of the Company, whether or not appearing in the
Prospectus, inquiries of the officers of the Company or other persons
responsible for its financial and accounting matters and reading of the minute
book of the Company, nothing has come to their attention which would cause them
to believe that (A) there has been any change in the capital stock or other
securities of the Company or any payment or declaration of any dividend or other
distribution in respect thereof or exchange therefor from that shown on its
audited balance sheets or a change in the debt of the Company from that shown or
contemplated under "Capitalization" in the Registration Statement other than as
set forth in or contemplated by the Registration Statement, (B) there has been
any material adverse change in the financial condition of the Company except as
set forth in or contemplated by the Registration Statement, or (C) the unaudited
financial statements and schedules of the Company included in the Registration
Statement and Prospectus do not comply in form in all material respects with the
applicable accounting requirements of the Act and Rules and Regulations, or are
not fairly presented in conformity with generally accepted accounting principles
applied on a consistent basis; and (iv) they have compared specific numerical
data and financial information pertaining to the Company set forth in the
Registration Statement and Prospectus, which have been specified by the
Underwriter prior to the date of this Agreement, to the extent that such data
and information may be derived from the general accounting records of the
Company, and found them to be in agreement.
(g) The Company shall have furnished or caused to be furnished to
you a certificate by the President of the Company, dated as of the First Closing
Date and at the termination of the offering, to the effect that (i) the
representations and warranties of the Company herein are true and correct as of
each such date, and the Company has complied
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with all the agreements and has satisfied all the conditions on its part to be
performed or satisfied at or prior to each such date; (ii) the Registration
Statement has become effective and no order suspending the effectiveness of the
Registration Statement has been issued and to the best knowledge of the signer,
no proceeding for that purpose has been initiated or threatened by the
Commission; and (iii) except as set forth in the Registration Statement and
Prospectus, since the respective dates as of which and the periods for which
information is given in the Registration Statement and Prospectus and prior to
the date of such certificate (A) there has not been any substantial adverse
change, financial or otherwise, in the affairs or condition of the Company or
the Subsidiary and (B) neither the Company nor the Subsidiary have incurred any
liabilities, direct or contingent, or entered into any transactions, otherwise
than in the ordinary course of business.
(h) The Company shall have executed the Warrant and Financial
Consulting Agreement with the Underwriter.
(i) The Company shall have executed the Stock Escrow Agreement
with FNB Rochester Corp.
6. INDEMNIFICATION
(a) Subject to the conditions set forth below, the Company agrees
to indemnify and hold harmless you and each person, if any, who controls you
within the meaning of Section 15 of the Act, against any and all loss,
liability, claim, damage and expense whatsoever (including, but not limited to,
any and all expense and counsel fees reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever), and any and all amounts paid in settlement of any claim or
litigation, arising out of, based upon or in connection with (i) any untrue or
alleged untrue statement of a material fact contained in (A) any preliminary
prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented) or (B) any application or other document (in this
Section 6(a) called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Common Stock under the "blue sky" or
securities laws thereof; (ii) the omission or alleged omission from any
preliminary prospectus, the Registration Statement, the Prospectus (as from time
to time amended and supplemented) or any application of a material fact required
to be stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company with respect to you by or on
behalf of you expressly for use in any preliminary prospectus, the Registration
Statement or Prospectus or any amendment or supplement thereof or in any
application, as the case may be; or (iii) any breach of any representation,
warranty, covenant, or agreement of the Company contained in this Agreement.
This indemnity shall not apply to amounts paid in settlement of any such
litigation if such settlement is effected without the consent of the Company.
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If any action is brought against you or any of your officers,
directors, partners, employees, agents or counsel, or any controlling persons of
you (an "indemnified party") in respect of which indemnity may be sought against
the Company pursuant to the foregoing paragraph, such indemnified party or
parties shall promptly notify the Company in writing of the institution of such
action (but the failure so to notify shall not relieve the Company from any
liability it may have other than pursuant to his Section 6(a)) and the Company
shall promptly assume the defense of such action, including the employment of
counsel (reasonably satisfactory to such indemnified party or parties) and
payment of expenses. Such 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
the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action or the Company shall not
have promptly employed counsel reasonably satisfactory to such indemnified party
or parties to have charge of the defense of such action, in either of which
events such fees and expenses shall be borne by the Company and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent. The Company agrees
promptly to notify you of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection with the
sale of the Common Stock, any preliminary prospectus, the Registration
Statement, the Prospectus, any amendment or supplement thereto or any
application. With respect to any untrue statement or alleged untrue statement
made in, or omission or alleged omission from, any preliminary prospectus or
Prospectus, to the extent it is based on the claim of a person who purchased
Common Stock directly from you, shall not insure to your benefit (or, to the
benefit of any of your officers, directors, partners, employees, agents or
counsel, or any person controlling you), if the Prospectus (or the Prospectus as
amended or supplemented if the Company shall have filed with the Commission any
amendment or supplement thereto) which shall have been furnished to you prior to
the time you sent written confirmation of such sale to such person does not
contain such statement, alleged statement, omission or alleged omission and a
copy of the Prospectus (or the Prospects as amended or supplemented if the
Company shall have filed with the Commission any amendment or supplement
thereto) shall not have been sent or given to such person and such person shall
not otherwise have received a copy thereof at or prior to the time of the
written confirmation of such sale to such person.
(b) You agree to indemnify and hold harmless the Company and each
of the officers and directors of the Company and each other person, if any, who
controls the Company within the meaning of Section 15 of the Act against any and
all such losses, liabilities, claims, damages and expenses as are indemnified by
the Company under Section 6(a) above, provided, however, that such
indemnification by you hereunder shall only be with respect to statements or
omissions, if any, made in any preliminary prospectus, the Registration
Statement, the Prospectus, any amendment or supplement thereof or any
application, in reliance upon, and in conformity with, written information
furnished by or on
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14
behalf of you expressly for use in any preliminary prospectus, the Registration
Statement, the Prospectus, any amendment or supplement thereof or in any of said
applications. In case any action shall be brought against the Company or any
other person so indemnified based on any preliminary prospectus, the
Registration Statement, the Prospectus, any amendment or supplement thereof or
any such application and in respect of which indemnity may be sought against
you, you shall have the rights and duties given to the Company, and the Company
and each other person so indemnified shall have the rights and duties given to
you by the provisions of Section 6(a) above.
7. UNDERWRITER'S REPRESENTATIONS AND WARRANTIES
(a) The Underwriter represents and warrants to and agrees with
the Company that: (i) the Underwriter is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York; (ii) it
is duly authorized to execute this Agreement and to perform its duties
hereunder, and the execution and delivery by it of this Agreement and the
consummation of the transactions herein contemplated will not result in any
violation of, be in conflict with or constitute a default under, any agreement
or instrument to which the Underwriter is a party or by which it is bound, or
any judgment, decree, order, or, to its knowledge, any statute, rule or
regulation applicable to it; (iii) the Underwriter is registered as a
broker/dealer with the Commission and is registered as a broker/dealer in all
states in which it conducts business and is a member in good standing of the
National Association of Securities Dealers, Inc.; and (iv) there is not now
pending or threatened against the Underwriter any action or proceeding of which
it has been advised, in any court of competent jurisdiction or before the
Commission or any state securities commission concerning its activities as a
broker/dealer, which would materially impair the Underwriter's ability to act as
such pursuant to this Agreement.
(b) The Underwriter will deliver a certificate dated as of the
First Closing Date and at the termination of the offering, and signed by the
president of the Underwriter stating that the representations of the Underwriter
set forth herein are true and correct in all material respects as of each such
date.
(c) The Underwriter covenants that promptly after the First
Closing Date, and until such time as the earlier of: 250,000 shares of Common
Stock is sold or the offering is terminated pursuant to Section 8 hereof, it
will supply the Company with such information as the Company may reasonably
request to be supplied to the securities commissions of such states in which the
Common Stock has been qualified for sale.
8. EFFECTIVENESS AND TERMINATION
(a) This Agreement shall become effective at 9:00 a.m. on the
first full business day after the Effective Date unless prior to such time you
shall have received notice from the Company that it elects that this Agreement
shall not become effective.
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15
(b) This Agreement may be terminated by you by written notice to
the Company in the event that the Company shall have failed or been unable to
comply with any of the terms, conditions or provisions of this Agreement on the
part of the Company to be performed, complied with or fulfilled within the
respective times herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by you in writing.
(c) This Agreement may be terminated by you by written notice to
the Company if you believe in your reasonable judgment that a material adverse
change has occurred in the management of the Company, that a material adverse
change has occurred in the financial condition or obligations of the Company, or
if the Company shall have sustained a loss by strike, fire, flood, accident or
other calamity of such a character as, in your reasonable judgment, may
interfere materially with the conduct of the Company's business and operations
regardless of whether or not such loss shall have been insured.
(d) This Agreement may be terminated by you by written notice to
the Company at any time if, in your reasonable judgment, the payment for and
delivery of the Common stock is rendered impracticable or inadvisable because
(i) additional material governmental restrictions not in force and effect on the
date hereof shall have been imposed upon the registration and/or sale of
securities generally, or (ii) there shall be a material outbreak of hostilities
or a material escalation of existing hostilities between the United States and
any foreign power or a formal declaration of war by the United States shall have
occurred, or (iii) substantial and material changes in the condition of the
market (either generally or with reference to the sale of the Common Stock to be
offered hereby) beyond normal fluctuations are such that it would be
undesirable, impracticable or inadvisable in your reasonable judgment to proceed
with this Agreement or with the offering of the Common Stock.
(e) This Agreement may be terminated by either party by written
notice to the other at any time before it becomes effective as hereinabove
provided.
(f) In the event, at any time prior to the First Closing Date,
any action or proceeding shall be instituted or threatened against you in any
court of competent jurisdiction, before the Commission or any state securities
commission or in any court pursuant to any federal, state, local or municipal
statute, concerning your activities as a broker or dealer that would materially
impair your ability to act as Underwriter pursuant to this Agreement, or a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receive or trustee of your assets is filed or if you make an
assignment for the benefit of creditors, the Company shall have the right on
three days' written notice to you to terminate this Agreement without any
liability to you of any kind.
(g) This Agreement shall terminate if at least $125,000 (250,000
shares) of the Common Stock is not sold within 75 days after the date the
Registration Statement is declared effective by the Commission.
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16
(h) Any termination of this Agreement pursuant to this Section 8
shall be without liability (including, but not limited to, loss of anticipated
profits or consequential damages) on the part of any party hereto, except that
the Company shall nevertheless be obligated to pay to the Underwriter its
accountable out-of-pocket expenses pursuant to Paragraph 3(f), unless the
Agreement is terminated pursuant to Section 8(f), and further provided that
Paragraph 9(b) shall survive the termination of this Agreement.
9. MISCELLANEOUS
(a) Whenever notice is required by the provisions of this
Agreement to be given to the parties hereto, such notice shall be given in
writing and shall be sent by certified or registered mail, return receipt
requested, postage prepaid, and shall be deemed delivered two days after
mailing, and shall be addressed to the party to whom such notice is directed at
the address set forth above or at such other address as a party has designed by
like notice.
(b) The respective indemnities, agreements, representations,
warranties and other statements of you and the Company hereunder, as set forth
in this Agreement or made pursuant to this Agreement, shall remain in full force
and effect, regardless of any investigation made by or on behalf of you, the
Company, or any officers, directors or controlling person of you or the Company,
and shall survive delivery of and payment for the Debentures.
(c) This Agreement shall be binding upon and inure solely to the
benefits of you and the Company and, to the extent provided in Section 6 hereof,
the officers and directors of the Company and any person who controls you, the
Company and their respective successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Common Stock shall be construed a successor or assign by reason
merely of such purchase.
(d) This Agreement shall be construed and governed by the laws of
the State of New York. This Agreement cannot be changed or terminated orally.
(e) This Agreement may be executed in any number of counterparts,
each of which may be deemed an original and all of which together will
constitute one and the same instrument.
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Please confirm that the foregoing sets forth the Agreement between you
and the Company by signing and returning to us the enclosed copy of this letter.
Very truly yours,
SEL-DRUM INTERNATIONAL, INC.
By:
------------------------
---------------------------
Selling Shareholder
---------------------------
Selling Shareholder
WE HEREBY CONFIRM AS OF THE DATE
HEREOF THAT THE ABOVE LETTER SETS FORTH
THE AGREEMENT BETWEEN THE COMPANY AND
UNDERSIGNED.
PITTSFORD CAPITAL MARKETS, INC.
By:
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