EXHIBIT 1.0
1,000,000 Units, each Unit consisting of
one (1) Share of Series B Convertible Preferred Stock, par value $.01 per share
and
one (1) Series IV Redeemable Common Stock Purchase Warrant
Questron Technology, Inc.
UNDERWRITING AGREEMENT
----------------------
New York, New York
___________, 1997
Biltmore Securities, Inc.
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxxx 000
Xxxx Xxxxxxxxxx, XX 00000
Questron Technology, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Underwriter"), an aggregate of
1,000,000 Units, each consisting of one (1) share of Series B Convertible
Preferred Stock, par value $.01 per share ("Preferred Stock") and one (1)
Series IV Redeemable Common Stock Purchase Warrant ("Warrant"). The Units may
be referred to hereinafter as the "Securities". Each Warrant entitles the
registered holder thereof to purchase one (1) share of Common Stock, par value
$.001 per share ("Common Stock") at an exercise price of 115% of the closing
market price per share of the Common Stock on the day immediately preceding the
proposed offering of the Preferred Stock for a period of four (4) years,
commencing ______________ 1998, one (1) year from the effective date of the
public offering ("Effective Date") through ______________, 2002. The Warrants
are subject to redemption by the Company at any time commencing ______________,
1998 (twelve (12) months from the Effective Date) at $.05 per warrant, if the
closing bid price per share of Common Stock has equaled or exceeded 170% of the
closing bid price of the Common Stock on the Effective Date for any 20
consecutive trading days ending within 10 days of the written notice of
redemption. In addition, the Company proposes to grant to the Underwriter the
option referred to in Section 2(b) to purchase all or any part of an aggregate
of 150,000 additional Units.
You have advised the Company that you desire to purchase the
Securities. The Company confirms the agreements made by it with respect to the
purchase of the Securities by the Underwriter as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with you that:
(a) A registration statement (File No. _____) on Form SB-2
relating to the public offering of the Securities, including a form of
prospectus subject to completion, copies of which have heretofore been
delivered to you, has been prepared in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission under the Act
and one or more amendments to such registration statement may have been so
filed. After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed in such
registration statement), with such changes or insertions as are required by
Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by you prior to the execution of this Agreement,
or (ii) if such registration statement, as it may have been amended, has not
been declared by the Commission to be effective under the Act, an amendment to
such registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by you prior to the execution of
this Agreement. As used in this Agreement, the term "Company" means Questron
Technology, Inc. and/or each of its subsidiaries ("Subsidiaries"); the term
"Registration Statement" means such registration statement, as amended at the
time when it was or is declared effective, including all financial schedules
and exhibits thereto and including any information omitted therefrom pursuant
to Rule 430A under the Act and included in the Prospectus (as hereinafter
defined); the term "Preliminary Prospectus" means each prospectus subject to
completion filed with such registration statement or any amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act, or, if no prospectus
is required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as hereinafter defined), the terms "Registration
Statement" and "Prospectus" shall include such registration statement and
prospectus as so amended, and the term "Prospectus" shall include the
prospectus as so supplemented, or both, as the case may be.
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(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on
the First Closing Date (as hereinafter defined) or the Option Closing Date, as
the case may be, (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein not misleading;
provided, however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, under the
heading "Underwriting", the Risk Factor entitled "Litigation Involving
Underwriter May Affect Securities" and the identity of counsel to the
Underwriter under the heading "Legal Matters" constitute for purposes of this
Section and Section 6(b) 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.
(c) The Company and its Subsidiaries have been duly incorporated
and are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation with full corporate power and
authority to own their properties and conduct their business as described in
the Prospectus and are duly qualified or licensed to do business as foreign
corporations and are in good standing in each other jurisdiction in which the
nature of their business or the character or location of their properties
require such qualification, except where the failure to so qualify will not
materially adversely affect the Company's or Subsidiaries' business, properties
or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company and its Subsidiaries, including the predecessors of the Company, is as
set forth in the Company's financial statements contained in the Registration
Statement; the shares of issued and outstanding capital stock of the Company
and its Subsidiaries set forth therein have been duly authorized, validly
issued and are fully paid and nonassessable; 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 or its Subsidiaries
have been granted or entered into by the Company or its Subsidiaries; and the
capital stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The shares of Preferred Stock underlying the Units, when paid
for, issued and delivered pursuant to this Agreement, will have been duly
authorized, issued and delivered and will constitute valid and legally binding
obligations of the Company enforceable in
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accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the right of creditors generally
or by general equitable principles, and entitled to the rights and preferences
provided by the Certificate of Incorporation, which will be in the form filed
as an exhibit to the Registration Statement. The terms of the Preferred Stock
conform to the description thereof in the Registration Statement and
Prospectus.
The Warrants when paid for, issued and delivered pursuant to this
Agreement, will have been duly authorized, issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the right of creditors generally
or by general equitable principles, and entitled to the benefits provided by
the warrant agreement pursuant to which such Warrants are to be issued (the
"Warrant Agreement"), which will be substantially in the form filed as an
exhibit to the Registration Statement. The shares of Common Stock issuable upon
exercise of the Warrants have been reserved for issuance upon the exercise of
the Warrants and when issued in accordance with the terms of the Warrants and
Warrant Agreement, will be duly and validly authorized validly issued, fully
paid and non-assessable and free of preemptive rights. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, assuming due authorization, execution and delivery by the transfer
agent, will have been duly executed and delivered and will constitute the valid
and legally binding obligation of the Company enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency or
other laws affecting the rights of creditors generally or by general equitable
principles. The Warrants and Warrant Agreement conform to the respective
descriptions thereof in the Registration Statement and Prospectus.
The Purchase Option (as defined in the Registration Statement),
when paid for, issued and delivered pursuant to this Agreement will constitute
valid and legally binding obligations of the Company enforceable in accordance
with its terms and entitled to the benefits provided by the Purchase Option,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
The Securities issuable upon exercise of the Purchase Option (and the shares of
Common Stock issuable upon exercise of the Warrants) when issued and paid for
in accordance with this Agreement, the Purchase Option and the Warrant
Agreement, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights.
(f) This Agreement has been duly and validly authorized, executed
and delivered by the Company. The Company has full power and authority to
authorize, issue and sell the Securities to be sold by it hereunder on the
terms and conditions set forth herein, and no consent, approval, authorization
or other order of any governmental authority is required in connection with
such authorization, execution and delivery or in connection with the
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authorization, issuance and sale of the Securities or the Purchase Option,
except such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, or which would not
have a material adverse effect on the condition (financial or otherwise),
business prospects, net worth or properties of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect"), the Company and its
Subsidiaries are not in violation, breach or default of or under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any of the property or assets of the Company or its Subsidiaries pursuant to
the terms of any material indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Company or its Subsidiaries is a
party or by which the Company or its Subsidiaries may be bound or to which any
of the property or assets of the Company or its Subsidiaries is subject, nor
will such action result in any violation of the provisions of the certificate
of incorporation or the by-laws of the Company or its Subsidiaries, as amended,
or any statute or any order, rule or regulation applicable to the Company or
its Subsidiaries of any court or of any regulatory authority or other
governmental body having jurisdiction over the Company or its Subsidiaries.
(h) Subject to the qualifications stated in the Prospectus, the
Company and its Subsidiaries 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 or restrictions, except such as are not materially
significant or important in relation to their business; all of the material
leases and subleases under which the Company or its Subsidiaries is the lessor
or sublessor of properties or assets or under which the Company and its
Subsidiaries holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company and its Subsidiaries are not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and, to the best knowledge of the Company, no claim has been
asserted by anyone adverse to rights of the Company or 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 its
Subsidiaries to continued 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 its Subsidiaries own or lease all such
properties described in the Prospectus as are necessary to their operations as
now conducted and, except as otherwise stated in the Prospectus, as proposed to
be conducted as set forth in the Prospectus.
(i) Xxxxx Xxxxxxxx, P.C., which has given its report on certain
financial statements filed with the Commission as a part of the Registration
Statement, is with respect to
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the Company, independent public accountants as required by the Act and the
Rules and Regulations.
(j) The financial statements, and schedules together with related
notes, set forth in the Prospectus or the Registration Statement present fairly
the financial position and results of operations and changes in cash flow
position of the Company and its Subsidiaries on the basis stated in the
Registration Statement, at the respective dates and for the respective periods
to which they apply. Said statements and schedules and related notes have been
prepared in accordance with generally accepted accounting principles applied on
a basis which is consistent during the periods involved except as disclosed in
the Prospectus and Registration Statement.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company and its Subsidiaries have not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the
ordinary course of business, which would have a Material Adverse Effect, and
there has not been any change in the capital stock of, or any incurrence of
short-term or long-term debt by, the Company or its Subsidiaries or any
issuance of options, warrants or other rights to purchase the capital stock of
the Company or its Subsidiaries or any material adverse change or any
development involving, so far as the Company or its Subsidiaries can now
reasonably foresee a prospective adverse change in the condition (financial or
otherwise), net worth, results of operations, business, key personnel or
properties of it which would have a Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company or its Subsidiaries is a party before or by any
court or governmental agency or body, which might result in any material
adverse change in the financial condition, business prospects, net worth, or
properties of the Company or its Subsidiaries, nor are there any actions, suits
or proceedings related to environmental matters or related to discrimination on
the basis of age, sex, religion or race; and no labor disputes involving the
employees of the Company or its Subsidiaries exist or to the knowledge of the
Company, are threatened which might be expected to have a Material Adverse
Effect.
(m) Except as disclosed in the Prospectus, the Company and its
Subsidiaries have filed all necessary federal, state and foreign income and
franchise tax returns required to be filed as of the date hereof and have paid
all taxes shown as due thereon; and there is no tax deficiency which has been,
or to the knowledge of the party, may be asserted against the Company or its
Subsidiaries.
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(n) Except as disclosed in the Registration Statement or
Prospectus, the Company and its Subsidiaries have sufficient licenses, permits
and other governmental authorizations currently necessary for the conduct of
their business or the ownership of their properties as described in the
Prospectus and is in all material respects complying therewith and owns or
possesses adequate rights to use all material patents, patent applications,
trademarks, service marks, trade-names, trademark registrations, service xxxx
registrations, copyrights and licenses necessary for the conduct of such
businesses and have not received any notice of conflict with the asserted
rights of others in respect thereof. To the best knowledge of the Company, none
of the activities or business of the Company and its Subsidiaries are in
violation of, or cause the Company or its Subsidiaries to violate, any law,
rule, regulation or order of the United States, any state, county or locality,
or of any agency or body of the United States or of any state, county or
locality, the violation of which would have a Material Adverse Effect.
(o) The Company and its Subsidiaries have not, directly or
indirectly, at any time (i) made any contributions 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 or foreign
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments or contributions required or
allowed by applicable law. The Company's and Subsidiaries' internal accounting
controls and procedures are sufficient to cause the Company and its
Subsidiaries to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or
other taxes, (including franchise, capital stock or other tax, other than
income taxes, imposed by any jurisdiction) if any, which are required to be
paid in connection with the sale and transfer of the Securities to the
Underwriter hereunder will have been fully paid or provided for by the Company
and all laws imposing such taxes will have been complied with in all material
respects.
(q) All contracts and other documents of the Company which are,
under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the
Company has no Subsidiaries.
(s) Except as disclosed in the Registration Statement, the
Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to compensation from the Company for
services as a finder in connection with the proposed public offering.
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(t) Except as previously disclosed in writing by the Company to
the Underwriter or as disclosed in the Registration Statement, no officer,
director or stockholder of the Company has any National Association of
Securities Dealers, Inc. (the "NASD") affiliation.
(u) No other firm, corporation or person has any rights to
underwrite an offering of any of the Company's securities.
2. Purchase, Delivery and Sale of 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 agrees to issue and sell to the Underwriter and the
Underwriter agrees to buy from the Company at $5.40 per Unit, at the place and
time hereinafter specified, 1,000,000 Units (the "First Securities").
Delivery of the First Securities against payment therefor shall
take place at the offices of Xxxxxxxxx & Xxxxxxxxx, LLP, 000 Xxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx (or at such other place as may be designated by agreement
between the Underwriter and the Company) at 10:00 a.m., New York time, on ,
1997, such time and date of payment and delivery for the First Securities being
herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter (the
"Over-Allotment Option") to purchase all or any part of an aggregate of an
additional 150,000 Units to cover over allotments at the same price per Unit as
the Underwriter shall pay for the First Securities being sold pursuant to the
provisions of subsection (a) of this Section 2 (such additional Securities
being referred to herein as the "Option Securities"). This option may be
exercised within 30 days after the effective date of the Registration Statement
upon written notice by the Underwriter to the Company advising as to the amount
of Option Securities as to which the option is being exercised, the names and
denominations in which the certificates for such Option Securities are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Underwriter but shall not be
earlier than four nor later than ten full business days after the exercise of
said option (but in no event more than 40 days after the First Closing Date),
nor in any event prior to the First Closing Date, and such time and date is
referred to herein as the "Option Closing Date." Delivery of the Option
Securities against payment therefor shall take place at the offices of
Xxxxxxxxx & Xxxxxxxxx, LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000 (or at such
other place as may be designated by agreement between the Underwriter and the
Company). The option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriter of First Securities referred to
in subsection (a) above. No Option Securities shall be delivered unless all
First Securities shall have been delivered to the Underwriter as provided
herein.
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(c) The Company will make the certificates for the Securities to
be purchased by the Underwriter hereunder available to you for checking at
least two full business days prior to the First Closing Date or the Option
Closing Date (which are collectively referred to herein as the "Closing
Dates"). The certificates shall be in such names and denominations as you may
request, at least three full business days prior to the Closing Dates. Delivery
of the certificates at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Securities to
be purchased by the Underwriter hereunder will be delivered by the Company to
you for the account of the Underwriter against payment of the respective
purchase prices by the Underwriter, by wire transfer or certified or bank
cashier's checks in New York Clearing House funds, payable to the order of the
Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Securities pursuant
to the provisions of subsection (b) above, payment for such Securities shall be
made to or upon the order of the Company by wire transfer or certified or bank
cashier's checks payable in New York Clearing House funds at the offices of
Xxxxxxxxx & Xxxxxxxxx, LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, N.Y., at the time and
date of delivery of such Securities as required by the provisions of subsection
(b) above, against receipt of the certificates for such Securities by you for
your account registered in such names and in such denominations as you may
reasonably request.
It is understood that the Underwriter proposes to offer the
Securities to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
3. Covenants of the Company. The Company covenants and agrees with
the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
Upon notification from the Commission that the Registration Statement has
become effective, the Company will so advise you and will not at any time,
whether before or after the effective date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously have been advised and furnished with a copy or to which you or your
counsel shall have reasonably objected in writing or which is not in compliance
with the Act and the Rules and Regulations. At any time prior to the later of
(A) the completion by the Underwriter of the distribution of the Securities
contemplated hereby (but in no event more than nine months after the date on
which the Registration
9
Statement shall have become or been declared effective) and (B) 25 days after
the date on which the Registration Statement shall have become or been declared
effective, the Company will prepare and file with the Commission, promptly upon
your request, any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel to the Company and the Underwriter,
may be reasonably necessary or advisable in connection with the distribution of
the Securities.
As soon as the Company is advised thereof, the Company will
advise you, and provide you copies of any written advice, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
an amendment of the Registration Statement or for supplementing of the
Prospectus or for additional information with respect thereto, of the issuance
by the Commission or any state or regulatory body of any stop order or other
order or threat thereof suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering in any jurisdiction, or of the institution of any proceedings for any
of such purposes, and will use its best efforts to prevent the issuance of any
such order, and, if issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to
the use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriter and dealers to use the Prospectus in connection with
the sale of the Securities for such period as in the opinion of counsel to the
Underwriter and the Company the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by the Underwriter or dealer of
any event of which the Company has knowledge and which materially affects the
Company or the securities of the Company, or which in the opinion of counsel
for the Company and counsel for the Underwriter should be set forth in an
amendment of the Registration Statement or a supplement to the Prospectus in
order to make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be delivered
to a purchaser of the Securities or in case it shall be necessary to amend or
supplement the Prospectus to comply with law or with the Rules and Regulations,
the Company will notify you promptly and forthwith prepare and furnish to you
copies of such amended Prospectus or of such supplement to be attached to the
Prospectus, in such quantities as you may reasonably request, in order that the
Prospectus, as so amended or supplemented, will not contain any untrue
statement of a material fact or omit to state any material facts necessary in
order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The preparation and
furnishing of any such amendment or supplement to the Registration Statement or
amended Prospectus or
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supplement to be attached to the Prospectus shall be without expense to the
Underwriter, except that in case the Representative is required, in connection
with the sale of the Securities to deliver a Prospectus nine months or more
after the effective date of the Registration Statement, the Company will upon
request of and at the expense of the Underwriter, amend or supplement the
Registration Statement and Prospectus and furnish the Underwriter with
reasonable quantities of prospectuses complying with Section 10(a)(3) of the
Act.
The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will furnish such information as may be required
and to otherwise cooperate and use its best efforts to qualify or register the
Securities for sale under the securities or "blue sky" laws of such
jurisdictions as you may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with such
laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Securities. The Company will, from time to time,
prepare and file such statements and reports as are or may be required to
continue such qualification in effect for so long a period as the counsel to
the Company and the Underwriter deem reasonably necessary.
(c) If the sale of the Securities provided for herein is not
consummated as a result of the Company not performing its obligations hereunder
in all material respects, the Company shall pay all costs and expenses incurred
by it which are incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the expenses itemized in
Section 8, including the accountable expenses of the Underwriter, up to
$100,000 (including the reasonable fees and expenses of counsel to the
Underwriter).
(d) The Company will use its best efforts to (i) cause a
registration statement under the Exchange Act to be declared effective
concurrently with the completion of this offering and will notify you in
writing immediately upon the effectiveness of such registration statement, and
(ii) to obtain and keep current a listing in the Standard & Poors or Xxxxx'x
OTC Industrial Manual.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five (5) years
from the date hereof, (i) as soon as practicable after the end of each fiscal
year, but no earlier than the filing of such information with the Commission a
balance sheet of the Company and any
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of its Subsidiaries as at the end of such fiscal year, together with statements
of income, surplus and cash flow of the Company and any Subsidiaries for such
fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent accountants; (ii) as soon as
practicable after the end of each of the first three fiscal quarters of each
fiscal year, but no earlier than the filing of such information with the
Commission, consolidated summary financial information of the Company for such
quarter in reasonable detail; (iii) as soon as they are publicly available, a
copy of all reports (financial or other) mailed to security holders; (iv) as
soon as they are available, a copy of all non-confidential reports and
financial statements furnished to or filed with the Commission or any
securities exchange or automated quotation system on which any class of
securities of the Company is listed; and (v) such other information as you may
from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
Subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or Subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the First
Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon your order, from time to time
until the effective date of the Registration Statement, as many copies of any
Preliminary Prospectus filed with the Commission prior to the effective date of
the Registration Statement as you may reasonably request. The Company will
deliver to the Underwriter on the effective date of the Registration Statement
and thereafter for so long as a Prospectus is required to be delivered under
the Act, from time to time, as many copies of the Prospectus, in final form, or
as thereafter amended or supplemented, as the Underwriter may from time to time
reasonably request.
(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to you as
soon as it is practicable to do so but in no event later than 90 days after the
end of twelve months after its current fiscal quarter, an earnings statement
(which need not be audited) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement, which
shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Securities substantially for the purposes set forth under "Use of Proceeds" in
the Prospectus.
12
(j) The Company will promptly prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
opinion of counsel to the Underwriter and counsel to the Company, may be
reasonably necessary or advisable in connection with the distribution of the
Securities, and will use its best efforts to cause the same to become effective
as promptly as possible.
(k) The Company will reserve and keep available the maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Purchase Option outstanding from time to time.
(l) Upon completion of this offering, the Company will make all
filings required, including registration under the Exchange Act, to obtain the
listing of the Units, Preferred Stock and the Warrants in the NASDAQ SmallCap
Market system, and will use its best efforts to effect and maintain such
listing for at least five years from the date of this Agreement.
(m) Except for the transactions contemplated by this Agreement
and as disclosed in the Prospectus, the Company represents that it has not
taken and agrees that it will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected to
cause or result in the stabilization or manipulation of the price of any of the
Securities.
(n) On the First Closing Date and simultaneously with the
delivery of the Securities, the Company shall execute and deliver to you the
Purchase Option. The Purchase Option will be substantially in the form filed as
an Exhibit to the Registration Statement.
(o) On the First Closing Date, the Company will complete the
acquisition of Comp Xxxx Inc. d/b/a Xxxx Distribution, Inc."Xxxx"), a Delaware
corporation, the principals of Xxxx receiving $3,250,000 and 1,500,000 Series
IV Warrants. Such Warrants, which will be included in the Registration
Statement, are subject to an eighteen (18) month
(p) So long as any Warrants are outstanding and the exercise
price of the Warrants is less than the market price of the Common Stock, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be
delivered to each holder of record of a Warrant and to furnish to the
Underwriter as many copies of each such Prospectus as such Underwriter or
dealer may reasonably request. The Company shall not call for redemption of any
of the Warrants unless a registration statement covering the
13
securities underlying the Warrants has been declared effective by the
Commission and remains current at least until the date fixed for redemption.
(q) For a period of five (5) years from the Effective 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 (3) fiscal 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
Securityholders, provided that the Company shall not be required to file a
report of such accountants relating to such review with the Commission.
(r) The Company agrees to pay the Underwriter a warrant
solicitation fee of 4.0% of the exercise price of any of the Warrants exercised
beginning one (1) year after the Effective Date (not including warrants
exercised by the Underwriter) if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price
of the Warrant, (b) the exercise of the Warrant was solicited by the
Underwriter and the holder of the warrant designates the Underwriter in writing
as having solicited such Warrant, (c) the Warrant is not held in a
discretionary account, (d) disclosure of the compensation arrangement is made
upon the sale and exercise of the Warrants, (e) soliciting the exercise is not
in violation of Rule 10b-6 under the Securities Exchange Act of 1934, and (f)
solicitation of the exercise is in compliance with the NASD Notice to Members
81-38 (September 22, 1981).
(s) For a period of three years from the Effective Date, at the
request of the Underwriter, the Company shall provide promptly, at the expense
of the Company, copies of the Company's daily transfer sheets furnished to it
by its transfer agent and copies of the securities position listings provided
to it by the Depository Trust Company.
(t) The Company hereby agrees that:
(i) The Company will pay a finder's fee to the Underwriter,
equal to five percent (5%) of the first $3,000,000 of the consideration
involved in any transaction, 4% of the next $3,000,000 of consideration
involved in the transaction, 3% of the next $2,000,000, 2% of the next
$2,000,000 and 1% of the excess, if any, over $10,000,000, for future
consummated transactions, if any, introduced by the Underwriter (including
mergers, acquisitions, joint ventures, and any other business for the Company
introduced by the Underwriter) consummated by the Company (an "Introduced
Consummated Transaction"), in which the Underwriter introduced the other party
to the Company during a period ending five years following the First Closing
Date; and
14
(ii) That any such finder's fee due hereunder will be paid
in cash or other consideration that is acceptable to the Underwriter, at the
closing of the particular Introduced Consummated Transaction for which the
finder's fee is due.
(v) Intentionally omitted.
(w) For a period of five (5) years following the Effective 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 (3) fiscal 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, provided that the Company shall not be required to file a report
of such accountants relating to such review with the Commission. The Company
will retain its present legal counsel and independent certified public
accountants for at least one year from the Closing Date.
(x) For the three (3) year period commencing on the First Closing
Date, the Underwriter shall have the right to nominate a member of the
Company's Board of Directors. If the Underwriter does not exercise this right,
it may appoint an advisor who will be able to attend all meetings of the Board
of Directors. However, if the Board of Directors determines that confidential
information is to be discussed during any part of any meeting attended by such
advisor, it shall have the right to exclude the advisor from the meeting during
such discussion. The Underwriter shall also have the right to obtain copies of
the minutes, if requested, from all Board of Directors meetings for three (3)
years following the Effective Date of the Registration Statement, whether or
not a nominee of the Underwriter attends or participates in any such Board
meeting. The Company agrees to reimburse the Underwriter immediately upon the
Underwriter's request therefor of any reasonable travel and lodging expenses
directly incurred by the Underwriter in connection with its representative
attending Company Board meetings on the same basis for other Board members.
4. Conditions of Underwriter's Obligation. The obligations of the
Underwriter to purchase and pay for the Securities which it has agreed to
purchase hereunder, are subject to the accuracy (as of the date hereof, and as
of the Closing Dates) of and compliance with the representations and warranties
of the Company herein, to the performance by the Company of its obligations
hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 A.M., New York
time, on the day following the date of this Agreement, or at such later time or
on such later date as to which you may agree in writing; on or prior to the
Closing Dates no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to your knowledge or
to the knowledge of the
15
Company, shall be contemplated by the Commission; any request on the part of
the Commission for additional information shall have been complied with to the
satisfaction of the Commission; and no stop order shall be in effect denying or
suspending effectiveness of such qualification nor shall any stop order
proceedings with respect thereto be instituted or pending or threatened. If
required, the Prospectus shall have been filed with the Commission in the
manner and within the time period required by Rule 424(b) under the Act.
(b) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Xxxxx & Xxxxxx, LLP, counsel
for the Company, in form and substance satisfactory to counsel for the
Underwriter, to the effect that:
(i) the Company and its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under
the laws of their respective jurisdictions of organization, with all requisite
corporate power and authority to own their properties and conduct their
business as described in the Registration Statement and Prospectus and are duly
qualified or licensed to do business as foreign corporations and are in good
standing in each other jurisdiction in which the ownership or leasing of their
properties or conduct of their business requires such qualification except
where the failure to qualify or be licensed will not have a Material Adverse
Effect;
(ii) the authorized capitalization of the Company as of May
31, 1996 is as set forth in the Registration Statement; the Securities as set
forth in the Registration Statement have been duly authorized and upon payment
of consideration therefor, will be validly issued, fully paid and
non-assessable and conform in all material respects to the description thereof
contained in the Prospectus; to such counsel's knowledge the outstanding shares
of capital stock of the Company and its Subsidiaries have not been issued in
violation of the preemptive rights of any shareholder and to such counsel's
knowledge the shareholders of the Company do not have any preemptive rights or
other rights to subscribe for or to purchase, nor are there any restrictions
upon the voting or transfer of any of the capital stock except as provided in
the Prospectus or as required by law. The Securities, the Purchase Option and
the Warrant Agreement conform in all material respects to the respective
descriptions thereof contained in the Prospectus; the shares of Common Stock
underlying the Units, and the shares of Common Stock issuable upon exercise of
Warrants, the Purchase Option, and the Warrant Agreement will have been duly
authorized and, when issued and delivered in accordance with their respective
terms, will be duly and validly issued, fully paid, non-assessable, free of
preemptive rights to the best of their knowledge; to the best of their
knowledge, all prior sales by the Company of the Company's securities, have
been made in compliance with or under an exemption from registration under the
Act and applicable state securities laws; a sufficient number of shares of
Common Stock has been reserved for issuance upon exercise of the Warrants and
Common Stock has been reserved for issuance upon exercise of the Warrants
contained in the Purchase Option and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor
16
the offering or sale of the Securities as contemplated by this Agreement gives
rise to any registration rights other than those which have been waived or
satisfied for or relating to the registration of any shares of Common Stock;
(iii) this Agreement, the Purchase Option, and the Warrant
Agreement have been duly and validly authorized, executed and delivered by the
Company;
(iv) the certificates evidencing the Securities as described
in the Registration Statement comply in all material respects with the
descriptions set forth therein, and comply with the Delaware General
Corporation Law, as in effect on the date hereof; each Warrant will be
exercisable for one share of the Common Stock of the Company, respectively, and
at the prices provided for in the Warrant Agreement;
(v) except as otherwise disclosed in the Registration
Statement, such counsel knows of no pending or threatened legal or governmental
proceedings to which the Company or its Subsidiaries are a party which would
materially adversely affect the business, property, financial condition or
operations of the Company or its Subsidiaries; or which question the validity
of the Securities, this Agreement, the Warrant Agreement or the Purchase
Option, or of any action taken or to be taken by the Company pursuant to this
Agreement, the Warrant Agreement or the Purchase Option; to such counsel's
knowledge there are no governmental proceedings or regulations required to be
described or referred to in the Registration Statement which are not so
described or referred to;
(vi) the execution and delivery of this Agreement, the
Purchase Option or the Warrant Agreement and the incurrence of the obligations
herein and therein set forth and the consummation of the transactions herein or
therein contemplated, will not result in a breach or violation of, or
constitute a default under the certificate of incorporation or by-laws of the
Company or its Subsidiaries, or to the best knowledge of counsel after due
inquiry, in the performance or observance of any material obligations,
agreement, covenant or condition contained in any bond, debenture, note or
other evidence of indebtedness or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture or other agreement or instrument
to which the Company or its Subsidiaries is a party or by which they or any of
their properties is bound or in violation of any order, rule, regulation, writ,
injunction, or decree of any government, governmental instrumentality or court,
domestic or foreign the result of which would have a Material Adverse Effect;
(vii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the Prospectus
(except for the financial statements and other financial data contained
therein, or
17
omitted therefrom, as to which such counsel need express no opinion) as of the
Effective Date comply as to form in all material respects with the applicable
requirements of the Act and the Rules and Regulations;
(viii) in the course of preparation of the Registration
Statement and the Prospectus such counsel has participated in conferences with
the President of the Company with respect to the Registration Statement and
Prospectus and such discussions did not disclose to such counsel any
information which gives such counsel reason to believe that the Registration
Statement or any amendment thereto at the time it became effective contained
any untrue statement of a material fact required to be stated therein or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus or any
supplement thereto contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make statements therein, in light
of the circumstances under which they were made, not misleading (except, in the
case of both the Registration Statement and any amendment thereto and the
Prospectus and any supplement thereto, for the financial statements, notes
thereto and other financial information (including without limitation, the pro
forma financial information) and schedules contained therein, as to which such
counsel need express no opinion);
(ix) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
agreements to which the Company or its Subsidiaries is a party are accurate and
fairly present in all material respects the information required to be shown,
and such counsel is familiar with all contracts and other agreements referred
to in the Registration Statement and the Prospectus and any such amendment or
supplement or filed as exhibits to the Registration Statement, and such counsel
does not know of any contracts or agreements to which the Company or its
Subsidiaries is a party of a character required to be summarized or described
therein or to be filed as exhibits thereto which are not so summarized,
described or filed;
(x) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale or delivery of the Securities by
the Company, in connection with the execution, delivery and performance of this
Agreement by the Company or in connection with the taking of any action
contemplated herein, or the issuance of the Purchase Option or the Securities
underlying the Purchase Option, other than registrations or qualifications of
the Securities under applicable state or foreign securities or Blue Sky laws
and registration under the Act; and
(xi) the Units, shares of Common Stock and the Warrants have
been duly authorized for quotation on the NASDAQ SmallCap Market System
("NASDAQ").
18
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the law of
the United States or of the State of New York or Delaware upon opinions of
counsel satisfactory to you, in which case the opinion shall state that they
have no reason to believe that you and they are not entitled to so rely.
(c) Intentionally Omitted.
(d) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Xxxxxxxxx & Xxxxxxxxx, LLP,
counsel to the Underwriter.
(e) You shall have received a letter prior to the Effective Date
and again on and as of the First Closing Date from Xxxxx Xxxxxxxx, PC
independent public accountants for the Company, substantially in the form
reasonably acceptable to you, providing you with such "cold comfort" as you may
reasonably require.
(f) At the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of the Closing
Dates taking into account for the Option Closing Dates the effect of the
transactions contemplated hereby and the Company or its Subsidiaries shall have
performed all of its obligations hereunder and satisfied all the conditions on
its part to be satisfied at or prior to such Closing Date; (ii) the
Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall 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 not misleading; (iii) there shall have been, since the
respective dates as of which information is given, no material adverse change,
or to the Company or its Subsidiaries's knowledge, any development involving a
prospective material adverse change, in the business, properties, condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt or general affairs of the Company or its Subsidiaries from that
set forth in the Registration Statement and the Prospectus, except changes
which the Registration Statement and Prospectus indicate might occur after the
effective date of the Registration Statement, and the Company or its
Subsidiaries shall not have incurred any material liabilities or entered into
any material agreement not in the ordinary course of business other than as
referred to in the Registration Statement and Prospectus; (iv) except as set
forth in the Prospectus, no action, suit or proceeding at law or in equity
shall be pending or threatened against the Company or its
19
Subsidiaries which would be required to be set forth in the Registration
Statement, and no proceedings shall be pending or threatened against the
Company or its Subsidiaries before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company or its Subsidiaries, and (v) you shall have received, at
the First Closing Date, a certificate signed by each of the President and the
principal operating officer of the Company or its Subsidiaries, dated as of the
First Closing Date, evidencing compliance with the provisions of this
subsection (f).
(g) Upon exercise of the Over-Allotment Option provided for in
Section 2(b) hereof, the obligations of the Underwriter to purchase and pay for
the Option Securities referred to therein will be subject (as of the date
hereof and as of the Option Closing Date) to the following additional
conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
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, and any reasonable request on
the part of the Commission for additional information shall have been complied
with to the satisfaction of the Commission.
(ii) At the Option Closing Date there shall have been
delivered to you the signed opinion of Xxxxx & Xxxxxx, LLP, counsel to the
Company, dated as of the Option Closing Date, in form and substance reasonably
satisfactory to Xxxxxxxxx & Xxxxxxxxx, LLP, counsel to the Underwriter, which
opinion shall be substantially the same in scope and substance as the opinion
furnished to you at the First Closing Date pursuant to Sections 4(b) hereof,
except that such opinion, where appropriate, shall cover the Option Securities.
(iii) At the Option Closing Date there shall have be
delivered to you a certificate of the President and the principal operating
officer of the Company, dated the Option Closing Date, in form and substance
reasonably satisfactory to Xxxxxxxxx & Xxxxxxxxx, LLP, counsel to the
Underwriter, substantially the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date there shall have been
delivered to you a letter in form and substance satisfactory to you from Xxxxx
Xxxxxxxx, dated the Option Closing Date and addressed to the Underwriter
confirming the information in their letter referred to in Section 4(e) hereof
and stating that nothing has come to their attention during the period from the
ending date of their review referred to in said letter to a date not more than
five business days
20
prior to the Option Closing Date, which would require any change in said letter
if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities shall be
reasonably satisfactory in form and substance to you, and you and Xxxxxxxxx &
Xxxxxxxxx, LLP, counsel to the Underwriter, shall have been furnished with all
such documents, certificates, and opinions as you may reasonably request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions contained
herein.
(h) No action shall have been taken by the Commission or the NASD
the effect of which would make it improper, at any time prior to the Closing
Date, for members of the NASD to execute transactions (as principal or agent)
in the Securities and no proceedings for the taking of such action shall have
been instituted or shall be pending, or, to the knowledge of the Underwriter or
the Company, shall be contemplated by the Commission or the NASD. The Company
and the Underwriter represent that at the date hereof each has no knowledge
that any such action is in fact contemplated against it by the Commission or
the NASD.
(i) If any of the conditions herein provided for in this Section
shall not have been fulfilled in all material respects as of the date
indicated, this Agreement and all obligations of the Underwriter under this
Agreement may be canceled at, or at any time prior to, each Closing Date by the
Underwriter notifying the Company of such cancellation in writing or by
telegram at or prior to the applicable Closing Date. Any such cancellation
shall be without liability of the Underwriter to the Company.
5. Conditions of the Obligations of the Company, The obligation of
the Company to sell and deliver the Securities is subject to the following
conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 A.M. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Underwriter may agree
in writing.
(b) At the Closing Dates, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the
Act or any proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided
for in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the
21
Securities on exercise of the Over-Allotment Option provided for in Section
2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to
which such Underwriter or such controlling person may become subject, under the
Act or otherwise, and (ii) to reimburse, as incurred, the Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages or liabilities; insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
relating to (i) and (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that the Company will not be required to indemnify the Underwriter and any
controlling person or be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto, provided, further that the indemnity with respect to any
Preliminary Prospectus shall not be applicable on account of any losses,
claims, damages, liabilities or litigation arising from the sale of Securities
to any person if a copy of the Prospectus was not delivered to such person at
or prior to the written confirmation of the sale to such person. This indemnity
will be in addition to any liability which the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within
22
the meaning of the Act, against any losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and reasonable attorneys' fees) to
which the Company or any such director, nominee, officer or controlling person
may become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or any Blue Sky Application
in reliance upon and in conformity with written information furnished to the
Company by the Underwriter specifically for use in the preparation thereof and
for any violation by the Underwriter in the sale of such Securities of any
applicable state or federal law or any rule, regulation or instruction
thereunder relating to violations based on unauthorized statements by
Underwriter or its representative; provided that such violation is not based
upon any violation of such law, rule or regulation or instruction by the party
claiming indemnification or inaccurate or misleading information furnished by
the Company or its representatives, including information furnished to the
Underwriter as contemplated herein. This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that the reasonable fees and expenses of such counsel shall be at the expense
of the indemnifying party if (i) the employment of such counsel has been
23
specifically authorized in writing by the indemnifying party or (ii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party and in the reasonable judgment of
the counsel to the indemnified party, it is advisable for the indemnified party
to be represented by separate counsel (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of such
indemnified party, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for the indemnified party,
which firm shall be designated in writing by the indemnified party). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnified party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party. If it is
ultimately determined that indemnification is not permitted, then an
indemnified party will return all monies advanced to the indemnifying party.
7. Contribution.
In order to provide for just and equitable contribution under the
Act in any case in which the indemnification provided in Section 6 hereof is
requested but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case, notwithstanding the fact that the express
provisions of Section 6 provide for indemnification in such case, then the
Company and each person who controls the Company, in the aggregate, and the
Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) (after contribution from
others) in such proportions that the Underwriter is responsible in the
aggregate for that portion of such losses, claims, damages or liabilities
represented by the percentage that the underwriting discount for each of the
Securities appearing on the cover page of the Prospectus bears to the public
offering price appearing thereon and the Company shall be responsible for the
remaining portion; provided, however, that if such allocation is not permitted
by applicable law then allocated in such proportion as is appropriate to
reflect relative benefits but also the relative fault of the Company and the
Underwriter and controlling persons, in the aggregate, in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an
untrue statement of a material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company or
the Underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriter to
contribute pursuant
24
to this Section 7 were to be determined by pro rata or per capita allocation of
the aggregate damages or by any other method of allocation that does not take
account of the equitable considerations referred to in this Section 7. 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 is not
guilty of such fraudulent misrepresentation. As used in this paragraph, the
word "Company" includes any 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, its officers, directors and controlling persons,
and the Company, its officers, directors and controlling persons shall be
entitled to contribution from the Underwriter to the full extent permitted by
law. 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. No contribution shall be
requested with regard to the settlement of any matter from any party who did
not consent to the settlement; provided, however, that such consent shall not
be unreasonably withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale
of the Securities to the Underwriter is consummated, the Company will pay all
costs and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented, the fee of the NASD in connection with the filing
required by the NASD relating to the offering of the Securities contemplated
hereby; all expenses, including reasonable fees and disbursements of counsel to
the Underwriter, in connection with the qualification of the Securities under
the state securities or blue sky laws which the Underwriter shall designate;
the cost of printing and furnishing to the Underwriter copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, and the Blue Sky Memorandum, any fees relating to the listing of the
Common Stock and Warrants on NASDAQ or any other securities exchange, the cost
of printing the certificates representing the Securities; fees for bound
volumes and prospectus memorabilia and the fees of the transfer agent and
warrant agent. The Company shall pay any and all taxes (including any transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales to
the Underwriter hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus as called for in Section 3(a) of this Agreement
except as otherwise set forth in said Section.
25
(b) In addition to the foregoing expenses, the Company shall at
the First Closing Date pay to the Underwriter a non-accountable expense
allowance of $180,000. In the event the overallotment option is exercised, the
Company shall pay to the Underwriter at the Option Closing Date an additional
amount in the aggregate equal to 3% of the gross proceeds received upon
exercise of the overallotment option. In the event the transactions
contemplated hereby are not consummated by reason of any action by the
Underwriter (except if such prevention is based upon a breach by the Company of
any covenant, representation or warranty contained herein or because any other
condition to the Underwriter's obligations hereunder required to be fulfilled
by the Company is not fulfilled) the Company shall not be liable for any
expenses of the Underwriter, including the Underwriter's legal fees. In the
event the transactions contemplated hereby are not consummated by reason of the
Company being unable to perform its obligations hereunder in all material
respects, the Company shall be liable for the actual accountable out-of-pocket
expenses of the Underwriter, including reasonable legal fees, not to exceed in
the aggregate $100,000.
(c) Except as disclosed in the Registration Statement, no person
is entitled either directly or indirectly to compensation from the Company,
from the Underwriter or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Underwriter, against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
reasonable attorneys' fees), to which the Underwriter or person may become
subject insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the claim of any person (other
than an employee of the party claiming indemnity) or entity that he or it is
entitled to a finder's fee in connection with the proposed offering by reason
of such person's or entity's influence or prior contact with the indemnifying
party.
9. Effective Date.
The Agreement shall become effective upon its execution except
that you may, at your option, delay its effectiveness until 11:00 A.M., New
York time on the first full business day following the effective date of the
Registration Statement, or at such earlier time on such business day after the
effective date of the Registration Statement as you in your discretion shall
first commence the public offering of the Securities. The time of the initial
public offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Securities, or the time when the Securities
are first generally offered by you to dealers by letter or telegram, whichever
shall first occur. This Agreement may be terminated by you at any time before
it becomes effective as provided above, except that Sections 3(c), 6, 7, 8, 12,
13, 14 and 15 shall remain in effect notwithstanding such termination.
10. Termination.
26
(a) After this Agreement becomes effective, this Agreement,
except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 hereof, may be terminated
at any time prior to the First Closing Date, by you if in your judgment (i) the
Company has sustained a material loss, whether or not insured, by reason of
fire, earthquake, flood, accident or other calamity, or from any labor dispute
or court or government action, order or decree, (ii) trading in securities on
the New York Stock Exchange or the American Stock Exchange having been
suspended or limited, (iii) material governmental restrictions have been
imposed on trading in securities generally (not in force and effect on the date
hereof), (iv) a banking moratorium has been declared by federal or New York
state authorities, (v) an outbreak of major international hostilities involving
the United States or other substantial national or international calamity has
occurred, (vi) a pending or threatened legal or governmental proceeding or
action relating generally to the Company's business, or a notification has been
received by the Company of the threat of any such proceeding or action, which
would materially adversely affect the Company; (vii) except as contemplated by
the Prospectus, the Company is merged or consolidated into or acquired by
another company or group or there exists a binding legal commitment for the
foregoing or any other material change of ownership or control occurs; (viii)
the passage by the Congress of the United States or by any state legislative
body of similar impact, of any act or measure, or the adoption of any orders,
rules or regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably believed
likely by the Underwriter to have a material adverse impact on the business,
financial condition or financial statements of the Company; (ix) any material
adverse change in the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement, or (x) any
material adverse change having occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. Purchase Option.
At or before the First Closing Date, the Company will sell the
Underwriter or its designees for a consideration of $100, and upon the terms
and conditions set forth in the form of Purchase Option annexed as an exhibit
to the Registration Statement, a Purchase Option to purchase an aggregate of
100,000 Units, each Unit consisting of one (1) share of Series B Convertible
Preferred Stock, par value $.01 per share and one (1) Series IV Redeemable
Common Stock Purchase Warrant. In the event of conflict in the terms of this
Agreement and the Purchase Option with respect to language relating to the
Purchase Option, the language of the Purchase Option shall control.
27
12. Representations and Warranties of the Underwriter.
The Underwriter represents and warrants to the Company that it is
registered as a broker-dealer in all jurisdictions in which it is offering the
Securities and that it will comply with all applicable state or federal laws
relating to the sale of the Securities, including but not limited to,
violations based on unauthorized statements by the Underwriter or its
representatives.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company and the Underwriter and the
undertakings set forth in or made pursuant to this Agreement will remain in
full force and effect until three years from the date of this Agreement,
regardless of any investigation made by or on behalf of the Underwriter, the
Company or any of its officers or directors or any controlling person and will
survive delivery of and payment of the Securities and the termination of this
Agreement.
14. Notice.
Any communications specifically required hereunder to be in
writing, if sent to the Representative, will be mailed, delivered or telecopied
and confirmed to them at Biltmore Securities, Inc., 0000 Xxxxx Xxxxxxx Xxxxxx,
Xxxxx 000, Xxxx Xxxxxxxxxx, XX 00000, with a copy sent to Xxxxxxxxx &
Xxxxxxxxx, LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxxx
X. Xxxxxxxxx, or if sent to the Company, will be mailed, delivered or
telecopied and confirmed to it at 0000 Xxxxxxxx Xxxxxx, Xxxxx 000, Xxxx Xxxxx,
Xxxxxxx 00000, with a copy sent to Xxxxxxxxx X. London, Xxxxx & Xxxxxx, Xxx
Xxxxx Xxxxxxxxx Xxxxx, Xxx Xxxx, XX 00000-0000. Notice shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication.
15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of
the Underwriter, the Company, any person controlling the Company or the
Underwriter, and directors of the Company, nominees for directors (if any)
named in the Prospectus, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors, assigns
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser,
as such purchaser, from the Underwriter of the Securities.
16. Applicable Law.
28
This Agreement will be governed by, and construed in accordance
with, of the laws of the State of New York applicable to agreements made and to
be entirely performed within New York.
17. Counterparts.
This agreement may be executed in one or more counterparts each
of which shall be deemed to constitute an original and shall become effective
when one or more counterparts have been signed by each of the parties hereto
and delivered to the other parties (including by fax, followed by original
copies by overnight mail).
18. Entire Agreement; Amendments.
This Agreement constitutes the entire agreement of the parties
hereto and supersedes all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended except in writing, signed by the Underwriter and the Company.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with
its terms.
Very truly yours,
QUESTRON TECHNOLOGY, INC.
By:
---------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
29
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
BILTMORE SECURITIES, INC.
By:
-----------------------------
Name:
Title:
The undersigned agree to be bound by the provisions of Section 3
(1) hereof:
--------------------------------
Xxxxxxx X. Xxxxxxxx
--------------------------------
Xxxxxx X. Xxxxx
--------------------------------
Xxxxxx X. Xxxxxxxx
--------------------------------
Xxxxxxxx Xxxxxxxx
--------------------------------
Xxxxxxx X. XxXxxxxx, Xx.
Xxxxx & Xxxxxx
By:
-----------------------------
Name:
Title:
30
