1,150,000 Shares and
1,150,000 Redeemable Class A Warrants
PC411, INC.
UNDERWRITING AGREEMENT
New York, New York
November __, 1996
Biltmore Securities, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
PC411, Inc., a Delaware corporation (the "Company"), proposes to issue and
sell to you (the "Underwriter") 1,150,000 shares (the "Shares") of Common Stock,
par value $.01 per share ("Common Stock") and 1,150,000 Redeemable Class A
Warrants (the "Warrants"), each to purchase one share of Common Stock at an
initial exercise price equal to 120% of the initial public offering price per
share at any time during the period commencing one (1) year from __________,
1997 and terminating four (4) years thereafter (the "Warrant Exercise Period").
The Shares and the Warrants are sometimes hereinafter referred to as (the
"Securities"). Until the completion of the Offering, the Shares and Warrants
may only be purchased together on the basis of one Share and one Warrant.
Immediately after the offering the Shares and Warrants will trade separately.
The Warrant exercise price is subject to adjustment under certain circumstances.
You have advised the Company that you desire to purchase the Shares and the
Warrants. The Company confirms the agreement made by them with respect to the
purchase of the Shares and the Warrants 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. 33-----) on Form SB-2
relating to the public offering of the Shares and the Warrants, 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 "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, the
terms "Registration Statement" and "Prospectus" shall include such
registration statement and prospectus as so amended, and the term
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"Prospectus" shall include the prospectus as so supplemented, or both, as the
case may be.
(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)(i) the Registration Statement and
Prospectus will in all material 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 on page 2 with
respect to stabilization, the paragraph under the heading "Underwriting"
relating to concessions to certain dealers, the two legends on page 4 of the
Prospectus, all descriptions involving litigation of the Underwriter, the
"Underwriting" Section of the Prospectus 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 each of its subsidiaries ("the 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 its properties and conduct its
business as described in the Prospectus and is duly qualified or licensed to do
business as a foreign corporation and is in good standing in each other
jurisdiction in which the nature of its business or the character or location of
its properties requires such qualification, except where the failure to so
qualify will not materially adversely affect the Company's or Subsidiaries'
business, properties or financial condition.
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(d) The authorized, issued and outstanding capital stock of the
Company, including the predecessors of the Company, as of September 30, 1996 is
as set forth in the Prospectus under "Capitalization"; the shares of issued and
outstanding capital stock of the Company set forth thereunder have been duly
authorized, validly issued and are fully paid and 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 have
been granted or entered into by the Company; and the capital stock conforms to
all statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized, and when issued and delivered
pursuant to this Agreement, will be duly authorized, validly issued, fully paid
and nonassessable and free of preemptive rights of any security holder of the
Company. Neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated in this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock, except as described in the
Registration Statement.
The Warrants have been duly authorized and, when issued and delivered
pursuant to this Agreement, will have been duly executed, 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 and no
personal liability will attach to the ownership thereof. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, will have been duly executed and delivered and will
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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 Shares and Warrants contained in the Underwriter's Option (as
defined as the Underwriter's Option in the Registration Statement) have been
duly authorized and, when duly issued and delivered, such securities will
constitute a valid and legally binding obligation of the Company enforceable in
accordance with its terms and entitled to the benefits provided by the
Underwriter's Option, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors generally or by
general equitable principles and the indemnification contained in paragraph 7 of
the Underwriter's Option may be unenforceable. The Shares included in the
Underwriter's Option (and the shares of Common Stock issuable upon exercise of
the Warrants included therein) when issued and sold, will be duly authorized,
validly issued, fully paid and non-assessable and free of preemptive rights and
no personal liability will attach to the ownership thereof.
(f) This Agreement and the Underwriter's Option have 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 authorization, issuance, and sale of the Securities or the
Underwriter's 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 Subsidiaries taken as a
whole (a "Material Adverse Effect"), the Company and Subsidiaries are not in
material violation, breach, or default of or under, and consummation of the
transactions herein contemplated and the
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fulfillment of the terms of this Agreement will not conflict with, or result
in a material breach or violation of, any of the terms or provisions of, or
constitute a material default under, or result in the creation or imposition
of any material lien, charge, or encumbrance upon any of the property or
assets of the Company or the Subsidiaries pursuant to the terms of, any
material indenture, mortgage, deed of trust, loan agreement, or other
material agreement or instrument to which the Company or the Subsidiaries is
a party or by which the Company or the Subsidiaries may be bound or to which
any of the property or assets of the Company or the Subsidiaries is subject,
nor will such action result in any violation of the provisions of the
articles of incorporation or the by-laws of the Company or the Subsidiaries,
as amended, or any statute or any order, rule or regulation applicable to the
Company of any court or of any regulatory authority or other governmental
body having jurisdiction over the Company or the Subsidiaries.
(h) Subject to the qualifications stated in the Prospectus, the
Company and Subsidiaries have good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to their business; subject to the
qualifications stated in the Prospectus, all of the material leases and
subleases under which the Company or the Subsidiaries is the lessor or sublessor
of properties or assets or under which the Company or the 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 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 the 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 the 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
Subsidiaries own or lease all such properties described in the Prospectus as
are necessary to its operations as now conducted and, except as otherwise stated
in the Prospectus, as proposed to be conducted as set forth in the Prospectus.
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(i) KPMG Peat Marwick, LLP, independent auditors, who have given
their reports on certain financial statements filed with the Commission as a
part of the Registration Statement, are with respect to the Company, independent
public accountants as required by the Act and the Rules and Regulations.
(j) The combined/consolidated 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 the Subsidiaries on the basis
stated in the Registration Statement, at the respective dates and for the
respective periods to which they apply. To the best of the Company's knowledge,
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. The information set forth under the caption "Selected
Financial Data" in the Prospectus fairly present, on the basis stated in the
Prospectus, the information included therein.
(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 the 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 the Subsidiaries or any issuance of options,
warrants or other rights to purchase the capital stock of the Company or the
Subsidiaries or any Material Adverse Effect or any development involving, so far
as the Company or the Subsidiaries can now reasonably foresee, a prospective
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 the Subsidiaries is a party before or by any court or
governmental agency or body, which might result in any Material Adverse Effect,
nor are there any actions, suits or proceedings related to environmental matters
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or related to discrimination on the basis of age, sex, religion or race; and no
labor disputes involving the employees of the Company or the Subsidiaries exist
or to the knowledge of the Company, are threatened which might be reasonably
expected to have a Material Adverse Effect.
(m) Except as disclosed in the Prospectus, the Company and the
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
asserted against the Company or the Subsidiaries.
(n) Except as disclosed in the Registration Statement, the Company
and each of the Subsidiaries, has sufficient licenses, permits, and other
governmental authorizations currently necessary for the conduct of its business
or the ownership of its 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 ▇▇▇▇ registrations, copyrights,
and licenses necessary for the conduct of such business and has 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 the Subsidiaries are in violation of, or cause the Company or the
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 the 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.
(p) On the First Closing Date (as hereinafter defined) all transfer
or other taxes, (including franchise, capital stock or
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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 and the
Subsidiaries 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 other subsidiaries.
(s) Except as disclosed in the Registration Statement, the Company
and the Subsidiaries have not entered into any agreement pursuant to which any
person is entitled either directly or indirectly to compensation from the
Company or the Subsidiaries for services as a finder in connection with the
proposed public offering.
(t) Except as disclosed in the Prospectus, 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 $4.50 per Share, at the place and time
hereinafter specified, 1,150,000 Shares (the "First Shares") and 1,150,000
Warrants at $.225 per Warrant (the "First Warrants") at the place and time
hereafter specified.
Delivery of the First Shares and First Warrants against payment
therefor shall take place at the offices of ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, 950
Third Avenue, New York, New York
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(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 __________
1996, or at such later time and date as the Underwriter may designate in
writing to the Company at least two business days prior to such purchase, but
not later than March 31,1997 such time and date of payment and delivery for
the First Shares and First Warrants being herein called the "First Closing
Date."
(b) Intentionally Omitted.
(c) The Company will make the certificates for the securities
comprising the Shares and Warrants to be purchased by the Underwriter hereunder
available to the Underwriter for checking at least two full business days prior
to the First Closing Date. The certificates shall be in such names and
denominations as the Underwriter may request, at least three full business days
prior to the First Closing Date. 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 the
Underwriter for the account of the Underwriter against payment of the respective
purchase prices by the Underwriter, by wire transfer in immediately available
funds, payable to the Company.
It is understood that the Underwriter proposes to offer the Shares and
the Warrants 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 the Underwriter and will not at any time,
whether before or after the effective date, file any
10
amendment to the Registration Statement or supplement to the Prospectus of
which the Underwriter shall not previously have been advised and furnished
with a copy or to which the Underwriter or its 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
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 the Underwriter's 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 the
Underwriter, and provide the Underwriter 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 the Underwriter 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 Shares and the Warrants for such period as in the opinion of
counsel to the Underwriter and the Company the use
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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 any dealer, of any event of which
the Company has knowledge and which has a Material Adverse Effect on 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 the Underwriter promptly and forthwith
prepare and furnish to the Underwriter copies of such amended Prospectus or
of such supplement to be attached to the Prospectus, in such quantities as
the Underwriter 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 supplement to be attached to the Prospectus shall be without expense to
the Underwriter, except that in case the Underwriter 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
Shares and Warrants.
(b) The Company will furnish such information as may be required and
to otherwise cooperate and use its best efforts to qualify to register the
Shares and Warrants for sale under the securities or "blue sky" laws of such
jurisdictions as the
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Underwriter 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 accountable out of pocket
expenses of the Underwriter up to $100,000.00 (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) obtain and keep current
a listing in the Standard & Poors or ▇▇▇▇▇'▇ 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 of 1934, 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 the Underwriter 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 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
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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. Notwithstanding
the above, reports provided by the Company to the Commission shall be deemed
satisfactory for the foregoing purposes.
(f) So long as 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 the Underwriter 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 the Underwriter's 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 the Underwriter 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 Common Stock
holders and to the registered holders of its Warrants and deliver to the
Underwriter 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
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(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, and will file such reports with the Commission with respect to
the sale of the Securities and the application of the proceeds therefrom as may
be required pursuant to Rule 463 under the Act.
(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 Shares and
Warrants, 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 that maximum number
of its authorized but unissued securities which are issuable upon exercise of
the Underwriter's Option outstanding from time to time.
(l) (1) For a period of eighteen (18) months from the effective date
of the Registration Statement, no shareholder prior to the offering will,
directly or indirectly, publicly offer, sell (including any short sale), grant
any option for the sale of, acquire any option to dispose of, or otherwise
dispose of any shares of Common Stock without the prior written consent of the
Underwriter, other than as set forth in the Registration Statement. In order to
enforce this covenant, the Company shall impose stop-transfer instructions with
respect to the shares owned by every shareholder prior to the offering until the
end of such period (subject to any exceptions to such limitation on
transferability set forth in the Registration Statement). If necessary to
comply with any applicable Blue-sky Law, the shares held by such shareholders
will be escrowed with counsel for the Company or otherwise as required.
(2) except for the issuance of shares of capital stock by
15
the Company in connection with a dividend, recapitalization, reorganization
or similar transactions or as result of the exercise of warrants or options
disclosed in or issued or granted pursuant to plans disclosed in the
Registration Statement, the Company shall not, for a period of eighteen (18)
months following the effective date of the Registration Statement, directly
or indirectly, offer, sell or issue any shares of its capital stock, or any
security exchangeable or exercisable for, or convertible into, shares of the
capital stock, without the prior written consent of the Underwriter.
(m) Upon completion of this offering, the Company will make all
filings required, including registration under the Securities Exchange Act of
1934, to obtain the listing of the Shares and Warrants in the NASDAQ system, and
will use its best efforts to effect and maintain such listing or a listing on a
national securities exchange for at least five years from the date of this
Agreement to the extent that the Company has at least 300 record holders of
Common Stock.
(n) Except for the transactions contemplated by this Agreement or as
otherwise permitted by law, 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 the Shares or the Warrants
or to facilitate the sale or resale of the Securities.
(o) On the First Closing Date and simultaneously with the delivery of
the Shares and Warrants, the Company shall execute and deliver to you the
Underwriter's Option. The Underwriter's Option will be substantially in the
form filed as an Exhibit to the Registration Statement.
(p) Intentionally Omitted
(q) Prior to the First Closing Date, the Company will have in force
key person life insurance on the life of ▇▇. ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and other
management personnel in an amount of not less than $1,000,000.00, payable to
the Company, and will use its best efforts to maintain such insurance for a
three year period.
16
(r) 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 and each
dealer as many copies of each such Prospectus as such Underwriter or dealer may
reasonably request. The Company shall not call for redemption any of the
Warrants unless a registration statement covering the securities underlying the
Warrants has been declared effective by the Commission and remains current at
least until the date fixed for redemption.
(s) 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 stockholders,
provided that the Company shall not be required to file a report of such
accountants relating to such review with the Commission.
(t) Intentionally omitted.
(u) The Company agrees to pay to the Underwriter a finder's fee of
5.0% of the first $3,000,000.00, 4.0% of the next $3,000,000.00, 3.0% of the
next $2,000,000.00, 2% of next $2,000,000.00 and 1% of the excess, if any, over
$10,000,000.00, of the aggregate consideration received by the Company with
respect to any transaction (including, but not limited to, mergers,
acquisitions, joint ventures, and any other capital business transaction for the
Company) introduced to the Company by the Underwriter and consummated by the
Company (an "Introduced Consummated Transaction") during the five (5) year
period commencing on the effective date of the Registration Statement. The
entire amount of any such finder's fee due and payable to Underwriter shall be
paid in full by certified funds or cashier's check payable to the order of
Underwriter or in cash, in each case in the discretion of the Company, at the
first closing of the
17
Introduced Consummated Transaction for which the finder's fee is due. For
the purposes hereof, a party shall not be deemed to be introduced by the
Underwriter unless and until (a) a written disclosure of the identity of such
prospective party shall have been given by the Underwriter and received by
the Company during the period; (b) such party was not previously known to the
Company; and (c) such party shall have commenced substantive negotiations
with the Company relating to a Introduced Consummated Transaction during such
five (5) year period.
(v) 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 Underwriter
is specifically designated in writing by the Warrantholder as having solicited
the exercise of the Warrant, (c) the Warrant is not held in a discretionary
account except where prior written specific approval has been obtained, (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 Exchange Act, and (f) solicitation of the exercise is in compliance
with the NASD Notice to Members 81-38 (September 22, 1981).
4. Conditions of Underwriters' Obligation. The obligations of the
Underwriter to purchase and pay for the Shares and Warrants which it has agreed
to purchase hereunder, are subject to the accuracy (as of the date hereof, and
as of the First Closing Date) 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 the Underwriter may agree in writing; on or prior to the
First Closing Date 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
18
be pending or, to the Underwriter's knowledge or to the knowledge of the
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 the Law Offices of Morse, Zelnick, Rose &
Lander, LLP, counsel for the Company, in form and substance satisfactory to
counsel for the Underwriter, to the effect that:
(i) the Company and each of 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 all requisite
corporate power and authority to own its properties and conduct its business as
described in the Registration Statement and Prospectus and is duly qualified or
licensed to do business as a foreign corporation and is in good standing in each
other jurisdiction in which the ownership or leasing of its properties or
conduct of its 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 September
30, 1996 is as set forth under "Capitalization" in the Prospectus; all shares of
the Company's outstanding Common Stock requiring authorization for issuance by
directors 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 Common Stock of the Company
have not been issued in violation of the preemptive rights of any shareholder
and 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 Shares except as provided in the Prospectus;
the Shares, the Warrants, the Underwriter's Option,
19
and the Warrant Agreement conform in all material respects to the respective
descriptions thereof contained in the Prospectus; the Shares and Warrants
have been, and the shares of Common Stock to be issued upon exercise of the
Warrants and the Underwriter's Option, upon issuance in accordance with the
terms of such Warrants, the Warrant Agreement and Underwriter's Option 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 and no personal liability will
attach to the ownership thereof; to the best of our 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 Underwriter's Option
and to the best of such counsel's knowledge, neither the filing of the
Registration Statement nor 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 or as otherwise being exercised in
connection with the concurrent offering;
(iii) this Agreement, the Underwriter's Option, and the Warrant
Agreement have been duly and validly authorized, executed, and delivered by the
Company;
(iv) the certificates evidencing the shares of Common Stock
comply with the Delaware General Corporation Law; the Warrants will be
exercisable for shares of Common Stock in accordance with the terms of the
Warrants and at the prices therein provided for;
(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 any Subsidiary is a party which would materially
adversely affect the business, property, financial condition, or operations of
the Company or any Subsidiary; or which question the validity of the Securities,
this Agreement, the Warrant Agreement, or the Underwriter's Option, or of any
action taken or to be taken by the Company pursuant to this Agreement, the
Warrant Agreement, or the Underwriter's Option; to such counsel's knowledge
there are no
20
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
Underwriter's 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 or articles of
incorporation or by-laws of the Company or any Subsidiary, 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 any Subsidiary is a party or by which it or
any of its 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 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 and Chief Executive Officer 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
21
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 any Subsidiary 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 any
Subsidiary 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 Shares or the
Warrants 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 Underwriter's Option or
the Securities underlying the Underwriter's Option, other than registrations or
qualifications of the Shares or Warrants under applicable state or foreign
securities or Blue Sky laws and registration under the Act; and
(xi) the Shares and Warrants have been duly authorized for
quotation on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ").
22
Such opinions 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 laws of
the United States or of the States of Delaware and New York upon opinions of
counsel satisfactory to the Underwriter, in which case the opinion shall state
that they have no reason to believe that the Underwriter and they are not
entitled to so rely.
Such opinions shall be governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991) and shall be subject to the qualifications,exceptions,
definitions, limitations on coverage and other limitations set forth therein and
in such opinions. Qualifications in such opinions as to knowledge or the
absence of knowledge shall be based upon and limited to the "Actual Knowledge"
(as defined in the Accord) of the "Primary Lawyer Group" (as defined in such
opinions). In rendering such opinions, such legal counsel shall be entitled to
rely upon Public Authority Documents and upon information provided by client
officials in written Certificates provided that copies of such Public Authority
Documents and Certificates are attached as exhibits to the written opinion of
legal counsel. The term "Public Authority Documents" shall have the meaning
ascribed to it in the Accord.
(b) At the First Closing Date, you shall have received the opinion of
________________, special patent and trademark counsel, in form and substance
satisfactory to you, identifying any patent and trademark searches conducted
with respect to the Company's patents and trademarks and patent and trademark
applications and providing that the description in the Registration Statement
with respect to the status of such patent and trademark applications is
accurate, that the Company owns the entire right, title and interest in and to
such patents and trademarks and patent and trademark applications as described
in the Prospectus and has not received any notice of conflict with the asserted
rights of others in respect thereof and that the statements on the Prospectus
under the captions "Prospectus Summary-The Company", "Risk Factors-Dependence on
Patents and Proprietary Rights" and "Business-Patent Applications" are true and
correct.
23
(c) 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 ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP,
counsel to the Underwriter.
(d) The Underwriter shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the First
Closing Date from KPMG Peat Marwick, LLP, independent public accountants for the
Company, substantially in the form reasonably acceptable to the Underwriter.
(e) At the First Closing Date, (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 First Closing
Date and the Company shall have performed all of its obligations hereunder and
satisfied all the conditions on its part to be satisfied at or prior to such
First 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 Effect, or to the Company's knowledge, any development involving a
prospective Material Adverse Effect 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 and the 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 any 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 any Subsidiary before or by any commission, board, or
administrative agency in the United States or elsewhere, wherein an
24
unfavorable decision, ruling, or finding would have a Material Adverse
Effect, (v) the Underwriter shall have received, at the First Closing Date, a
certificate signed by the President and the Chief Executive Officer of the
Company, dated as of the First Closing Date, evidencing compliance with the
provisions of this subsection (e) and (vi) the Underwriter shall have
received, at the First Closing Date, such opinions, certificates, letters and
other documents as it reasonably requests.
(f) Intentionally Omitted.
(g) Intentionally Omitted.
(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 First Closing
Date, for members of the NASD to execute transactions (as principal or agent) in
the Shares, Common Stock, or the Warrants 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 represents that at the date hereof it has no knowledge
that any such action is in fact contemplated 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 cancelled at, or at any time prior to, the First Closing Date by the
Underwriter notifying the Company of such cancellation in writing or by telegram
at or prior to the First 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 and 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 First Closing Date, no stop orders suspending
25
the effectiveness of the Registration Statement shall have been issued under
the Act or any proceedings therefor initiated or threatened by the Commission.
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
26
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 the meaning of the 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
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, and to reimburse, as incurred, the Company
and the other indemnified parties under this Section 6(b) 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) 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, and Blue Sky Application executed by the
Underwriter for that purpose containing written information specifically
furnished by the Underwriter and filed in any state or other jurisdiction in
order to qualify any or all of the Securities under the securities laws thereof,
or arise out of or are based upon the omission or the alleged omission to state
in the Registration Statement, any Preliminary Prospectus, the 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, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or
27
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 representatives, 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
28
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
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 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 (i) 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 per
Security appearing on the cover page of the Prospectus bears to the public
offering price appearing thereon,(ii) the Company shall be responsible for the
29
remaining portion, provided, however, that if such allocation is not permitted
by applicable law, then such losses, claims, damages or liabilities shall be
allocated in such proportion as is appropriate to reflect relative benefits but
also the relative fault of the Company, and the Underwriter, 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 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. 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, and the
Company, its officers, directors, and controlling persons shall be entitled to
contribution from one another 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 Shares and Warrants 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
30
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 not to exceed $50,000 (which
does not include blue sky filing 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 Shares,
Common Stock, and Warrants on NASDAQ or any other securities exchange; the
cost of printing the certificates representing the securities comprising 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.
(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
$181,125, representing the non-accountable expense allowance attributed to
Securities. 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
31
out-of-pocket expenses of the Underwriter, including reasonable legal fees,
not to exceed in the aggregate $100,000.00.
(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 and the Underwriter each agree to
indemnify and hold harmless the other, 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 the Underwriter may, at its 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 the Underwriter in its discretion shall first commence the initial public
offering of the Securities. The time of the initial public offering shall mean
the time of release by the Underwriter of the first newspaper advertisement with
respect to the Securities or the time when the Securities are first generally
offered by the Underwriter to dealers by letter or telegram, whichever shall
first occur. This Agreement may be terminated by the Underwriter 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.
(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 the Underwriter if in the
Underwriter's judgment it is
32
impracticable to offer for sale or to enforce contracts made by the
Underwriter for the resale of the Securities agreed to be purchased hereunder
by reason of (i) the Company having 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,
which has caused a Material Adverse Effect, (ii) trading in securities on the
New York Stock Exchange or the American Stock Exchange having been suspended
or limited, (iii) material governmental restrictions having been imposed on
trading in securities generally (not in force and effect on the date hereof),
(iv) a banking moratorium having 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 having
occurred, (vi) a pending or threatened legal or governmental proceeding or
action relating generally to the Company's or any of the Subsidiaries'
business, or a notification having been received by the Company or any
Subsidiary, of the threat of any such proceeding or action, which would have
a Material Adverse Effect;(vii) except as contemplated by the Prospectus, the
Company is merged with 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 and its
Subsidiaries taken as a whole, (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 Effect
having occurred, since the respective dates of which information is given in
the Registration Statement and Prospectus.
(b) If the Underwriter elects 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 the Underwriter, by telephone or telegram,
confirmed by letter.
11. Underwriter's Option. At or before the First Closing
33
Date, the Company will sell the Underwriter or its designees for a
consideration of $115.00, and upon the terms and conditions set forth in the
form of Underwriter's Option annexed as an exhibit to the Registration
Statement, a Underwriter's Option to purchase an aggregate of 115,000 Shares
and 115,000 Warrants. In the event of conflict in the terms of this
Agreement and the Underwriter's Option with respect to language relating to
the Underwriter's Option, the language of the Underwriter's Option shall
control.
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 Underwriter, will be mailed, delivered, or telecopied
and confirmed to them at Biltmore Securities, Inc., ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, with a copy sent to ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq., or
if sent to the Company, will be mailed, delivered, or telecopied and confirmed
to it at PC411, ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn:
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ with a copy sent to Morse, Zelnick, Rose & Lander LLP, New
York, New York 10022-2605, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq. 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
34
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. 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.
35
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,
PC411, INC.
By: __________________________
Name:
Title:
The undersigned is executing this Agreement solely to be bound by the
provisions of Section 6 hereof.
Morse, Zelnick, Rose & Lander, LLP
By: _____________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Principal
36
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
BILTMORE SECURITIES, INC.
By:__________________________
Name:
Title:
37
