1,000,000 Shares,
2,000,000 Class A Common Stock Purchase Warrants
and 100,000 Initial Selling
Securityholder Shares
SUN HILL INDUSTRIES, INC.
UNDERWRITING AGREEMENT
New York, New York
October __, 1996
Biltmore Securities, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Sun Hill Industries, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Underwriter") (i) 1,000,000 shares (the
"Shares") of Common Stock, par value $.001 per share (the "Common Stock") and
(ii) 2,000,000 Common Stock Purchase Warrants (the "Warrants"), each to purchase
one share of Common Stock at $4.50 per share from _____________, 1997 until
___________, 2001, subject to redemption, in certain instances. In addition, the
initial selling securityholder listed on the signature page hereof (the "Initial
Selling Securityholder") proposes to sell to you an aggregate of 100,000 shares
of Common Stock (the "Initial Selling Securityholder Shares").
You have advised the Company and Initial Selling Securityholder that you
desire to purchase the Shares, the Warrants and the Initial Selling
Securityholder Shares. The Company and Initial Selling Securityholder confirm
the agreements made by them with respect to the purchase of the Shares; the
Warrants and Initial Selling Securityholder Shares 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, the Warrants and the Initial
Selling Securityholder Shares, 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
2
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 "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 at validly existing as corporations in good
standing under the laws of their respective jurisdictions of incorporator, 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
3
materially adversely affect the Company's or Subsidiaries business, properties
or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company, including the predecessors of the Company, as of ______________, 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 and Initial Selling Securityholder 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 or Initial
Selling Securityholder 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 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,
4
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 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 of Common Stock and the Warrants contained in the
Purchase Option (as defined as the Underwriter's Purchase 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 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 and the indemnification
contained in paragraph 7 of the Purchase Option may be unenforceable. The shares
of Common Stock included in the Purchase 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 Purchase 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 Shares and Warrants 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 Shares, the
Warrants 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
5
(financial or otherwise), business prospects, net worth or properties of the
Company(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 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 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 or the 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 and Subsidiaries of 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 the Subsidiaries owns or
6
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.
(i) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, P.C., who has given its 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 or 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
7
now pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company 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
or related to discrimination on the basis of age, sex, religion or race; and no
labor disputes involving the employees of the Company 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 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.
(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 is 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.
8
(p) On the First Closing Date (as 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 Shares, the Warrants and Initial
Selling Securityholder Shares to the Underwriter hereunder will have been fully
paid or provided for by the Company and Initial Selling Securityholder 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 has 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 Shares, the Warrants
and Initial Selling Securityholder Shares.
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties, and agreements herein contained,
(i) the Company agrees to issue and sell to the Underwriter, and the Underwriter
agrees to buy from the Company at $3.60 per Share, at the place and time
hereinafter specified, 1,000,000 Shares (the "First Shares") (ii) the Company
agrees to issue and sell to the Underwriter and the Underwriter agrees to buy
from the Company at $.225 per Warrant at the place
9
and time hereafter specified 2,000,000 Warrants (the "First Warrants") and (iii)
the Initial Selling Securityholder agrees to sell to the Underwriter, and the
Underwriter agrees to buy from the Initial Selling Securityholder at $3.60 per
share of Initial Selling Securityholder Shares at the place and time hereafter
specified, 100,000 shares of Common Stock.
Delivery of the First Shares, the First Warrants and Initial
Selling Securityholder Shares against payment therefor shall take place at the
offices of ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ (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
_____________, 1996 such time and date of payment and delivery for the First
Shares and the Warrants and Initial Selling Securityholder being herein called
the "First Closing Date."
(b) Intentionally Omitted.
(c) The Company will make the certificates for the securities
comprising the Shares and the 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 Shares and
the Warrants 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, the Warrants and Initial Selling Securityholder Shares to be purchased
hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the
10
Registration Statement becomes effective.
3. Covenants of the Company and the Initial Selling Securityholder. 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 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 Shares, the
Warrants and Initial Selling Securityholder Shares 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 Shares, the Warrants and Initial Selling Securityholder
Shares.
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
11
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 Shares and the Warrants 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, the Warrants and the Initial Selling Securityholder
Shares 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 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 Units or Selling Stock 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 Shares, the
Warrants
12
or Initial Selling Securityholder Shares 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, the Warrants and Initial Selling Securityholder Shares.
(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, the Warrants and the Initial Selling Securityholder Shares for sale
under the securities or "blue sky" laws of such jurisdictions as the 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 Shares, the Warrants or the Initial Selling Securityholder Shares. 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 Shares and the Warrants 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
13
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 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) If 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
14
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 security
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 (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
Shares and the Warrants 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 Shares and the Warrants 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, the
Warrants and the Initial Selling Securityholder Shares, 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 Purchase Option outstanding from time
15
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. This Section shall not apply to the sale of the
Selling Stock.
(2) except for the issuance of shares of capital stock by the
Company in connection with a dividend, recapitalization,
reorganization or similar transactions or as result of the
exercise of warrants or options disclosed in or issued or
granted pursuant to plans disclosed in the Registration
Statement, the Company shall not, for a period of 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 Common Stock, and Warrants in the NASDAQ
system, and will use its best efforts to effect and maintain such listing or a
listing on a
16
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, the Warrants or
the Initial Selling Securityholder Shares or to facilitate the sale or resale of
the Securities.
(o) On the First Closing Date and simultaneously with the delivery
of the Shares, the Warrants and the Initial Selling Securityholder Shares, the
Company shall execute and deliver to you the Purchase Option. The Purchase
Option will be substantially in the form filed as Exhibit __ to the Registration
Statement.
(p) Intentionally Omitted
(q) Within sixty (60) days of the First Closing Date, the Company
will have in force key person life insurance on the life of ▇▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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.
(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
17
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 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)
18
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, the Warrants and the Initial
Selling Securityholder Shares 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 be pending or, to the
Underwriter's knowledge or to the knowledge of the Company or the Initial
Selling Securityholder, 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 Aieta & ▇▇▇▇▇, P.C.,
counsel for the Company, in form and substance satisfactory to counsel for the
Underwriter, to the
19
effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation 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
______________, 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 Common Stock except as
provided in the Prospectus; the Common Stock, the Warrants, the Purchase Option,
and the Warrant Agreement conform in all material respects to the respective
descriptions thereof contained in the Prospectus; the Shares and Initial Selling
Securityholder Shares have been, and the shares of Common Stock to be issued
upon exercise of the Warrants and the Purchase Option, upon issuance in
accordance with the terms of such Warrants, the Warrant Agreement and Purchase
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
20
of the Warrants and Purchase Option and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering or sale of the
Shares, the Warrants or the Initial Selling Securityholder Shares 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 Purchase 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
Warrant Agreement 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 is a party which would materially adversely
affect the business, property, financial condition, or operations of the
Company; 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 or articles of incorporation or by-laws of the
Company 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
21
agreement or instrument to which the Company 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 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 is a party are
22
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
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, the
Warrants or the Initial Selling Securityholder Shares by the Company or the
Initial Selling Securityholder, in connection with the execution, delivery, and
performance of this Agreement by the Company or the Initial Selling
Securityholder 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 Shares, the
Warrants and the Initial Selling Securityholder Shares under applicable state or
foreign securities or Blue Sky laws and registration under the Act; and
(xi) the Shares and the Warrants have been duly authorized for
quotation on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ").
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.
(c) 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
23
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.
(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 ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP,
counsel to the Underwriter.
(e) 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 ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, P.C., independent public accountants for the
Company, substantially in the form reasonably acceptable to the Underwriter.
(f) 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
24
Statement and Prospectus indicate might occur after the effective date of the
Registration Statement, and the Company 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 which would
be required to be set forth in the Registration Statement, and no proceedings
shall be pending or threatened against the Company before or by any commission,
board, or administrative agency in the United States or elsewhere, wherein an
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.
(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, the Warrants or Initial Selling Securityholder Shares 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 canceled 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 and the
25
Initial Selling Securityholder. The obligation of the Company and the Initial
Selling Securityholder to sell and deliver the Shares, the Warrants and the
Initial Selling Securityholder Shares 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 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 and 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 Shares, the Warrants and the
Initial Selling Securityholder Shares under the securities laws thereof (any
such application, document or information being hereinafter called a "Blue Sky
Application"), or
26
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 Shares or Warrants
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 or Selling
Stockholder 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
27
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 Shares or Warrants and
Initial Selling Securityholder Shares 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 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 Shares or Warrants or the
Initial Selling Securityholder Shares 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) The Initial Selling Securityholder 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 and 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 costs of defense and investigation and reasonable attorneys'
fees) to which the Company or any such director, nominee, officer, or
controlling person or
28
the Underwriter or such controlling person may become subject under the Act or
otherwise, and to reimburse, as incurred, the Company and the other indemnified
parties and the Underwriter and such controlling persons under this Section 6(c)
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 Initial Selling Securityholder from whom
indemnification is sought under this Section 6(c) ("Indemnifying Initial Selling
Securityholder") for that purpose containing written information specifically
furnished by such Indemnifying Initial Selling Securityholder and filed in any
state or other jurisdiction in order to qualify any or all of the Shares, the
Warrants and the Initial Selling Securityholder Shares under the securities laws
thereof, 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 or the Underwriter by such Initial
Indemnifying Initial Selling Securityholder specifically for use in the
preparation thereof and for any violation by such Initial Indemnifying Selling
Securityholder in the sale of such Shares, the Warrants or the Initial Selling
Securityholder Shares of any applicable state or federal law or any rule,
regulation or instruction thereunder relating to violations based on
unauthorized statements by such Initial Indemnifying Selling Securityholder or
their 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, the Underwriter, or their representatives, including information
furnished to the Initial Selling Securityholder as contemplated herein. This
indemnity agreement will be in addition to any liability which the Initial
29
Selling Securityholder may otherwise have. The liability of the Initial Selling
Securityholder under the provisions of this Section 6(c) shall be a percentage
equal to the percentage that the net proceeds received by such Initial Selling
Securityholder from the sale of his Common Stock in the event it cannot be
determined who was at fault.
(d) 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 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
30
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, Underwriter and the Initial Selling Securityholder 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 (a) 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 Share and Warrant appearing on the cover page of
the Prospectus bears to the public offering price appearing thereon, (b) each
Initial Selling Securityholder is responsible for that portion of such losses,
claims, damages or liabilities represented by the percentage that the net
proceeds received by such Initial Selling Securityholder from the sale of his
Common Stock bears to the aggregate net proceeds received by the Company from
the sale of the Shares and the Warrants, and (c) the Company shall be
responsible for the 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
31
the relative fault of the Company, the Initial Selling Securityholder 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, the Initial Selling
Securityholder 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, the Initial Selling Securityholder and the
Underwriter agree that it would not be just and equitable if the respective
obligations of the Company, the Initial Selling Securityholder 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, the Initial Selling Securityholder 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,
Initial Selling Securityholder 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, the Warrants and the Initial Selling Securityholder Shares 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
32
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 Shares, the Warrants and the Initial Selling Securityholder
Shares 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
Shares, the Warrants and the Initial Selling Securityholder Shares 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 and the
Warrants on NASDAQ or any other securities exchange; the cost of printing the
certificates representing the securities comprising the Shares and the warrants;
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
$147,000, representing the non-accountable expense allowance attributed to the
Shares, the Warrants and the Initial Selling Securityholder Shares,
respectively. 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 or the Initial Selling
Securityholder 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 or the Initial Selling Securityholder is not
fulfilled) the Company and Initial Selling Securityholder shall not be liable
for
33
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 or the Initial Selling Securityholder 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 $100,000.00.
(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 Shares, the
Warrants and the Initial Selling Securityholder Shares. 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 Shares, the Warrants and the Initial
Selling Securityholder Shares, or the time when the the Shares, the Warrants and
the Initial Selling Securityholder Shares 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
34
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 impracticable to offer for sale or to enforce contracts made by
the Underwriter for the resale of the Shares, the Warrants or the Initial
Selling Securityholder Shares 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, 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
35
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. Purchase Option. At or before the First Closing Date, the Company will
sell the Underwriter or its designees at a price per option equal to one hundred
for a consideration of $100, and upon the terms and conditions set forth in the
form of Purchase Option annexed as Exhibit ___ to the Registration Statement, a
Purchase Option to purchase an aggregate of 100,000 Shares and 200,000 Warrants.
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.
12. Representations and Warranties of the Underwriter. The Underwriter
represents and warrants to the Company and the Initial Selling Securityholder
that it is registered as a broker-dealer in all jurisdictions in which it is
offering the Shares, the Warrants and the Initial Selling Securityholder Shares
and that it will comply with all applicable state or federal laws relating to
the sale of the Shares, the Warrants and the Initial Selling Securityholder
Shares, 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, the Initial Selling
Securityholder or any of its officers or directors or any controlling person and
will survive delivery of and payment of the the Shares, the Warrants and the
Initial Selling Securityholder Shares and the termination of this Agreement.
14. Notice. Any communications specifically required hereunder to be in
writing, if sent to the Underwriter, will be
36
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 or the Initial Selling
Securityholder, will be mailed, delivered, or telecopied and confirmed to it at
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Attention: ▇▇. ▇▇▇▇▇▇ Zinbarg, with a copy
sent to Aieta & ▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn:
▇▇▇▇ ▇. ▇▇▇▇▇, 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 made solely for
the benefit of the Underwriter, the Company, Initial Selling Securityholder, 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 Shares, the Warrants or the Initial Selling Securityholder
Shares.
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 and the Initial Selling Securityholder.
37
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,
SUN HILL INDUSTRIES, INC.
By: __________________________
Name:
Title:
Initial Selling Securityholder
By: _____________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Trustee
for the Kookerounie Trust
The undersigned is executing this Agreement solely to be bound by the
provisions of Section 6 hereof.
Aieta & ▇▇▇▇▇
By: _____________________________
▇▇▇▇ ▇. ▇▇▇▇▇, Principal
38
The foregoing Underwriting Agreement is hereby confirmed and accepted as
of the date first above written.
BILTMORE SECURITIES, INC.
By:__________________________
Name:
Title:
39
