EXHIBIT 1
PELLINORE SECURITIES CORPORATION
745 FIFTH AVENUE
NEW YORK, NY 10151
As of April 3, 1998
PRIVATE AND CONFIDENTIAL
American Digital Communications, Inc.
580 Granite Court
Pickering, Ontario L1W 3Z4
CANADA
Ladies and Gentlemen:
American Digital Communications, Inc. (which, together with its
subsidiaries and affiliates, is hereinafter referred to as the "Company") has
informed Pellinore Securities Corporation ("Pellinore") that it proposes to
raise privately not less than $250,000 nor more than $500,000 via the sale of
debt securities ("Securities") to lenders including individual and institutional
investors. This letter (this "Agreement") confirms our understanding that the
Company has engaged Pellinore to act as its exclusive financial advisor in
connection with the offer and sale of securities during the Engagement Period.
For purposes hereof, the term "Engagement Period" shall mean the period
commencing on the date hereof and continuing through the date of the earlier of
the termination of this Agreement and the final closing of the sale of
Securities (or such other date as shall be agreed upon in writing by the Company
and Pellinore). Each closing of the sale of Securities is hereinafter referred
to as a "Closing."
In addition, during the Engagement Period, Pellinore will act as
exclusive placement agent for the Company on a reasonable best efforts basis in
connection with the private placement of the Securities to be issued by the
Company in one or more transaction(s) (collectively, the "Private Placement")
that are intended to be exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), and the applicable law and regulations
of any other jurisdictions in which the Securities are offered. Pellinore may
separately engage, at its own expense and with the prior written approval of the
Company, sub-agents as it may deem necessary or appropriate; provided that each
such sub-agent shall agree in writing to be bound by the terms of this
Agreement. Pellinore shall be responsible for any breach hereof by any such
sub-agent.
1. Services. As we have discussed, our services to the Company shall include
investment banking and financial advice in an attempt to identify, evaluate, and
assist in the negotiation of one or more financings during the term of this
Agreement. Pellinore will endeavor to arrange introductions and meetings with
prospective investors, assist the Company in evaluating investment proposals,
and, to the extent deemed appropriate, assist in negotiations leading to the
conclusion of one or more financings.
2. Compensation for Services. In respect of each financing that is consummated
during the term of this Agreement or the 360 day period immediately following
the termination of this Agreement, the Company shall, in respect of services
hereunder, on the Closing Date with respect to such financing, pay to Pellinore
a cash fee equal to 4.00% of the principal amount of Securities sold up to a
maximum of $20,000.00. In addition, the Company agrees to reimburse Pellinore
monthly for (i) its out-of-pocket expenses incurred to date, it being understood
and agreed that the amount of such expenses incurred to date is $3,237.21, (ii)
its reasonable out-of-pocket expenses including, without limitation, telephone,
facsimile, word-processing and travel, incurred during the term of this
Agreement in connection with its engagement hereunder, including the reasonable
fees and disbursements of its legal counsel, if any, regardless of whether the
Private Placement contemplated by this Agreement is consummated (collectively,
"Expenses"); provided that Pellinore agrees to notify the Company at such time
as aggregate Expenses with respect to any given month (other than the month in
which this letter is executed) exceed $2,000.00.
3. Shareholder Information; Visitation Rights. At all times during the
effectiveness of this Agreement and for the 360 day period immediately following
the termination of this Agreement, the Company will (and will cause its transfer
agent to) deliver to Pellinore current, complete and accurate shareholder lists
and copies of its Depositary Trust Company and/or stock transfer ledgers,
promptly upon Pellinore's request for the same. Additionally, at all times
during the effectiveness of this Agreement and for such 360-day period,
Pellinore shall have the right to designate one individual who shall be entitled
to attend, either telephonically or in person, all meetings of the Board of
Directors of the Company and the Company shall reimburse Pellinore promptly upon
request for the reasonable travel expenses incurred by or with respect to such
individual.
4. Offering Expenses. The Company will bear all reasonable legal, accounting,
printing and other expenses in connection with the offering and sale of the
Securities. It also is understood that Pellinore will not be responsible for any
fees or commissions payable to financial or other advisors, other than
sub-agents retained by Pellinore.
5. Consent Rights. At all times while any Securities are outstanding, the
Company will not, without the prior written consent of Pellinore: (a) incur
funded indebtedness exceeding $250,000 in principal amount, whether or not in
whole or in part subordinated to the Securities; (b) increase the total number
of authorized shares of capital stock of the Company; (c) create any securities
convertible into equity securities of the Company; (d) liquidate or dissolve the
Company; (e) sell, convey or otherwise dispose of all or substantially all of
the property of the Company or any subsidiary of the Company or merge into or
consolidate with any other corporation (other than a wholly owned subsidiary of
the Corporation or to change the Company's state of incorporation) or effect any
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of; (f) declare or pay any
dividend or distribution on the Common Stock, par value $.0001 per share, of the
Company ("Common Stock"), other than the repurchase of Common Stock held by
employees, officers or directors of the Company pursuant to any restricted stock
purchase agreement between the Company and such employees, officers or
directors; (g) redeem any shares of Common Stock other than the repurchase of
Common Stock held by employees, officers or directors of the Company pursuant to
any restricted stock purchase agreement between the Company and such employees,
officers or directors; or (h) amend the Certificate of Incorporation or By-laws
of the Company.
6. Qualification. The Company will promptly from time to time take such action
as Pellinore may reasonably request to qualify the Securities as a private
placement under the securities laws of such states as Pellinore may reasonably
request and to comply with such laws so as to permit such offers and sales. The
Company and Pellinore will each reasonably believe at the time of any sale of
the Securities as part of the Private Placement that each purchaser of the
Securities is either an "accredited investor" as that term is defined in Rule
501 of Regulation D promulgated under the Securities Act or an otherwise
sophisticated investor satisfactory to the Company and Pellinore. Neither the
Company or any person acting on its behalf, nor Pellinore or any person acting
on its behalf; will offer or sell the Securities by any form of general
solicitation or general advertising, or by any other means that would be deemed
a public offering under the laws of the applicable jurisdiction or would not
otherwise comply with the laws of any such jurisdiction. Pellinore shall offer
the Securities in accordance with any restrictions reasonably imposed by counsel
to the Company with respect to offers and sales of the Securities by Pellinore
in any state or foreign jurisdiction. The Company will file in a timely manner
with the Securities and Exchange Commission (the "SEC") and/or each state
regulatory authority any notices or other filings with respect to the Securities
required by the Rules promulgated under Regulation D of the Securities Act
and/or applicable state laws or regulations and will furnish to Pellinore
promptly a signed copy of each such notice. The Company shall have the right to
reject any proposed purchaser in its sole discretion.
7. Offering Materials.
(a) The Company will prepare and furnish Pellinore with a private placement
memorandum (which, together with the appendices and exhibits thereto and any
amendments or supplements thereto, is herein referred to as the "Offering
Materials") relating to the Private Placement if, in consultation with Pellinore
the Company determines to utilize any Offering Materials, it being understood
and agreed that nothing herein shall obligate the Company to use any Offering
Materials. The Company authorizes Pellinore to transmit the Offering Materials,
in the form approved by the Company, to prospective purchasers of the Private
Placement and represents and warrants that the Offering Materials, at the time
of each Closing, will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading, except that no representation is made as to
"Pellinore Information", as defined in Schedule I hereto . Pellinore shall not
provide any information orally or in writing to prospective investors unless
such information is expressly authorized for such use by the Company or
Pellinore is advised by counsel that such information is legally required to be
disclosed to investors. Except as contemplated by the preceding sentence or as
required by applicable law or legal process (which shall promptly be disclosed
to the Company in writing), Pellinore shall keep confidential all non-public
information provided to it by or at the request of the Company and shall not
disclose such information to any third party or to any of its employees or
advisors except to those persons who have a need to know such information in
connection with Pellinore's performance of its responsibilities hereunder.
Pellinore shall be responsible for any breach by such persons of these
confidentiality obligations to the extent such persons are employees, agents or
affiliates of Pellinore to whom Pellinore has provided access to such
information ("Access Parties"), except to the extent any such Access Party
executes his, her or its own confidentiality agreement with the Company.
Pellinore shall provide each investor solicited by it with a copy of the
then-current version of the Offering Materials and keep an accurate record of
all offerees to whom each version of the Offering Materials has been sent by it.
Pellinore shall, upon request by the Company, suspend solicitation of
prospective purchasers of the Securities at any time as a result of a reasonable
determination by the Company that a supplement or amendment to the Offering
Materials (the "Supplement") is required in order that the Offering Materials do
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading. In such event, the Company shall provide written notice to Pellinore
detailing the reason for such suspension, and shall use its best efforts to
amend the Offering Materials as soon as practicable and to provide Pellinore
with sufficient copies thereof. The Company shall not transmit the Offering
Materials to prospective purchasers of the Securities unless the Company
promptly provides notice to Pellinore of such transmittal. The Company will also
cause to be furnished to Pellinore at each Closing copies of such agreements,
opinions (addressed to Pellinore if requested), certificates and other documents
delivered at each Closing as Pellinore may reasonably request, including,
without limitation, an opinion of Company counsel to the effect that the
placement of the Securities was exempt from registration under the Securities
Act. Following the final Closing, the Company will provide Pellinore with all
written information sent to investors (including, without limitation, drawdown
notices, investor reports and information regarding portfolio investments in the
Company) other than annual tax information sent to the investors necessary for
the completion of Federal, state and local income tax returns.
(b) If any event shall occur or condition exist as a result of which it is
necessary or advisable, in the reasonable opinion of the Company or Pellinore,
to amend or supplement the Offering Materials in order that the Offering
Materials will not contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein not misleading in light of the circumstances existing at the time it is
delivered to prospective purchasers, the Company will promptly prepare and
furnish to Pellinore such number of copies as Pellinore may reasonably request
of an amendment or supplement to the Offering Materials (in form and substance
reasonably satisfactory to Pellinore and its counsel) that will correct such
untrue statement or omission.
(c) The Company will advise Pellinore promptly of: (i) the occurrence of any
event or the existence of any condition known to the Company referred to in the
preceding paragraph; (ii) such other information concerning the business and
financial condition of the Company as Pellinore may from time to time request;
(iii) the receipt by the Company of any communication from the SEC or any state
securities commissioner or regulatory authority in any other jurisdiction
concerning the offering of the Securities; and (iv) the commencement of any
lawsuit or proceeding to which the Company is a party relating to the offering
of the Securities.
(d) The Company will: (i) make available to each offeree of the Securities upon
written request therefor such information (in addition to that contained in the
Offering Materials) concerning the offering of the Securities, the Company and
any other relevant matters as the Company possesses or can acquire without
unreasonable effort or expense; and (ii) provide each offeree the opportunity to
ask questions of, and receive answers from, the officers and employees of the
Company concerning the terms and conditions of the offering and to obtain any
other additional information about the Company and the Securities, to the extent
the officers and employees of the Company possess the same or can acquire it
without unreasonable effort or expense. The Company will also make available to
Pellinore all financial and other information concerning its business and
operations and the Private Placement which Pellinore reasonably requests and
will provide access to the Company's officers, directors, employees, independent
accountants and legal counsel. Pellinore shall be entitled to rely without
investigation upon all information that is available from public sources as well
as all other information supplied to it by or on behalf of the Company or its
other advisors and shall not in any respect be responsible for the accuracy or
completeness of, or have any obligation to verify, the same or to conduct any
appraisal of assets. Any advice, written or oral, provided by Pellinore pursuant
to this Agreement will be treated by the Company as confidential, will be solely
for the information and assistance of the Company in connection with the Private
Placement and may not be quoted, nor will any such advice or the name of
Pellinore be referred to, in any report, document, release or other
communication, whether written (including, without limitation, the Offering
Materials) or oral, prepared, issued or transmitted by the Company or any
affiliate, director, officer, employee, agent or representative of any thereof,
without, in each instance, Pellinore's prior written consent unless the Company
is advised in writing by counsel that such disclosure is required by applicable
law or regulations. The Company and Pellinore agree that all announcements and
publicity relating to the Private Placement (collectively, "Announcements")
shall comply with applicable law, and copies of such Announcements shall be
furnished to the Company in advance of publication to the extent reasonably
practicable. Notwithstanding the foregoing, neither the Company nor Pellinore
shall make any "tombstone" or other similar announcement with respect to the
Private Placement prior to the date of the final Closing without the prior
approval of the other party.
(e) Neither the Company nor Pellinore has taken, and neither will take, any
action, directly or indirectly, so as to cause the transactions contemplated by
this Agreement to fail to be entitled to exemption under Section 4(2) of the
Securities Act. The Company agrees that no offers or sales of any securities of
the same or a similar class as the Securities will be made by the Company or on
its behalf during the six-month period after the completion of the offering of
the Securities.
(f) The Company acknowledges and agrees that Pellinore has been retained solely
to provide the advice or services set forth in this Agreement. Pellinore shall
act as an independent contractor, and any duties of Pellinore arising out of its
engagement hereunder shall be owed solely to the Company. As Pellinore will be
acting on your behalf in such capacity, it is our firm practice to be
indemnified in connection with engagements of this type and the Company agrees
to the indemnification and other obligations as set forth in Schedule I hereto,
which Schedule I is an integral part hereof.
8. Termination. Either party hereto may terminate this Agreement and all of its
obligations hereunder for any reason by giving ten days' prior notice thereof to
the other party; provided, however, that in the event either party does not
perform any obligation under this Agreement or any representation and warranty
of such party hereunder is incomplete or inaccurate in any respect, the other
party may immediately terminate this Agreement and all of its obligations
hereunder by notice thereof to the other party. Notwithstanding the immediately
preceding sentence, however, provided that Pellinore is successful in
facilitating the placement of Securities in an aggregate principal amount of not
less than $250,000.00, the Company shall not terminate this Agreement prior to
the first anniversary hereof. This Agreement shall not give rise to any express
or implied commitment by Pellinore to purchase or place any securities of the
Company. In addition, notwithstanding any termination of or under this Agreement
as provided herein, there shall be no liability of any party to any other party,
except as relating to the payment of accrued fees and expenses in accordance
with this Agreement. The indemnity and other provisions contained in Schedule I
hereto and the paragraph pertaining to choice of law will also remain operative
and in full force and effect regardless of any expiration or termination of this
Agreement.
9. Integration. This Agreement incorporates the entire understanding of the
parties with respect to this engagement of Pellinore by the Company, and
supersedes all previous agreements regarding such engagement, should they exist,
and shall be governed by, and construed and enforced in accordance with, the
laws of the State of New York without regard to conflict of laws principles. No
waiver, amendment or other modification of this Agreement shall be effective
unless in writing and signed by each party to be bound thereby. This Agreement
shall be binding upon and inure to the benefit of the Company, Pellinore, each
Indemnified Person (as defined in Schedule I hereto) and their respective
successors and assigns.
10. Consent to Jurisdiction. Each party irrevocably and unconditionally submits
to the exclusive jurisdiction of any state or Federal court sitting in New York
County over any suit, action or proceeding arising out of or relating to this
Agreement (including Schedule I hereto). Each party hereby agrees that service
of any process, summons, notice or document by U.S. registered mail addressed to
such party shall be effective service of process for any action, suit or
proceeding brought in any such court. Each party irrevocably and unconditionally
waives any objection to the laying of venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in such a court has been brought in an inconvenient forum.
Each party agrees that a final judgment in any such suit, action or proceeding
brought in any such court shall be conclusive and binding upon such party and
may be enforced in any other courts to whose jurisdiction such party is or may
be subject, by suit upon such judgment.
Please confirm that the foregoing terms correctly set forth our
agreement by signing and returning to Pellinore the duplicate copy of this
Agreement enclosed herewith.
Very truly yours,
J. Richard Messina
President
Accepted and agreed as of
the date first written above:
AMERICAN DIGITAL COMMUNICATIONS, INC.
By:_____________________________
Name: John Simmonds
Title: Chairman of the Board
Schedule I
This Schedule I is a part of and is incorporated into that certain letter
agreement (together, the "Agreement") dated as of March 31, 1998 by and between
American Digital Communications, Inc. (which, together with its subsidiaries and
affiliates, is hereinafter referred to as the "Company"); and Pellinore
Securities Corporation ("Pellinore"). The Company will indemnify and hold
harmless Pellinore and its affiliates , and the respective directors, officers,
agents and employees of Pellinore and its affiliates (Pellinore and each such
entity or person being hereinafter referred to as a "Pellinore Indemnified
Person") from and against any losses, claims, damages, judgments, assessments,
costs and other liabilities (collectively, "Liabilities"), and will reimburse
each Pellinore Indemnified Person for all fees and expenses (including the
reasonable fees and expenses of counsel) (collectively, "Indemnification
Expenses") as they are incurred in investigating, preparing, pursuing or
defending any claim, action, proceeding or investigation, whether or not in
connection with pending or threatened litigation and whether or not any
Pellinore Indemnified Person is a party (collectively, "Actions"), which
Liabilities and Indemnification Expenses are (i) caused by, or arising out of or
in connection with, any untrue statement or alleged untrue statement of a
material fact contained in the Offering Materials and other information
furnished or made available by the Company to any offeree of the Securities
(including any amendments thereof and supplements thereto) or by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (other than untrue statements or alleged untrue statements in, or
omissions or alleged omissions arising out of or based upon, information
provided in reliance upon and in conformity with information furnished to the
Company by any Pellinore Indemnified Person ("Pellinore Information") relating
to a Pellinore Indemnified Person), or (ii) otherwise arising out of or in
connection with advice or services rendered or to be rendered by any Pellinore
Indemnified Person pursuant to this Agreement, the transactions contemplated
hereby or any Pellinore Indemnified Person's actions or inactions in connection
with any such advice, services or transactions; provided that, in the case of
clause (ii) only, the Company will not be responsible for any Liabilities or
Indemnification Expenses of any Pellinore Indemnified Person to the extent that
such Liabilities or Indemnification Expenses are determined by the judgment of a
court of competent jurisdiction to have resulted from (x) a material breach of
the Agreement by such Pellinore Indemnified Person or (y) such Pellinore
Indemnified Person's gross negligence or willful misconduct in connection with
any of the advice, actions, inactions or services referred to above. The Company
also agrees to reimburse each Pellinore Indemnified Person for all
Indemnification Expenses as they are incurred in connection with enforcing such
Pellinore Indemnified Person's rights under this Agreement (including, without
limitation, its rights under this Schedule I), subject to the condition that the
Company shall have received an undertaking by such Pellinore Indemnified Person
to repay such amount if it shall ultimately be determined that such Pellinore
Indemnified Person is not entitled to be indemnified by the Company pursuant to
the terms hereof.
Pellinore shall indemnify and hold harmless the Company, its affiliates
and their respective directors, officers, agents and employees (the Company and
each such entity or person being hereinafter referred to as a "Company
Indemnified Person" and, together with a Pellinore Indemnified Person, an
"Indemnified Person") to the same extent as the foregoing indemnity from the
Company, but only with respect to Liabilities and Indemnification Expenses that
are caused by, or arise out of or in connection with, (a) any untrue statement
of a material fact contained in the Offering Materials (including any amendments
thereof and supplements to) or by any omission of alleged omission to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, to the extent (and
only to the extent) that such untrue statement or omission is contained in any
information furnished to the Company by or on behalf of a Pellinore Indemnified
Person or ; (b) (i) a material breach of the Agreement by a Pellinore
Indemnified Person or (ii) any action or inaction by Pellinore constituting
gross negligence or willful misconduct, in each case as determined by a court of
competent jurisdiction.
Upon receipt by an Indemnified Person of actual notice of an Action against such
Indemnified Person with respect to which indemnity may be sought under this
Agreement such Indemnified Person shall promptly notify the party obligated to
indemnify such Indemnified Person hereunder (the "Indemnifying Party") in
writing; provided that failure so to notify the Indemnifying Party shall not
relieve the Indemnifying Party from any liability which the Indemnifying Party
may have on account of this indemnity or otherwise, except to the extent the
Indemnifying Party shall have been materially prejudiced by such failure. The
Indemnifying Party shall have the right and, if requested by an Indemnified
Person, the obligation to assume the defense of any such Action including the
employment of counsel reasonably satisfactory to an Indemnified Person. Any
Indemnified Person shall have the right to employ separate counsel in any such
Action and participate in the defense thereof; but the fees and expenses of such
counsel shall be at the expense of such Indemnified Person, unless: (i) the
Indemnifying Party has failed promptly to assume the defense and employ counsel;
or (ii) the named parties to any such Action (including any impleaded parties)
include such Indemnified Person and the Indemnifying Party, and such Indemnified
Person shall have been advised by counsel that there may be one or more legal
defenses available to it which are different from or in addition to those
available to the Indemnifying Party; provided that the Indemnifying Party shall
not in such event be responsible hereunder for the fees and expenses of more
than one firm of separate counsel in connection with any Action in the same
jurisdiction, in addition to any local counsel. The Indemnifying Party shall not
be liable for any settlement of any Action effected without its written consent
(which shall not be unreasonably withheld). In addition, the Indemnifying Party
will not, without prior written consent of Pellinore (which shall not be
unreasonably withheld), settle, compromise or consent to the entry of any
judgment in or otherwise seek to terminate any pending or threatened Action in
respect of which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Person is a party thereto) unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Person from all Liabilities arising out of such Action.
In the event that the foregoing indemnity is judicially determined to be
unavailable to an Indemnified Person (other than in accordance with the terms
hereof), the Indemnifying Party shall contribute to the Liabilities and
Indemnification Expenses paid or payable by such Indemnified Person in such
proportion as is appropriate to reflect (i) the relative benefits to the Company
and its shareholders on the one hand, and to Pellinore, on the other hand, of
the matters contemplated by this Agreement; or (ii) if the allocation provided
by the immediately preceding clause is not permitted by the applicable law, not
only such relative benefits but also the relative fault of the Company, on the
one hand, and Pellinore, on the other hand, in connection with the matters as to
which such Liabilities or Indemnification Expenses relate, as well as any other
relevant equitable considerations. For purposes of this paragraph, the relative
benefits to the Company and its shareholders, on the one hand, and to Pellinore,
on the other hand, of the matters contemplated by this Agreement shall be deemed
to be in the same proportion as (a) the total value paid or contemplated to be
paid or received or contemplated to be received by the Company or the Company's
shareholders as the case may be, in the transaction or transactions that are
within the scope of this Agreement, whether or not any such transaction is
consummated, bears to (b) the fees paid or to be paid to Pellinore under this
Agreement.
If any term, provision, covenant or restriction contained in this Schedule I is
held by a court of competent jurisdiction or other authority to be invalid,
void, unenforceable or against its regulatory policy, the remainder of the
terms, provisions, covenants and restrictions contained in this Agreement shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
The reimbursement, indemnity and contribution obligations of the parties set
forth herein shall apply to any modification of the Agreement and shall remain
in full force and effect regardless of any termination of; or the completion of,
any Pellinore Indemnified Person's services under or in connection with, this
Agreement.
In the event any Indemnified Person is either required to appear as a witness in
any action brought by or against an Indemnifying Party or any participant in a
transaction covered hereby in which an Indemnified Person is not named as a
defendant, or requested by an Indemnifying Party to appear as a witness or to
assist such Indemnifying Party in the preparation of its position in any action
brought by or against such Indemnifying Party or any participant in a
transaction covered hereby in which an Indemnified Person is not named as a
defendant, the Indemnifying Party agrees to reimburse the Indemnified Person for
all reasonable expenses incurred by it in connection with such party preparing
and appearing as a witness or in its assistance to the Indemnifying Party for
the preparation of the Indemnified Party's position and to compensate the
Indemnified Person in an amount to be mutually agreed upon.