DRAFT 5/20/97
EXHIBIT 1.01
OSMOTICS CORPORATION
PLACEMENT AGENT AGREEMENT
May ___, 1997
National Securities Corporation
0000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
The undersigned, Osmotics Corporation, a Delaware corporation (the
"Company"), hereby agrees with National Securities Corporation ("National" or
the "Placement Agent") as follows:
A. The Company hereby engages National to act as its exclusive
placement agent in connection with the issuance and sale by the Company (the
"Offering") on a minimum basis of 500,000 shares of common stock, par value
$.001 per share (the "Common Stock" or the "Shares") at a public offering price
of $6.00 per share resulting in gross proceeds of $3,000,000 (the "Minimum
Offering") and on a maximum basis of 1,125,000 Shares resulting in gross
proceeds of $7,200,000 (the "Maximum Offering").
The Shares will be offered pursuant to a Registration Statement (as
defined in Section 1(A) below) and will be subject to the terms and conditions
set forth therein and in the Subscription Agreements to be executed by each
purchaser and the Company.
At each Closing (as defined in Section 1(B) hereof), the Company shall
also issue and sell to National or its designees common stock purchase warrants
to purchase up to 112,500 Shares (the "Warrants"), each Warrant entitling the
holder thereof to purchase one share of Common Stock (the "Placement Agent's
Shares") under the terms and conditions set forth in the Placement Agent's
Warrant Agreement dated the date of the Closing (as hereinafter defined), by and
between the Company and National (the "Warrant Agreement"). National will also
be granted certain registration rights as more fully set forth in the Warrant.
The Warrants and the
Placement Agent's Shares shall sometimes collectively be referred to as the
"Placement Agent's Securities."
The Shares, the Warrants and the Placement Agent's Shares
(collectively, hereinafter referred to as "Securities") are more fully described
in the Registration Statement and the Prospectus referred to below.
Such number of Shares resulting in gross proceeds of $3,000,000 will
be offered by National on a "best efforts, all or none" basis and such number of
Shares resulting in gross proceeds of $6,750,000 will be offered on a "best
efforts" basis. The Company will issue the appropriate number of Shares at each
closing (each, a "Closing"), including, without limitation, the closing on at
least $3,000,000 (the "Minimum Closing"), after subscriptions have been received
and accepted by the Company and when funds from investors have cleared the
banking system in the normal course of business. The Minimum Closing will occur
within seven (7) business days after the earlier of (a) the date on which the
Minimum Offering has been sold or (b) ninety days after the date hereof, unless
such date is extended as provided in Section 1(C).
The Offering shall commence on the date hereof and shall terminate on
the earlier to occur of (i) _________________ __, 1997, and (ii) the sale of all
the Shares being offered in the Offering, unless National and the Company agree
to extend the Offering for an additional 30-day period (such date, as the same
may be extended, is hereinafter referred to as the "Termination Date;" the
period commencing on the date hereof and ending on the Termination Date is
sometimes referred to herein as the "Offering Period").
1. Representations and Warranties of the Company. The Company
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represents and warrants to, and agrees with, each of the Placement Agent as of
the date hereof, and as of the Closing Date and the Second Closing Date, if any,
as follows:
(A) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-5306-D) including any
related preliminary prospectus (the "Preliminary Prospectus"), for the
registration of the Shares and the Placement Agent's Securities under the
National's Shares Act of 1933, as amended (the "Act"), which registration
statement and amendment or amendments have been prepared by the Company in
conformity with the requirements of the Act, and the Regulations (as defined
below) of the Commission under the Act. The Company will not file any other
amendment thereto to which the Placement Agent shall have objected in writing
after having been furnished with a copy thereof. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations), is hereinafter called the "Registration Statement,"
and the form of prospectus in the form first filed with the Commission pursuant
to Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For
purposes hereof,
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"Regulations" mean the rules and regulations adopted by the Commission under
either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(B) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any preliminary prospectus,
the Registration Statement or the Prospectus and no proceedings for a stop order
suspending the effectiveness of the Registration Statement have been instituted,
or, to the Company's knowledge, are threatened. Each of any preliminary
prospectus, the Registration Statement and the Prospectus at the time of filing
thereof conformed in all material respects with the requirements of the Act and
Regulations, and none of any preliminary prospectus, the Registration Statement
or the Prospectus at the time of filing thereof contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein and necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to (i) statements made in reliance
upon and in conformity with written information furnished to the Company with
respect to the Placement Agent by or on behalf of the Placement Agent expressly
for use in such preliminary prospectus, Registration Statement or Prospectus, or
(ii) statements made in the initial preliminary prospectus which were revised in
any subsequent preliminary prospectus or the Registration Statement and
Prospectus.
(C) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined in Section 2(C) hereof)
and each Second Closing Date (as defined in Section 2(B) hereof), if any, and
during such longer period as the Prospectus may be required to be delivered in
connection with sales by the Placement Agent or a dealer, the Registration
Statement and the Prospectus, as amended or supplemented as required, will
contain all statements which are required to be stated therein in accordance
with the Act and the Regulations, and will conform in all material respects to
the requirements of the Act and the Regulations; neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
provided, however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of the Placement
Agent expressly for use in the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto.
(D) The Company and each of its subsidiaries have been duly organized
and are validly existing as corporations in good standing under the laws of the
respective states of their incorporation. The Company does not own or control,
directly or indirectly, any corporation, partnership, trust, joint venture or
other business entity other than the subsidiaries listed in Exhibit 21 of the
Registration Statement. Each of the Company and its subsidiaries is duly
qualified and licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or the
character of its operations require such qualification or licensing, except
where the failure to be so qualified or licensed would not have
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a material and adverse effect on the condition, financial or otherwise, or the
business affairs, operations, properties, or results of operations of the
Company and its subsidiaries, taken as a whole (the "Business"). Each of the
Company and its subsidiaries has all requisite power and authority (corporate
and other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its business as described in the Prospectus,
except where the failure to have such authorizations, approvals, orders,
licenses, certificates, franchises or permits would not have a material and
adverse effect on the Business; the Company and each of its subsidiaries have
been doing business in compliance in all material respects with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all federal, state, local and foreign laws, rules and regulations;
and neither the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the Business. The
disclosures in the Registration Statement concerning the effects of federal,
state, local, and foreign laws, rules and regulations on the Company's business
as currently conducted and as contemplated are correct in all material respects
and do not omit to state a material fact necessary to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
(E) At the dates as of which such information is set forth in the
Prospectus, the Company had a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the headings
"Capitalization" and "Description of Capital Stock" and will have the adjusted
capitalization set forth therein on the Closing Date and the Second Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company conform
or, when issued and paid for, will conform, in all material respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related notes
thereto included in the Prospectus, neither the Company nor any subsidiary has
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements and the options or other rights granted and exercised thereunder as
set forth in the Prospectus conforms in all material respects with the
requirements of the Act. All issued and outstanding securities of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, and the holders thereof have no rights of rescission with respect
thereto and are not subject to personal liability by reason of being such
holders; and none of such securities
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were issued in violation of the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company.
(F) The Securities are not and will not be subject to any preemptive
or other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable and will conform in all material
respects to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities has been duly and validly taken; and the certificates
representing the Securities will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the Securities to be sold by the
Company hereunder, the Placement Agent will acquire good and marketable title to
such Securities free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect, or other restriction or equity of any kind
whatsoever. No stockholder of the Company has any right which has not been
waived in writing to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the issuance and sale of
the Shares and Placement Agent's Warrants to be sold by the Company as
contemplated herein.
(G) The financial statements of the Company, together with the related
notes and schedules thereto, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
changes in stockholders' equity and the results of operations of the Company and
its consolidated subsidiaries (of which there are none) at the respective dates
and for the respective periods to which they apply and such financial statements
have been prepared in conformity with generally accepted accounting principles
and the Regulations, consistently applied throughout the periods involved.
Except as disclosed in the Prospectus, there has been no material adverse change
or development involving a material prospective change in the Business, whether
or not arising in the ordinary course of business since the date of the
financial statements included in the Registration Statement and the Prospectus
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company and its subsidiaries taken as a whole conform in all
material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. Financial information set forth in the Prospectus
under the headings "Prospectus Summary - Selected Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein and have been derived from or
compiled on a basis consistent with that of the audited and unaudited financial
statements included in the Prospectus.
(H) The Company (i) has paid all federal, state, local, franchise, and
foreign taxes for which it is liable (except for immaterial nonpayments, if
any), including, but not limited to, withholding taxes and amounts payable under
Chapters 21 through 24 of the Internal Revenue Code of 1986, as amended (the
"Code"), and has furnished all information returns it is required to furnish
pursuant to the Code, (ii) has established adequate reserves for
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such taxes which are not due and payable, and (iii) does not have any material
tax deficiency or claims outstanding, proposed or assessed against it.
(I) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Placement Agent in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Placement Agent of the
Warrants and the Placement Agent's Shares from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Shares in connection with the distribution contemplated
hereby.
(J) There is no action, suit, proceeding, inquiry, arbitration,
mediation, investigation, litigation or governmental proceeding (including,
without limitation, any involving environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give rise to
the same), or involving the properties or businesses of, the Company which (i)
questions the validity of the capital stock of the Company, this Agreement or
the Placement Agent's Warrant Agreement, or of any action taken or to be taken
by the Company pursuant to or in connection with this Agreement or the Placement
Agent's Warrant Agreement, (ii) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all material respects),
or (iii) could reasonably be expected to materially and adversely affect the
Business.
(K) The Company has the corporate power and authority to authorize,
issue, deliver, and sell the National's Shares and to enter into this Agreement
and the Placement Agent's Warrant Agreement, and to consummate the transactions
provided for in such agreements; and this Agreement and the Placement Agent's
Warrant Agreement have each been duly and properly authorized, executed, and
delivered by the Company. Each of this Agreement and the Placement Agent's
Warrant Agreement constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its respective terms
(except as the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law), and none of the
issue and sale of the Securities, execution, delivery or performance by the
Company of this Agreement and the Placement Agent's Warrant Agreement, the
consummation by the Company of the transactions contemplated herein and therein,
or the conduct of the Company's businesses as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of (i) the articles of
incorporation or by-laws of the Company, as amended and restated, (ii) any
license, contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan
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or credit agreement or any other agreement or instrument to which the Company is
a party or by which it is or may be bound or to which its properties or assets
(tangible or intangible) is or may be subject, or (iii) any statute, judgment,
decree, order, rule or regulation applicable to the Company of any arbitrator,
court, regulatory body or administrative agency or other governmental agency or
body (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having jurisdiction over
the Company or any of its activities or properties, in each of the above
instances in subparagraph (ii) and (iii), which could reasonably be expected to
materially and adversely affect the Business.
(L) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance and sale of the Securities pursuant
hereto, and the Prospectus and the Registration Statement, the performance of
this Agreement and the Placement Agent's Warrant Agreement, and the transactions
contemplated hereby and thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Securities, except such as have been or may
be obtained under the Act or may be required under state securities or Blue Sky
laws in connection with the Placement Agent' purchase and distribution of the
Securities to be sold by the Company hereunder.
(M) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law). The descriptions in the
Registration Statement of such agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form SB-2, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are
complete and correct copies of the documents of which they purport to be copies.
(N) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus (i) the Company has not incurred any
material liabilities or obligations, indirect, direct or contingent, or entered
into any material verbal or written agreement or other transaction which is not
in the ordinary course of business or which could reasonably be expected to
result in a material reduction in the future earnings of the Company; (ii) the
Company has not sustained any material loss or interference with its business or
properties from
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fire, flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock, and the Company is not in
default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock (other than
upon the sale of the Shares and the Placement Agent's Warrants hereunder and
upon the exercise of options and warrants described in the Registration
Statement) of, or indebtedness material to, the Company (other than in the
ordinary course of business); (v) the Company has not issued any securities or
incurred any liability or obligation, primary or contingent, for borrowed money;
and (vi) there has not been any material adverse change in the Business.
(O) Except as disclosed in or specifically contemplated by the
Prospectus, and subject to the risks and uncertainties described in the
Prospectus under the headings entitled "Risk Factors -- Protection of
Intellectual Property" and "Business -- Intellectual Property and Other
Proprietary Rights," (i) the Company has sufficient trade names, licenses,
approvals and governmental authorizations to conduct its business as now
conducted; (ii) the expiration of any trade names, licenses, approvals or
governmental authorizations would not have a material adverse effect on the
Business; (iii) the Company has no knowledge of any infringement by it or its
subsidiaries of trademark, trade name rights, patent rights, copyrights,
licenses, trade secret or other similar rights of others; and (iv) there is no
claim being made against the Company regarding trademark, trade name, patent,
copyright, license, trade secret or other infringement which could reasonably be
expected to have a material adverse effect on the Business.
(P) No default exists in the due performance and observance of any
term, covenant or condition of any material license, contract, indenture,
mortgage, installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement, or any other
material agreement or instrument evidencing an obligation for borrowed money, or
any other material agreement or instrument to which the Company is a party or by
which the Company may be bound or to which the property or assets (tangible or
intangible) of the Company are subject or affected, except for such defaults, if
any, which individually and in the aggregate would not have a material adverse
effect on the Business.
(Q) To the Company's knowledge, there are no investigations involving
the Company by any governmental agency. There is no unfair labor practice
charge or complaint against the Company pending before National Labor Relations
Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending
or to its knowledge threatened against or involving the Company. No
representation question exists respecting the employees of the Company. No
collective bargaining agreement, or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company.
No labor dispute with the employees of the Company exists or to its knowledge is
imminent.
(R) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan,"
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an "employee welfare benefit plan," or a "multiemployer plan" as such terms are
defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans").
The Company does not maintain or contribute to a defined benefit plan, as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company to any tax penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from
the Internal Revenue Service with respect to each ERISA Plan which is intended
to comply with Code Section 401(a), stating that such ERISA Plan and the
attendant trust are qualified thereunder. The Company has never completely or
partially withdrawn from a "multiemployer plan."
(S) Neither the Company nor any of its employees, directors,
stockholders, or affiliates (within the meaning of the Regulations) of any of
the foregoing has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might be expected to cause or
result in unlawful stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities.
(T) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable or for such as do not
materially affect the value of the Company's real and personal property, taken
as a whole.
(U) To the Company's knowledge, Xxxxxx Xxxxxxxx LLP ("Xxxxxx
Xxxxxxxx"), whose report is filed with the Commission as a part of the
Registration Statement, is an independent certified public accountant as
required by the Act and the Regulations.
(V) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which all persons or entities, other than
Xxxxx Xxxx who has entered into a modified agreement as described in the
Prospectus, and Xxx Xxxxxxx who has refused to sign any such agreement, that
directly or beneficially own Common Stock, as of the effective date of the
Registration Statement, have agreed not to, directly or indirectly, offer, offer
to sell, sell, grant any option for the sale of, transfer, assign, pledge,
hypothecate or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into Common Stock, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Regulations or otherwise) or dispose of any
interest therein for a period from the date of the Prospectus until and
including the day of like number in the twelfth consecutive month next following
the date that the Registration Statement becomes effective, without the prior
written consent of National (the "Lock-up Agreements"). The Company will cause
the Transfer Agent (as defined herein) to
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place "stop transfer" orders on the Company's stock ledgers in order to effect
the Lock-up Agreements.
(W) Except as disclosed to the Placement Agent, there are no claims,
payments, arrangements or understandings, whether oral or written, for services
in the nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuance with respect to the Company or any of its officers,
directors, stockholders, employees or affiliates that may affect the Placement
Agent's compensation as determined by the Commission and National Association of
Securities Dealers, Inc. (the "NASD").
(X) Neither the Company nor any of its officers, employees, agents or
any other person acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which might subject the
Company or any other such person to any damage or penalty in any civil, criminal
or governmental litigation or proceeding (domestic or foreign). The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(Y) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 of the Regulations) of any of the foregoing persons or
entities has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficial interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in the
Prospectus, there are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company, and any officer, director, principal
shareholder (as such term is used in the Prospectus) of the Company, or any
affiliate or associate of any of the foregoing persons or entities which are
required to be disclosed in the Prospectus.
(Z) The Company is not, and does not intend to conduct its business in
a manner in which it would become an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(AA) Any certificate signed by any officer of the Company and
delivered to the Placement Agent or to the Placement Agent's Counsel (as defined
in Section 3(d) herein)
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shall be deemed a representation and warranty by the Company to the Placement
Agent as to the matters covered thereby.
(AB) The minute books of the Company have been made available to the
Placement Agent and contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(AC) The Company has not distributed and will not distribute any
offering material in connection with the offering and sale of the Shares in this
offering other than the Prospectus, the Registration Statement and the other
materials permitted by the Act. Except as described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company as part of the Registration Statement or to
require the Company to file a registration statement under the Act and no person
or entity holds any anti-dilution rights with respect to any securities of the
Company.
(AD) Except for policies the absence of which is disclosed in the
Prospectus, the Company maintains insurance by insurers of recognized financial
responsibility of the types and in the amounts as the Company believes are
prudent and adequate for the business in which it is engaged, including, but not
limited to, insurance covering real and personal property owned or leased by the
Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect. The Company has delivered to the Placement Agent's Counsel satisfactory
summaries of these insurance policies. The Company has no reason to believe
that it will not be able to renew existing insurance coverage with respect to
the Company as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business, in either case,
at a cost that would not have a material adverse effect on the financial
condition, operations, business, assets or properties of the Company. The
Company has not failed to file any material claims, has no material disputes
with its insurance company regarding any claims submitted under its insurance
policies, and has complied in material respects with all material provisions
contained in its insurance policies, except where such failure or noncompliance
could not reasonably be expected to have a material adverse effect on the
Business.
2. Closing and Second Closing. On the basis of the representations,
---------------------------
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, closings shall be held as follows and upon the
following conditions:
(A) Such number of Shares resulting in gross proceeds of $3,000,000
will be offered by National on a "best efforts, all or none" basis and such
number of Shares resulting in gross proceeds of $7,200,000 will be offered on a
"best efforts" basis during the Offering Period. National shall not be
obligated to sell any Shares and shall only be obligated to offer such number of
Shares resulting in gross proceeds of $3,000,000 on a "best efforts, all or
none"
-11-
basis and such number of Shares resulting in gross proceeds of $6,750,000 on a
"best efforts" basis.
(B) Payment for the Shares by Purchasers shall be made by wire
transfer as more fully described in the Subscription Agreements. The minimum
purchase by any Purchaser shall be 25,000 Shares, except that the Company and
National reserve the right, in their sole discretion, to accept subscriptions of
less than such minimum investment.
(C) All funds received from subscriptions will be promptly transmitted
pursuant to the terms of an escrow agreement (the "Escrow Agreement") to
Continental Stock Transfer & Trust Company, as escrow agent (the "Escrow
Agent"). In the event that a Closing occurs, the funds received in respect of
the Shares closed on will be forwarded to the Company, against delivery of the
appropriate number of Shares offered, net of (i) the placement agent commission
equal to ten percent (10%) of the gross proceeds from the sale of the Shares
sold, (ii) a non-accountable expense allowance equal to one and one-eighth of
one percent (1.8%) of the gross proceeds from the sale of the Shares sold less
any advances and (iii) any other applicable fees and expenses provided herein.
(D) At each Closing, the Company shall cause to be paid by, at the
option National certified or official bank check or wire transfer, to the extent
not previously paid by the Company or the Escrow Agent to National the placement
agent commission referred to in paragraph 2.C hereof. In addition to the
foregoing, the Company shall be responsible for the fees and expenses identified
in Sections [5, 6 and 8] hereof, which expenses shall not be deemed to be
commissions.
(E) The Company reserves the right to reject any subscriber, in whole
or in part, in its sole discretion. Notwithstanding anything to the contrary
contained in this Section 2(E), the Company's right to reject a subscriber shall
lapse three (3) business days after receipt by the Company of the fully
completed and duly executed Subscription Agreements from National with respect
to such subscriber. Funds received by the Escrow Agent or the Company from any
Purchaser whose subscription is rejected will be returned to such Purchaser,
without deduction therefrom or interest thereon, but no sooner than such funds
have cleared the banking system in the normal course of business.
(F) If subscriptions for 500,000 Shares have been received and
accepted by the Company on or prior to the Termination Date, the closing (the
"Closing") will be held at such place as is agreed by the Placement Agent and
the Company. The date on which the Closing takes place shall be the "Closing
Date."
(G) If (i) subscriptions for 500,000 shares of Common Stock have been
received and accepted by the Company on or prior to the Termination Date, (ii)
the Closing occurs as provided in Subsection (a) of this Section 2, (iii) the
Company elects to extend the offering period as provided herein, (iv) additional
subscriptions are received and accepted by the Company and (v) the conditions in
Section 8 hereof have been satisfied or waived, there shall
-12-
be a second Closing (the "Second Closing") held as provided in Subsection (a) of
this Section 2, but in no event shall the Second Closing take place later than
__________, 1997. The date on which the Second Closing takes place shall be the
"Second Closing Date."
(H) Purchase of the Warrants. On the Closing Date, the Company shall
------------------------
issue and sell to the Placement Agent the Warrants at a purchase price of
$0.0001 per Warrant, which warrants shall entitle the holders thereof to
purchase an aggregate of up to 112,500 Shares on the basis of one Share for each
ten Shares sold in the primary offering. The Warrants shall expire five (5)
years after the effective date of the Registration Statement and shall be
exercisable commencing one (1) year from the effective date of the Registration
Statement at a price equaling one hundred sixty-five percent (165%) of the
initial public offering price of the Shares. The Placement Agent's Warrant
Agreement and form of Warrant Certificate shall be substantially in the form
filed as Exhibit 4.2 to the Registration Statement. Payment for the Warrants
shall be made on the Closing Date and the Second Closing Date, if any.
3. Covenants of the Company. The Company covenants and agrees with
------------------------
the Placement Agent as follows:
(A) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Shares and the Warrants by the
Placement Agent of which the Placement Agent shall not previously have been
advised and furnished with a copy, or to which the Placement Agent shall have
objected or which is not in compliance with the Act, the Exchange Act or the
Regulations.
(B) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Placement Agent and confirm the notice in writing,
(i) when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any post-
effective amendment to the Registration Statement becomes effective, (ii) of the
issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Shares for offering or sale in any
jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will use its best efforts to
obtain promptly the lifting of such order.
-13-
(C) The Company shall file the Prospectus (in form and substance
satisfactory to the Placement Agent) in accordance with the requirements of the
Act.
(D) The Company will give the Placement Agent notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Placement Agent in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Regulations), and will
furnish the Placement Agent with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the Placement
Agent or Camhy Xxxxxxxxx & Xxxxx LLP ("Placement Agent's Counsel") shall
reasonably object.
(E) The Company shall endeavor in good faith, in cooperation with the
Placement Agent, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Placement Agent may reasonably designate to
permit the sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or become subject to service of process in any such jurisdiction. In each
jurisdiction where such qualification shall be effected, the Company will,
unless the Placement Agent agrees that such action is not at the time necessary
or advisable, use all reasonable efforts to file and make such statements or
reports at such times as are required by the laws of such jurisdiction to
continue such qualification.
(F) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act, as now and hereafter amended, and by
the Regulations, as from time to time in force, so far as necessary to permit
the continuance of sales of or dealings in the Securities in accordance with the
provisions hereof and the Prospectus, or any amendments or supplements thereto.
If at any time when a prospectus relating to the Securities is required to be
delivered under the Act, any event shall have occurred as a result of which, in
the opinion of counsel for the Company or Placement Agent's Counsel, the
Prospectus, as then amended or supplemented, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend or supplement the Prospectus to comply with the Act, the Company will
notify the Placement Agent promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the Act,
each such amendment or supplement to be satisfactory to Placement Agent's
Counsel, and the Company will furnish to the Placement Agent copies of
-14-
such amendment or supplement as soon as available and in such quantities as the
Placement Agent may request.
(G) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Regulations, and to the Placement Agent, an earnings statement
which will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Regulations, which
statement need not be audited unless required by the Act, covering a period of
at least twelve (12) consecutive months after the effective date of the
Registration Statement.
(H) During a period of five (5) years after the date hereof, until and
including the like day and month in 2002, the Company will furnish to its
stockholders, as soon as practicable, annual reports (including consolidated
financial statements of the Company and its consolidated subsidiaries audited by
independent public accountants) and will make available to its stockholders
consolidated unaudited quarterly reports (except for the last quarter of each
fiscal year) of earnings of the Company and its consolidated subsidiaries, and
will deliver to the Placement Agent:
(i) concurrently with furnishing such quarterly reports to its
stockholders, a consolidated statement of income of the Company and its
consolidated subsidiaries for each quarter in the form furnished to the
Company's stockholders;
(ii) concurrently with furnishing such annual reports to its
stockholders, a consolidated balance sheet of the Company and its consolidated
subsidiaries as at the end of the preceding fiscal year, together with
statements of consolidated operations, stockholders' equity, and cash flows of
the Company and its consolidated subsidiaries for such fiscal year, accompanied
by a copy of the report thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all other reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, Nasdaq or any
securities exchange;
(v) every press release and every material news item or article of
interest to the financial community in respect of the Company or its affairs
which was released or prepared by or on behalf of the Company; and
-15-
(vi) any additional information of a public nature concerning the
Company and its businesses which the Placement Agent may reasonably request.
During such five-year period, the foregoing financial statements
will be accompanied by similar financial statements for any significant
subsidiary which is not consolidated.
(I) The Company will maintain a transfer agent (the "Transfer Agent")
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar (which may be the same entity as the transfer agent) for the Shares
and the Warrants.
(J) The Company will furnish to the Placement Agent, without charge,
at such place as the Placement Agent may designate, copies of each preliminary
prospectus, the Registration Statement, the Prospectus and any pre-effective or
post-effective amendments thereto (two of which copies will be signed and will
include all financial statements and exhibits), in each case as soon as
available and in such quantities as the Placement Agent may reasonably request.
(K) On or before the effective date of the Registration Statement, the
Company shall provide the Placement Agent with true copies of duly executed
Lock-up Agreements. On or before the Closing Date, the Company shall deliver
instructions to the Transfer Agent authorizing it to place appropriate stop
transfer orders on the Company's ledgers.
(L) The Company shall use its best efforts to cause its officers,
directors, stockholders or affiliates (within the meaning of the Regulations)
not to take, directly or indirectly, any action designed to, or which might in
the future reasonably be expected to cause or result in, unlawful stabilization
or manipulation of the price of any securities of the Company.
(M) The Company shall apply the net proceeds from the sale of the
Securities substantially in the manner, and subject to the conditions, set forth
under "Use of Proceeds" in the Prospectus.
(N) After the effective date of the Registration Statement, the
Company shall timely file all such reports, forms or other documents as may be
required (including, but not limited to, a Form SR as may be required pursuant
to Rule 463 under the Act) from time to time, under the Act, the Exchange Act,
and the Regulations, and all such reports, forms and documents filed will comply
as to form and substance with the applicable requirements under the Act, the
Exchange Act, and the Regulations.
(O) The Company shall use its best efforts to cause the Securities to
be quoted on the OTC Bulletin Board, and for a period of two (2) years from the
date hereof shall use its best efforts to maintain the quotation of the
Securities to the extent outstanding.
-16-
(P) For a period of two (2) years from the Closing Date, the Company
shall furnish to the Placement Agent, at the Company's sole expense, monthly
transfer sheets relating to the Common Stock and Warrants.
(Q) For a period of five (5) years after the effective date of the
Registration Statement, the Company shall, at the Company's sole expense, take
all reasonable and appropriate actions to qualify the Securities in all
jurisdictions of the United States which do not require the Company to qualify
as a foreign corporation or to file a general consent to service of process in
order to permit secondary sales of such securities pursuant to the Blue Sky laws
of those jurisdictions.
(R) The Company (i) prior to the effective date of the Registration
Statement has filed a Form 8-A with the Commission providing for the
registration of the Securities under the Exchange Act and (ii) as soon as
practicable will use its best efforts to take all necessary and appropriate
actions to be included in Standard and Poor's Corporation Descriptions or
Xxxxx'x OTC Manual and to continue such inclusion for a period of not less than
five (5) years (or, if sooner, the date on which the Securities are listed on
the New York Stock Exchange, American Stock Exchange, or Nasdaq National
Market).
(S) The Company agrees that for a period of twelve (12) months
following the effective date of the Registration Statement it will not, without
the prior written consent of the Placement Agent, offer, issue, sell, contract
to sell, grant any option for the sale of or otherwise dispose of any Common
Stock or securities convertible into Common Stock, except for the issuance of
shares of Common Stock registered under the Act pursuant to the Registration
Statement, or except pursuant to incentive or benefit plans approved by the
Board of Directors of the Company, pursuant to options or warrants outstanding
on the Closing Date, or in connection with acquisitions of companies, products
or technologies.
(T) Until the completion of the distribution of the Securities in
connection with the initial public offering of the Securities, the Company shall
not without the prior written consent of the Placement Agent or Placement
Agent's Counsel, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices.
(U) For a period equal to the lesser of (i) five (5) years from the
date hereof, and (ii) the sale to the public of the Placement Agent's Shares (or
the shares of Common Stock issuable upon exercise of the Placement Agent's
Warrants), the Company will not take any action or actions which may prevent or
disqualify the Company's use of an appropriate form for the registration under
the Act of the Placement Agent's Shares (or the shares of Common Stock issuable
upon exercise of the Placement Agent's Warrants).
(V) The Company agrees that it shall use its best efforts, which shall
include, but shall not be limited to, the solicitation of proxies, to elect one
(1) designee
-17-
designated by National to the Company's Board of Directors for a period of five
(5) years following the Closing Date, provided that such designee is reasonably
acceptable to the Company and that such director may be excluded from
consideration of certain confidential matters which, in the good faith judgment
of a majority of the other directors, make such director's presence not
appropriate.
(W) The Company agrees that within forty-five (45) days after the
Closing Date it shall retain a public relations firm which is reasonably
acceptable to National. Provided that such public relations firm performs in a
commercially reasonable and satisfactory manner, the Company shall keep such
public relations firm and any replacement for a total period of two (2) years
from the Closing Date. Any replacement public relations firm shall be retained
only with the consent of National, which shall not be unreasonably withheld.
(X) The Company agrees that any and all future transactions between
the Company and any of its officers, directors, principal stockholders and the
affiliates of the foregoing persons will be on terms no less favorable to the
Company than could reasonably be obtained in arm's length transactions with
independent third parties, and that any such transactions also be approved by a
majority of the Company's outside independent directors disinterested in the
transaction.
(Y) The Company shall prepare and deliver, at the Company's sole
expense, to National within the one hundred and twenty (120) day period after
the later of the effective date of the Registration Statement and the latest
Second Closing Date, as the case may be, one bound volume each containing all
correspondence with regulatory officials, agreements, documents and all other
materials in connection with the offering to which such Registration Statement
relates as requested by Placement Agent's Counsel.
4. Payment of Expenses.
-------------------
(A) The Company hereby agrees to pay on each of the Closing Date and
each Second Closing Date (to the extent not previously paid) all expenses and
fees (other than fees of Placement Agent's Counsel, except as provided in (iv)
below) incident to the performance of the obligations of the Company under this
Agreement and the Placement Agent's Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, filing, delivery and mailing (including the
payment of postage with respect thereto) of the Registration Statement and the
Prospectus and any amendments and supplements thereto and the duplication,
mailing (including the payment of postage with respect thereto) and delivery of
this Agreement, the Selected Dealers Agreements, the Powers of Attorney, and
related documents, including the cost of all copies thereof and of the
Preliminary Prospectuses and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Placement Agent and such dealers as the
Placement Agent may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the certificates representing the
Securities, (iv) the qualification of the Securities under state or foreign
securities
-18-
or "Blue Sky" laws and determination of the status of such securities under
legal investment laws, including the costs of word processing and mailing the
"Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and
"Legal Investments Survey," if any, and reasonable disbursements and fees of
counsel in connection therewith, (v) advertising costs and expenses, including
but not limited to the costs and expenses incurred by the Company and the
Placement Agent in connection with the "road show," information meetings and
presentations, bound volumes and prospectus memorabilia and reasonable
"tombstone" advertisement expenses, (vi) experts, (vii) fees and expenses of the
transfer agent and registrar, (viii) the fees payable to the Commission and the
NASD, (ix) issue and transfer taxes, if any and (x) the fees and expenses
incurred in connection with the quotation of the Common Stock on the OTC
Bulletin Board and any other market or exchange.
(B) If this Agreement is terminated by the Placement Agent in
accordance with the provisions of Section 5, Section 9(a) or Section 10, the
Company shall reimburse and indemnify the Placement Agent for all of its actual
out-of-pocket expenses on an accountable basis, including the fees and
disbursements of Placement Agent's Counsel, less any amounts already paid
pursuant to Section 4(c) hereof provided that National shall notify the Company
of any single expense or any series of similar expenses which in the aggregate
exceed $5,000 (provided further that such notice requirement shall not apply to
National's actual out-of-pocket legal expenses).
(C) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 4, it will pay to the
Placement Agent on the Closing Date by certified or bank cashier's check or, at
the election of the Placement Agent, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to one
and eight-tenths of one percent (1.8%) of the gross proceeds received by the
Company from the sale of the Shares, $30,000 of which has been paid to date.
5. Conditions of the Placement Agent's Obligations. The obligations of
-----------------------------------------------
the Placement Agent hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Second Closing Date, if any, as if they had been
made on and as of the Closing Date or each Second Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Second Closing Date, if any,
of the statements of officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Second Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(A) The Registration Statement shall have become effective not later
than 5:00 p.m., New York City time, on the date prior to the date of this
Agreement or such later date and time as shall be consented to in writing by the
Placement Agent, and, at Closing Date and each Second Closing Date, if any, no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending or contemplated by the Commission and any request on the
-19-
part of the Commission for additional information shall have been complied with
to the reasonable satisfaction of Placement Agent's Counsel. If the Company has
elected to rely upon Rule 430A of the Regulations, the price of the Shares and
any price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Regulations within the
prescribed time period, and prior to Closing Date the Company shall have
provided evidence satisfactory to the Placement Agent of such timely filing, or
a post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A of
the Regulations.
(B) The Placement Agent shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Placement Agent's opinion, is material, or omits to state
a fact which, in the Placement Agent's opinion, is material and is required to
be stated therein or is necessary to make the statements therein not misleading,
or that the Prospectus, or any supplement thereto, contains an untrue statement
of fact which, in the Placement Agent's reasonable opinion, is material, or
omits to state a fact which, in the Placement Agent's reasonable opinion, is
material and is required to be stated therein or is necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(C) At the Closing Date, the Placement Agent shall have received the
favorable opinion of Fenwick & West LLP ("Fenwick & West"), counsel to the
Company, dated the Closing Date, addressed to the Placement Agent and in form
and substance satisfactory to Placement Agent's Counsel, to the effect that:
(i) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation, (B) is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations requires such qualification or
licensing, except where the failure to be so qualified or licensed would not
have a material adverse effect on the Company's business and (C) to such
counsel's knowledge, has all requisite corporate power and authority and has
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus.
(ii) except as described in the Prospectus, and to such counsel's
knowledge, the Company does not currently engage in any substantial activities,
and to such counsel's knowledge, the Company does not own an interest in any
corporation, limited liability company, partnership, joint venture, trust or
other business entity;
(iii) to such counsel's knowledge, the Company has a duly
authorized, issued and outstanding capitalization as set forth in the
Prospectus, and any amendment or
-20-
supplement thereto, under "Capitalization" and "Description of Capital Stock,"
and to the knowledge of such counsel, the Company is not a party to or bound by
any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement, the Placement Agent's Warrant Agreement, and as described in the
Prospectus. The Securities and all other securities issued or issuable by the
Company which will be outstanding after the Closing Date conform in all material
respects to the statements with respect thereto contained in the Registration
Statement and the Prospectus. All issued and outstanding securities of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable; and none of such securities were issued in violation of any
preemptive rights in the Company's Articles of Incorporation, the Company's By-
laws, the agreements and instruments identified in such counsel's opinion as
having been reviewed for purposes of the opinion or other preemptive rights
known to such counsel of any holders of any security of the Company. The
Securities to be sold by the Company hereunder and under the Placement Agent's
Warrant Agreement are not and will not be subject to any preemptive rights in
the Company's Articles of Incorporation, the Company's By-laws, the agreements
and instruments identified in such counsel's opinion as having been reviewed for
purposes of the opinion or any other preemptive or similar rights of any
stockholder known to such counsel, have been duly authorized and, when issued,
paid for and delivered in accordance with their terms, will be validly issued,
fully paid and nonassessable and will conform in all material respects to the
description thereof contained in the Prospectus; all corporate action required
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities are in
due and proper form. The Warrants constitute valid, binding and enforceable
obligations of the Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called for thereby
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law). Upon the issuance
and delivery pursuant to this Agreement of the Securities to be sold by the
Company, the Company will convey, against payment therefor as provided herein,
to the Purchasers good and marketable title to the Securities free and clear of
all liens and other encumbrances;
(iv) if applicable, filing of all pricing information has been
timely made in the appropriate form under Rule 430A, and based solely upon the
oral advice of the Staff of the Commission, the Registration Statement is
effective under the Act and no stop order suspending the use of any preliminary
prospectus, the Registration Statement or Prospectus or any part of any thereof
or suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or, to
such counsel's knowledge, threatened or contemplated under the Act;
(v) each of any preliminary prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto (other
than the financial statements and other financial and statistical data included
therein as to which no opinion need
-21-
be rendered) comply as to form in all material respects with the requirements of
the Act and the Regulations. Such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company and the Placement Agent and representatives of the independent public
accountants for the Company, at which conferences the contents of any
preliminary prospectus, the Registration Statement, the Prospectus, and any
amendments or supplements thereto were discussed, and, although such counsel is
not passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Preliminary
Prospectus, the Registration Statement and Prospectus, and any amendments or
supplements thereto, on the basis of the foregoing, no facts have come to the
attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto, at the time such Registration
Statement or amendment became effective or the Preliminary Prospectus or
Prospectus or amendment or supplement thereto as of the date of such opinion
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading (it being understood that such counsel need express no opinion
with respect to the financial statements and schedules and other financial and
statistical data included in the Preliminary Prospectus, the Registration
Statement or Prospectus, and any amendments or supplements thereto);
(vi) to such counsel's knowledge, (A) there are no agreements,
contracts or other documents required by the Act to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or amendment
thereto of contracts and other agreements to which the Company is a party that
are expressly referred to in the Registration Statement and the Prospectus, are
accurate in all material respects; (C) there is not pending and the Company has
received no oral or written notice of any action, arbitration, suit, proceeding,
litigation, governmental or other proceeding against the Company (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, which (x) is required by the Regulations to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), (y) questions the validity of the capital
stock of the Company this Agreement or the Placement Agent's Warrant Agreement,
or of any action taken or to be taken by the Company pursuant to or in
connection with any of the foregoing; and (D) there is not pending and the
Company has received no oral or written notice of any action, suit or proceeding
against the Company before any court or arbitrator or governmental body, agency
or official in which there is a reasonable possibility of an adverse decision
which may result in a material adverse change in the Business, which could
reasonably be expected to materially adversely affect the present or prospective
ability of the Company to perform its obligations under this Agreement or the
Placement Agent's Warrant Agreement, or which in any manner draws into question
the validity or enforceability of this Agreement or the Placement Agent's
Warrant Agreement;
(vii) the Company has the corporate power and authority to enter
into each of this Agreement and the Placement Agent's Warrant Agreement and to
consummate the
-22-
transactions provided for therein; and each of this Agreement and the Placement
Agent's Warrant Agreement has been duly authorized, executed and delivered by
the Company. Each of this Agreement and the Placement Agent's Warrant
Agreement, assuming due authorization, execution and delivery by each other
party thereto, constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms (except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, except as rights to indemnity or
contribution may be limited by applicable law). To such counsel's knowledge,
none of the Company's execution, delivery or performance of this Agreement and
the Placement Agent's Warrant Agreement, the consummation by the Company of the
transactions contemplated herein or therein, or the conduct of the Company's
business as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto conflicts with or results in any material
breach or violation of any of the terms or provisions of, or constitutes a
material default under, or results in the creation or imposition of any material
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of (A) the
articles of incorporation or by-laws of the Company, as amended, (B) any
license, contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or any other agreement
or instrument known to such counsel, to which the Company is a party or by which
it is bound, or (C) any federal, state or local statute, rule or regulation
known to such counsel to be applicable to the Company or any judgment, decree or
order known to such counsel of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of its
activities or properties, in each case where such conflict, breach, violation or
default would have a material adverse effect on the Company's business;
(viii) no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other than
such as may be required under Blue Sky laws, as to which no opinion need be
rendered or under federal securities laws, as to which no opinion need be
rendered pursuant to this subsection (viii)) is required in connection with the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, the performance of this Agreement and the Placement Agent's Warrant
Agreement, and the transactions contemplated hereby and thereby;
(ix) to such counsel's knowledge, the properties of the Company
conform in all material respects to the description thereof contained in the
Registration Statement and the Prospectus;
(x) to the knowledge of such counsel, and except as disclosed in
the Registration Statement and the Prospectus, (A) the Company is not in
material breach of, or in material default under, any term or provision of any
license, contract, agreement, indenture,
-23-
mortgage, installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or other
agreement or instrument to which the Company is a party or by which the Company
is bound or to which the property or assets (tangible or intangible) of the
Company is subject, in each case where such breach or default would have a
material adverse effect on the business of the Company, and (B) the Company is
not in material violation of any term or provision of its articles of
incorporation or by-laws, as amended, or in material violation of any franchise,
license, permit, judgment, decree, order, statute, rule or regulation known to
such counsel to be applicable to the Company, in each case where such breach,
default or violation would have a material adverse effect on the Company's
business;
(xi) the statements in the Prospectus under "Dividend Policy,"
"Description of Capital Stock," and "Shares Eligible for Future Sale" have been
reviewed by such counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or legal conclusions,
are correct in all material respects;
(xii) the Common Stock has been accepted for quotation on the OTC
Electronic Bulletin Board;
(xiii) to such counsel's knowledge and based upon a review of the
outstanding securities and the contracts furnished to such counsel by the
Company, except as disclosed in the Registration Statement and Prospectus, no
person, corporation, trust, partnership, association or other entity has the
right to include and/or register any securities of the Company in the
Registration Statement, require the Company to file any registration statement
or, if filed, to include any security in such registration statement; and
(xiv) assuming the authority and capacity of, and due execution
by the parties thereto other than the Company, each Lock-up Agreement is a
legal, valid and binding obligation of the party thereto, enforceable against
the party and any subsequent holder of the securities subject thereto in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law).
In rendering such opinion, such counsel (A) need not express any
opinion as to matters involving the application of laws other than the laws,
rules and regulations of the United States (with such exceptions and limitations
as are set forth in such counsel's opinion) and the laws, rules and regulations
of the State of Delaware; and (B) as to matters of fact, to the extent they deem
proper, on certificates and written statements of responsible officers of the
Company and certificates or other written statements of officers of departments
of various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company, provided that copies of any such
statements or certificates shall be delivered to Placement Agent's Counsel if
requested.
-24-
At each Second Closing Date, if any, the Placement Agent shall have
received the favorable opinion of Fenwick & West, counsel to the Company, dated
the Second Closing Date, addressed to the Placement Agent and in form and
substance satisfactory to Placement Agent's Counsel confirming as of such Second
Closing Date the statements made by Fenwick & West in its opinion delivered on
the Closing Date.
(D) On or prior to each of the Closing Date and the Second Closing
Date, if any, Placement Agent's Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 5, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company or herein contained.
(E) Prior to each of the Closing Date and each Second Closing Date, if
any, (i) there shall have been no material adverse change nor development
involving a prospective material adverse change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities of the
Company, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) except as disclosed in the Registration Statement or the
Prospectus, there shall have been no transaction, not in the ordinary course of
business, entered into by the Company, from the latest date as of which the
financial condition of the Company is set forth in the Registration Statement
and Prospectus which is adverse to the Company; (iii) the Company shall not be
in default under any provision of any instrument relating to any outstanding
indebtedness which default has not been waived; (iv) except as disclosed in the
Registration Statement or the Prospectus, the Company shall not have issued any
securities (other than the Securities) or declared or paid any dividend or made
any distribution in respect of its capital stock of any class and there has not
been any change in the capital stock, or any material increase in the debt (long
or short term) or liabilities or obligations of the Company (contingent or
otherwise) except for the issuance of the Shares, the Warrants, and shares of
Common Stock issued upon the exercise of currently outstanding warrants or
options, or options and warrants granted in the ordinary course of business
consistent with prior practice; (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (vi) there shall not have been pending
and the Company shall not have received oral or written notice of any action,
suit or proceeding, at law or in equity, (or circumstances giving rise to same)
against the Company, or affecting any of its respective properties or businesses
before or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the Business of the Company except as set forth in
the Registration Statement and Prospectus; and (vii) no stop order shall have
been issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(F) At each of the Closing Date and each Second Closing Date, if any,
the Placement Agent shall have received a certificate of the Company signed on
behalf of the
-25-
Company by the principal executive officer of the Company, dated the Closing
Date or Second Closing Date, as the case may be, to the effect that such
executive has carefully examined the Registration Statement, the Prospectus and
this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the
Closing Date or the Second Closing Date, as the case may be, and
the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part
to be performed or satisfied at or prior to such Closing Date or
Second Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending
or, to the best of each of such person's knowledge after due
inquiry, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all
statements and information required by the Act to be included
therein, and none of the Registration Statement, the Prospectus
nor any amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and neither the Preliminary Prospectus or
any supplement, as of their respective dates, thereto included any
untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (a) the Company has not incurred up to and including
the Closing Date or the Second Closing Date, as the case may be,
other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent; (b) the Company
has not paid or declared any dividends or other distributions on
its capital stock; (c) the Company has not entered into any
transactions not in the ordinary course of business; (d) there has
not been any change in the capital stock as described in the
Registration Statement and Prospectus or material increase in
long-term debt or any increase in the short-term borrowings (other
than any increase in the short-term borrowings in the ordinary
course of business) of the Company, (e) the Company has not
sustained any loss or damage to its property or assets, whether or
not insured, (f) there is no litigation which is pending or
threatened (or circumstances giving rise to same) against the
Company or any affiliated party of any of the foregoing
-26-
which is required to be set forth in an amended or supplemented
Prospectus which has not been set forth, and (g) there has occurred no
event required to be set forth in an amended or supplemented
Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(G) By the Closing Date, the Placement Agent will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Placement Agent.
(H) At the time this Agreement is executed, the Placement Agent shall
have received a letter, dated such date, addressed to the Placement Agent in
form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Placement Agent and Placement Agent's Counsel, from Xxxxxx Xxxxxxxx:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act
and the applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the Regulations
thereunder and that the Placement Agent may rely upon the opinion of
Xxxxxx Xxxxxxxx with respect to the financial statements and
supporting schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the
latest available unaudited interim financial statements), a reading of
the latest available minutes of the stockholders and board of
directors and the various committees of the board of directors of the
Company, consultations with officers and other employees of the
Company responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their
attention which would lead them to believe that (A) the unaudited
financial statements and supporting schedules of the Company included
in the Registration Statement, if any, do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the Regulations or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements
of the Company included in the
-27-
Registration Statement, or (B) at a specified date not more than five
(5) days prior to the effective date of the Registration Statement,
there has been any change in the capital stock or material increase in
long-term debt of the Company, or any material decrease in the
stockholders' equity or net current assets or net assets of the
Company as compared with amounts shown in the most recent balance
sheet included in the Registration Statement, other than as set forth
in or contemplated by the Registration Statement, or, if there was any
change or decrease, setting forth the amount of such change or
decrease.
(iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements
and other financial information pertaining to the Company set forth in
the Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the
general accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal counsel,
with the results obtained from the application of specified readings,
inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted
auditing standards) set forth in the letter and found them to be in
agreement; and
(v) statements as to such other material matters incident to
the transaction contemplated hereby as the Placement Agent may
reasonably request.
(I) At the Closing Date and each Second Closing Date, if any, the
Placement Agent shall have received from Xxxxxx Xxxxxxxx a letter, dated as of
the Closing Date or the Second Closing Date, as the case may be, to the effect
that it reaffirms that statements made in the letter furnished pursuant to
Subsection (i) of this Section 5, except that the specified date referred to
shall be a date not more than five (5) days prior to Closing Date or the Second
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (iv) of Subsection (i) of this
Section 5 with respect to certain amounts, percentages and financial information
as specified by the Placement Agent and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (iv).
(J) On each of Closing Date and Second Closing Date, if any, the
Company shall have duly executed and delivered the appropriate amount and
designation of Shares to National as agent for the respective Purchasers
thereof.
(K) No order suspending the sale of the Securities in any jurisdiction
designated by the Placement Agent pursuant to subsection (e) of Section 3 hereof
shall have been
-28-
issued on either the Closing Date or the Second Closing Date, if any, and no
proceedings for that purpose shall have been instituted or shall be
contemplated.
(L) On or before the Closing Date, the Company shall have executed and
delivered to the Placement Agent, (i) the Placement Agent's Warrant Agreement,
substantially in the form filed as Exhibit 4(b), to the Registration Statement,
in final form and substance satisfactory to the Placement Agent, and on or
before the Closing Date and the Second Closing Date, if any, (ii) the Warrants
in such denominations and to such designees as shall have been provided to the
Company.
(M) On or before the Closing Date, there shall have been delivered to
the Placement Agent all of the Lock-up Agreements, subject to the exceptions set
forth in Section (V) above, in final form and substance satisfactory to
Placement Agent's Counsel.
If any condition to the Placement Agent's obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Second Closing Date,
as the case may be, is not so fulfilled, the Placement-Agent may terminate this
Agreement or, if the Placement Agent so elect, they may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
6. Indemnification.
---------------
(A) The Company agrees to indemnify and hold harmless the Placement
Agent (for purposes of this Section 6 "Placement Agent" shall include the
officers, directors, partners, employees, agents and counsel of the Placement
Agent), and each person, if any, who controls the Placement Agent ("controlling
person") within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all loss, liability, claim, damage, and
expense whatsoever (including, but not limited to, reasonable attorneys' fees
and any and all reasonable expense whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever and any and all amounts paid in settlement of any claim or
litigation provided that the indemnified persons may not agree to any such
settlement without the prior written consent of the Company), as and when
incurred, arising out of, based upon or in connection with (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); or (B) in any application or other
document or communication (in this Section 6 collectively called "application")
executed by or on behalf of the Company or based upon written information
furnished by or on behalf of the Company in any jurisdiction in order to qualify
the Securities under the securities laws thereof or filed with the Commission,
any state securities commission or agency, or any securities exchange or the OTC
bulletin board; or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading (in the case of the Prospectus, in the light of the circumstances
under which they were made), unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Placement
-29-
Agent by or on behalf of the Placement Agent expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be; or (ii) any breach of any representation, warranty, covenant or agreement of
the Company contained in this Agreement. The indemnity agreement in this
subsection (a) shall be in addition to any liability which the Company may have
at common law or otherwise.
(B) The Placement Agent agrees to indemnify and hold harmless the
Company, each of its directors, employees, agents, each of its officers who has
signed the Registration Statement, and each other person, if any, who controls
the Company, within the meaning of the Act, to the same extent as the foregoing
indemnity from the Company to the Placement Agent but only with respect to
statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to the Placement
Agent by the Placement Agent expressly for use in such Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any such application, provided that such written information or
omissions only pertain to disclosures in the Preliminary Prospectus, the
Registration Statement or Prospectus directly relating to the transactions
effected by the Placement Agent in connection with this Offering. The Company
acknowledges that the statements with respect to the public offering of the
Securities set forth under the heading "Plan of Distribution" and the
stabilization legend in the Prospectus have been furnished by the Placement
Agent expressly for use therein and constitute the only information furnished in
writing by or on behalf of the Placement Agent or the Placement Agent for
inclusion in the Prospectus.
(C) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 6, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure to so notify an indemnifying party shall not relieve it from any
liability which it may have otherwise or which it may have under this Section 6,
except to the extent that it has been prejudiced in any material respect by such
failure). In case any such action is brought against any indemnified party, and
it notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of such action at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such
-30-
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events the reasonable fees and expenses of one additional counsel shall be
borne by the indemnifying parties. In no event shall the indemnifying parties
be liable for fees and expenses of more than one counsel (in addition to any
local counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 6 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent was not
-------- -------
unreasonably withheld.
(D) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 6, 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 this Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company
is a contributing party and the Placement Agent is the indemnified party, the
relative benefits received by the Company on the one hand, and the Placement
Agent, on the other, shall be deemed to be in the same proportion as the total
net proceeds from the offering of the Securities (before deducting expenses
other than commissions) bear to the total commissions received by the Placement
Agent hereunder, in each case as set forth in the table on the Cover Page of the
Prospectus. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Placement Agent, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, expenses or liabilities (or
actions in respect thereof) referred to above in this subdivision (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding
-31-
the provisions of this subdivision (d) the Placement Agent shall not be required
to contribute any amount in excess of the commissions applicable to the
Securities purchased by the Placement Agent hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 12(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 6, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.
7. Representations and Agreements to Survive Delivery. All
--------------------------------------------------
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements of the Company
at the Closing Date and the Second Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the respective
indemnity and contribution agreements contained in Section 6 hereof shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Placement Agent, the Company, any controlling person of
either the Placement Agent or the Company, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the Placement Agent.
8. Effective Date. This Agreement shall become effective at 5:00
--------------
p.m., New York City time, on the date hereof.
-32-
9. Termination.
-----------
(A) Subject to subsection (b) of this Section 9, the Placement Agent
shall have the right to terminate this Agreement, if between the date of this
Agreement and the Closing Date or the Second Closing Date, as the case may be,
(i) if any domestic or international event or act or occurrence has materially
disrupted, or in the Placement Agent's reasonable opinion will in the immediate
future have a material and adverse effect on the securities markets generally;
or (ii) any material adverse change in the financial markets shall have
occurred; or (iii) if trading on the New York Stock Exchange, the American Stock
Exchange, or in the over-the-counter market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required on the over-the-counter
market by the NASD or by order of the Commission or any other government
authority having jurisdiction; or (iv) if the United States shall have become
involved in a war or major hostilities, or if there shall have been an
escalation in an existing war or major hostilities or a national emergency shall
have been declared in the United States; or (v) if a banking moratorium has been
declared by a state or federal authority; or (vi) if the Company shall have
sustained a loss material to the Company by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in the Placement Agent's opinion,
make it inadvisable to proceed with the delivery of the Securities; or (viii) if
there shall have occurred either of the following which in the Placement Agent's
good faith judgment would make it inadvisable to proceed with the offering, sale
and/or delivery of the Securities: (X) a material adverse change in the
prospects or conditions of the Company, or (Y) a material adverse change in the
general market, political or economic conditions, in the United States or
elsewhere, in each case in this clause (Y) having a material and adverse effect
on the securities markets generally.
(B) If this Agreement is terminated by the Placement Agent in
accordance with any of the provisions of Section 5, Section 9(a) or Section 10,
the Company shall promptly reimburse and indemnify the Placement Agent pursuant
to Section 4(b) hereof. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 5, 9, and 10 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 4 and Section 6 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
10. Default by the Company. If the Company shall fail at the Closing
----------------------
Date to sell and deliver the number of Registered Securities which it is
obligated to sell hereunder on such date, then this Agreement shall terminate
without any liability on the part of any non-defaulting party other than
pursuant to Section 7, Section 9 and Section 12 hereof. No action taken
pursuant to this Section shall relieve the Company from liability, if any, in
respect of such default.
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11. Notices. All notices and communications hereunder, except as
-------
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Placement Agent shall be directed to the
Placement Agent, c/o National Securities Corporation, 0000 Xxxxxx Xxxxxx, Xxxxx
0000, Xxxxxxx, Xxxxxxxxxx 00000, Attention: Xxxxxx X. Xxxxxxxxx, with a copy,
which shall not constitute notice, to Camhy Xxxxxxxxx & Xxxxx LLP, 0000
Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxx X. Annex, Esq.
Notices to the Company shall be directed to the Company at Xxxxxx X. Xxxxxx,
Osmotics Corporation, 0000 X. 00xx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000,
with a copy, which shall not constitute notice, to Fenwick & West LLP, Xxx Xxxx
Xxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000, Attention: C. Xxxxx Xxxxx, Esq.
12. Parties. This Agreement shall inure solely to the benefit of and
-------
shall be binding upon the Placement Agent, the Company and the controlling
persons, directors and officers referred to in Section 6 hereof and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Placement Agent shall be deemed
to be a successor by reason merely of such purchase.
13. Construction. This Agreement shall be governed by and construed
------------
and enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
14. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
15. Entire Agreement; Amendments. This Agreement and the Placement
----------------------------
Agent's Warrant Agreement constitute the entire agreement of the parties hereto
and supersede all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended except in a writing, signed by the Placement Agent and the Company.
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If the foregoing correctly sets forth the understanding between the
Placement Agent and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
OSMOTICS CORPORATION
By:
--------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
NATIONAL SECURITIES CORPORATION
By:
---------------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Chairman
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