IMSCO Technologies, Inc.
00 Xxxxxxxx Xxxxx
Xxxxx Xxxxxxx, XX 00000
July 31, 1998
Sands Brothers & Co., Ltd.
00 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Gentlemen:
The undersigned, IMSCO Technologies, Inc., a Delaware
corporation (together with any of its subsidiaries, affiliates, successors or
assigns the "Company"), proposes to offer for sale to certain "accredited
investors", through Sands Brothers & Co., Ltd., as placement agent ("Sands
Brothers" or the "Placement Agent") in an "all-or-none" private placement, a
minimum of $500,000 (the "Minimum Amount") and a maximum of $10,000,000 (the
"Maximum Amount") of (a) the Company's capital stock (whether Common Stock,
Preferred Stock or any combination thereof) (collectively, the "Capital Stock"),
at a price to be mutually agreed upon and (b) capital lease, operating lease or
equipment lease financing on behalf of the Company or any form of commercial,
institutional or bank debt financing transactions (hereinafter, collectively
"Other Financing"). The Securities (as hereinafter defined) to be offered
pursuant to the Offering Documents (as hereinafter defined) and Other Financing
transactions to be consummated are sometimes hereinafter referred to
collectively as the "Financing" or the "Offering".
The closing (the "Closing") of the Financing shall not occur until the
Company has, in any combination, received and accepted subscriptions for the
purchase of Securities and/or consummated Other Financing transactions in
amounts equal to the Minimum Amount.
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The Securities will be offered pursuant to those terms and conditions
acceptable to you and your counsel as reflected in the final form of
Confidential Private Placement Memorandum of the Company and/or "long form"
subscription agreement for institutional investors only (together with the
exhibits and any supplements thereto, the "Memorandum"). The Securities will be
offered pursuant to the Memorandum in accordance with Regulation D promulgated
under the Securities Act of 1933, as amended (the "Securities Act").
Each prospective investor subscribing to purchase Securities
("Subscriber") will be required to deliver, among other things, a subscription
agreement ("Subscription Agreement") and an investment suitability questionnaire
("Questionnaire") in the forms to be provided, representing and warranting,
among other things, that such Subscriber is an "accredited investor" as such
term is defined in Regulation D.
The Memorandum and the form of proposed Subscription Agreement between
the Company and each Subscriber and the exhibits which are part of the
Memorandum (including, without limitation, the Registration Rights Agreement
between the Company and each of the Subscribers with respect to certain
registration rights under the Securities Act (the "Registration Rights
Agreement")) and/or the Subscription Agreement are referred to herein
collectively as the "Offering Documents."
The Securities will be offered for minimum subscription amounts of
$100,000 on a "best efforts", basis, exclusively by Sands Brothers; PROVIDED,
HOWEVER, that the Company and the Placement Agent may, in their discretion,
accept subscriptions for a lesser amount from a Subscriber.
The Company will prepare and deliver to the Placement Agent a
reasonable number of copies of the Offering Documents in form and substance
satisfactory to the Placement Agent and its counsel, which Offering Documents
shall include reviewed financial statements for such periods as may be required.
Capitalized terms used herein, unless otherwise defined or unless the
context otherwise indicates, shall have the same meanings provided in the
Memorandum.
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1. APPOINTMENT OF PLACEMENT AGENT. You are hereby appointed exclusive
Placement Agent of the Company during the offering period herein specified (the
"Offering Period") for the purposes of assisting the Company on a "best efforts"
basis in finding qualified Subscribers for the purchase of Securities and to
identify potential sources to engage in Other Financing transactions with the
Company in connection with the Offering. The Offering Period shall commence on
the date of delivery and acceptance by the Placement Agent of the Memorandum
("Commencement Date") and shall continue until the earlier to occur of (i) the
sale of the Minimum Amount; or (ii) 90 days from the Commencement Date (as the
same may be extended by the Placement Agent for an additional 60 days or another
period to be determined by mutual consent of the Placement Agent and the
Company). If the Minimum Amount is not sold prior to the end of the Offering
Period, the Offering will be terminated and all finds received from Subscribers
and held in a special non-interest bearing escrow account (the "Account") at
Republic National Bank, New York, New York (the "Bank") will be returned,
without deduction or accrued interest thereon. You hereby accept such agency and
agree to assist the Company in finding qualified Subscribers for the purchase of
Securities in connection with the Offering and to identify potential sources to
engage in Other Financing transactions with the Company in connection with the
Offering. Your agency hereunder is not terminable by the Company except upon
termination of the Offering.
As part of the Placement Agent's exclusive representation of the
Company with respect to the Offering, the Placement Agent shall assist the
Company in identifying potential investors and sources of Other Financing and
shall on behalf of the Company, contact such potential investors and other
potential investors as the Company may designate. In addition, the Placement
Agent shall assist the Company in structuring, negotiating and effecting the
Offering. The Company agrees that, during the course of the engagement
hereunder, neither it, nor any of its management, nor any of its affiliates,
shall initiate any discussions with third parties with respect to the Offering
and to the extent any of such persons receives an inquiry from any third parties
concerning the Offering or any other financing related to the Company, they will
promptly identify to the Placement Agent the name of such person and the date of
such initial contact.
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2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants as follows:
(a) SECURITIES LAW COMPLIANCE. The Offering Documents, upon
delivery, will conform in all respects with the requirements of the Securities
Act and Regulation D promulgated thereunder and with the requirements of all
other published rules and regulations of the United States Securities and
Exchange Commission (the "Commission") currently in effect relating to "private
offerings" and/or "accredited investors" of the type contemplated by the
Company. The Offering Documents will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Offering Documents will not be amended or supplemented
and no amendment or supplement thereto will be made without the prior consent of
the Placement Agent.
(b) ORGANIZATION. The Company, and each of the companies under its
control (each a "Subsidiary", and collectively, the "Subsidiaries"), is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all requisite corporate power and
authority to own and lease its properties, to carry on its business as currently
conducted and as proposed to be conducted. The Company and each Subsidiary is
duly qualified to do business in the states or jurisdictions set forth on
Schedule 2(b). Except as set forth in Schedule 2(b), there is no jurisdiction in
which the conduct of the Company's or Subsidiary's business or ownership or
leasing of its properties requires it to be qualified to do business as a
foreign corporation, except where such qualifications have been obtained or the
failure to be so qualified would not have a material adverse effect on the
business, financial condition or prospects of the Company or such Subsidiary.
The Company has all requisite power and authority to execute and deliver this
Agreement and to carry out the transactions contemplated by this Agreement.
(c) CAPITALIZATION.
(i) The authorized, issued and outstanding capital stock of
the Company prior to the consummation of the Closing of
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the transactions contemplated by the Offering is set forth on Schedule 2 (c)(i)
hereto. Each such share is validly paid, fully paid and nonassessable. Except as
set forth on Schedule 2 (c)(i), there are no other classes of capital stock or
other securities authorized by the Company.
(ii) The authorized, issued and outstanding capital stock of
the Company immediately upon the consummation of the Closing shall be as set
forth on Schedule 2 (c)(ii) hereto, such Schedule to be recalibrated by the
Company to reflect the sale of Securities at the Closing.
(iii) The Company has no obligation (contingent or
otherwise) to pay any dividend or make any other distribution in respect of any
of its capital stock. The Company is not a party to and there exist no voting
trusts or agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal or proxies relating to any securities of the
Company (whether or not the Company is a party thereto). All of the outstanding
securities of the Company were issued, in all material respects, in compliance
with all applicable federal and state securities laws. The Company has no
obligation (contingent or otherwise) to repurchase, redeem or otherwise acquire
any shares of its capital stock.
(iv) The stockholders of record and the holders of
subscriptions, warrants, options, preemptive rights, convertible securities and
other rights (contingent or otherwise) to purchase or otherwise acquire equity
securities of the Company, and the number of shares of capital stock of the
Company and the number of such subscriptions, warrants, options, preemptive
rights, convertible securities and other such rights held by each, are as set
forth in Schedule 2(c)(iv) hereto. The designations, powers, preferences,
rights, privileges, qualifications, limitations and restrictions in respect of
each class and series of authorized capital stock of the Company are as set
forth in the Certificate of Incorporation and all such designations, powers,
preferences, rights, privileges, qualifications, limitations and restrictions
are valid, binding and enforceable in accordance with all applicable laws
(subject, as to enforcement, to the discretion of the courts in awarding
equitable relief and to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors generally). Except
as
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disclosed in Schedule 2 (c)(iv), no person owns of record, or is known to the
Company to own beneficially, any share of capital stock of the Company; no
subscription, warrant, option, preemptive right, convertible security, agreement
or other right (contingent or otherwise) to purchase or otherwise acquire equity
securities of the Company is authorized or outstanding; and there is no
commitment by the Company to issue shares, subscriptions, warrants, options,
preemptive rights, convertible securities or other such rights or to distribute
to holders of any of its equity securities any evidence of indebtedness or asset
other than the Placement Agent Warrants and the Investment Banking (each as
hereinafter defined and collectively the "Sands Warrants"). An appropriate
number of shares of the Common Stock have been reserved for issuance upon the
conversion or exercise, as the case may be, of any of the securities referred to
in this Section. All of the outstanding securities of the Company were issued,
in all material respects, in compliance with all applicable federal and state
securities laws. The Company has no obligation (contingent or otherwise) to
repurchase, redeem or otherwise acquire any shares of its capital stock.
(d) SUBSIDIARIES AND INVESTMENTS. Except as set forth in Schedule
2(d) hereto, the Company does not own, directly or indirectly, any capital
stock, or other equity ownership or proprietary interest, in any other
corporation, association, trust, partnership, joint venture or other entity.
Each Subsidiary is wholly owned by the Company.
(e) FINANCIAL STATEMENTS. The consolidated balance sheet of the
Company as of December 31, 1997 (the "1997 Balance Sheet") and the related
consolidated statements of operations, shareholders equity and statements of
cash flow for the fiscal year ended December 31, 1997 audited by Xxxxx Xxxxxxx
LLP and the unaudited consolidated balance sheet (the "June Balance Sheet") of
the Company as of June 30, 1998 (the "Balance Sheet Date"), and the related
unaudited consolidated statements of operations, shareholders equity and
statements of cash flow for the three month period ending June 30, 1998
(collectively, the "Financial Statements"), have heretofore been delivered to
the Placement Agent. Except as may be otherwise indicated therein, the Financial
Statements have been prepared in conformity with Generally Accepted Accounting
Principles consistently applied and present fairly the financial position and
results of operations
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of the Company as of the dates and for the periods indicated. Except as may be
otherwise indicated herein, the Financial Statements of the Company as of the
dates indicated, and for the periods then ended, present fairly the financial
position and results of operations of the Company (and its Subsidiaries) as of
the dates and for the periods indicated.
(f) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company has
maintained and shall continue to maintain adequate records and books of account,
in which complete entries will be made in accordance with Generally Accepted
Accounting Principles, consistently applied, reflecting all financial
transactions of the Company and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made. The
records and books of account of the Company are in good order and have been
properly maintained in all material respects.
(g) ACCESS TO CORPORATE DOCUMENTS. The minute books of the Company
and of its Subsidiaries 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 or of its Subsidiaries, respectively, since the time
of their respective incorporation and reflect all transactions referred to in
such minutes accurately in all respects.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no
material outstanding claims, liabilities, obligations or indebtedness,
contingent or otherwise, whether asserted or unasserted, except as set forth in
the June Balance Sheet or referred to in any of the notes thereto. All
liabilities of the Company and its Subsidiaries incurred subsequent to the
Balance Sheet Date have been incurred in the ordinary course of business and do
not involve borrowings which individually exceed $50,000 and which do not exceed
$100,000 in the aggregate. Neither the Company nor its Subsidiaries is in
default in respect of the terms or conditions of any indebtedness.
(i) ABSENCE OF CHANGES. Since the Balance Sheet Date, the Company
and its Subsidiaries have operated in the ordinary course of business consistent
with past practice. Since the Balance Sheet Date, and except as set forth in
Schedule 2(i) hereto,
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there has not occurred (i) any change in the financial condition, results of
operations, assets, liabilities or business of the Company or any Subsidiary
which, in the aggregate, was materially adverse; (ii) to the best of the
Company's knowledge, any other event or condition of any character which can
reasonably be expected to materially and adversely affect the assets,
properties, financial condition, operating results or business of the Company or
of any Subsidiary (as such business is presently conducted and as it is proposed
to be conducted, as the same shall be described in the Memorandum); or (iii) any
commitment (contingent or otherwise) to do any of the foregoing.
(j) ACCOUNTS RECEIVABLE. The accounts receivable of the Company
reflected on the June Balance Sheet, and all accounts receivable of the Company
arising since the Balance Sheet Date, are not subject to discount (other than
discounts and allowances provided by normal trade terms), rebate or offset and
have arisen from bona fide transactions in the ordinary course of business.
(k) TITLE TO PROPERTIES; ENCUMBRANCES.
(i) Except for properties and assets reflected in the June
Balance Sheet or acquired since the Balance Sheet Date which have been sold or
otherwise disposed of in the ordinary course of business since such date, the
Company and each of its Subsidiaries has good, valid and marketable title to (A)
all of its properties and assets (personal, tangible and intangible), including,
without limitation, all the properties and assets reflected in the June Balance
Sheet, except as indicated in the notes thereto; and (B) all the properties and
assets purchased or otherwise acquired by the Company or by any Subsidiary since
the Balance Sheet Date; in each case clear of all encumbrances, liens, claims,
charges or other restrictions of whatever kind or character, except for (1)
liens reflected in the June Balance Sheet and (2) liens for current taxes,
assessments or governmental charges or levies on property not yet due and
delinquent.
(ii) The Company and its Subsidiaries own no real property.
To the best of the Company's knowledge after due inquiry, there are no
condemnation, environmental, zoning or other land use regulation proceedings,
either instituted or planned to be instituted, which would adversely affect the
use or
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operation of the Company's and its Subsidiaries; properties and assets for their
respective intended uses and purposes or the value of such properties, and the
Company and its Subsidiaries have not received notice of any special assessment
proceedings which would affect such properties and assets.
(l) CONDITION OF EQUIPMENT, MACHINERY AND FIXTURES. The equipment,
machinery and fixtures utilized by the Company and its Subsidiaries in the
conduct of their business are in good operating condition and are fit for their
intended purpose.
(m) LEASED PROPERTY. Each real property and personal property
lease or sublease to which the Company or any of its Subsidiaries is a party is
valid and binding and is in full force and effect; all rent and other sums, and
charges payable by the Company or by each Subsidiary as lessee or sublessee
thereunder, are current through the last day of the immediately preceding
calendar month; no notice of default or termination under any lease is
outstanding; no termination event or condition or uncured default on the part of
the Company or any Subsidiary, or the landlord, exists under any lease; the
Company and its Subsidiaries currently occupy or use the premises leased
pursuant to the real property leases; and no event has occurred and no condition
exists which with the giving of notice or the lapse of time or both, would
constitute such a default or termination event or condition. Neither the
Company, nor its Subsidiaries, nor any of the officers or directors of the
Company or of its Subsidiaries has any ownership, financial or other interest in
the landlord under any real property lease. Each lease was negotiated on an
arm's-length basis.
(n) INVENTORIES. All inventory reflected in the June Balance Sheet
of the Company and of its Subsidiaries and all inventory acquired by the Company
and by its Subsidiaries subsequent to the Balance Sheet Date, were acquired and
have been maintained in accordance with the regular business practices of the
relevant entity, consists of items of quality and quantity reasonably expected
to be useable or saleable in the ordinary course of business consistent with
past practice, are valued in accordance with United States Generally Accepted
Accounting Principles, and such inventory which is known or reasonably believed
to be obsolete or slow moving has been adequately reserved to reduce such
inventory to net realizable value.
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Subject to amounts reserved therefor on the Financial Statements, the values at
which all inventories of the Company and of its Subsidiaries (collectively, the
"Inventories") are carried on the Financial Statements reflect the historical
inventory valuation policy of the Company and of its Subsidiaries of stating
such Inventories. at the lower of cost (determined on the first-in, first-out
method) or market value and all Inventories are valued such that the Company and
its Subsidiaries will earn its/their customary gross margins thereon. The
Company has good and marketable title to the Inventories free and clear of all
encumbrances. The Inventories do not consist of any items held on consignment.
The Company is under no obligation or liability with respect to accepting
returns of items of Inventory or merchandise in the possession of its customers
other than in the ordinary course of business consistent with past practice. No
clearances or extraordinary sale of the Inventories has been conducted since the
Balance Sheet Date. Neither the Company or any of its Subsidiaries has
manufactured Inventory for sale which is not of a quality and quantity usable in
the ordinary course of business consistent with past practice and within a
reasonable period of time nor has the Company or any of its Subsidiaries changed
the price of any Inventory except (i) for reductions to reflect any reduction in
the cost thereof to the Company or to any of its Subsidiaries; (ii) for
reductions and increases responsive to normal competitive conditions and
consistent with the Company's or the Subsidiaries' past sales practices; and
(iii) to reflect any increase in the cost thereof to the Company or to the
Subsidiaries. The Inventories are in good and merchantable condition in all
material respects, are suitable and usable for the purposes for which they are
intended and are in a condition such that they can be sold in the ordinary
course of business consistent with past practice.
(o) PATENTS, TRADEMARKS AND COPYRIGHTS, ETC. The Company and its
Subsidiaries own or are licensed or otherwise entitled to use all patents,
trademarks, trade names, service marks, copyrights, technology, know-how,
processes and other intellectual property used in the conduct of its business as
currently conducted and as proposed to be conducted. The Company and its
Subsidiaries have received no notice of any claims, have no knowledge of any
threatened claims, and know of no facts which would form the basis of any claim,
asserted by any person, to the effect that the sale or use of any product or
process now used or
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offered by the Company or any Subsidiary infringes on any patents or infringes
upon the use of any such trademarks, trade names, service marks, copyrights,
technology, know-how, processes or other intellectual property of another person
or challenges or questions the validity or effectiveness of any such license or
agreement. The sale and use of any such products and processes by the Company
and its Subsidiaries, and the use of any such patents, trademarks, trade names,
service marks, copyrights, technology, know-how, processes or other intellectual
property by the Company and its Subsidiaries, does not infringe on the rights of
any person.
(p) LITIGATION. There is no action, suit, investigation, customer
complaint, claim or proceeding at law or in equity by or before any arbitrator,
governmental instrumentality or other agency now pending or threatened against
or affecting the Company or any Subsidiary, nor, to the best of the Company's
knowledge, does there exist any basis therefor. Neither the Company nor any
Subsidiary is subject to any judgment, order, writ, injunction or decree of any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign. The Company agrees to
promptly notify the Placement Agent of the commencement of any litigation or
proceedings against the Company or any Subsidiaries or any of its/their
respective officers or directors in connection with the sale of the transaction
contemplated in the Offering Documents.
(q) NON-DEFAULTS; NON-CONTRAVENTION. Except as set forth in
Schedule 2(q) hereto, neither the Company nor its Subsidiaries is in default in
the performance or observance of any obligation (i) under its Certificate of
Incorporation, as amended, or its By-laws, or any indenture, mortgage, contract,
purchase order or other agreement or instrument to which the Company is a party
or by which it or any of its property is bound or affected; or (ii) with respect
to any order, writ, injunction or decree of any court of any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign and there exists no condition, event or act
which constitutes, nor which after notice, the lapse of time or both, would
constitute, a default under any of the foregoing.
(r) EMPLOYMENT OF OFFICERS, EMPLOYEES AND CONSULTANTS. To the best
of the Company's knowledge, no third party may assert
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any valid claim against the Company or its Subsidiaries with respect to the (i)
continued employment by, or association with, the Company or its Subsidiaries of
any of its present officers, employees or consultants; or (ii) the use by the
Company or its Subsidiaries of any information which the Company or its
Subsidiaries would be prohibited from using under any prior agreements or
arrangements or any laws applicable to unfair competition, trade secrets or
proprietary information.
(s) TAXES. The Company and its Subsidiaries have filed all
federal, state, local and foreign tax returns which are required to be filed by
them, and all such returns are true and correct in all material respects. The
Company and its Subsidiaries have paid all taxes pursuant to such returns or
pursuant to any assessments received by them and have withheld all amounts which
they are obligated to withhold from amounts owing to any employee, creditor or
third party. The tax returns of the Company and of its Subsidiaries have never
been audited by any state, local or federal authorities. The Company and its
Subsidiaries have not waived any statute of limitations with respect to taxes or
agreed to any extension of time with respect to any tax assessment or
deficiency. All tax elections have been made by the Company and its Subsidiaries
in accordance with generally accepted practices. No deficiency assessment with
respect to or proposed adjustment of the Company's and its Subsidiaries federal,
state, county or local taxes is pending or, to the best of the Company's
knowledge, threatened. There is no tax lien, whether imposed by any federal,
state, county or local taxing authority, outstanding against the assets,
properties or business of the Company or of its Subsidiaries. Neither the
Company nor any of its Subsidiaries nor any of its/their respective present or
former stockholders has ever filed an election pursuant to Section 1362 of the
Internal Revenue Code of 1986, as amended (the "Code"), that the Company or any
of its Subsidiaries be taxed as an S corporation.
(t) AGREEMENTS. Except as set forth in Schedule 2(t) hereto,
neither the Company nor any Subsidiary is a party to any written or oral
contract not made in the ordinary course of business and, whether or not made in
the ordinary course business, neither the Company nor any Subsidiary is a party
to any written or oral contract, agreement, arrangement or understanding which
is material to the business of the Company or
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to the business of any Subsidiary or which is material to, and which a prudent
investor would need to review in order to make an informed investment decision
with respect to the purchase of the Securities offered pursuant to the Offering
Documents. Each material contract of the Company or of any of its Subsidiaries
is valid and binding on the Company or on such Subsidiary, and neither the
Company nor any of its Subsidiaries has received notice that any such contract
is not binding on any party thereto. The Company and its Subsidiaries have
performed in all material respects all obligations to have been performed on
such contracts through the date hereof, and neither the Company nor any
Subsidiary is in default in any material respect under any such contract. Each
material contract of the Company or of any of its Subsidiaries is valid and
binding on the Company or the respective Subsidiary and the Company or the
respective Subsidiary has not received notice that any such contract is not
binding on any party thereto. The Company and each of its Subsidiaries has
performed in all material respects all obligations to have been performed on
such contracts through the date hereof and the Company and each of its
Subsidiaries is not in default in any material respect under any such contract.
(u) COMPLIANCE WITH LAWS; ENVIRONMENTAL MATTERS, LICENSES, ETC.
The Company and its Subsidiaries have received no notice of any violation of, or
noncompliance with, any federal, state, local or foreign laws, ordinances,
regulations or orders (including, without limitation, those relating to
environmental protection, occupational safety and health and other labor laws,
ERISA, federal drug laws, federal securities laws, equal employment opportunity,
consumer protection, credit reporting, "truth-in-lending," and warranties and
trade practices) applicable to its business or the business of any Subsidiary,
the violation of, or noncompliance with which, would have a material adverse
effect on the Company's business or operations, or that of any Subsidiary, and
the Company knows of no facts or set of circumstances which would give rise to
such a notice. The Company and its Subsidiaries have all licenses and permits
and other governmental certificates, authorizations and permits and approvals
(collectively, "Licenses") required by every federal, state and local government
or regulatory body for the operation of their business and the use of their
properties. The Licenses are in full force and effect and no violations are or
have been recorded in respect of any License and no proceeding is pending
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or threatened to revoke or limit any thereof. The Company and its Subsidiaries
have not received any written opinion or memorandum from legal counsel providing
that it/they has taken any action which has resulted in, or is reasonably likely
to result in, the Company or any of its Subsidiaries incurring any liability
which may be material to its/their respective business, prospects, financial
condition, operations, property or affairs. The Company and its Subsidiaries
shall comply with all applicable laws, rules, regulations and orders, the
noncompliance with which could materially adversely affect its/their respective
business or condition, financial or otherwise.
(v) AUTHORIZATION OF AGREEMENT, ETC. Each of this Agreement, the
Offering Documents and all other agreements or documents required to be executed
and delivered by the Company in connection with the Offering (collectively the
"Ancillary Documents") has been or will be duly executed and delivered by the
Company and the execution, delivery and performance by the Company of this
Agreement and the Ancillary Documents has been duly authorized by all requisite
corporate action by the Company; and each constitutes, or will constitute, the
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, usury or other similar laws affecting the
enforcement of creditors' rights generally. The execution, delivery and
performance of this Agreement and the issuance, sale and delivery of the
Securities, and the issuance and delivery of the Common Stock upon exercise of
the Sands Warrants (the "Reserved Shares"), will not (i) violate any provision
of law or statute or any order of any court or other agency of government
binding on the Company or its Subsidiaries; or (ii) conflict with or result in
any breach of any of the terms, conditions or provisions of, or constitute (with
due notice or lapse of time or both) a default under, or result in the creation
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of the Company or of its Subsidiaries under the Certificate of
Incorporation, as amended, or By-Laws of the Company or of its Subsidiaries or
any indenture, mortgage, lease agreement or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which it or any of
its property is bound or affected, except for such conflict, breach or default
as to which requisite waivers or consents shall
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have been obtained by the Company or by its Subsidiaries and delivered to the
Subscribers by the time of Closing.
(w) AUTHORIZATION OF SECURITIES AND SANDS WARRANTS. The issuance,
sale and delivery of the Securities and the Sands Warrants have been duly
authorized by all requisite corporate action of the Company, and when so issued,
sold and delivered, (i) the shares of Common Stock and Reserved Shares will be
validly issued and outstanding, duly executed and delivered, fully paid and
nonassessable, free and clear of all liens, charges, claims, encumbrances,
restrictions or preemptive or any other similar rights and the Company shall
have paid all taxes, if any, in respect of the issuance thereof; (ii) the Sands
Warrants will be validly issued and outstanding, duly executed, issued and
delivered, fully paid and nonassessable, free and clear of all liens, charges,
claims, encumbrances, restrictions or preemptive or any other similar rights and
the Company shall have paid all taxes, if any, in respect of the issuance
thereof; and (iii) neither the shares of Common Stock, nor the Sands Warrants
will be subject to preemptive or any other similar rights of the shareholders of
the Company or others which rights shall not have been waived prior to the time
of acceptance by the Company of the first Subscriber's Subscription Agreement.
The offer and sale of the Securities is exempt from the registration
requirements of the Securities Act and the rules and regulations promulgated
thereunder and the Securities will be issued in compliance with all applicable
federal securities laws.
(ww) AUTHORIZATION OF RESERVED SHARES. The issuance, sale and
delivery by the Company of the Reserved Shares have been duly authorized by all
requisite corporate action of the Company, and the Reserved Shares have been
duly reserved for issuance upon exercise of all or any of the Securities and the
Sands Warrants and when so issued, sold and delivered, the Reserved Shares will
be validly issued and outstanding, duly executed, issued and delivered, fully
paid and nonassessable, free and clear of all liens, charges, claims,
encumbrances, restrictions or preemptive or any other similar rights and the
Company shall have paid all taxes, if any, in respect of the issuance thereof
and the Reserved Shares will not be subject to any preemptive or any other
similar rights of the shareholders of the Company or others which rights shall
not have been waived prior to the time of
15
acceptance by the Company of the first Subscriber's Subscription Agreement.
(x) RELATED TRANSACTIONS. Except as set forth on Schedule
2(x)hereto, no current or former shareholder, director, officer or employee of
the Company, nor any affiliate of any such person, is presently, or since the
inception of the Company has been, directly or indirectly, through his, her or
its affiliation with any other person or entity, a party to any loan from the
Company or from any of its Subsidiaries.
(y) REGISTRATION RIGHTS. Except as may exist with respect to the
holders of the Securities and the Sands Warrants, (i) no person or entity has
any right to cause the Company to effect the registration under the Securities
Act of any securities of the Company and (ii) no person or entity holds any
anti-dilution or "piggy back" rights with respect to any securities of the
Company.
(z) SALARIES AND BONUSES. Schedule 2(z) hereto contains a true and
complete list of all current officers, directors and employees of the Company
and of its Subsidiaries who received during the fiscal year ended December 31,
1997 remuneration from the Company or from any of its Subsidiaries in excess of
$50,000, together with the current aggregate base salary rate for each such
person.
(AA) INSURANCE. All insurable assets and properties of the Company
and its Subsidiaries are insured, for the benefit of the Company and its
Subsidiaries, against all risks usually insured against by persons owning or
operating similar properties in the localities where such properties are
located, through insurance policies all of which are in full force and effect.
The Company and each Subsidiary are insured, for their benefit, against all
claims relating to their services to the same extent that the risks of such
claims are usually insured against by persons providing similar services. Each
of the insurance policies referred to in this Section is issued by an insurer of
recognized responsibility, and neither the Company nor its Subsidiaries has
received any notice or threat of the cancellation or nonrenewal of any such
policy. The Company will make available to the Placement Agent, upon its
request, a list of all insurance
16
coverage carried by the Company or its Subsidiaries, the carrier and the terms
and amount of coverage.
(BB) EMPLOYEE BENEFIT PLANS.
(i) WELFARE PLANS. Each welfare plan of the Company and its
Subsidiaries is in compliance with the applicable provisions of ERISA
and the Internal Revenue Code of 1986, as amended (the "Code"). The
Company and each Subsidiary have no contingent, future or other
obligations or liabilities under or with respect to any welfare plan
which provides for the continuation of benefits at the expense of the
Company or any Subsidiary after retirement or other termination of
employment.
(ii) PENSION PLANS. Each pension plan of the Company and of each
Subsidiary is in compliance with the applicable provisions of ERISA and
the Code including, without limitation, any applicable minimum funding
requirements. There have been no reportable events within the meaning of
Section 4043 of ERISA with respect to any pension plan. In the event of
the termination of all pension plans, the Company and each Subsidiary
would have no liability under Sections 4062, 4063 or 4064 of ERISA.
(iii) EFFECT OF TRANSACTIONS. The execution and delivery of this
Agreement by the Company and the consummation of the transactions
contemplated hereby will not involve any prohibited transactions with
respect to the Company or any of its Subsidiaries within the meaning of
ERISA.
(CC) BROKERS. The Company has not, nor have any of its
Subsidiaries, or any of its/their respective officers, directors, employees or
shareholders, employed any broker or finder in connection with the transactions
contemplated by this Agreement, other than Sands Brothers.
(DD) NO MATERIAL CHANGES. Since the Balance Sheet Date, there has
not been any change in the condition, financial or otherwise, of the Company or
of any of its Subsidiaries, which could adversely affect the ability of the
Company or the ability of any of its Subsidiaries to conduct its operations to
be
17
described in the Offering Documents and neither the Company nor any of its
Subsidiaries have incurred any material liabilities or obligations, direct or
contingent, not in the ordinary course of business since such Balance Sheet
Date.
(EE) ISSUANCE OF OTHER SECURITIES. Except as set forth in this
Agreement, there are no preemptive or other rights to subscribe for or purchase,
or any restriction upon the voting or transfer of, any shares of Common Stock or
any other securities of the Company, under the Certificate of Incorporation or
ByLaws, or any agreement or other outstanding instrument to which the Company or
any of its Subsidiaries is a party or by which it/they is bound. Except for the
Securities and the Sands Warrants or as set forth in this Agreement, neither the
Company nor any of its Subsidiaries has outstanding any option, warrant,
convertible security, or other right permitting or requiring it to issue, or
others to purchase or convert any obligation into, shares of Common Stock or any
other securities of the Company, and neither the Company nor any of its
Subsidiaries has agreed to issue or sell any shares of Common Stock or any other
securities of the Company.
(FF) NO CONSENTS. No permit, consent, approval, authorization,
order or filing with any court or governmental authority is required to
consummate the transactions contemplated by this Agreement, except that the
offer and sale of the Securities in certain jurisdictions may be subject to the
provisions of the securities or Blue Sky laws of such jurisdictions.
(GG) INFORMATION. The Company and its Subsidiaries shall provide
the holders of the Securities with the information, if any, specified in the
Memorandum.
(HH) RESTRICTIVE AGREEMENTS PROHIBITED. Neither the Company nor
any of its Subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of this Agreement.
(II) CHANGE IN NATURE OF BUSINESS. The Company and its
Subsidiaries shall not, without the prior approval of a majority of their Board
of Directors, make any material change in the
18
nature of its/their respective businesses as the same shall be set forth in the
Memorandum.
(JJ) CORPORATE EXISTENCE. The Company and its Subsidiaries shall
maintain their corporate existence, rights and franchises in full force and
effect.
(KK) TITLE TO SECURITIES. When certificates representing the
Securities shall have been duly delivered to the Subscribers, payment therefore
will become due, and to the extent such payment shall have been made therefor,
the several Subscribers shall have good and marketable title to the Securities
free and clear of all liens, encumbrances and claims whatsoever, and the Company
shall have paid all taxes, if any, in respect of the issuance thereof.
(LL) EMPLOYEE RELATIONS. Each of the Company and its Subsidiaries
has generally enjoyed a satisfactory employer-employee relationship with its
employees and is in compliance with all federal, state, local, and foreign laws
and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours. There are no pending
investigations involving the Company or any of its Subsidiaries by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company or its
Subsidiaries pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or its Subsidiaries, or any predecessor entity, and
none has ever occurred. No representation question exists respecting the
employees of the Company or the employees of any of its Subsidiaries, and no
collective bargaining agreement or modification thereof is currently being
negotiated by the Company or its Subsidiaries. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company or any of its Subsidiaries. No labor dispute with the
employees of the Company or its Subsidiaries exists, or, is imminent.
(MM) FOREIGN CORRUPT PRACTICES ACT. None of the Company, its
Subsidiaries nor to their knowledge any of their respective officers, employees,
agents or any other person acting on behalf
19
of the Company or any of its Subsidiaries 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 the business of any of its
Subsidiaries (or to assist the Company or any of its Subsidiaries in connection
with any actual or proposed transaction) which (a) might subject the Company or
any of its Subsidiaries, or any other such person, to any damage or penalty in
any civil, criminal or governmental litigation or proceeding (domestic or
foreign); (b) if not given in the past, might have had a material adverse effect
on the assets, business or operations of the Company or of any of its
Subsidiaries; or (c) if not continued in the future, might adversely affect the
assets, business, operations or prospects of the Company and of its
Subsidiaries, taken as a whole. The Company believes that its and its
Subsidiaries' international accounting controls are sufficient to cause the
Company and its Subsidiaries to comply with the Foreign Corrupt Practices Act of
1977, as amended.
(NN) AFFILIATIONS. Except as set forth in Schedule 2(NN) hereto,
no officer, director or shareholder of the Company or officer, director or
shareholder of any of its Subsidiaries, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any such person or entity or of the Company or its Subsidiaries, 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 its Subsidiaries; or (B)
purchases from or sells or furnishes to the Company or any of its Subsidiaries
any goods or services; or (ii) a beneficiary interest in any contract or
agreement to which the Company or any of its Subsidiaries is a party or by which
it may be bound or affected. Except as set forth in Schedule 2(OO) hereto, there
are no existing agreements, arrangements, understandings or transactions, or
proposed agreements, arrangements, understandings or transactions, between or
among the Company or
20
any of its Subsidiaries, and any officer, director, or principal stockholder of
the Company or any of its Subsidiaries, or any affiliate or associate of any
such person or entity.
(OO) CORPORATE REPRESENTATIONS. Any certificate signed by any
officer of the Company or by an officer of any of the Company's Subsidiaries and
delivered to the Placement Agent or to the Placement Agent's counsel pursuant to
this Agreement, shall be deemed a representation and warranty by the Company and
by any of its Subsidiaries to the Placement Agent as to the matters covered
thereby.
(PP) ESCROW ARRANGEMENTS. Pursuant to paragraph 3(e)(i) hereof, if
the Closing does not take place before the termination of the Offering Period,
the Company will instruct the Bank to return the funds to the Subscribers
without any deduction or interest thereon.
(QQ) CONFIDENTIAL ARRANGEMENTS. The Company and its Subsidiaries
agree to take reasonable precautions in protecting the confidentiality, privacy
and security of the business contacts identified by the Placement Agent by
taking appropriate administrative and managerial action, and to use its/their
respective best efforts to prevent disclosure of such property information to
any all persons and entities. The Company and each of its Subsidiaries agree
that, without the expressed written consent of the Placement Agent, it/they will
not initiate, respond or otherwise abide any contract with any person, company,
institution, professional association, nor other entity to which it has been
introduced or with whom it has become acquainted in the course of doing business
with the other party. The Company and each of its Subsidiaries agrees to hold
completely confidential the name, address, telephone, telex, facsimile number,
account or other business number of such contact as may be introduced by the
Placement Agent. The above restrictions apply to any subsequent follow up,
repeated or extended or renegotiation transactions related to the Offering
regardless of the results of the Offering.
(RR) DISCLOSURE. Neither this Agreement nor any other document,
certificate or written statement to be furnished to the Subscribers by or on
behalf of the Company in connection with the transactions contemplated hereby,
including the Offering
21
Documents, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements contained herein and therein not misleading. There is no fact known
to the Company which adversely affects the business operations, affairs,
prospects, conditions, properties or assets of the Company or of its
Subsidiaries (hereinafter "Material Facts") which has not been set forth in this
Agreement. To the extent Material Facts become known to the Company subsequent
to the date hereof, such facts will be set forth in the Memorandum and/or in the
other documents, certificates or statements furnished to the Subscribers by or
on behalf of the Company pursuant hereto.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLACEMENT AGENT.
The Placement Agent represents, warrants and covenants as follows:
(a) AUTHORIZATION OF AGREEMENT, ETC. This Agreement has been duly
and validly authorized, executed and delivered by or on behalf of the Placement
Agent.
(b) COMPLIANCE WITH THE SECURITIES ACT. The Placement Agent will
not knowingly take any action which will result in the Securities being offered
or sold in a manner which does not comply with the provisions of Regulation D
under the Securities Act.
(c) COMPLIANCE WITH OFFERING DOCUMENTS. The Placement Agent will
offer the Securities in accordance with the Offering Documents and will deliver
the Offering Documents to each Subscriber before accepting a signed copy of the
Subscription Agreement or payment for any Securities.
(d) COMPLIANCE WITH LAWS OF JURISDICTIONS. The Placement Agent
will offer the Securities only in those jurisdictions in which it is permitted
to sell the Securities pursuant to the laws of said jurisdiction, and the
Placement Agent may arrange for the Securities to be offered by a broker/dealer
or offshore or domestic facilitator(s), in which event the Company shall be
responsible for fees of such facilitator(s) up to three (3%) of the gross
offering proceeds of investors arranged by such facilitator(s).
22
(e) ESCROW ARRANGEMENTS.
(i) The Placement Agent will promptly deposit funds received
from Subscribers in the Account with the Bank and hold the funds in accordance
with the terms of this Agreement and hold the Offering Documents for the benefit
of the Subscribers and the Company. The Bank shall release funds from such
Account only upon receipt of instruction executed by each of the Placement Agent
and the Company. If the Closing does not take place before the termination of
the Offering Period, the Placement Agent will instruct the Bank to return the
funds to the Subscribers without any deduction or interest thereon.
(ii) In the event the Placement Agent has deposited funds
from any Subscriber into the Account and the Company exercises its right to
reject such Subscriber's funds, in whole or in part, the Placement Agent shall
be entitled to payment by the Company of a sum equal to the fees and expenses
due by the terms of this Agreement and entitled to issuance by the Company of
the Placement Agent Warrants that the Placement Agent would have received
pursuant to sub-paragraphs 4(d) and 4(e) of this Agreement, respectively.
4. CLOSING; PLACEMENT AND FEES.
(a) CLOSING. The initial Closing of the Financing shall take place
at the offices of the Placement Agent, 00 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
at a time and date agreed upon between the Placement Agent and the Company upon
the (i) receipt of Subscription Agreements and related documents in form and
substance satisfactory to the Company and the Placement Agent and (ii) delivery
of documentation evidencing the consummation of Other Financing transactions
which, in the cases of (i) or (ii) individually, or in the aggregate (in any
combination), are equal to or are in excess of the Minimum Amount. At the
initial and subsequent Closing(s), payment for the Securities shall be made
against delivery of certificates representing the Securities sold. All proceeds
received from the sale of the Securities sold after the initial Closing date
will continue to be deposited in the Account maintained with the Bank until the
occurrence of additional Closing(s).
(b) PROCEDURES AT CLOSING. At each Closing:
23
(i) The Placement Agent on behalf of itself and the
Subscribers shall receive the opinion of [ ] ("Company Counsel"), in form and
substance acceptable to the Placement Agent.
(ii) At the Closing, the Placement Agent will have received a
signed letter from [ ], confirming that such firm is an independent public
accountant within the meaning of the Securities Act and stating that: (i)
insofar as reported on by such firm, in their opinion, the financial statements
of the Company included in the Memorandum (including, without limitation, the
Financial Statements) comply as to form in all material respects with the
applicable accounting requirements of the Securities Act; (ii) on the basis of
procedures and inquiries (not constituting an examination in accordance with
generally accepted auditing standards) consisting of a reading of the last
available financial statements of the Company, inquiries of officers of the
Company responsible for financial and accounting matters as to the transactions
and events subsequent to the Balance Sheet Date, and a reading of the minutes of
meetings of the shareholders, the Board of Directors of the Company and any
committees of the Board of Directors, as set forth in the minute books of the
Company, nothing has come to their attention which, in their judgment, would
indicate that (A) during the period from the Balance Sheet Date to a specified
date not more than five (5) business days prior to the date of such letter,
there have been any material decreases in net current assets or net assets as
compared with amounts shown in such Financial Statements or material decreases
in net sales or in total or per share net loss compared with the corresponding
period in the preceding year or any change in the capitalization or long-term
debt of the Company or of any of its Subsidiaries, except in all cases as set
forth in or contemplated by the Memorandum; and (B) the unaudited interim
financial statements of the Company, if any, appearing in the Memorandum, are
not presented in conformity with Generally Accepted Accounting Principles and
Practices on a basis substantially consistent with the audited financial
statements included in the Memorandum; and (iii) they have compared specific
dollar amounts, numbers of shares, numerical data, percentages of revenues and
earnings, and other financial information pertaining to the Company set forth in
the Memorandum (with respect to all dollar amounts, numbers of shares,
percentages and other
24
financial information contained in the Memorandum, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records 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.
(iii) Counsel for the Placement Agent and Company Counsel
shall receive certificates from the Company, signed by the President or a Vice
President thereof, certifying (A) that the representations and warranties
contained in Section 2 hereof are true and accurate at the Closing with the same
effect as though expressly made at the Closing; and (B) that attached thereto is
(1) a true and correct copy of resolutions adopted by the Company's Board of
Directors authorizing (i) the execution, delivery and performance of this
Agreement and the Ancillary Documents, and (ii) the issuance of the Securities
and the Sands Warrants and certifying that such resolutions have not been
modified, rescinded or amended and are in full force and effect; and (2) a true
and correct copy of a resolution adopted by the Company's Board of Directors and
by each of the Company's Subsidiaries, authorizing the execution, delivery and
performance of each document to which it is a party, and that such resolutions
have not been modified, rescinded or amended and are in full force and effect.
(iv) There shall be delivered on behalf of each Subscriber
one copy of the Subscription Agreement signed by each Subscriber and one copy of
the Questionnaire signed by each Subscriber.
(v) The Placement Agent shall have received certificates of
good standing of the Company, dated as of a recent date, from the Secretary of
State of the jurisdiction of its incorporation and certificates of good standing
of each of the Company's Subsidiaries, dated as of a recent date, by the
Secretary of State of the jurisdictions of incorporation of the Subsidiaries.
25
(vi) At the Closing the Placement Agent shall instruct the
Bank to pay to the Company out of the funds on deposit in the Account, as such
funds are received from Subscribers whose Subscriptions have been accepted.
(c) BLUE SKY. Where appropriate, counsel for the Placement Agent
shall prepare a summary blue sky survey stating the extent to which and the
conditions upon which offers and sales of the Securities may be made in certain
jurisdictions. Blue Sky applications shall be made in such states and
jurisdictions as shall be requested by the Placement Agent. It is understood
that such survey may be based on or rely upon (i) the representations of each
Subscriber set forth in the Subscription Agreement delivered by such Subscriber;
(ii) the representations, warranties and agreements of the Company and of its
Subsidiaries set forth herein; (iii) the representations and warranties of the
Placement Agent set forth herein; and (iv) the representations of the Company
and of its Subsidiaries set forth in the certificate to be delivered at the
Closing pursuant to paragraph 4(b)(iii) hereof.
(d) PLACEMENT FEE AND EXPENSES.
(i) At each Closing, the Company shall pay to the Placement
Agent a commission equal to ten (10%) percent of the aggregate proceeds derived
from the Financing. In addition, the Company shall pay the Placement Agent a
non-accountable and non-refundable expense allowance, equal to three (3%)
percent of the aggregate proceeds derived from the Financing. Prior to or from
the proceeds of the Closing, the Company shall pay all Placement Agent's
expenses in connection with the proposed Offering, including, but not limited
to, reasonable counsel expenses and fees of counsel to the Company and of
counsel to the Placement Agent, disbursements and fees, reasonable accountant
expenses, disbursements and fees, filing fees, business and investigatory
expenses, printing costs, postage and mailing expenses with respect to the
transmission of the Offering and Ancillary Documents, registrar and transfer
agent fees, issue and transfer taxes, if any, and counsel fees of the Placement
Agent in connection with the qualification of the Securities under the
securities or blue sky laws of the states which the Placement Agent shall
designate. The Company also shall pay for the costs of placing "tombstone
advertisements" in any publications which
26
may be selected by the Placement Agent, all costs and expenses in connection
with the establishment and maintenance of the Account referred to in paragraph 1
of this Agreement, and all other costs and expenses incident to the performance
of its obligations hereunder which are not otherwise specifically provided for
in this paragraph 4(d), including the cost of transaction memorabilia determined
at the reasonable discretion of the Placement Agent.
(e) ISSUANCE OF PLACEMENT AGENT WARRANTS. At each Closing as
provided in paragraph 4(a) above, the Company shall issue to the Placement Agent
or its designee(s), warrants to purchase up to 100,000 shares of Common Stock
for each $1 million (or portion thereof) raised, at an exercise price of $1.50
per share (the "Placement Agent Warrants"). The Placement Agent Warrants shall
be exercisable for five (5) years, commencing upon the date of their issuance.
The Placement Agent Warrants shall be in the form attached hereto as Exhibit B,
and will be governed by the terms of the Warrant Agreement attached hereto as
Exhibit A. The certificates representing the Placement Agent Warrants will be in
such denominations and such names as the Placement Agent may request prior to
each closing.
(f) PLACEMENT AGENT'S DECISION NOT TO PROCEED, ETC. If the
Placement Agent decides not to proceed with the Offering because of a breach by
the Company or by its Subsidiaries of its/their representations, warranties, or
covenants in this Agreement, or as a result of adverse changes in the affairs of
the Company or of its Subsidiaries, the Company shall pay Sands Brothers the sum
of One Hundred and Fifty Thousand ($150,000) Dollars.
5. COVENANTS OF THE COMPANY.
(a) AMENDMENTS AND SUPPLEMENTS. The Company covenants and agrees
that, until the Offering contemplated by the Offering Documents has been
completed or terminated, if there shall occur any event relating to or
affecting, among other things, the Company, any of its Subsidiaries, or the
proposed operations of the Company or of any of its Subsidiaries as described in
the Offering Documents, as a result of which it is necessary, in the opinion of
the Placement Agent and its counsel or Company Counsel, to amend or supplement
the Offering Documents in order that the Offering Documents will not contain an
untrue statement
27
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, the Company shall immediately prepare and furnish to the
Placement Agent a reasonable number of copies of an appropriate amendment of or
supplement to the Offering Documents, in form and substance satisfactory to the
Placement Agent and its counsel.
(b) USE OF PROCEEDS. The net proceeds of the Offering of the
Securities will be used by the Company, as more fully described in the
Memorandum, for the purposes to be set forth in the Memorandum.
(c) EXPENSES OF OFFERING. The Company shall be responsible for,
and shall bear all expenses directly and necessarily incurred in connection with
the proposed financing, including, but not limited to, the costs of preparing,
printing and filing the Offering and Ancillary Documents to be used in
connection with the Offering contemplated hereby and all amendments and
supplements thereto; preparing, printing and delivering exhibits to the Offering
and Ancillary Documents; preparing, printing and delivering all Placement Agent
and selling documents, including, but not limited to, this Agreement and the
blue sky memorandum, the Share certificates, blue sky fees, filing fees and the
fees and disbursements of the Placement Agent's counsel and the other fees and
expenses set forth above. As promptly as practicable after the final Closing
date, the Company shall prepare, at its own expense, hard cover "bound volumes"
relating to the Offering and will distribute such volumes to the individuals
designated by counsel to the Placement Agent.
(d) RESERVATION OF COMMON STOCK. The Company will reserve and keep
available the maximum number of its authorized but unissued Reserved Shares
which are issuable upon exercise of the Sands Warrants.
(e) NO SENIOR SECURITIES. In the event any Securities are sold
hereunder, the Company shall not, without the approval of the holder(s) of at
least a majority-in-interest of such shares then outstanding, by vote or written
consent, authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of any equity securities (or any securities
convertible into or exchangeable for any equity securities) that
28
are senior to or on a parity with the Securities as to dividends or liquidation
rights.
(f) EARLY TERMINATION BY THE COMPANY. Anything contained herein to
the contrary notwithstanding, in the event that, following the date of this
Agreement until the termination of the Offering Period, the Company desires to
terminate this Agreement for any reason (which for purposes of this Agreement
shall include, but not be limited to, Sands Brothers being ready, willing and
able to proceed with the transactions contemplated hereunder, but the Company
being unwilling to proceed for any reason), Sands Brothers has the right, but
not the obligation, to agree to such early termination upon the payment by the
Company to Sands Brothers of a sum equal to the placement fees and expenses
(including its counsel fees and expenses) and Sands Warrants it would have
received under Sections 4(d) and 4(e) hereunder had the Maximum Amount been
sold.
(g) NO CLOSING. Anything set forth herein to the contrary
notwithstanding, in the event that, for any reason other than (i) termination
hereof by the Company in accordance with the terms of Section 5(f) above or (ii)
termination hereof by the Placement Agent in accordance with Section 4(f) above,
a Closing does not occur in accordance with the terms provided herein, no
amounts shall be payable further to Sands Brothers hereunder, except for that
contemplated by Section 3(e)(ii) hereof and the reimbursement of the reasonable
out-of-pocket expenses (including its counsel fees and expenses) incurred by
Sands Brothers prior to the expiration date of the Offering Period. In no event
shall Sands Brothers be responsible for any of the Company's fees, costs or
expenses and the Company shall pay all expenses of the Offering and the
preparation of the Offering and Ancillary Documents. The Company shall reimburse
Sands Brothers for any out-of-pocket expenses (including, but not limited to,
reasonable counsel fees and expenses) which Sands Brothers may incur in
connection with the enforcement of its rights hereunder.
(h) RATIFICATION AND CONFIRMATION OF INVESTMENT BANKING AGREEMENT.
The Company hereby confirms and ratifies the investment banking agreement
between the Company and the Placement Agent dated May 11, 1998, as amended
("Investment Banking Agreement"), including, without limitation, (i) the
retention of Sands Brothers as financial advisor to the Company
29
pursuant to Section A thereof, (ii) the retention of Sands Brothers in
connection with merger and acquisition activities pursuant to Section B thereof,
(iii) the granting of the right of first refusal to Sands Brothers pursuant to
Section C thereof, (iv) the granting of the right to designate a board member or
observer to the board of directors of the Company pursuant to Section D thereof,
(v) the issuance of warrants to purchase 600,000 shares of Common Stock to Sands
Brothers and its designees (the "Investment Banking Warrants") pursuant to
Section E thereof and (vi) the expense reimbursement and indemnification
provisions thereof.
(i) FINANCING SOURCES. The Company will provide to the Placement
Agent a list of each of its present financing sources, with such list to be
amended for a period of one year from the date of termination of the Offering
if, and when, the Company is approached by, or has any contact with, any
potential financing sources ("Company Sources").
(j) PLACEMENT AGENT SOURCES. For a period of one year from the
date of this Agreement, the Placement Agent shall keep a list of the names of
all its sources of potential financing ("Placement Agent Sources" and together
with the Company Sources collectively, the "Sources") for the Company, which
list may be furnished to the Company and amended from time to time by the
Placement Agent at its discretion. The Company agrees, in the event it directly
or indirectly receives financing in any form or nature whatsoever from any
Source, that it will fully compensate the Placement Agent under the terms and
conditions of this Agreement to the same extent as if the Placement Agent itself
had obtained such financing from such Source.
(k) NO FINDER'S FEE. The Company represents and warrants to the
Placement Agent that it is not obligated to pay a finders' fee to any one in
connection with the introduction of the Company to Sands Brothers.
6. INDEMNIFICATION.
(a) TERMS OF INDEMNIFICATION. The Company agrees to indemnify and
hold harmless the Placement Agent and its agents, stockholders, officers and
directors, and each person, if any, who controls the Placement Agent, as
follows:
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(i) against any and all loss, liability, claim, damage and
expense whatsoever arising out of any untrue statement or alleged untrue
statement of a fact contained in the Offering Documents or the omission
or alleged omission therefrom of a fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, unless such untrue statement or omission was
made in the Offering or Ancillary Documents in reliance upon and in
conformity with information furnished in writing to the Company in
connection therewith by the Placement Agent expressly for use therein;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission or any such
alleged untrue statement or omission; and
(iii) against any and all expense whatsoever incurred in
investigating, preparing or defending against any litigation, commenced
or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under clause (i) or (ii)
above.
(b) INDEMNITY UNDER SECURITIES LAWS. The Company agrees to
indemnify and hold harmless the Placement Agent and its agents, and each person,
if any, who controls the Placement Agent, to the same extent as the foregoing
Indemnity, against any and all loss, liability, claim, damage and expense
whatsoever directly arising out of the exercise by any person of any right under
the Securities Act or the Securities Exchange Act of 1934, as amended, or the
securities or blue sky laws of any state on account of violations of the
representations, warranties or agreements set forth herein.
(c) If any action is brought against the Placement Agent or any of
its officers, directors, stockholders, employees, agents, advisors, consultants
and counsel or any controlling persons of
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the Placement Agent (each, an "Indemnified Party" and collectively, "Indemnified
Parties"), in respect of which indemnity may be sought against the Company
pursuant to Sections 6(a) or 6(b) above, each such Indemnified Party shall
promptly notify the Company (the "Indemnifying Party") in writing of the
institution of such action (but the failure to so notify shall not relieve the
Indemnifying Party from any liability it may have under this Section 6 unless
such failure results in the imposition of a default judgment which cannot be
reopened) and the Indemnifying Party shall promptly assume the defense of such
action, including the employment of counsel reasonably satisfactory to each such
Indemnified Party and payment of expenses. Each such Indemnified Party shall
have the right to employ its own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of each such Indemnified Party
unless the employment of such counsel shall have been authorized in writing by
the Indemnifying Party in connection with the defense of such action or the
Indemnifying Party shall have not have promptly employed counsel reasonably
satisfactory to each such Indemnified Party to have charge of the defense of
such action or each such Indemnified Party shall have reasonably concluded that
there may be one or more legal defenses available to it or them or to other
Indemnified Parties which are different from or additional to those available to
one or more of the Indemnifying Parties and it would be inappropriate for the
same counsel to represent both parties due to actual or potential differing
interests between them, in any of which events such fees and expenses shall be
borne by the Indemnifying Party and the Indemnifying Party shall not have the
right to direct the defense of such action on behalf of each Indemnified Party.
Anything in this Section 6(c) to the contrary notwithstanding, the Indemnifying
Party shall not be liable for any settlement of any such claim or action
effected without its written consent, which consent shall not be unreasonably
withheld. The Company agrees to promptly notify the Placement Agent of the
commencement of any litigation or proceedings against the Company or any of its
officers or directors in connection with the sale of the Securities or the
Memorandum.
(d) CONTRIBUTION. In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes a claim for
indemnification pursuant to this Section 6, but it is judicially determined (by
the entry of a final
32
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 Securities 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) bear to the total Placement Agent commissions received by
the Placement Agent hereunder, in each case as set forth in the table on the
cover page of the Memorandum. 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 subsection (c), shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating,
preparing or defending any such action or claim. Notwithstanding the provisions
of this subsection (c), the Placement Agent shall not be required to
33
contribute any amount in excess of the Placement Agent commissions applicable to
the Securities placed by the Placement Agent hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities 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
Securities Act, each officer of the Company who has signed the Memorandum, and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to this subsection (c). 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 subsection
(c), 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 subsection (c), 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. MISCELLANEOUS.
(a) GENERAL. The Company shall supply Sands Brothers' with such
financial statements, contracts and other corporate records and documents as may
be requested of it. In addition, Sands Brothers shall be fully informed by the
Company of any events which might have a material affect on the financial
condition of the Company or of any of its Subsidiaries. If, in the opinion of
Sands Brothers, the condition of the Company, or the condition of any of its
Subsidiaries, financial or otherwise, and its/their prospects are affected in a
material and/or adverse manner and do no fulfill the expectation of Sands
Brothers, it shall have the sole discretion to review and determine its
continued interest in the Offering.
(b) REPRESENTATIONS, WARRANTIES AND COVENANTS TO SURVIVE DELIVERY.
The respective representations, warranties,
34
indemnities, agreements, covenants and other statements of the Company and its
Subsidiaries, and where appropriate, its/their respective principal
stockholders, shall survive execution of this Agreement and delivery of the
Securities and the termination of this Agreement. Notwithstanding anything
provided herein to the contrary, the provisions of Sections 4(d) and 4(e)hereof
shall survive the termination of the Offering Period and shall remain in full
force and effect with respect to all Sources who invest, or commit to invest, in
the Company at any time during the twelve month period commencing the day that
the Offering Period terminates. Additionally, the Placement Agent shall be
entitled to also retain its non-accountable and non-refundable expense allowance
to the extent it has been paid prior to the date of termination.
(c) NO OTHER BENEFICIARIES. This Agreement is intended for the
sole and exclusive benefit of the parties hereto and their respective successors
and controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(d) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of New York. The parties
hereby agree: (i) in any legal proceeding brought in connection with this
Agreement or the transactions contemplated hereby, to irrevocably submit to the
nonexclusive IN PERSONAM jurisdiction of (A) any state or federal court of
competent jurisdiction sitting in the State of New York, County of New York; or
(B) in the event that any party is a defendant in any legal proceeding in which
it seeks to join the other as a third party defendant, then, any state or
federal court in which such proceeding has properly been brought, and consents
to suit therein; and (ii) to waive any objection they may now or hereafter have
to the venue of such proceeding in any such court or that such proceeding was
brought in an inconvenient court.
(e) NOTICES. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when delivered
personally, receipt acknowledged, or five (5) days after being sent by
registered or certified mail, return receipt requested, postage prepaid. All
notices shall be made to the parties at the addresses designated above, or at
such
35
other or different addresses which a party may subsequently provide with notice
thereof, and to their respective legal counsel, as follows:
(i) If to the Placement Agent, to:
Sands Brothers & Co., Ltd.
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xx. Xxxx X. Xxxxx
Managing Director
- with a copy to -
Xxxxxxx Xxxxxx Xxxx & Ball P.C.
000 Xxxxx Xxxxxx 00xx xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxxxx X. Xxxxxxx, Esq.
or to such other person or address as the Placement Agent shall furnish the
Company in writing.
(ii) If to the Company, to:
IMSCO Technologies, Inc.
000-00 00xx Xxxxxx
Xxxxxx Xxxxx, XX 00000
Attn: Xxxxxxxxx X. Xxxxxxxx,
Chief Executive Officer
- with a copy to -
[
]
Attn: [ ].
36
or to such other person or address as the Company shall furnish the Placement
Agent in writing.
(f) COUNTERPARTS. This Agreement may be signed in counterparts
with the same effect as if both parties had signed one and the same instrument.
(g) REIMBURSEMENT. Notwithstanding the non-occurrence of an
Closing, or any other condition, in no event shall the Placement Agent be
responsible for any of the Company's fees, costs or expenses; however, the
Company shall reimburse the Placement Agent for any out-of-pocket expenses
(including, but not limited to, reasonable counsel fees and expense) which the
Placement Agent may incur in connection with the enforcement of its rights
hereunder.
(h) FORM OF SIGNATURE. The parties hereto agree to accept a
facsimile transmission copy of their respective signatures as evidence of their
respective actual signatures to this Agreement; PROVIDED HOWEVER, that each
party who produces a facsimile signature agrees, by the express terms hereof, to
place, immediately after transmission of his or her signature by fax, a true and
correct original copy of his or her signature in overnight mail to the address
of the other party.
(i) MODIFICATION. This Agreement (i) may only be modified by a
written instrument which is executed by both parties thereto, (ii) constitutes
the entire agreement between the parties, and (iii) shall be binding upon and
inure to the benefit of both parties hereto and their respective successor and
assignees.
(j) NON-CIRCUMVENTION. Each of the Company and the Placement Agent
each agree that no effort shall be made to circumvent the terms and conditions
of this Agreement or gain a fee, commission, remuneration, consideration or
benefit whatsoever. With respect to any attempt at circumvention of this
Agreement, the injured party is entitled to seek any and all legal remedies,
fees or compensation equal to those received or committed or agreed to be paid
pursuant to the terms of this Agreement as the same are due and payable to the
circumvented party under the terms of this Agreement.
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(k) GOOD FAITH. Each of the Company and the Placement Agent
understand that this Agreement is a reciprocal and mutual one and both warrant,
covenant, and promise that it will act in good faith toward each other in the
performance of this Agreement and in other matters.
(l) FURTHER SERVICES. The Placement Agent shall, if requested by
the Company, testify in, and shall prepare and assist in the preparation of
testimony for, any judicial or administrative proceeding in respect of the
services performed by the Placement Agent hereunder. With respect thereto, the
Company shall pay, in addition to the fees and expenses payable to the Placement
Agent hereunder, for the time required to expend by the Placement Agent at its
standard hourly rates as then in effect, together with reasonable out-of-pocket
expenses, but not limited to, fees and expenses of its legal counsel.
(m) WAIVER OF BREACH. The waiver by either the Placement Agent or
the Company of any provision of this Agreement shall not be construed as a
waiver of any subsequent breach hereof.
If you find the foregoing is in accordance with our understanding,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between us.
Very truly yours,
IMSCO Technologies, Inc.
By: /s/ Xxxxxxxxx X. Xxxxxxxx
---------------------------------
Name: Xxxxxxxxx X. Xxxxxxxx
Title: Chairman & CEO
Agreed:
SANDS BROTHERS & CO., LTD.
By: /s/ Xxxx X. Xxxxx
-------------------------------
Name: Xxxx X. Xxxxx
Title: Senior Managing Director
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LIST OF SCHEDULES
SCHEDULE 2(b) Organization
SCHEDULE 2(c) Capitalization
SCHEDULE 2(d) Subsidiaries and Investments
SCHEDULE 2(i) Absence of Changes
SCHEDULE 2(q) Non Defaults; Non Contravention
SCHEDULE 2(t) Agreements
SCHEDULE 2(x) Related Transactions
SCHEDULE 2(z) Salaries and Bonuses
SCHEDULE 2(NN) Affiliations
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EXHIBITS
Exhibit A - Placement Agent Warrant Agreement
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