CASULL ARMS CORPORATION
FORM
OF
PLACEMENT AGENT AGREEMENT
Afton, Wyoming
April , 1997
National Securities Corporation
As Placement Agent
0000 Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
Casull Arms Corporation, a Delaware corporation (the "Company"),
hereby agrees, subject to the terms and conditions stated herein, to offer and
sell through you, National Securities Corporation (the "Placement Agent" or
"National"), up to 1,400,000 shares of the Company's Common Stock, par value
$.01 per share (the "Common Stock") and 1,400,000 redeemable warrants (the
"Warrants"), each Warrant to purchase one (1) share of Common Stock at an
exercise price of $6.00 and exercisable at any time over a forty-eight (48)
month period commencing upon the first day of the thirteenth calendar month
after the date of the Company's prospectus ("Prospectus") pursuant to a Warrant
Agreement, as defined herein, to be entered into at the Closing, which
aggregates to 1,400,000 shares of Common Stock and 1,400,000 Warrants
(collectively, the "Securities"). The Securities are sold as units ("Units")
each consisting of one (1) share of Common Stock and one (1) Warrant, although
the parties anticipate that there will be no public market for the Securities as
Units. The Securities will be offered on a "best efforts, all or none" basis as
to the 400,000 share and 400,000 Warrant minimum offering (the "Minimum
Offering"), and on a "best efforts" basis as to the remaining 1,000,000 shares
and Warrants (the "Maximum Offering"). The offering period for the Common Stock
and Warrants will commence
1
on or about ______________, 1997, and all funds received from subscribers for
the Common Stock will be held in an escrow account for the benefit of the
subscribers by Continental Stock Transfer and Trust Company (the "Escrow Agent")
until a closing (a "Closing") of the Minimum Offering or earlier termination of
the Offering. The Offering will expire on the earlier to occur of (i) 60 days
from the date of this Prospectus and (ii) the sale of all the Securities being
offered, unless the Company and the Placement Agent agree to extend the Offering
for an additional 30-day period (the "Termination Date").
The Warrants and Common Stock will be immediately separately tradeable.
The Warrants will be redeemable by the Company commencing upon the first day of
the thirteen (13) calendar month after the date of the Prospectus at $.05 per
Warrant on thirty (30) days' prior written notice if the closing bid price of
the Common Stock as reported on Nasdaq averages an amount equal to $9.00 per
share [150% of the initial public offering price per share of Common Stock] for
any twenty (20) trading days within a period of thirty (30) consecutive trading
days ending on the fifth trading day prior to the notice of redemption.
The Company also proposes to issue and sell to you warrants (the
"Placement Agent's War rants") pursuant to the Placement Agent's Warrant
Agreement dated ________, 1997 (the "Placement Agent's Warrant Agreement") for
the purchase of an additional 140,000 shares of Common Stock and/or 140,000
Warrants. The shares of Common Stock and the Warrants underlying the Placement
Agent's Warrants, and the shares of Common Stock underlying the Warrants
issuable upon exercise of the Placement Agent's Warrants, are hereinafter
referred to as the "Placement Agent's Securities." The Securities, Placement
Agent's Warrants and Placement Agent's Securities are more fully described in
the Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company.
(A) The Company represents and warrants to, and agrees with, the
Placement Agent as of the date hereof, and as of the Closing Date (as defined in
Section 2(a) hereof) and the Second Closing Date (as defined in Section 2(b)
hereof), 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- 16911) including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Securities, Placement Agent's Warrants and the Placement Agent's
Securities (collectively, hereinafter referred to as the "Registered
Securities") under the Securities 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
2
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,
"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 the
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 the 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 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.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and the Second Closing Date,
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 has been duly organized and is validly
existing as a corporation in good standing under the laws of Delaware. The
Company does not own or control, directly or indirectly, any corporation,
partnership, trust, joint venture or other business entity. The Company 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. The Company
has all requisite power and
3
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; the Company has been doing business in compliance
with all such authorizations, approvals, orders, licenses, certificates,
franchises and permits and all federal, state, local and foreign laws, rules and
regulations; and the Company has not 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 condition, financial or otherwise, or the business affairs,
operations, properties, or results of operations of the Company. 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) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the headings
"Capitalization" and "Description of Securities" 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
Registered 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 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, the Company has no outstanding 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 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 non-assessable, 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 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 Registered 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
4
and non-assessable 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 Registered Securities has been duly
and validly taken; and the certificates representing the Registered Securities
will be in due and proper form. Upon the issuance and delivery pursuant to the
terms hereof of the Registered Securities to be sold by the Company hereunder,
the Placement Agent will acquire good and marketable title to such Registered
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 Registered Securities and the 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 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. There has been no material adverse
change or development involving a material prospective change in the condition,
financial or otherwise, or in the business, affairs, operations, properties, or
results of operation of the Company 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 conforms
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 "Selected Financial Data," "Capitalization,"
and "Management's Discussion and Analysis or Plan of Operation," 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 financial statements included in the Prospectus.
(h) Except as otherwise disclosed in the Company's balance
sheet contained in the Prospectus, the Company (i) has paid all federal, state,
local, franchise, and foreign taxes for which it is liable, 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 such taxes which are not due and payable, and
(iii) does not have any 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 Registered Securities, (ii) the consummation by
the Company of any of its obligations under this Agreement,
5
or (iii) resales of the Registered Securities in connection with the
distribution contemplated hereby.
(j) There is no claim, action, suit, proceeding, inquiry,
arbitration, mediation, investigation, litigation, governmental or other
proceeding (including, without limitation, those having jurisdiction over
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, the Warrant 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, the Warrant
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) might materially and adversely
affect the condition, financial or otherwise, or the business, affairs,
position, stockholders' equity, operation, properties, or results of operations
of the Company.
(k) The Company has the corporate power and authority to
authorize, issue, deliver, and sell the Registered Securities and to enter into
this Agreement, the Warrant Agreement and the Placement Agent's Warrant
Agreement, and to consummate the transactions provided for in such agreements;
and this Agreement, the Warrant 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, the Warrant Agreement and the Placement
Agent's Warrant Agreement constitutes a legal, valid and binding agreement of
the Company enforceable against the Company in accordance with its 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), and none of the
Company's issue and sale of the Registered Securities, execution, delivery or
performance of this Agreement, the Warrant Agreement and the Placement Agent's
Warrant Agreement, its consummation of the transactions contemplated herein and
therein, or the conduct of its 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 certificate of
incorporation or by-laws of the Company, as amended, (ii) any license, contract,
indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, loan 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 any
indebtedness, 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
6
having jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over the Company of any of its activities or properties.
(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 of the Registered Securities
pursuant to the Prospectus and the Registration Statement, the performance of
this Agreement, the Warrant Agreement, 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 Registered
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's purchase and distribution of the Registered 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 contribu tion 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 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
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 Securities, the Option Securities and the Placement Agent's
Securities hereunder and upon the exercise of options and warrants described in
the Registration Statement) of, or indebtedness material to, the Company (other
than
7
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
condition (financial or otherwise), business, properties, results of operations,
or prospects of the Company.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, (i) the Company has sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals and governmental authorizations to
conduct its business as now conducted; (ii) the expiration of any trademarks,
trade names, patent rights, copyrights, licenses, approvals or governmental
authorizations would not have a material adverse effect on the condition
(financial or otherwise), business, results of operations or prospects of the
Company; (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 have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company.
(p) Except as otherwise disclosed in the Prospectus, no
default exists, which would have a material adverse effect on the Company, in
the due performance and observance of any term, covenant or condition of any
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 is subject or
affected.
(q) To the Company's knowledge, there are no pending
investigations involving the Company 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 pending before the 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, " 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
8
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, to the best of the Company's
knowledge, 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 stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Registered Securi ties.
(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.
(u) To the best of the Company's knowledge, Price Waterhouse
LLP ("Price Waterhouse"), whose report is filed with the Commission as a part of
the Registration Statement, are independent certified public accountants 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 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 eighteen
(18) months following the date that the Registration Statement becomes
effective, without the prior written consent of Placement Agent (the "Lock-up
Agreements"). The Company will cause the Transfer Agent (as defined herein) to
place "stop transfer" orders on the Company's stock ledgers to effect the
Lock-up Agreements. The Lock-up Agreements shall also provide that each of the
stockholders of the Company shall grant the Placement Agent an irrevocable
preferential right for a period of three (3) years from the effective date of
the Registration Statement to purchase for its account or to sell for the
account of any of the stockholders of the Company any securities which such
stockholders may seek to sell into the open market, excluding transfers pursuant
to gifts, transfers to relatives or family members, or
9
trusts for the benefit of such relatives or family members, provided that the
transferee agrees to be bound by the terms of the Lock-Up Agreements. Such
stockholders will consult the Placement Agent with regard to any such proposed
sales and will offer the Placement Agent the opportunity to purchase or sell any
such securities on the terms described in the notice in the next sentence and on
terms no less favorable to the seller of such securities than he can secure
elsewhere. If the Placement Agent fails to accept such offer within fifteen (15)
business days after the mailing of a notice containing such offer by registered
mail addressed to the Placement Agent, then the Placement Agent shall have no
further claim or right with respect to the proposed transfer described. If,
however, the terms of such proposal are subsequently modified, the preferential
right referred to herein shall apply to such modified proposal as if the
original proposal had not been made. The Placement Agent's failure to exercise
its preferential right with respect to any particular proposal shall not affect
its preferential right relative to future proposals.
(w) 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 Registered
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 the National
Association of Securities Dealers, Inc. (the "NASD").
(x) Neither the Company, nor, to the best of its knowledge,
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 believes that its 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 promulgated under 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 beneficiary 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,
10
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.
(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 4(d) herein) shall be deemed a representation and warranty by the
Company to the Placement Agent as to the matters covered thereby.
(bb) 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.
(cc) The Company has not distributed and will not distribute
prior to the Closing Date any offering material in connection with the offering
and sale of the Securities 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.
(dd) The Company maintains insurance by insurers of recognized
financial responsibility of the types and in the amounts as are prudent,
customary 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 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
claims, has no material disputes with its insurance company regarding any claims
submitted under its insurance policies, and has complied with all material
provisions contained in its insurance policies.
(ee) The Company has entered into a warrant agreement (the
"Warrant Agreement") substantially in the form filed as Exhibit 4.1 to the
Registration Statement with Continental Stock Transfer & Trust Company, and the
Placement Agent, in form and substance satisfactory to the Placement Agent, with
respect to the Warrants providing for the payment of commissions contemplated by
Section 4(z), hereof. The Warrant Agreement has been duly and
11
validly authorized by the Company and, assuming due execution by the parties
thereto other than the Company, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification provision may be
limited under the federal and state securities laws, and (iii) that the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(ff) The Company has purchased "key man" life insurance on the
life of Xxxxxxx X. Casull in the amount of $3,000,000 and the Company is named
as the sole beneficiary of such insurance policy.
2. Closing; Second Closing. (a) If subscriptions for 400,000 shares
of Common Stock and 400,000 Warrants 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."
(b) If (i) subscriptions for 400,000 shares of Common Stock and
400,000 Warrants 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 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."
3. Purchase of the Placement Agent's Warrants. On the Closing Date,
the Company shall issue and sell to the Placement Agent Placement Agent's
Warrants at a purchase price of $0.01 per Placement Agent's Warrant, which
warrants shall entitle the holders thereof to purchase an aggregate of 140,000
shares of Common Stock and/or 140,000 Warrants. The Placement Agent's 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 twenty
percent (120%) of the initial public offering price of the shares of Common
Stock and Warrants, respectively. 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 Placement Agent's Warrants
shall be made on the Closing Date.
4. Covenants of the Company. The Company covenants and agrees with
the Placement Agent as follows:
12
(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
Securities 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 the 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 Registered Securities 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
authority 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.
(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 Registered
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 X'Xxxxxx & Xxxxxx ("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
13
the Registered Securities for offering and sale under the securities laws of
such jurisdictions as the Placement Agent may reasonably designate to permit the
continuance of 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 agree 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 or may reasonably be 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 Registered 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 Registered
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 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 12 consecutive months after the effective date of the Registration
Statement.
(h) During a period of five (5) years after the date hereof,
the Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver to
the Placement Agent:
14
(i) concurrently with furnishing such quarterly reports
to its stockholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders;
(ii) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company as at the end of
the preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company 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
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, the 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
(vi) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its
businesses which the Placement Agent may reasonably request.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer and warrant 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 Common Stock, Warrants and the Placement Agent's Warrants.
(j) The Company will furnish to the Placement Agent or on the
Placement Agent's order, without charge, at such place as the Placement Agent
may designate, copies of each Preliminary Prospectus, the Registration Statement
and any pre-effective or post-effective amendments thereto (two of which copies
will be signed and will include all financial statements and exhibits), each
Preliminary Prospectus, the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such quantities
as the Placement Agent may reasonably request.
15
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Placement Agent with true copies of
duly executed, legally binding and enforceable 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,
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 Registered Securities substantially in the manner, and subject to the
conditions, set forth under "Use of Proceeds" in the Prospectus.
(n) 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 cause the Registered 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 Registered
Securities to the extent outstanding.
(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 consolidated transfer sheets relating to the Common Stock.
(q) For a period of five (5) years after the effective date of
the Registration Statement the Company shall use its best efforts, at the
Company's sole expense, to take all necessary and appropriate actions to further
qualify the Company's securities in all jurisdictions of the United States in
order to permit secondary sales of such securities pursuant to the Blue-Sky laws
of those jurisdictions which do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process.
(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 Common Stock 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 and
Xxxxx'x OTC Manual and to continue such inclusion for a period of not less than
five (5) years.
16
(s) The Company agrees that for a period of eighteen (18)
months following the effective date of the Registration Statement it will not,
without the prior written consent of National, 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 the
Placement Agent's Warrants, and shares of Common Stock upon the exercise of
currently outstanding warrants or options issued under any stock option plan in
effect on the Closing Date or options to purchase shares of Common Stock granted
pursuant to any stock option plan in effect on the Closing Date.
(t) Until the completion of the distribution of the Registered
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 with respect to the Company's operations.
(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
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 (or other appropriate form) for the
registration under the Act of the Placement Agent's Securities.
(v) The Company agrees that upon the request of National it
shall use its best efforts, which shall include, but shall not be limited to,
the solicitation of proxies, to elect one (1) designee of National to the
Company's Board of Directors for a period of five (5) years following the
Closing, provided that such designee is reasonably acceptable to the Company. In
the event National does not exercise its right to designate a member of the
Board of Directors, then it shall have the right to designate one person to
attend all meetings of the Board of Directors of the Company, and all committees
thereof, as an observer. Such observer shall be entitled to receive notices of
all such meetings, and all correspondence and communications sent by the Company
to members of its Board of Directors, and to attend all such meetings. The
Company shall reimburse the designee of National for his out-of-pocket expenses
incurred in connection with their attendance at such meetings.
(w) The Company agrees that within forty-five (45) days after
the Closing it shall retain a public relations firm which is acceptable to
National. The Company shall keep such public relations firm, or any replacement,
for a period of three (3) years from the Closing. Any replacement public
relations firm shall be retained only with the consent of National.
(x) The Company agrees that any and all future transactions
between the Company and 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.
17
(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 effective date of the Registration Statement, ten (10) bound volumes
containing all correspondence with regulatory officials, agreements, documents
and all other materials in connection with the offering as requested by the
Placement Agent's Counsel.
(z) The Company shall pay the Placement Agent a commission
equal to five percent (5%) of the exercise price of each Warrant exercised for
the period commencing twelve (12) months after the effective date of the
Registration Statement until the expiration of the term of the Warrants, payable
on the date of such exercise on terms provided for in the Warrant Agreement. The
Company will not solicit the exercise of the Warrants other than through the
Placement Agent. However, no compensation will be paid to the Placement Agent in
connection with the exercise of the Warrants if (i) the Warrants are held in a
discretionary account, or (ii) the Warrants are exercised in an unsolicited
transaction. Further, the Placement Agent must be designated in writing by the
account holder as having solicited the transaction, otherwise the Placement
Agent shall not be paid the fee. In addition, the Placement Agent will not
receive any commission with respect to the exercise of the Warrants contained in
the Units to be received upon the exercise of the Placement Agent's Warrants,
unless held by a person or entity other than any of the Placement Agent.
6. Road Shows: The Company agrees that road show presentations will
be given by the Placement Agent in the following cities: New York, Chicago,
Denver, Atlanta, Boca Raton, Dallas, San Diego, Irvine, Los Angeles, San
Francisco and Portland, as well as any other cities which may be mutually agreed
upon by the Placement Agent and the Company. Travel will be "AirPass" on
Platinum upgrade and on American Airlines when available. The Company
acknowledges that the Placement Agent requires a suite in New York in order to
accommodate meetings.
7. Payment of Expenses.
(a) The Company hereby agrees to pay on the 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, the Warrant
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
Registered Securities, (iv) the
18
qualification of the Registered Securities under state or foreign securities or
"Blue Sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing 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) postage, mailing, taxes, all costs of marketing their
Registered Securities including all air fares, hotels and road show
presentations, information meetings and presentations, ten (10) bound volumes of
the closing documents and prospectus memorabilia and "tombstone" advertisement
expenses, (vi) costs and expenses in connection with due diligence
investigations, including but not limited to the fees of any independent counsel
or consultant retained, (vii) fees and expenses of the transfer agent and
registrar, (viii) the fees payable to the Commission and the NASD, (ix) the fees
and expenses incurred in connection with the listing of the Registered
Securities on any other market or exchange, and (x) applications for assignments
of a rating of the Securities by qualified rating agencies.
(b) If this Agreement is terminated by the Placement Agent in
accordance with the provisions of Section 6, Section 10(a) or Section 11, the
Company shall reimburse and indemnify the Placement Agent for all of their
actual out-of-pocket expenses, including the fees and disbursements of Placement
Agent's Counsel, less any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, 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 three
percent (3%) of the gross proceeds received by the Company from the sale of the
Shares, $25,000 of which has been paid to date, $25,000 of which will be due
upon the printing of preliminary prospectuses, and any unpaid balance of which
will be paid on the Closing Date.
8. 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 the Second Closing Date, if any, as if they had
been made on and as of the Closing Date; the accuracy on and as of the Closing
Date 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 (or Second Closing Date) 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 of this Agreement or such
later date and time as shall be consented to in writing by the Placement Agent,
and, at the Closing Date 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 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
19
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) On or prior to the Closing Date and the Second Closing
Date, if any, the Placement Agent shall have received from Placement Agent's
Counsel such opinion or opinions with respect to the organization of the
Company, the validity of the Registered Securities, the Registration Statement,
the Prospectus and other related matters as the Placement Agent may request and
Placement Agent's Counsel shall have received from the Company such papers and
information as they request to enable them to pass upon such matters.
(d) At Closing Date and the Second Closing Date, if any, the
Placement Agent shall have received the favorable opinion of Camhy, Xxxxxxxxx &
Xxxxx, LLP ("CKS"), counsel to the Company, dated the Closing Date (or the
Second 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, and (C) to the best of such counsel's knowledge, has the
requisite corporate power and authority and has obtained the
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 (the absence of
which would have a material adverse effect on the Company), to own
or lease its properties and conduct its business as described in the
Prospectus;
(ii) except as described in the Prospectus, and to the
best of such counsel's knowledge after reasonable investigation, the
Company does not own an
20
interest in any corporation, limited liability company, partnership,
joint venture, trust or other business entity;
(iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any
amendment or supplement thereto, under "Capitalization" and
"Description of Securities," and to the best 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 Warrant Agreement, the Placement Agent's Warrant
Agreement, and as described in the Prospectus. The Registered
Securities and all other securities issued or issuable by the
Company 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
non-assessable; and to the best of such counsel's knowledge, none of
such securities were issued in violation of the preemptive rights of
any holders of any security of the Company. The Registered
Securities to be sold by the Company hereunder and under the Warrant
Agreement and Placement Agent's Warrant Agreement are not and will
not, to the best of such counsel's knowledge, 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 their terms, will be validly issued, fully paid and
non-assessable and 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 Registered Securities has been duly and validly taken; and the
certificates representing the Registered Securities are in due and
proper form. The Placement Agent's Warrants constitute valid and
binding 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 princi ples 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 Registered Securities to be sold by the Company, the Company
will convey, against payment therefor as provided herein, to the
Placement Agent and the Placement Agent, respectively, good and
marketable title to the Registered Securities free and clear of all
liens and other encumbrances;
(iv) the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has been
timely made in the appropriate form under Rule 430A, and no stop
order suspending the use of the 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
21
proceedings for that purpose have been instituted or are pending or,
to the best of such counsel's knowledge, threatened or contemplated
under the Act;
(v) each of the 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 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 representations of the Company and the Placement
Agent and representations of the independent public accountants for
the Company, at which conferences the contents of the 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 Pro spectus, and any
amendments or supplements thereto);
(vi) to the best of such counsel's knowledge after
reasonable investigation, (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 documents to which the Company is a party or by which it is
bound are accurate in all material respects and fairly represent the
information required to be shown by Form SB-2; (C) there is not
pending or threatened against the Company any action, arbitration,
suit, proceeding, litigation, governmental or other proceeding
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, pending or
threatened against the Company which (x) 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), (y) questions the
validity of the capital stock of the Company or this Agreement, the
Warrant Agree ment or the Placement Agent's Warrant Agreement, or of
any action taken or to be
22
taken by the Company pursuant to or in connection with any of the
foregoing; and (D) there is no action, suit or proceeding pending or
threatened 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 financial condition, business, affairs,
stockholders' equity, operations, properties, business or results of
operations of the Company, which could adversely affect the present
or prospective ability of the Company to perform its obligations
under this Agreement, the Warrant Agreement or the Placement Agent's
Warrant Agreement or which in any manner draws into question the
validity or enforceability of this Agreement, the Warrant Agreement
or the Placement Agent's Warrant Agreement;
(vii) the Company has the corporate power and authority
to enter into each of this Agreement, the Warrant Agreement and the
Placement Agent's Warrant Agreement and to consummate the
transactions provided for therein; and each of this Agreement, the
Warrant Agreement and the Placement Agent's Warrant Agreement has
been duly authorized, executed and delivered by the Company. Each of
this Agreement, the Warrant 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 agreement of the Company enforceable against the Company 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), and none of the Company's execution, delivery or performance
of this Agreement, the Warrant Agreement and the Placement Agent's
Warrant Agreement, its consummation of the transactions contemplated
herein or therein, or the conduct of its business as de scribed in
the Registration Statement, the Prospectus, and any amendments or
supple ments thereto conflicts with or results in any breach or
violation of any of the terms or provisions of, or constitutes 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 (A) the certificate 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 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;
23
(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 federal
securities or Blue Sky laws, as to which no opinion need be
rendered) is required in connection with the issuance of the
Registered Securities pursuant to the Prospectus, and the
Registration Statement, the performance of this Agreement, the
Warrant Agreement and the Placement Agent's Warrant Agreement, and
the transactions contemplated hereby and thereby, except such as
have been obtained under the Securities Act and the Regulations;
(ix) to the best knowledge of such counsel, and except
as disclosed in Registration Statement and the Prospectus, the
Company is not in breach of, or in default under, any material term
or provision of any license, contract, indenture, 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 any 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; and the Company is not in violation of any term or
provision of its certificate of incorporation or by-laws, as
amended, and to the best of such counsel's knowledge after
reasonable investigation, not in violation of any franchise,
license, permit, judg ment, decree, order, statute, rule or
regulation which would have a material adverse effect on the
Company;
(x) the statements in the Prospectus under "Dividend
Policy" and "Description of Securities," 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 accurate summaries and fairly and correctly present
the information called for therein;
(xi) except as otherwise described in the Prospectus, to
the best of such counsel's knowledge and based upon a review of the
outstanding securities and the contracts furnished to such counsel
by the Company, 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.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws, rules and regulations of
the United States and the laws, rules and regulations of the State of New York,
to the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
satisfactory to Placement Agent's Counsel) of other counsel acceptable to
Placement Agent's Counsel, familiar with the applicable laws; (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
24
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. The opinion of such counsel
shall state that knowledge shall not include the knowledge of a director or
officer of the Company who is affiliated with such firm in his or her capacity
as an officer or director of the Company. The opinion of such counsel for the
Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel.
(e) On or prior to 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 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company or herein contained.
(f) Prior to the Closing Date and the Second Closing Date, if
any, (i) there shall have been no material adverse change nor development
involving a prospective 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) 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) the Company shall not have
issued any securities (other than the Registered 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); (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) no action, suit or proceeding, at
law or in equity, shall have been pending or threatened (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, operations, prospects or
financial condition or income 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.
(g) At the Closing Date and the Second Closing Date, if any,
the Placement Agent shall have received a certificate of the Company signed on
behalf of the Company by the principal executive officer of the Company, dated
the 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:
25
(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 and the Second Closing Date, if any, 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;
(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 and the Second Closing Date, if any, 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 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 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.
(h) 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.
26
(i) 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 Price
Waterhouse:
(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 Price Waterhouse 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
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 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
27
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 transac tion contemplated hereby as the Placement
Agent may reasonably request.
(j) At the Closing Date and the Second Closing Date, if any,
the Placement Agent shall have received from Price Waterhouse a letter, dated as
of the Closing Date (or the Second Closing Date), to the effect that they
reaffirm that statements made in the letter furnished pursuant to Subsection (i)
of this Section 8, 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),
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 8 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).
(k) On the Closing Date and the Second Closing Date, if any,
there shall have been duly tendered to the Placement Agent for the several
Placement Agent's accounts the appropriate number of Registered Securities.
(l) No order suspending the sale of the Registered Securities
in any jurisdiction designated by the Placement Agent pursuant to subsection (e)
of Section 4 hereof shall have been issued on the Closing Date (or the Second
Closing Date) and no proceedings for that purpose shall have been instituted or
shall be contemplated.
(m) On or before the Closing Date and the Second Closing Date,
if any, 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 4.2, to the Registration Statement, in final form and substance
satisfactory to the Placement Agent, and (ii) the Placement Agent's Warrants in
such denominations and to such designees as shall have been provided to the
Company.
(n) On or before Closing Date and the Second Closing Date, if
any, there shall have been delivered to the Placement Agent all of the Lock-up
Agreements in final form and substance satisfactory to Placement Agent's
Counsel.
(o) On or before the Closing Date or the Second Closing Date,
if any, the Company shall have executed the Warrant Agreement, substantially in
the form filed as Exhibit
28
4.1 to the Registration Statement, in final form and substance satisfactory to
the Placement Agent and their counsel.
If any condition to the Placement Agent's obligations hereunder to
be fulfilled prior to or at the Closing Date 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.
9. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Placement Agent (for purposes of this Section 9 "Placement Agent" shall include
the officers, directors, partners, employees, agents and counsel of the
Placement Agent), 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 9 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 Registered Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, The Nasdaq Stock Market,
Inc. or any securities exchange; 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 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, 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
29
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 Registered 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 for
inclusion in the Prospectus. The indemnity agreement in this subsection (b)
shall be in addition to any liability which the Placement Agent may have at
common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 9 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 9, 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 9,
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 action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded, based on the
advise of counsel, 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 9 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.
30
(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 9, 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 9 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 Registered 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 are 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 Registered
Securities (before deducting expenses other than underwriting discounts and
commissions) bear to the total underwriting discounts 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 the provisions of this subdivision (d) the Placement
Agent shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Registered 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 9, 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
31
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.
10. 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 Second Closing Date, if any, and such representations,
warranties and agreements of the Company, and the respective indemnity and
contribution agreements contained in Section 9 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 Registered Securities to the Placement Agent.
11. Effective Date.
This Agreement shall become effective at 5:00 p.m., New York
City time, on the date hereof.
12. Termination.
(a) Subject to subsection (b) of this Section 12, the
Placement Agent shall have the right to terminate this Agreement, (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
materially disrupt the financial markets; or (ii) any material adverse change in
the financial markets shall have occurred; or (iii) 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 or substantial 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 Registered Securities; or (viii) if there shall have
been such a material adverse change in the prospects or conditions of the
Company, or such material adverse change in the general market, political or
economic conditions, in the United States or elsewhere as in the Placement
Agent's judgment would make it inadvisable to proceed with the offering, sale
and/or delivery of the Registered Securities.
(b) If this Agreement is terminated by the Placement Agent in
accordance with any of the provisions of Section 8, Section 11(a) or Section 12,
the Company shall promptly reimburse and indemnify the Placement Agent pursuant
to Section 7(b) hereof. Notwithstanding
32
any contrary provision contained in this Agreement, any election hereunder or
any termination of this Agreement (including, without limitation, pursuant to
Sections 8, 12, 13 and 14 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 7 and Section 9 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.
13. 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.
14. 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 National
Securities Corporation, 0000 Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxxxx
00000, Attention: Xxxxxx Xxxxxxxxx, with a copy, which shall not constitute
notice, to X'Xxxxxx & Xxxxxx, 00 X. XxXxxxx Xx., Xxxxx 0000, Xxxxxxx, Xxxxxxxx
00000, Attention: Arthur Don, Esq. Notices to the Company shall be directed to
the Company at Casull Arms Corporation, 000 Xxxxxxxx Xxxx, X.X. Xxx 0000, Xxxxx,
Xxxxxxx 00000, Attention: Xxxxx X. Xxxxxxx, 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.
15. 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 7 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 Registered Securities from any Placement Agent shall
be deemed to be a successor by reason merely of such purchase.
16. 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.
17. 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.
18. Entire Agreement; Amendments. This Agreement, the Warrant
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
33
to the subject matter hereof. This Agreement may not be amended except in a
writing, signed by the Placement Agent, and the Company.
If the foregoing correctly sets forth the understanding among 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,
CASULL ARMS CORPORATION
By:______________________________________
Name: Xxxxx X. Xxxxxxx
Title: Chairman of the Board
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
NATIONAL SECURITIES CORPORATION
By:___________________________________
Name: Xxxxxx X. Xxxxxxxxx
Title: Chairman
-34-
