CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
PLACEMENT AGENCY AGREEMENT
--------------------------
_________________
_________________
_________________
Dear Sirs:
Conversion Technologies International, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement to retain _______________________ (the
"Placement Agent") on an exclusive basis to introduce the Company to, and to
procure subscriptions from, certain "accredited investors" (as defined in
Regulation D under the Securities Act of 1933, as amended) as prospective
purchasers of a minimum of thirty (30) Units (the "Minimum Offering") and a
maximum of fifty (50) Units (the "Maximum Offering"), with an option in favor of
the Placement Agent to offer up to an additional thirty (30) Units to cover
over-allotments at a purchase price of $100,000 per Unit, with each "Unit"
consisting of 10,000 shares of Premium Preferred Stock, stated value $10.00
per share, of the Company (the "Preferred Stock"). The Preferred Stock shall
have the terms set forth in the Term Sheet (as defined below).
The sale to such purchasers (the "Offering") will be made through a private
placement by the Placement Agent (or its designated selected dealers) on a "best
efforts" basis pursuant to the Confidential Term Sheet dated August 8, 1997, and
all supplements, amendments and exhibits thereto, all of which constitute an
integral part thereof (the "Term Sheet"), and separate purchase agreements and
related documents (the "Subscription Agreements") in accordance with Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and
Regulation D promulgated thereunder.
The Term Sheet, the Subscription Agreements, the exhibits to the
Subscription Agreements, the Certificate of Designation relating to the
Preferred Stock (the "Certificate of Designation"), the Escrow Agreement (the
"Escrow Agreement"), the Financial Advisory Agreement (as defined in Section
4(k) below), the Placement Warrants (as defined in Section 3(d) below) and this
Placement Agency Agreement are collectively referred to herein as the "Offering
Documents."
The Company, at its sole cost, shall prepare and deliver to the Placement
Agent a reasonable number of copies of the Offering Documents in form and
substance satisfactory to the Placement Agent.
Each prospective investor subscribing to purchase Units shall be required
to deliver, among other things, a Subscription Agreement, which shall include a
Confidential Investor Questionnaire ("Questionnaire"). The Company shall make
available to each prospective purchaser at a reasonable time prior to the
purchase of the Units the opportunity to ask questions of and receive answers
from the Company concerning the terms and conditions of the Offering and the
opportunity to obtain additional information necessary to verify the accuracy of
the documents delivered in connection with the purchase of the Units to the
extent it possesses such
-1-
information or can acquire it without unreasonable effort or expense. After the
Offering Documents have been reviewed by investors, and they have had the
opportunity to address all inquiries to the Company, separate Subscription
Agreements shall be completed by each prospective investor. The Company, with
the consent of the Placement Agent and the Placement Agent, in its sole
discretion, shall have the right to reject subscriptions in whole or in part.
The Company shall evidence its acceptance of a subscription by countersigning a
copy of the applicable Subscription Agreement and returning the same to the
Placement Agent.
Capitalized terms used in this Agreement, unless otherwise defined herein
or unless the context otherwise indicates, shall have the same meanings provided
in the Offering Documents.
1. Appointment of Placement Agent.
------------------------------
(a) The Placement Agent is hereby appointed exclusive placement agent of
the Company (subject to the Placement Agent's right to have Selected Dealers, as
defined in Section 1(c) hereof, participate in the Offering) during the Offering
Period herein specified for the purposes of assisting the Company in finding
qualified subscribers pursuant to the Offering described in the Offering
Documents. The Placement Agent shall not be deemed an agent of the Company for
any other purpose. The Offering Period shall commence on August 8, 1997 (the
"Commencement Date"). Upon receipt of the Minimum Offering amount, the Placement
Agent may conduct a closing (the "Initial Closing Date") and may conduct
subsequent closings on an interim basis until the Maximum Offering amount (and
any over-allotment amount) has been reached (the "Final Closing Date"). Each
such closing may be referred to herein as a "Closing". The Offering Period shall
terminate at 11:59 p.m. New York City Time on October 8, 1997, subject to an
extension, at the option of the Placement Agent, for an additional sixty (60)
days.
(b) Subject to the performance by the Company of all of its obligations to
be performed under this Agreement and to the completeness and accuracy of all
representations and warranties of the Company contained in this Agreement, the
Placement Agent hereby accepts such agency and agrees to use its best efforts to
assist the Company in finding qualified subscribers pursuant to the Offering
described in the Offering Documents. It is understood that the Placement Agent
has no commitment to sell the Units. The Placement Agent's agency hereunder is
not terminable by the Company except upon termination of the Offering Period.
(c) The Placement Agent may engage other persons, selected by it in its
discretion, that are members of the National Association of Securities Dealers,
Inc. ("NASD") or who are located outside the United States and that have
executed a Selected Dealers Agreement (each such person being hereinafter
referred to as a "Selected Dealer") and the Placement Agent may allow such
persons such part of the compensation and payment of expenses payable to the
Placement Agent hereunder as the Placement Agent shall determine.
(d) Subscriptions for Units shall be evidenced by the execution by
qualified subscribers of a Subscription Agreement. No Subscription Agreement
shall be effective unless and until it is accepted by the Company. Until a
Closing is held, all subscription funds received shall be held as described in
the Subscription Agreement. The Placement Agent shall not have any independent
obligation to verify the accuracy or completeness of any information contained
in any Subscription Agreement or the authenticity, sufficiency or validity of
any check delivered by any prospective investor in payment for Units, nor shall
the Placement Agent incur any liability with respect to any such check.
-2-
2. Representations and Warranties of the Company. The Company represents,
---------------------------------------------
warrants and covenants to the Placement Agent and each Selected Dealer, if any,
as follows:
(a) Securities Law Compliance. The Offering Documents as of their
---------------------------
respective dates do, and as of the date of the Term Sheet and each Closing shall
describe the material aspects of an investment in the Company and conform in all
respects with the requirements of Section 4(2) of the Securities Act and
Regulation D promulgated thereunder and with the requirements of all other
published rules and regulations of the Securities and Exchange Commission (the
"Commission") currently in effect relating to "private offerings" to "accredited
investors" of the type contemplated by the Company. The Offering Documents shall
not as of the date of the Term Sheet and each Closing contain an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, provided, however, that no representation is
made with respect to information relating to the Placement Agent which is
provided in writing by the Placement Agent to the Company specifically for
inclusion in the Offering Documents. If at any time prior to the completion of
the Offering or other termination of this Agreement any event shall occur as a
result of which it might become necessary to amend or supplement the Offering
Documents so that they do not include any untrue statement of any material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances then existing, not misleading, the
Company will promptly notify the Placement Agent and will supply the Placement
Agent (or the prospective purchasers designated by the Placement Agent) with
amendments or supplements correcting such statement or omission. The Company
will also provide the Placement Agent for delivery to all offerees and
purchasers and their representatives, if any, any information, documents and
instruments which the Placement Agent and the Company's counsel reasonably deem
necessary to comply with applicable state and federal law.
The Company acknowledges that the Placement Agent (i) has not supplied any
information for inclusion in the Offering Documents other than information
relating to the Placement Agent furnished in writing to the Company by the
Placement Agent specifically for inclusion in the Offering Documents; (ii) has
no obligation to independently verify any of the information in the Offering
Documents; and (iii) has no responsibility for the accuracy or completeness of
the Offering Documents, except for the information relating to the Placement
Agent furnished in writing by the Placement Agent to the Company specifically
for inclusion in the Offering Documents.
(b) Organization. Each of the Company and Dunkirk International Glass and
------------
Ceramics Corporation and Advanced Particle Technologies, Inc. (each, a
"Subsidiary" and collectively, the "Subsidiaries") is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own and lease its properties, to carry on its respective business
as currently conducted and as proposed to be conducted, to execute and deliver
this Agreement and to carry out the transactions contemplated by this Agreement,
as appropriate and is duly licensed or qualified to do business as a foreign
corporation in each jurisdiction in which the conduct of its business or
ownership or leasing of its properties requires it to be so qualified, except
where the failure to be so qualified would not have a material adverse effect on
the business, financial condition or prospects of the Company.
(c) Capitalization. The authorized, issued and outstanding capital stock of
--------------
the Company prior to the consummation of the transactions contemplated hereby is
as set forth in the Offering Document. All issued and outstanding shares of the
Company are validly issued, fully
-3-
paid and nonassessable and have not been issued in violation of the preemptive
rights of any stockholder of the Company. The Preferred Stock, when issued, will
have the rights, preferences and privileges substantially as set forth in the
Form of Certificate of Designation attached as Exhibit B to the Term Sheet. All
prior sales of securities of the Company were either registered under the Act
and, except as set forth in Schedule 2(c), applicable state securities laws or
exempt from such registration, and no security holder has any rescission rights
with respect thereto. Except as set forth in the Term Sheet, there are no
outstanding options, warrants, agreements, convertible securities, preemptive
rights or other rights to subscribe for or to purchase any shares of capital
stock of the Company. Except as set forth in the Term Sheet and as otherwise
required by law, there are no restrictions upon the voting or transfer of any
shares of the Company's capital stock pursuant to the Company's Certificate of
Incorporation, By-Laws or other governing documents or any agreement or other
instruments to which the Company is a party or by which the Company is bound.
(d) Warrants, Preemptive Rights, Etc. Except as set forth in or
-------------------------------------
contemplated by the Term Sheet, there are not, nor will there be immediately
after any Closing, any outstanding warrants, options, agreements, convertible
securities, rights of first refusal, rights of first offer, preemptive rights or
other rights to subscribe for or to purchase or other commitments pursuant to
which the Company is, or may become, obligated to issue any shares of its
capital stock or other securities of the Company and this Offering will not
cause any anti-dilution adjustments to such securities or commitments except as
reflected in the Term Sheet.
(e) Subsidiaries and Investments. Except with respect to a wholly-owned
------------------------------
subsidiary of the Company, CTI ACQSUB-II, Inc., which presently holds no assets
and which was formed in connection with a previously proposed merger of the
Company, and other than as disclosed in the Term Sheet, the Company does not
own, directly or indirectly, capital stock or other equity ownership or
proprietary interests in any other corporation, association, trust, partnership,
joint venture or other entity.
(f) Financial Statements. The financial information contained in the
---------------------
Offering Documents is accurate in all material respects. The Company's financial
statements have been prepared in conformity with generally accepted accounting
principles consistently applied and show all material liabilities, absolute or
contingent, of the Company and the Subsidiaries required to be recorded thereon
and present fairly the financial position and results of operations of the
Company and the Subsidiaries as of the dates and for the periods indicated.
(g) Absence of Changes. Since the date hereof, except as has been or will
------------------
be reflected in the Term Sheet prior to Closing, neither the Company nor the
Subsidiaries has incurred any liabilities or obligations, direct or contingent,
other than those which were incurred in the ordinary course of business, nor has
the Company or the Subsidiaries entered into any transaction which is material
to the business of the Company or the Subsidiaries, and there has not been any
change in the capital stock of, or any incurrence of long-term debt by, the
Company or the Subsidiaries, or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or the Subsidiaries, or any
adverse change or any development involving a prospective adverse change in the
condition (financial or otherwise), net worth, results of operations, business,
key personnel or properties which would be material to the business or financial
condition of the Company or the Subsidiaries, and neither the Company nor the
Subsidiaries has become a party to, and neither the business nor the property of
the Company or the Subsidiaries has become the subject of, any litigation
whether or not in the ordinary course of business.
-4-
(h) Title. Except as set forth on Schedule 2(h), each of the Company and
-----
the Subsidiaries has good and marketable title to all tangible properties and
assets owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are not materially significant or important in
relation to the Company's or the Subsidiary's respective business; all of the
material leases and subleases under which the Company is the lessor or sublessor
of properties or assets or under which the Company or the Subsidiaries hold
properties or assets as lessee or sublessee are in full force and effect, and
neither the Company nor either of the Subsidiaries is in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and no material claim has been asserted by anyone adverse to rights
of the Company or the Subsidiaries as lessor, sublessor, lessee or sublessee
under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company or the Subsidiaries to continued possession
of the leased or subleased premises or assets under any such lease or sublease.
Each of the Company and the Subsidiaries owns or leases all such tangible
properties as are necessary to its respective operations as now conducted and
proposed to be conducted and, except to the extent described in the Term Sheet,
neither the Company nor the Subsidiaries presently anticipate the need for any
capital expenditures.
(i) Proprietary Rights. Except as has been or will be reflected in the Term
------------------
Sheet prior to each Closing, each of the Company and the Subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, trade names, corporate names,
copyrights, trade secrets, processes, mask works, licenses, inventions,
formulations, technology and know-how and other intangible property used or
proposed to be used in the conduct of its business as described in or
contemplated by the Term Sheet (the "Proprietary Rights"). Except as has been or
will be reflected in the Term Sheet prior to each Closing, the Company and the
Subsidiaries or the entities from whom the Company or the Subsidiaries has
acquired rights has taken all necessary action to protect all of the Company's
and the Subsidiary's Proprietary Rights. Except as set forth in the Term Sheet,
neither the Company nor the Subsidiaries has received any notice of, and there
are not any facts known to the Company or the Subsidiaries which indicate the
existence of, (i) any infringement or misappropriation by any third party of any
of the Proprietary Rights or (ii) any claim by a third party contesting the
validity of any of the Proprietary Rights; the Company has not received any
notice of any infringement, misappropriation or violation by the Company or the
Subsidiaries or any of its employees of any proprietary rights of third parties,
and, to the best of the Company's knowledge, neither the Company nor the
Subsidiaries nor any of its employees has infringed, misappropriated or
otherwise violated any Proprietary Rights of any third parties; and, to the best
of the Company's knowledge, no infringement, illicit copying, misappropriation
or violation of any intellectual property rights of any third party has occurred
or will occur with respect to any products currently being sold by the Company
or the Subsidiaries or with respect to any products currently under development
by the Company or the Subsidiaries or with respect to the conduct of the
Company's or either of the Subsidiary's businesses as currently contemplated.
Except as described in the Term Sheet, the Company is not aware that any of its
employees are obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of the employee's best efforts to promote the interests of the Company
or the Subsidiaries or that would conflict with the Company's or the
Subsidiary's businesses as currently conducted or as proposed to be conducted.
To the best of the Company's knowledge, neither the execution nor delivery of
this Agreement, nor the carrying on of the Company's or either of the
Subsidiary's businesses by the employees of the Company or either of the
Subsidiaries, nor the conduct of the Company's or either of the Subsidiary's
businesses, as currently conducted or as proposed to be conducted, will conflict
with or result in
-5-
a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any such employee is now
obligated.
(j) Litigation. Except as set forth in the Term Sheet, there is no action,
----------
suit, claim or proceeding at law or in equity, or to the Company's knowledge,
investigation or customer complaint, by or before any arbitrator, governmental
instrumentality or other agency now pending or, to the knowledge of the Company,
threatened against the Company or the Subsidiaries (or basis therefor known to
the Company which the Company believes will result in the foregoing). Neither
the Company nor the Subsidiaries is subject to any judgment, order, writ,
injunction or decree of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign which would materially adversely affect the Company's or either of the
Subsidiary's businesses, prospects or financial condition.
(k) NonDefaults, NonContravention. Except as set forth on Schedule 2(k),
------------------------------
neither the Company nor the Subsidiaries is in violation of or default under,
nor will the execution and delivery of this Agreement or any of the Offering
Documents, or consummation of the transactions contemplated herein or therein
result in a violation of or constitute a default in the performance or
observance of any obligation (i) under its Certificate of Incorporation, or its
By-Laws, or any indenture, mortgage, contract, material purchase order or other
agreement or instrument to which the Company is a party or by which it or its
property is bound or affected or (ii) with respect to any order, writ,
injunction or decree of any court of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, and there is no existing condition, event or act which
constitutes, nor which after notice, the lapse of time or both, could
constitute, a default under any of the foregoing.
(l) Taxes. Each of the Company and the Subsidiaries has filed all Federal,
-----
state, local and foreign tax returns which are required to be filed by it and
all such returns are true and correct in all material respects. Each of the
Company and the Subsidiaries has paid all taxes due pursuant to such returns or
pursuant to any assessments received by it or which it is obligated to withhold
from amounts owing to any employee, creditor or third party. Each of the Company
and the Subsidiaries has properly accrued all taxes required to be accrued. The
tax returns of the Company and the Subsidiaries have never been audited by any
state, local or Federal authorities. Each of the Company and the Subsidiaries
has not waived any statute of limitations with respect to taxes or agreed to any
extension of time with respect to any tax assessment or deficiency.
(m) Compliance With Laws, Licenses, Etc. Each of the Company and the
--------------------------------------
Subsidiaries is in compliance with all federal, state, local or foreign, laws,
ordinances, regulations and orders applicable to its respective business, the
violation of, or noncompliance with which, would have a materially adverse
effect on the business, financial condition, prospects or operations of the
Company or the Subsidiaries. Each of the Company and the Subsidiaries has all
governmental licenses and permits and other governmental certificates,
authorizations and permits and approvals (collectively, "Licenses") required by
every federal, state and local government or regulatory body for the operation
of its respective business as currently conducted and the use of its properties,
except where the failure to be licensed would not have a material adverse effect
on the business of the Company or either of the Subsidiaries. Each of the
Company's and the Subsidiary's Licenses are in full force and effect and no
violations are or have been recorded in respect of any License and no proceeding
is pending or, to the best knowledge of the Company, threatened to revoke or
limit any thereof.
-6-
(n) Authorization of Documents and Units. Each of the Offering Documents,
------------------------------------
has been, or prior to any Closing will be duly and validly authorized, executed
and delivered by the Company and the execution, delivery and performance by the
Company of the Offering Documents has been duly authorized by all requisite
corporate action by the Company and when delivered, constitute or will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms, subject to the availability and
enforceability of equitable remedies and to applicable bankruptcy and other laws
relating to the rights of creditors generally and except as the enforcement of
the rights to indemnification and contribution hereunder and under any other
Offering Documents may be limited by federal or state securities laws or public
policy. Subject to the filing prior to the Initial Closing Date of the
Certificate of Designation, the Company has full power and lawful authority to
authorize, issue and sell the Units to be sold to the Purchasers. No consent is
required by the Company or either of the Subsidiaries from any third party to
perform any of its obligations under this Agreement or any of the Offering
Documents.
(o) Exemption from Registration. Assuming (i) the accuracy of the
-----------------------------
information provided by the respective Purchasers in the Subscription
Agreements, and (ii) the timely filing of a Form D by the Company, the offer and
sale of the Units and the granting of the Placement Warrants pursuant to the
terms of this Agreement are exempt from the registration requirements of the
Securities Act and the rules and regulations promulgated thereunder (the
"Regulations"). The Company is not disqualified from the exemption under
Regulation D by virtue of the disqualifications contained in Rule 505(b)(2)(iii)
or Rule 507 promulgated thereunder and the securities underlying the Units.
There exist no fact or set of facts which might cause the Offering to be
integrated with any other offering of the Company's securities.
(p) Registration Rights. Except as set forth in the Term Sheet or Section 5
-------------------
of the Subscription Agreements, no person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.
(q) Brokers. Neither the Company nor any of its officers, directors,
-------
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement other than the Placement Agent.
(r) Title to Preferred Stock. When certificates representing the Preferred
------------------------
Stock shall have been duly delivered to the Purchasers and payment shall have
been made for the Units, the several Purchasers shall have good and valid title
to the Preferred Stock, and upon conversion of such Preferred Stock (including
the Preferred Stock issuable upon exercise of the Placement Warrants), subject
to the filing of an amended Certificate of Incorporation increasing the number
of authorized shares of the Company's Common Stock as contemplated by the Term
Sheet, will have good and valid title to the Common Stock issuable upon such
conversion (the "Conversion Shares"), in each case, free and clear of all liens,
encumbrances and adverse claims, whatsoever (except as arising from applicable
Federal and state securities laws), and the Company shall have paid all taxes,
if any, in respect of the original issuance thereof. When certificates
representing the Placement Warrants shall have been duly delivered to the
Placement Agent, the Placement Agent or its designees shall have good and valid
title to the Placement Warrants, and upon exercise of such Placement Warrants,
will have good and valid title to the Preferred Stock issuable upon such
exercise, and upon conversion of the Preferred Stock issuable upon exercise of
such Placement Warrants, will have good and valid title to the Common Stock into
which such Preferred Stock is converted, in each case, free and clear of all
liens, encumbrances and adverse claims, whatsoever (except as arising from
applicable Federal and
-7-
state securities laws), and the Company shall have paid all taxes, if any, in
respect of the original issuance thereof.
(s) Non-Affiliated Directors. The Company's Board of Directors has not less
------------------------
than two directors who are independent from, and unaffiliated with, management
of the Company.
(t) Accuracy of Reports. All reports required to be filed by the Company
-------------------
and the Subsidiaries under the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), have been duly filed with the Commission, complied at the
time of filing in all material respects with the requirements of their
respective forms and, except to the extent updated or superseded by the Term
Sheet or any subsequently filed report, were complete and correct in all
material respects as of the dates at which the information was furnished, and
contained (as of such dates) no untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
(u) Authorized Shares. The Company shall (i) use its best efforts to
------------------
increase the authorized shares of Common Stock of the Company to a minimum of
40,000,000 and in any case a number of shares sufficient for the purpose of
conversion of all the Preferred Stock sold in or related to this Offering
including without limitation, (x) the Common Stock underlying the Placement
Warrants and (y) the Common Stock underlying the Preferred Stock resulting from
dividends paid on the Preferred Stock (or such other amounts as may be
authorized by the Board of Directors) within 90 days following the Final Closing
Date but in any event shall effect such increase no later than 180 days
following the Final Closing Date and (ii) at all times after the date upon which
such Common Stock is authorized, reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of Preferred Stock, such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Preferred Stock. If at any time
Placement Agent elects to convert any of its shares of Preferred Stock and the
Company does not have authorized and reserved for issuance a sufficient number
of shares of Common Stock to permit conversion in full of all outstanding shares
of Preferred Stock, then the Placement Agent shall be entitled to receive upon
conversion of its Preferred Stock only that number of shares of Common Stock as
equals the Placement Agent's Pro Rata Percentage of the number of shares of
Common Stock authorized and reserved for issuance upon conversion of Preferred
Stock.
For purposes of the previous sentence, the Placement Agent's "Pro Rata
Percentage" on any date equals the number of shares of Preferred Stock held of
record by the Placement Agent on such date divided by the number of shares of
Preferred Stock held of record by all holders of Preferred Stock on such date.
In addition to the foregoing, if after 180 days following the Final Closing
Date the Company has failed to authorize and reserve a sufficient number of
shares of Common Stock to permit conversion in full of all outstanding shares of
Preferred Stock, the Company shall, for no additional consideration, issue to
the Placement Agent additional shares of Preferred Stock equal to 0.25% of the
shares of Preferred Stock then held by Placement Agent, exclusive of shares of
Preferred Stock issued pursuant to this Section 2(u), for each day the Company
lacks sufficient authorized and reserved shares of Common Stock to permit
conversion in full of all outstanding shares of Preferred Stock.
-8-
3. Closing; Placement and Fees.
---------------------------
(a) Closing. Provided that the Placement Agent has received subscriptions
-------
for the Minimum Offering amount, the Placement Agent may conduct, in its
sole discretion, closings (the date of each a "Closing Date") at the offices of
the Placement Agent until the Final Closing Date. On each Closing Date, payment
for the Units issued and sold by the Company shall be made to the Company in
immediately available funds against delivery of certificates evidencing the
Preferred Stock comprising such Units.
(b) Conditions to Placement Agent's Obligations. The obligations of the
---------------------------------------------
Placement Agent hereunder are subject to the accuracy of the representations and
warranties of the Company herein contained as of the date hereof and as of each
Closing Date, to the performance by the Company of its obligations hereunder and
to the following additional conditions:
(i) Due Qualification or Exemption. (A) The Offering contemplated by this
------------------------------
Agreement will become qualified or be exempt from qualification under the
securities laws of the several states pursuant to paragraph 3(c) below not later
than the Closing Date, subject to any filings to be made thereafter, and (B) at
the Closing Date, no stop order suspending the sale of the Units shall have been
issued, and no proceeding for that purpose shall have been initiated or
threatened;
(ii) No Material Misstatements. Neither the Blue Sky qualification
---------------------------
materials, the Offering Documents, nor the Term Sheet, nor any supplement
thereto, will contain an untrue statement of a fact which in the opinion of the
Placement Agent is material, or omit to state a fact, which in the opinion of
the Placement Agent is material and is required to be stated therein, or is, in
the opinion of the Placement Agent, necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(iii) Compliance with Agreements. The Company will have complied with all
---------------------------
agreements and satisfied all conditions on its part to be performed or satisfied
hereunder and under the Subscription Agreements at or prior to each Closing;
(iv) Corporate Action. The Company will have taken all corporate action
-----------------
necessary to permit the valid execution, delivery and performance of the
Offering Documents by the Company, including without limitation, obtaining the
approval of the Company's board of directors for the execution and delivery of
the Offering Documents, the increase in authorized shares of Common Stock of the
Company, the performance by the Company of its obligations hereunder and the
Offering contemplated hereby;
(v) Opinions of Counsel to the Company. The Placement Agent shall receive
----------------------------------
the opinion of Xxxxxxxx Xxxxxxxxx, counsel to the Company (stating that each of
the Purchasers may rely thereon as though addressed directly to such Purchaser),
dated as of each Closing Date, substantially to the effect that:
(A) Each of the Company and the Subsidiaries is duly incorporated and is
validly existing and in corporate good standing under the laws of its
jurisdiction of incorporation, has all requisite corporate power and authority
necessary to own or hold its properties and conduct its business as described in
the Term Sheet and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business conducted, or as proposed to be conducted in the Term Sheet, by
-9-
it or the properties owned, leased or operated by it, makes such qualification
or licensing necessary and where the failure to be so qualified or licensed
would have a material adverse effect upon the business, prospects and financial
condition of the Company. To such counsel's knowledge, except with respect to
the Subsidiaries, the Company does not own, directly or indirectly, any capital
stock or other equity ownership or proprietary interests in any other
corporation, association, trust, partnership, joint venture or other entity;
(B) the execution, delivery and performance of each of the Offering
Documents to which the Company is a signatory, and the issuance of (I) the
Preferred Stock and the Placement Warrants, (II) the Preferred Stock issuable
upon exercise of the Placement Warrants and (III) the Conversion Shares
(including the Conversion Shares underlying the Preferred Stock issuable upon
exercise of the Placement Warrants), have been duly authorized, subject to the
filing of an amended Certificate of Incorporation increasing the number of
authorized shares of the Company's Common Stock as contemplated by the Term
Sheet, by all necessary corporate action on the part of the Company. Each of the
Offering Documents to which the Company is a signatory has been duly executed
and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, receivership or other laws of
general application relating to or affecting generally the 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;
(C) the authorized, issued and outstanding capital stock of the Company as
of the date hereof (before giving effect to the transactions contemplated by
this Agreement) is as set forth in the Term Sheet. To such counsel's knowledge,
there are no outstanding warrants, options, agreements, convertible securities,
preemptive rights or other commitments pursuant to which the Company is, or may
become, obligated to issue any shares of its capital stock or other securities
of the Company other than as set forth in the Term Sheet. All of the issued
shares of capital stock of the Company have been duly and validly authorized and
issued, are fully paid and nonassessable and to the best of such counsel's
knowledge, have not been issued in violation of the preemptive rights of any
security holder;
(D) assuming (x) the accuracy of the information provided by the
Subscribers in the Subscription Documents, (y) the timely filing with the
Commission and any applicable state securities authority of a Form D and
amendments thereto containing accurate and complete information, the issuance
and sale of the Units is exempt from registration under the Securities Act and
Rule 506 of Regulation D promulgated thereunder;
(E) neither the execution and delivery of the Offering Documents nor
compliance with the terms hereof or thereof, nor the consummation of the
transactions herein or therein contemplated, has, nor will, conflict with,
result in a breach of, or constitute a default under the Certificate of
Incorporation or By-laws of the Company or either of the Subsidiaries, or any
material contract, instrument or document known to such counsel, after due
inquiry, to which the Company or either of the Subsidiaries is a party, or by
which it or any of its properties is bound or, to the best knowledge of such
counsel, violate any applicable order or decree of any governmental agency or
court having jurisdiction over the Company or either of the Subsidiaries or any
of its properties or business;
(F) except as disclosed in the Term Sheet, to such counsel's best
knowledge, there are no claims, actions, suits, investigations or proceedings
before
-10-
or by any arbitrator, court, governmental authority or instrumentality pending
or threatened against the Company or either of the Subsidiaries. Except as
disclosed in the Term Sheet, to such counsel's knowledge, neither the Company
nor either of the Subsidiaries is a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality;
(G) upon the issuance of the Units, the Preferred Stock (including the
shares of Preferred Stock issuable upon exercise of the Placement Warrants), the
Placement Warrants and the Conversion Shares, subject to the filing of an
amended Certificate of Incorporation increasing the number of authorized shares
of the Company's Common Stock as contemplated by the Term Sheet, (including the
Conversion Shares underlying the Preferred Stock issuable upon exercise of
Placement Warrants), each of the purchasers or the Placement Agent and its
designees, as the case may be, shall acquire such securities, free and clear of
all pledges, liens, claims, encumbrances, preemptive rights, rights of first
offer or right of first refusal and restrictions known to such counsel after due
inquiry, except for the transfer restrictions set forth in the Subscription
Agreements and any action taken to encumber such securities by the holders
thereof;
(H) the Placement Warrants, when issued in accordance with the terms of
this Agreement and/or the Subscription Agreement, as applicable, for the
consideration expressed therein, will have been validly issued and will
constitute legal, valid and binding obligations 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 or
affecting generally the enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable. The Preferred Stock to
be issued as of the date of such opinion, when issued in accordance with the
terms of this Agreement and the Subscription Agreements for the consideration
expressed therein, will have been validly issued and such Preferred Stock will
be fully paid and nonassessable. The Preferred Stock issuable upon exercise of
the Placement Warrants, when issued in accordance with the terms thereof for the
consideration expressed therein, will have been duly issued; such Preferred
Stock will be fully paid and nonassessable and the provisions of the Preferred
Stock Certificate of Designation will constitute legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating or affecting generally the enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable.
Except as set forth in the Term Sheet, the Conversion Shares (including the
Conversion Shares underlying the Preferred Stock issuable upon exercise of the
Placement Warrants), subject to the filing of an amended Certificate of
Incorporation increasing the number of authorized shares of the Company's Common
Stock as contemplated by the Term Sheet, have been duly authorized and reserved
for issuance and, when issued in accordance with the terms of the Preferred
Stock, will have been validly issued and will be fully paid and nonassessable.
(I) the Company's By-laws and/or Certificate of Incorporation, as in effect
as of the date of such opinion, contain provisions indemnifying all directors
against liability and absolving all directors from liability to the Company and
its stockholders to the maximum extent permitted under the laws of the State of
Delaware.
Such counsel shall state, in opining on any matter stated to be subject to
the knowledge of such counsel, that such counsel has made appropriate inquiries
of
-11-
officers of the Company and the Subsidiaries with respect to the subject matter
of such opinion and has reviewed all documents the existence of which is
disclosed by such inquiries or of which such counsel otherwise is aware of as a
result of its representation of the Company.
In addition, such counsel shall state that in the course of the preparation
of the Offering Documents, which involved, among other things, discussions and
inquiries concerning the various legal matters and the review of certain
corporate records, documents and proceedings, counsel participated in
conferences with certain officers and other representatives of the Company and
the Placement Agent during which the contents of the Offering Documents and
related matters were discussed. Such counsel shall advise the Placement Agent in
the form of an opinion of counsel that such counsel has no reason to believe
that, as of each Closing Date, the Term Sheet or any document incorporated by
reference therein contained any untrue statement of a material fact relating to
the Company or omitted to state a material fact relating to the Company required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances under which they were made.
(vi) Opinions of Environmental and Patent Counsel. If requested by the
-----------------------------------------------
Placement Agent, the Placement Agent shall receive the opinions of environmental
counsel and patent counsel to the Company (which such counsel shall be
satisfactory to the Placement Agent in its sole discretion), dated the Closing
Date in the form and substance satisfactory to counsel for the Placement Agent.
(vii) Comfort Letter. The Company shall cause the Company's independent
---------------
public accountants to address and deliver to the Company and the Placement Agent
a letter or letters (which letters are frequently referred to as "Comfort
Letters") dated as of each Closing Date and the effective date of the Shelf
Registration Statement required to be filed in connection with the Subscription
Agreements.
(viii) Officer's Certificate. The Placement Agent shall receive an
----------------------
Officer's Certificate substantially in the form of Exhibit A hereto and a
Secretary's Certificate substantially in the form of Exhibit B hereto, signed by
the appropriate parties and dated as of each Closing Date. These certificates
shall state, among other things, that the representations and warranties
contained in Section 2 hereof are true and accurate in all respects at such
Closing Date with the same effect as though expressly made at such Closing Date.
(ix) Escrow Agreement. The Placement Agent shall receive a copy of a duly
-----------------
executed Escrow Agreement with Fleet National Bank.
(x) Transmittal Letters. The Placement Agent shall receive copies of all
--------------------
letters from the Company to the investors transmitting the Preferred Stock and
shall receive a letter from the Company confirming transmittal of the securities
to the investors.
(c) Blue Sky. A summary blue sky survey, at the sole cost of the Company
--------
(including, without limitation, the legal fees and disbursements in connection
therewith), shall be prepared by counsel to the Placement Agent stating the
extent to which and the conditions upon which offers and sales of the Units may
be made in certain jurisdictions. It is understood that such survey may be based
on or rely upon (i) the representations of each Subscriber set forth in the
Subscription Agreement delivered by such Subscriber, (ii) the representations,
warranties and agreements of the Company set forth in Section 2 of this
Agreement, (iii) the representations and
-12-
warranties of the Placement Agent and (iv) the representations of the Company
set forth in the certificate to be delivered at the Closing pursuant to
paragraph (viii) of Section 3(b).
(d) Placement Fees and Expenses. (i) Simultaneously with payment for and
---------------------------
delivery of the Units at each Closing as provided in paragraph 3(a) above, the
Company shall at such Closing pay to the Placement Agent (i) a commission (the
"Cash Commission") equal to nine percent (9%) of the aggregate purchase price of
the Units sold and (ii) a non-accountable expense allowance (the "Expense
Allowance") equal to four percent (4%) of the aggregate purchase price of the
Units sold. The Company shall also pay all expenses in connection with the
qualification of the Units under the securities or Blue Sky laws of the states
which the Placement Agent shall designate. In addition, upon each Closing of the
sale of the Units being offered, the Company will sell to the Placement Agent
and/or its designees, for $.001 per warrant, preferred stock warrants (the
"Placement Warrants") to acquire a number of newly issued shares of Preferred
Stock equal to ten percent (10%) of the number of shares of Preferred Stock
issued in the Offering, exercisable for a period of ten (10) years commencing
six months after the Final Closing Date at an exercise price equal to one
hundred ten percent (110%) of the initial offering price of the Units. The
Company agrees with the Placement Agent and its successors and assigns that the
Placement Warrants will not be subject to redemption by the Company nor will
they be callable or mandatorily convertible by the Company. The Placement
Warrants cannot be transferred, sold, assigned or hypothecated for six months
except that they may be assigned in whole or in part during such period to any
NASD member participating in the Offering or any officer or employee of the
Placement Agent or any such NASD member. The Placement Warrants will contain a
cashless exercise feature and antidilution provisions and the right to have the
Conversion Shares issuable upon conversion of the Preferred Stock underlying
such warrants included on the Shelf Registration Statement.
(ii) The Cash Commission, Expense Allowance and Placement Warrants as set
forth in this Agreement shall be paid to the Placement Agent with respect to any
investment by any investors introduced to the Company by the Placement Agent
("Covered Investors") in the event that any such Covered Investor purchases
securities from the Company during the twelve (12) months following the Final
Closing Date of the Offering.
(e) No Adverse Changes. There shall not have occurred, at any time prior to
------------------
the Closing, (i) any domestic or international event, act or occurrence which
has disrupted, or in the Placement Agent's determination will in the immediate
future disrupt, the securities markets; (ii) a general suspension of, or a
general limitation on prices for, trading in securities on the New York Stock
Exchange, the American Stock Exchange, the Nasdaq National Market, the Nasdaq
SmallCap Market, or in the over-the-counter market; (iii) any outbreak of major
hostilities or other national or international calamity; (iv) any banking
moratorium declared by a state or federal authority; (v) any moratorium declared
in foreign exchange trading by major international banks or other persons; (vi)
any material interruption in the mail service or other means of communication
within the United States; (vii) any material adverse change in the business,
properties, assets, results of operations, financial condition or prospects of
the Company; or (viii) any change in the market for securities in general or in
political, financial, or economic conditions which, in the Placement Agent's
reasonable judgment, makes it inadvisable to proceed with the offering, sale and
delivery of the Units.
4. Covenants of the Company.
-------------------------
(a) Use of Proceeds. Except as set forth on Schedule 4(a) hereto, the
----------------
Company shall not use any proceeds from the Offering to repay any indebtedness
of the
-13-
Company, including but not limited to any indebtedness to current executive
officers or principal stockholders of the Company, but excluding accounts
payable to non-affiliates incurred in the ordinary course, including scheduled
repayments of principal and interest on existing indebtedness and lines of
credit secured by the receivables and inventory of the Company, and such other
indebtedness as shall be agreed upon in writing by the Company and the Placement
Agent.
(b) Expenses of Offering. The Company shall be responsible for and shall
--------------------
bear all expenses incurred in connection with the proposed
Offering, including but not limited to, the costs of preparing and duplicating
the Term Sheet and all exhibits thereto; the costs of preparing, printing and
filing with the Commission the Shelf Registration Statement and amendments,
post-effective amendments and supplements thereto; preparing, duplicating and
delivering exhibits thereto and copies of the preliminary, final and
supplemental prospectus; preparing, duplicating and delivering (including by
facsimile) all selling documents, including but not limited to the Term Sheet,
the Placement Agency Agreement, Subscription Agreements, Placement Warrants,
blue sky memorandum and stock and warrant certificates; blue sky fees, filing
fees and legal fees and disbursements of the Placement Agent's counsel and blue
sky counsel; fees and disbursements of the transfer and warrant agent; the cost
of a total of two sets of bound closing volumes for the Placement Agent and its
counsel; and the cost of three tombstone advertisements, at least one of which
shall appear in a national business newspaper and one of which shall appear in a
major New York newspaper (or, at the option of the Placement Agent, forty (40)
lucite deal mementos) (collectively, the "Company Expenses"). The Company agrees
to use a printer designated by the Placement Agent and which is reasonably
acceptable to the Company. The Company shall pay to the Placement Agent a
non-accountable expense allowance equal to 4% of the total proceeds of the
Offering (the "Expense Allowance"), of which twenty thousand dollars ($20,000)
shall have been paid upon execution of the Letter of Intent between the Company
and the Placement Agent and twenty thousand dollars ($20,000) of which shall be
due and payable upon the date the Term Sheet is completed, to cover the cost of
the Placement Agent's mailing, telephone, telecopy, travel, due diligence
meetings and other similar expenses excluding legal fees of the Placement
Agent's counsel and blue sky counsel (which fees shall be the responsibility of
the Company as provided above and any other items designated above as Company
Expenses). Such prepaid expense allowances shall be non-refundable. If the
proposed financing is not completed because the Company prevents it or because
of a breach by the Company of any covenants, representations or warranties
contained herein, then the Company shall pay to the Placement Agent a fee of one
hundred thousand dollars ($100,000) (in addition to the Company Expenses for
which the Company shall in all events remain liable).
(c) Notification. The Company shall notify the Placement Agent immediately,
------------
and in writing, (A) when any event shall have occurred during the period
commencing on the date hereof and ending on the later of the Closing or the
Final Closing Date as a result of which the Offering Documents would include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made and (B) of the receipt
of any notification with respect to the modification, rescission, withdrawal or
suspension of the qualification or registration of the Units, the Placements
Warrants and the Registrable Capital Stock (as defined herein), or of any
exemption from such registration or qualification, in any jurisdiction. The
Company will use its best efforts to prevent the issuance of any such
modification, rescission, withdrawal or suspension and, if any such
modification, rescission, withdrawal or suspension is issued and you so request,
to obtain the lifting thereof as promptly as possible.
-14-
(d) Blue Sky. The Company will use its best efforts to qualify the Units
--------
for offering and sale under exemptions from qualification or registration
requirements under the securities or "blue sky" laws of such jurisdictions as
the Placement Agent may reasonably request; provided however, that the Company
will not be obligated to qualify as a dealer in securities in any jurisdiction
in which it is not so qualified. The Company will not consummate any sale of
Units in any jurisdiction in which it is not so qualified or in any manner in
which such sale may not be lawfully made.
(e) Registration Statement Filing. The Company will, as soon as
---------------------------------
practicable, but not later than 30 days after the Final Closing Date, (i) file a
shelf registration statement (the "Shelf Registration Statement") with respect
to (i) the Conversion Shares and (ii) the shares of Common Stock issuable upon
conversion of the Preferred Stock underlying the Placement Warrants (as defined
in paragraph 3(d)) (together, the "Registrable Capital Stock") with the SEC and
use its best efforts to have such Shelf Registration Statement declared
effective by the SEC prior to the date which is 75 days after the Final Closing
Date (subject to penalties for failure to effect such registration in the time
frames required as set forth in the Subscription Agreement) and (b) cause such
Shelf Registration Statement to remain effective until such date as the holders
of the securities have completed the distribution described in the Shelf
Registration Statement or at such time that such shares are no longer, by reason
of Rule 144(k) under the Securities Act, required to be registered for the sale
thereof by such holders. If requested by the Placement Agent, and in accordance
with applicable securities laws, the Shelf Registration Statement shall cover
the direct sale of such Registrable Capital Stock to the holders of such
securities. The Registrable Capital Stock will be subject to a staggered
"lock-up" as may be deemed advisable by the Placement Agent.
(f) Form D Filing. The Company shall file five copies of a Notice of Sales
-------------
of Securities on Form D with the Commission no later than 15 days after the
first Closing Date. The Company shall file promptly such amendments to such
Notice on Form D as shall become necessary and shall also comply with any filing
requirement imposed by the laws of any state or jurisdiction in which offers and
sales are made. The Company shall furnish the Placement Agent with copies of all
such filings.
(g) Press Releases, Etc. Except as otherwise required by applicable law,
---------------------
the Company shall not, during the period commencing on the date hereof and
ending thirty days after the Final Closing Date, issue any press release or
other communication, make any written or oral statement to any media
organization or publication or hold any press conference, presentation or
seminar, or engage in any other publicity with respect to the Company, its
financial condition, results of operations, business, properties, assets, or
liabilities, or the Offering, without the prior written consent of the Placement
Agent. Upon the request of the Placement Agent, the Company shall make a Rule
135(c) (under the Securities Act of 1933, as amended) announcement prior to the
commencement of the Offering.
(h) Public Documents. Following the Final Closing Date of the Offering, the
----------------
Company will furnish to the Placement Agent: (i) as soon as practicable (but in
the case of the annual report of the Company to its stockholders, within 120
days after the end of each fiscal year of the Company) one copy of: (A) its
annual report to its stockholders (which annual report shall contain financial
statements audited in accordance with generally accepted accounting principles
in the United States of America by a firm of certified public accountants of
recognized standing), (B) if not included in substance in its annual report to
stockholders, its annual report on Form 10-KSB, (C) each of its quarterly
reports to its stockholders, and if not included in
-15-
substance in its quarterly reports to stockholders, its quarterly report on Form
10-QSB, (D) each of its current reports on Form 8-K, and (E) a copy of the full
Shelf Registration Statement, (the foregoing, in each case, excluding exhibits);
and (ii) upon reasonable request, all exhibits excluded by the parenthetical to
the immediately preceding clause 4(h)(i)(E) and all other information that is
generally available to the public. In addition, the Company upon reasonable
request will meet with the Placement Agent or its representatives to discuss all
information relevant for disclosure in any Shelf Registration Statement covering
shares purchased by Purchasers from the Company and offered by them for resale
and will cooperate in any reasonable investigation undertaken by the Placement
Agent for the purpose of confirming the accuracy of the Shelf Registration
Statement, including the production of information at the Company's offices.
(i) Restrictions on Securities. During the eighteen (18) months following
--------------------------
the Closing of the Offering, the Company shall not, without the prior written
consent of the Placement Agent, offer or sell any of its securities in reliance
on Regulation S of the Securities Act. During the 18-month period following the
date hereof, (i) the Placement Agent shall have the right of first refusal to
act as placement agent for the offering of any securities of the Company and
(ii) the Company will not extend the expiration date or decrease the exercise
price of any options, warrants, convertible securities or other similar security
purchase rights without the prior written consent of the Placement Agent.
(j) Listing. The Company will take all action necessary to promptly file an
-------
Application for Listing of Additional Shares with the New York Stock Exchange,
the American Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap
Market, or the OTC Electronic Bulletin Board, as applicable, in accordance with
Regulation M under the Exchange Act and/or take any other necessary action to
enable the Common Stock into which the Preferred Stock is convertible (including
the Common Stock issuable upon conversion of the Preferred Stock underlying the
Placement Warrants) to trade thereon.
(k) Financial Advisory Agreement. Upon the Final Closing Date, the Company
----------------------------
and the Placement Agent will enter into an engagement agreement in form and
substance satisfactory to the Placement Agent (the "Financial Advisory
Agreement") whereby the Placement Agent will act as the Company's financial
advisor. Such engagement will provide that the Placement Agent receive
out-of-pocket expenses and standard success fees.
(l) No Offerings. Pending completion or termination of the Offering in
-------------
accordance with the terms of this Agreement, the Company agrees that it will not
enter into an agreement (whether binding or not) or negotiate with any other
person or entity relating to a possible public or private offering or placement
of its securities (other than in connection with a corporate partnership,
strategic alliance or government funding).
(m) No Statements. The Company shall not use the name of the Placement
--------------
Agent or any officer, director, employee or shareholder thereof without the
express written consent of the Placement Agent and such person.
(n) Company Insiders. Officers, directors or principal stockholders of the
----------------
Company may invest in the Offering. Any such investments will be included in
calculating whether the 30 Units have been sold in the Minimum Offering, whether
the 50 Units have been sold in the Maximum Offering, and whether the 30 Units
have been sold pursuant to the over-allotment.
-16-
(o) Placement Agent Insiders. Certain affiliates of the Placement Agent may
------------------------
purchase Units in the Offering. Affiliates of the Placement Agent will invest
net of cash commissions and expenses. Accordingly, the Placement Agent will not
receive a commission on the Units purchased by its affiliates and the Company
will receive net proceeds equivalent to the net proceeds received from the
purchase of Units by persons not affiliated with the Placement Agent. The
aggregate offering price of any such investments will be included in calculating
whether the 30 Units have been sold in the Minimum Offering, whether the 50
Units have been sold in the Maximum Offering, and whether the 30 Units have been
sold pursuant to the over-allotment option.
5. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless the Placement Agent
and each Selected Dealer, if any, and their respective partners, affiliates,
shareholders, directors, officers, agents, advisors, representatives, employees,
counsel and controlling persons within the meaning of the Securities Act (a
"Indemnified Party") against any and all losses, liabilities, claims, damages
and expenses whatsoever (and all actions in respect thereof), and to reimburse
such Indemnified Party for legal fees and related expenses as incurred
(including, but not limited to, the costs of giving testimony or furnishing
documents in response to a subpoena or otherwise, the costs of investigating,
preparing, pursuing or defending any such action or claim whether or not pending
or threatened and whether or not the Placement Agent or any Indemnified Party is
a party thereto), insofar as such losses, liabilities, claims, damages or
expenses arise out of, relate to, are incurred in connection with or are in any
way a result of (i) the engagement of the Placement Agent pursuant to this
Agreement and in connection with the transactions contemplated by this Agreement
and the other Offering Documents (the "Engagement"), including any modifications
or future additions to such engagement and related activities prior to the date
hereof, (ii) any act by the Placement Agent or any Indemnified Party taken in
connection with the Engagement, (iii) a breach of any representation, warranty,
covenant or agreement of the Company contained in this Agreement, (iv) the
employment by the Company of any device, scheme or artifice to defraud, or the
engaging by the Company in any act, practice or course of business which
operates or would operate as a fraud or deceit, or any conspiracy with respect
thereto, in connection with the sale of the Units, or (v) any untrue statement
or alleged untrue statement of a material fact contained in the Offering
Documents or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided, however, that the Company
will not be liable in any such case if and to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Indemnified Party in writing
specifically for use in the Offering Documents.
(b) The Company agrees to indemnify and hold harmless a Indemnified Party
to the same extent as the foregoing indemnity, and subject to the limitations
set forth therein, against any and all loss, liability, claim, damage and
expense whatsoever directly arising out of the exercise by any person of any
right under the Securities Act or the Exchange Act or the securities or Blue Sky
laws of any state on account of violations of the representations, warranties or
agreements set forth in Section 2 hereof.
(c) Promptly after receipt by a person entitled to indemnification pursuant
to subsection (a) or (b) (an "indemnified party") of this Section of notice of
the commencement of any action, the indemnified party will, if a claim in
respect thereof is to be made against a person
-17-
granting indemnification (an "indemnifying party") under this Section, notify in
writing the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which it
may have to the indemnified party otherwise than under this Section. In case any
such action is brought against an indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
subject to the provisions herein stated, with counsel reasonably satisfactory to
the indemnified party, and after notice from the indemnifying party to the
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses subsequently incurred by the indemnified party in connection with
the defense thereof other than reasonable costs of investigation incurred at the
request of the indemnifying party. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that the fees and expenses of such counsel shall be at the expense of
the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party or parties and the indemnifying party and, in the judgment of
the indemnified party, it is advisable for the indemnified parties to be
represented by separate counsel, in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of the indemnified
party or parties, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for the indemnified party
or parties. No settlement, compromise, consent to entry of judgment or other
termination of any action (collectively, "Terminations") in respect of which a
Indemnified Party may seek indemnification hereunder (whether or not any
Indemnified Party is a party thereto) shall be made without the prior written
consent of the Indemnified Party, which such consent may be withheld at the sole
discretion of such Indemnified Party, provided, however, that the foregoing
requirement of prior written consent for Terminations shall not apply to the
Placement Agent who may agree to such Terminations without the prior written
consent of any Indemnified Party.
(e) Notwithstanding any of the provisions of this Agreement, the aggregate
indemnification or contribution of the Placement Agent for or on account of any
losses, claims, damages, liabilities or actions under this Section 5, Section 6
or any other applicable section of this Agreement, shall not exceed the Cash
Commissions actually paid to the Placement Agent. The indemnity and contribution
agreements by the Company contained in subsections (a), (b) and (c) of this
Section 5 and Section 6, and the covenants, representations and warranties of
the Company set forth in Sections 1, 2, 3 and 4 shall remain operative and in
full force and effect regardless of (i) any investigation made by the Placement
Agent, on the Placement Agent's behalf or by or on behalf of any person who
controls the Placement Agent, (ii) acceptance of any of the Units and payment
therefor or (iii) any termination of this Agreement, and shall survive the
delivery of the Units, and any successor of the Placement Agent or of any person
who controls the Placement Agent, as the case may be, shall be entitled to the
benefit of such respective indemnity and contribution agreements. The indemnity
and contribution agreements by the Company contained in subsections (a), (b) and
(c) of this Section 5 and Section 6 shall be in addition to any liability which
the Company may otherwise have.
-18-
6. Contribution.
------------
(a) To provide for just and equitable contribution, if (i) an indemnified
party makes a claim for indemnification pursuant to Section 5 but it is found in
a final judicial determination, by a court of competent jurisdiction, not
subject to further appeal, that such indemnification may not be enforced in such
case, even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Securities Act, the Exchange Act or otherwise, then the Company (including for
this purpose any contribution made by or on behalf of any officer, director,
employee or agent for the Company, or any controlling person of the Company), on
the one hand, and the Placement Agent and any Selected Dealers (including for
this purpose any contribution by or on behalf of an indemnified party), on the
other hand, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, in such proportions as
are appropriate to reflect the relative benefits received by the Company, on the
one hand, and the Placement Agent and the Selected Dealers, on the other hand;
provided, however, that if applicable law does not permit such allocation, then
other relevant equitable considerations such as the relative fault of the
Company and the Placement Agent and the Selected Dealers in connection with the
facts which resulted in such losses, liabilities, claims, damages, and expenses
shall also be considered. In no case shall the Placement Agent or a Selected
Dealer be responsible for a portion of the contribution obligation in excess of
the compensation received by it pursuant to Section 3 hereof or the Selected
Dealer Agreement, as the case may be. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person, if any, who controls the Placement Agent or a Selected Dealer
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, stockholder, employee and agent of the
Placement Agent or a Selected Dealer, shall have the same rights to contribution
as the Placement Agent or the Selected Dealer, and each person, if any who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act and each officer, director, employee and agent
of the Company, shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 6. Anything in this
Section 6 to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 6 is intended to supersede any right
to contribution under the Securities Act, the Exchange Act or otherwise.
7. Miscellaneous.
-------------
(a) Survival. Any termination of the Offering without any Closing shall be
--------
without obligation on the part of any party except that the provisions regarding
fees and expenses contained in Section 4(b), the indemnification provided in
Section 5 hereof and the contribution provided in Section 6 hereof shall survive
any termination and shall survive any Closing.
(b) Representations, Warranties and Covenants to Survive Delivery. Except
--------------------------------------------------------------
as provided in Section 7(a), the respective representations, warranties,
indemnities, agreements, covenants and other statements of the Company and the
Placement Agent as of the date hereof shall survive execution of this Agreement
and delivery of the Units and the termination of this Agreement.
(c) No Other Beneficiaries. This Agreement is intended for the sole and
-----------------------
exclusive benefit of the parties hereto and their respective successors and
controlling persons,
-19-
and no other person, firm or corporation shall have any third-party beneficiary
or other rights hereunder.
(d) Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the law of the State of New York without regard to conflict of
law provisions.
(e) Counterparts. This Agreement may be signed in counterparts with the
------------
same effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder to be in
-------
writing, if sent to the Placement Agent, will be mailed,delivered and confirmed
to it at [___________________________________________________________] and if
sent to the Company, will be mailed, delivered or telegraphed and confirmed to
it at Conversion Technologies International, Inc., 0000 Xxxx Xxxxx Xxxxx, Xxxxx
000, Xxxxxxx, Xxxxxxx 00000 Attn: President.
(g) Termination. Subject to the general survival provisions contained in
-----------
Sections 7(a) and 7(b), this Agreement may be terminated by either party prior
to any Closing upon written notice to the other party.
(h) Entire Agreement. This Agreement constitutes the entire agreement of
-----------------
the parties with respect to the matters herein referred and supersedes all prior
agreements and understandings, written and oral, between the parties with
respect to the subject matter hereof. Neither this Agreement nor any term hereof
may be changed, waived or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver or
termination is sought.
(i) Nothing contained herein or otherwise shall be construed to create a
partnership or joint venture between you and the Company.
(j) The headings and captions of the various subdivisions of this Agreement
are for convenience of reference only and shall in no way modify or affect the
meaning or construction of any of the terms or provisions hereof.
-20-
If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement between us.
Very truly yours,
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/ Xxxxxxx X. Xxxx
-----------------------------------
Name: Xxxxxxx X. Xxxx
Title: Acting President
Agreed to by:
PLACEMENT AGENT
By:
-------------------------------
Name:
Title:
-21-
EXHIBIT A
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
OFFICERS' CERTIFICATE
---------------------
August __, 1997
I, _____________, certify that I am the ____________________ of Conversion
Technologies International, Inc., a Delaware corporation (the "Company"), and
that, as such, I am authorized to execute this certificate on behalf of the
Company. All capitalized terms used herein but not otherwise defined herein
shall the meanings ascribed to such terms in the Agency Agreement (as defined
below). Reference is made herein to the closing held on [ ] (the "Closing
Date"). I do hereby certify that I have carefully examined all of the Offering
Documents (as defined in the Placement Agency Agreement dated as of April 1,
1997 between the Company and the Placement Agent(the "Agency Agreement")), and
do hereby further certify that:
1. All of the representations and warranties of the Company contained in
the subscription agreements (the "Subscription Agreements") between the Company
and the purchasers (the "Purchasers") of the Units of Preferred Stock of the
Company contemplated by the Company's Confidential Term Sheet, dated August 8,
1997 (as supplemented, the "Term Sheet") are true and correct in all material
respects on the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Company has performed all covenants and agreements
and has satisfied all conditions in the Subscription Agreements to be performed
or satisfied on its part before the Closing Date in all material respects.
2. The Term Sheet does not contain any untrue statement of a material fact
or omit to state any fact required to be stated in order to make the statements
therein not misleading as of the Closing Date. Since the date of the Term Sheet,
no event has occurred concerning which information is required to be contained
in an amended or supplemented Term Sheet concerning which such information is
not contained herein.
3. All of the representations and warranties of the Company contained in
the Agency Agreement are true and correct in all material respects on the
Closing Date, and the Company has performed all covenants and agreements and has
satisfied all conditions contained in the Agency Agreement to be performed and
satisfied on its part at or prior to the Closing Date in all material respects.
4. All of the representations and warranties of the Company contained each
of the other Offering Documents are true and correct in all material respects on
the Closing Date, and the Company has performed all covenants and agreements and
has satisfied all conditions contained in such Offering Documents to be
performed and satisfied on its part at or prior to the Closing Date in all
material respects.
5. Since the date of the most recent financial statements and the
information included in the Term Sheet, there has been no material adverse
change in the condition (financial or other), earnings, business, properties or
prospects of the Company and the Subsidiaries taken as a whole, whether or not
arising from transactions in the ordinary course of business, nor has
there occurred any material event required to be set forth in the Term Sheet,
including, without limitation, in accordance with Section 2(g) of the Agency
Agreement.
6. There is no litigation pending or, to our knowledge, threatened by or
against the Company or the Subsidiaries, except as disclosed in the Term Sheet.
7. The Company will promptly take all action necessary to list all shares
of Common Stock issuable upon conversion of the Preferred Stock (including the
shares of Common Stock issuable upon conversion of the Preferred Stock
underlying the Placement Warrants) on the Nasdaq SmallCap Market.
8. Since August 1, 1997, the Company has not offered to sell to or
solicited any offers to buy from any person shares of capital stock of the
Company, except in connection with the Offering contemplated by the Term Sheet
or shares issued upon exercise of stock options outstanding prior to the date
hereof.
IN WITNESS WHEREOF, I have executed this certificate on this __ day of
August, 1997.
-------------------------------------
Name:
Title:
EXHIBIT B
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
SECRETARY'S CERTIFICATE
-----------------------
August [ ], 1997
I, Xxxx X. Xxxx, Xx., certify that I am the duly elected, qualified and
acting Secretary of Conversion Technologies International, Inc., a Delaware
corporation (the "Company"), and as such, I am duly authorized to execute this
Certificate on behalf of the Company, and that I am familiar with the facts
certified below. All capitalized terms used herein but not otherwise defined
herein shall the meanings ascribed to such terms in the Agency Agreement dated
as of April 1, 1997 between the Company and the Placement Agent(the "Agency
Agreement"). Reference is made herein to the closing held on August __, 1997
(the "Closing Date"). In connection with the offering and sale of up to 50 units
(the "Units") each consisting of 10,000 shares of the Premium Preferred StockJ,
stated value $10.00 per share (the "Preferred Stock") of the Company (the
"Preferred Stock"), for which Paramount Capital, Inc. ("Paramount") has acted as
placement agent, I do hereby further certify as follows:
1. Attached hereto as Exhibit A is a true, correct and complete copy of the
Company's Certificate of Incorporation, as amended, which is in full force and
effect and, except as set forth in Paragraphs 2 and 5 below, no amendment to
such certificate has been approved by the Board of Directors or stockholders of
the Company or filed with the Delaware Secretary of State since [____]. As of
the Closing Date, the Company is duly incorporated and in good standing in its
state of incorporation and has paid all fees and taxes due and payable by it on
or prior to the Closing Date necessary for the maintenance or continuation of
its corporate existence. As of the Closing Date, there are no proceedings or
actions contemplated by the Company, relating to the merger, liquidation,
consolidation, or sale of all or substantially all of the assets or business of
the Company or which would otherwise threaten or impair the Company's corporate
existence.
2. Attached hereto as Exhibit B is a true, correct and complete copy of the
Certificate of Designation of the Company's Series A Convertible Preferred
Stock, as filed with the Delaware Secretary of State on [ ] and as in effect on
the Closing Date.
3. Attached hereto as Exhibit C is a true, correct and complete copy of the
Bylaws of the Company, as in full force and effect on the Closing Date and at
all times from [___] through the Closing Date.
4. As of the Closing Date, each of the Offering Documents is in the form
authorized by the board of directors of the Company pursuant to the resolutions
set forth in Exhibit D.
5. Attached hereto as Exhibit D is a true, correct and complete copy of
resolutions duly adopted at a meeting of the Company's board of directors duly
called and held on August 6, 1997, which resolutions, (a) authorize the issuance
and sale of the Units and the Placement Warrants in accordance with the
requirements of Delaware law, (b) authorize the
amendment to the Company's Certificate of Incorporation increasing the
authorized shares of Common Stock of the Company, (c) are the only resolutions
adopted by the board of directors of the Company or any committee thereof with
respect to the offering and sale of the Units and the transactions relating
thereto and (d) which have not been revoked, modified and amended or rescinded
and are in full force and effect on the Closing Date.
6. Attached hereto as Exhibit E are true, correct and complete specimens of
the certificates representing the Preferred Stock heretofore approved and
adopted by the board of directors of the Company. Each of the certificates
representing Preferred Stock delivered on the Closing Date to each of the
Purchasers pursuant to the Subscription Agreements has been executed by the
genuine or facsimile signature of officers of the Company who have been duly
elected or appointed, qualified and acting as such officers on the date such
certificates were executed and delivered, all in accordance with the Certificate
and Bylaws of the Company and the requirements of applicable law.
7. Attached hereto as Exhibit F is a true, correct and complete copy of the
form of Placement Warrants heretofore approved and adopted by the Board of
Directors of the Company. Each of the Placement Warrants delivered on the date
hereof to each of the holders pursuant to the Agency Agreement has been executed
by the genuine or facsimile signature of officers of the Company who have been
duly elected or appointed, qualified and acting as such officers on the date
such certificates were executed and delivered, all in accordance with the
Certificate and Bylaws of the Company and the requirements of applicable law.
8. The minute books and records of the Company, relating to all proceedings
of the stockholders, the Board of Directors of the Company and the Compensation
Committee and the Audit Committee of such Board have been made available to
Placement Agent, and, in such form, are the original minute books and records of
the Company. There have been no material changes, alterations or additions in
such minutes or records since their examination by Placement Agent.
9. Each person who, as an officer or director of the Company, signed any of
the Offering Documents or any other document in connection with the offering and
sale of the Preferred Stock, the Placement Warrants and the closing relating
thereto was duly elected or appointed, qualified and acting as such officer or
director at the respective times of the signing and delivery thereof and was
duly authorized to sign such document on behalf of the Company, and the
signature of each such person appearing on each such document is the genuine
signature of such officer, director or person duly appointed for the purpose of
executing such documents under valid powers of attorney, and each individual who
signed such signature pages, personally or by an attorney-in-fact, was then duly
elected, qualified and acting as an officer or director of the Company as stated
therein.
10. The following persons are, and have been at all times since August 1,
1997, duly qualified and acting officers of the Company, duly elected or
appointed to the offices set forth opposite their respective names, and the
signature opposite the name of each such officer is his or her, or a facsimile
of his or her, authentic signature, and the seal affixed hereto is the duly
adopted seal of the Company:
Name Office Signature
---- ------ ---------
Xxxxxxxx X. Xxxx Chairman of the Board /s/ Xxxxxxxx X. Xxxx
Xxxxxxx X. Amt President and CEO /s/ Xxxxxxx X. Amt
Xxxx X. Xxxx, Xx. Executive Vice President -
Operations and Marketing
and Secretary /s/ Xxxx X. Xxxx, Xx.
This certificate is made for the benefit of, and may be relied upon by, the
Placement Agent, and each of the Purchasers.
IN WITNESS WHEREOF, I have hereunto set forth my hand this __ day of
__________, 1997.
[SEAL] -----------------------------
Name: Xxxx X. Xxxx, Xx.
Title: Secretary
I, , President and Chief Executive Officer of the Company, do
-------------
hereby certify that Xxxx X. Xxxx, Xx. whose genuine signature appears above, is,
and has been at all times since ______, 1997, the duly elected or appointed,
qualified and acting Secretary of the Company.
IN WITNESS WHEREOF, I have hereunto set forth my hand this [ ]th day of
[], 1997.
--------------------------------
Name:
Title: President
