EXHIBIT 1.01
DRAFT 6/3/97
OSMOTICS CORPORATION
PLACEMENT AGENT AGREEMENT
May ___, 1997
National Securities Corporation
0000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
The undersigned, Osmotics Corporation, a Delaware corporation (the
"Company"), hereby agrees with National Securities Corporation ("National" or
the "Placement Agent") as follows:
A. The Company hereby engages National to act as its exclusive placement
agent in connection with the issuance and sale by the Company (the "Offering")
on a minimum basis of 500,000 shares (the "Minimum Shares") of common stock, par
value $.001 per share (the "Common Stock"), at a public offering price of $6.00
per share resulting in gross proceeds of $3,000,000 (the "Minimum Offering") and
on a maximum basis of 1,125,000 Shares (the "Maximum Shares") resulting in gross
proceeds of $6,750,000 (the "Maximum Offering"). Such shares issued and sold by
the Company in the Offering are referred to herein as the "Shares."
The Shares will be offered pursuant to the Registration Statement (as
defined in Section 1(A) below) and will be subject to the terms and conditions
set forth therein and in the Subscription Agreements (the "Subscription
Agreements") to be executed by each purchaser of Shares in the Offering
(individually a "Purchaser" and collectively, "Purchasers") and the Company.
At each Closing (as defined in Section 1(B) hereof), the Company shall also
issue and sell to National or its designees common stock purchase warrants (the
"Warrants") to purchase a number of shares of Common Stock equal to ten percent
(10%) of the number of Shares sold by the Company at such Closing, up to a
maximum of 112,500 Shares of Common Stock with respect to all Closings, each
Warrant entitling the holder thereof to purchase one share of Common Stock (the
"Warrant Shares") under the terms and conditions set forth in the Placement
Agent's Warrant Agreement dated the date of the Closing (as hereinafter
defined), by and between the Company and National (the "Warrant Agreement").
National will also be granted certain registration rights as more fully set
forth in the Warrant Agreement. The Warrants and the Warrant Shares will
sometimes collectively be referred to as the "Placement Agent's Securities."
The Shares, the Warrants and the Warrant Shares (collectively hereinafter
referred to as the "Securities") are more fully described in the Registration
Statement and the Prospectus referred to below.
Such number of Shares offered in the Minimum Offering resulting in gross
proceeds of $3,000,000 will be offered by National on a "best efforts, all or
none" basis and such number of additional Shares resulting in aggregate gross
proceeds of up to $6,750,000 will be offered on a "best efforts" basis. Subject
to the other terms and conditions of this Agreement, the Company will issue the
appropriate number of Shares at each closing (each, a "Closing"), including,
without limitation, a closing with respect to the sale of at least $3,000,000
(the "Minimum Closing"), after subscriptions have been received and accepted by
the Company and when funds from investors have cleared the banking system in the
normal course of business. The Minimum Closing will occur within three (3)
business days after the date on which the Minimum Shares have been subscribed
and paid for (the "Minimum Closing Date").
The Offering shall commence on the date hereof and shall terminate on the
earlier to occur of (i) _________________ __, 1997, (ii) termination of the
Offering by the Company (X) effective 30 days following the effective date of
the Registration Statement or (Y) effective at any time after the Minimum
Closing Date upon delivery of 2 days notice by the Company to the Placement
Agent and (iii) the sale of all the Shares being offered in the Offering,
unless National and the Company agree to extend the Offering for an additional
30-day period (such date, as the same may be extended, is hereinafter referred
to as the "Termination Date;" the period commencing on the date hereof and
ending on the Termination Date is sometimes referred to herein as the
"Offering Period").
1. Representations and Warranties of the Company. The Company represents
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and warrants to, and agrees with, the Placement Agent as of the date hereof, and
as of the date of each Closing, if any, as follows:
(A) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-5306-D) including any
related preliminary prospectus (the "Preliminary Prospectus"), for the
registration of the Shares and the Placement Agent's Securities under the
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 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, as such form may be amended, is hereinafter called
the "Prospectus." For purposes hereof, "Regulations" mean the rules and
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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 the 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 (i) statements made in reliance
upon and in conformity with written information furnished to the Company with
respect to the Placement Agent by or on behalf of the Placement Agent expressly
for use in such Preliminary Prospectus, Registration Statement or Prospectus, or
(ii) statements made in the initial preliminary prospectus which were revised in
any subsequent preliminary prospectus or the Registration Statement and
Prospectus.
(C) When the Registration Statement becomes effective and at all times
subsequent thereto up to the date of each Closing, if any, the Registration
Statement and the Prospectus, as amended or supplemented as required, will
contain all statements which are required to be stated therein in accordance
with the Act and the Regulations, and will conform in all material respects to
the requirements of the Act and the Regulations; neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
provided, however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of the Placement
Agent expressly for use in the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto.
(D) The Company and each of its subsidiaries have been duly organized
and are validly existing as corporations in good standing under the laws of the
respective states of their incorporation. The Company does not own or control,
directly or indirectly, any corporation, partnership, trust, joint venture or
other business entity other than the subsidiaries listed in Exhibit 21 of the
Registration Statement. Each of the Company and its subsidiaries is duly
qualified and licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or the
character of its operations require such qualification or licensing, except
where the failure to be so qualified or licensed would not have a material and
adverse effect on the condition, financial or otherwise, or the business
affairs, operations, properties, or results of operations of the Company and its
subsidiaries, taken as a whole (the "Business"). Each of the Company and its
subsidiaries has all requisite power and authority (corporate and other), and
has obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and
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permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental
or similar matters), to own or lease its properties and conduct its business
as described in the Prospectus, except where the failure to have such
authorizations, approvals, orders, licenses, certificates, franchises or
permits would not have a material and adverse effect on the Business; the
Company and each of its subsidiaries have been doing business in compliance in
all material respects with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state, local
and foreign laws, rules and regulations; and neither the Company nor any of
its subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would materially
and adversely affect the Business. The disclosures in the Registration
Statement concerning the effects of federal, state, local, and foreign laws,
rules and regulations on the Company's business as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact necessary to make the statements contained therein not
misleading in light of the circumstances in which they were made.
(E) At the dates as of which such information is set forth in the
Prospectus, the Company had a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the headings
"Capitalization" and "Description of Capital Stock" and will have the adjusted
capitalization set forth therein upon sale of the Minimum Shares in the Offering
and the Maximum Shares in the Offering, respectively, based upon the assumptions
set forth therein, and the Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this Agreement and as
described in the Prospectus. The Securities and all other securities issued or
issuable by the Company conform or, when issued and paid for, will conform, in
all material respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding shares of
capital stock of each subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company and
the related notes thereto included in the Prospectus, neither the Company nor
any subsidiary has outstanding any options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements and the options or other rights granted and
exercised thereunder as set forth in the Prospectus conforms in all material
respects with the requirements of the Act. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and nonassessable, and the holders thereof have no rights of
rescission with respect thereto and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the Company
or similar contractual rights granted by the Company.
(F) The Securities are not and will not be subject to any preemptive
or other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable and will conform in all material
respects to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities has been duly and validly taken; and the
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certificates representing the Securities will be in due and proper form. Upon
the issuance and delivery pursuant to the terms hereof of the Placement
Agent's Securities to be sold by the Company hereunder, the Placement Agent
will acquire good and marketable title to such Placement Agent's Securities
free and clear of any lien, charge, claim, encumbrance, pledge, security
interest, defect, or other restriction or equity of any kind whatsoever. No
stockholder of the Company has any right which has not been waived in writing
to require the Company to register the sale of any shares owned by such
stockholder under the Act in the public offering contemplated by this
Agreement. No further approval or authority of the stockholders or the Board
of Directors of the Company will be required for the issuance and sale of the
Shares and Warrants to be sold by the Company as contemplated herein.
(G) The financial statements of the Company, together with the related
notes and schedules thereto, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
changes in stockholders' equity and the results of operations of the Company and
its consolidated subsidiaries (of which there are none) at the respective dates
and for the respective periods to which they apply and such financial statements
have been prepared in conformity with generally accepted accounting principles
and the Regulations, consistently applied throughout the periods involved.
Except as disclosed in the Prospectus, there has been no material adverse change
or development involving a material prospective change in the Business, whether
or not arising in the ordinary course of business since the date of the
financial statements included in the Registration Statement and the Prospectus
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company and its subsidiaries taken as a whole conform in all
material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. Financial information set forth in the Prospectus
under the headings "Prospectus Summary - Selected Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein and have been derived from or
compiled on a basis consistent with that of the audited and unaudited financial
statements included in the Prospectus.
(H) The Company (i) has paid all federal, state, local, franchise, and
foreign taxes for which it is liable (except for immaterial nonpayments, if
any), including, but not limited to, withholding taxes and amounts payable under
Chapters 21 through 24 of the Internal Revenue Code of 1986, as amended (the
"Code"), and has furnished all information returns it is required to furnish
pursuant to the Code, (ii) has established adequate reserves for such taxes
which are not due and payable, and (iii) does not have any material tax
deficiency or claims outstanding, proposed or assessed against it.
(I) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Placement Agent in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Placement Agent of the
Warrants and the Warrant Shares from the Company, or (iii) the consummation by
the Company of any of its obligations under this Agreement.
(J) There is no action, suit, proceeding, inquiry, arbitration,
mediation, investigation, litigation or governmental proceeding (including,
without limitation, any involving environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give rise to
the same), or involving the properties or businesses of, the Company which (i)
questions the validity of the capital stock of the Company, this Agreement or
the
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Placement Agent's Warrant Agreement, or of any action taken or to be taken
by the Company pursuant to or in connection with this Agreement or the Placement
Agent's Warrant Agreement, (ii) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all material respects),
or (iii) except as disclosed in the Prospectus, could reasonably be expected to
materially and adversely affect the Business.
(K) The Company has the corporate power and authority to authorize,
issue, deliver, and sell the Securities and to enter into this Agreement and the
Placement Agent's Warrant Agreement, and to consummate the transactions provided
for in such agreements; and this Agreement and the Placement Agent's Warrant
Agreement have each been duly and properly authorized, executed, and delivered
by the Company. Each of this Agreement and the Placement Agent's Warrant
Agreement constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its respective terms (except
as the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law), and none of the
issue and sale of the Securities, execution, delivery or performance by the
Company of this Agreement and the Placement Agent's Warrant Agreement, the
consummation by the Company of the transactions contemplated herein and therein,
or the conduct of the Company's businesses as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of (i) the articles of
incorporation or by-laws of the Company, as amended and restated, (ii) any
license, contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which it is or may be bound or
to which its properties or assets (tangible or intangible) is or may be subject,
or (iii) any statute, judgment, decree, order, rule or regulation applicable to
the Company of any arbitrator, court, regulatory body or administrative agency
or other governmental agency or body (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over the Company or any of its activities or properties, in
each of the above instances in subparagraph (ii) and (iii), which could
reasonably be expected to materially and adversely affect the Business.
(L) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance and sale of the Securities pursuant
hereto, and the Prospectus and the Registration Statement, the performance of
this Agreement and the Placement Agent's Warrant Agreement, and the transactions
contemplated hereby and thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Securities, except such as have been or may
be obtained under the Act or may be required under state securities or Blue Sky
laws in connection with the Securities to be sold by the Company hereunder.
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(M) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law). The descriptions in the
Registration Statement of such agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form SB-2, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are
complete and correct copies of the documents of which they purport to be copies.
(N) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus (i) the Company has not incurred any
material liabilities or obligations, indirect, direct or contingent, or entered
into any material verbal or written agreement or other transaction which is not
in the ordinary course of business or which could reasonably be expected to
result in a material reduction in the future earnings of the Company; (ii) the
Company has not sustained any material loss or interference with its business or
properties from 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 which has not been waived; (iv) there has not been
any change in the capital stock (other than upon the sale of the Shares and the
Warrants hereunder and upon the exercise of options and warrants described in
the Registration Statement) of, or indebtedness material to, the Company (other
than in the ordinary course of business); (v) the Company has not issued any
securities or incurred any liability or obligation, primary or contingent, for
borrowed money; and (vi) there has not been any material adverse change in the
Business.
(O) Except as disclosed in or specifically contemplated by the
Prospectus, and subject to the risks and uncertainties described in the
Prospectus under the headings entitled "Risk Factors -- Protection of
Intellectual Property" and "Business -- Intellectual Property and Other
Proprietary Rights," (i) the Company has sufficient trade names, licenses,
approvals and governmental authorizations to conduct its business as now
conducted; (ii) the expiration of any trade names, licenses, approvals or
governmental authorizations would not have a material adverse effect on the
Business; (iii) the Company has no knowledge of any infringement by it or its
subsidiaries of trademark, trade name rights, patent rights, copyrights,
licenses, trade secret or other similar rights of others; and (iv) there is no
claim being made against the Company regarding trademark, trade name, patent,
copyright, license, trade secret or other infringement which could reasonably be
expected to have a material adverse effect on the Business.
(P) Except as described in the Prospectus, no default exists in the
due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement,
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stockholders agreement, note, loan or credit agreement, or any other material
agreement or instrument evidencing an obligation for borrowed money, or any
other material agreement or instrument to which the Company is a party or by
which the Company may be bound or to which the property or assets (tangible or
intangible) of the Company are subject or affected, except for such defaults,
if any, which individually and in the aggregate would not have a material
adverse effect on the Business.
(Q) To the Company's knowledge, there are no investigations involving
the Company by any governmental agency. There is no unfair labor practice
charge or complaint against the Company pending before National Labor Relations
Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending
or to its knowledge threatened against or involving the Company. No
representation question exists respecting the employees of the Company. No
collective bargaining agreement, or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company.
No labor dispute with the employees of the Company exists or to its knowledge is
imminent.
(R) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code, which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(S) Neither the Company nor any of its employees, directors,
stockholders, or affiliates (within the meaning of the Regulations) of any of
the foregoing has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might be expected to cause or
result in unlawful stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities.
(T) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable or for such as do not
materially affect the value of the Company's real and personal property, taken
as a whole.
(U) To the Company's knowledge, Xxxxxx Xxxxxxxx LLP ("Xxxxxx
Xxxxxxxx"), whose report is filed with the Commission as a part of the
Registration Statement, is an independent certified public accountant as
required by the Act and the Regulations.
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(V) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which all persons or entities, other than
each of Xxxxx Xxxx and Xxxxxx Xxxxxxxx, and Xxxxxxx Management, S.A. and/or
Finesse Development Corp. (pursuant to written agreements previously delivered
to counsel for National) who has entered into a modified agreement as reflected
in the Prospectus, and Xxx Xxxxxxx who has refused to sign any such agreement,
that directly or beneficially own Common Stock, as of the effective date of the
Registration Statement, have agreed not to, directly or indirectly, offer, offer
to sell, sell, grant any option for the sale of, transfer, assign, pledge,
hypothecate or otherwise encumber or dispose of, except to a third party in a
non-public transaction that otherwise complies with applicable securities laws
and where such third party agrees in writing to be bound by all of the
provisions of such agreement, any shares of Common Stock or securities
convertible into Common Stock, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the Regulations or otherwise) or dispose of any interest therein
for a period from the date of the Prospectus until and including the day of like
number in the twelfth consecutive month next following the Minimum Closing Date,
without the prior written consent of National (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 in order to effect the Lock-up
Agreements.
(W) Except as disclosed to the Placement Agent, there are no claims,
payments, arrangements or understandings, whether oral or written, for services
in the nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuance with respect to the Company or any of its officers,
directors, stockholders, employees or affiliates that may affect the Placement
Agent's compensation as determined by the Commission and the National
Association of Securities Dealers, Inc. (the "NASD").
(X) Neither the Company nor any of its officers, employees, agents or
any other person acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which might subject the
Company or any other such person to any damage or penalty in any civil, criminal
or governmental litigation or proceeding (domestic or foreign). The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(Y) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 of the Regulations) of any of the foregoing persons or
entities has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficial interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in the
Prospectus, there are no existing agreements, arrangements, understandings or
transactions, or
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proposed agreements, arrangements, understandings or transactions, between or
among the Company, and any officer, director, principal shareholder (as such
term is used in the Prospectus) of the Company, or any affiliate or associate
of any of the foregoing persons or entities which are required to be disclosed
in the Prospectus.
(Z) The Company is not, and does not intend to conduct its business in
a manner in which it would become an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(AA) Any certificate signed by any officer of the Company and
delivered to the Placement Agent or to the Placement Agent's Counsel (as defined
in Section 3(d) herein) shall be deemed a representation and warranty by the
Company to the Placement Agent as to the matters covered thereby.
(AB) The minute books of the Company have been made available to the
Placement Agent and contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(AC) The Company has not distributed and will not distribute any
offering material in connection with the offering and sale of the Shares in the
Offering other than the Prospectus, the Registration Statement and the other
materials permitted by the Act. Except as described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company as part of the Registration Statement or to
require the Company to file a registration statement under the Act and no person
or entity holds any anti-dilution rights with respect to any securities of the
Company.
(AD) Except for policies the absence of which is disclosed in the
Prospectus, the Company maintains insurance by insurers of recognized financial
responsibility of the types and in the amounts as the Company believes are
prudent and adequate for the business in which it is engaged, including, but not
limited to, insurance covering real and personal property owned or leased by the
Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect. The Company has delivered to the Placement Agent's Counsel satisfactory
summaries of these insurance policies. The Company has no reason to believe
that it will not be able to renew existing insurance coverage with respect to
the Company as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business, in either case,
at a cost that would not have a material adverse effect on the financial
condition, operations, business, assets or properties of the Company. The
Company has not failed to file any material claims, has no material disputes
with its insurance company regarding any claims submitted under its insurance
policies, and has complied in material respects with all material provisions
contained in its insurance policies, except where such failure or noncompliance
could not reasonably be expected to have a material adverse effect on the
Business.
2. Closings. On the basis of the representations, warranties, covenants
---------
and agreements herein contained, but subject to the terms and conditions herein
set forth, Closings shall be held as follows and upon the following conditions:
-10-
(A) National shall not be obligated to sell any Shares but shall be
obligated to offer, on behalf of the Company, 500,000 Shares resulting in gross
proceeds of $3,000,000 on a "best efforts, all or none" basis and such number of
additional Shares resulting in aggregate gross proceeds of up to $6,750,000 on a
"best efforts" basis during the Offering Period.
(B) Payment for the Shares by Purchasers shall be made by cash, check
or wire transfer as more fully described in the Subscription Agreements. There
shall be no minimum purchase required for any Purchaser.
(C) All funds received by the Placement Agent from subscriptions will
be promptly transmitted pursuant to the terms of an escrow agreement (the
"Escrow Agreement") to Continental Stock Transfer & Trust Company, as escrow
agent (the "Escrow Agent"). In the event that a Closing occurs, the funds
received in respect of the Shares sold in that Closing will be forwarded to the
Company, against delivery of such Shares sold, net of (i) the placement agent
commission equal to ten percent (10%) of the gross proceeds from the sale of
such Shares sold, (ii) a non-accountable expense allowance equal to one and one-
eighth of one percent (1.8%) of the gross proceeds from the sale of such Shares
sold less any advances and (iii) any other applicable fees and expenses provided
herein.
(D) At each Closing, the Company shall cause to be paid, by certified
or official bank check or wire transfer, to the extent not previously paid by
the Company or the Escrow Agent to National, the placement agent commission
referred to in paragraph 2.C hereof. In addition to the foregoing, the Company
shall be responsible for the fees and expenses identified in Section 5 hereof,
which expenses shall not be deemed to be commissions.
(E) The Company reserves the right to reject any subscriber for
Shares, in whole or in part, in its sole discretion. Notwithstanding anything
to the contrary contained in this Section 2(E), the Company's right to reject a
subscriber shall lapse three (3) business days after receipt by the Company of
the fully completed and duly executed Subscription Agreement from National with
respect to such subscriber. Funds received by the Escrow Agent or the Company
from any subscriber whose subscription is rejected will be returned to such
subscriber, without deduction therefrom or interest thereon, but no sooner than
such funds have cleared the banking system in the normal course of business.
(F) If subscriptions for 500,000 Shares have been received and
accepted by the Company and paid for in compliance with the applicable
Subscription Agreements on or prior to the Termination Date, the Minimum Closing
will be held on the Minimum Closing Date at such place as is agreed by the
Placement Agent and the Company.
-11-
(G) If the Minimum Closing occurs on or prior to the Termination Date,
then at such time as one or more subscriptions for additional Shares, up to an
aggregate in the Offering of the Maximum Shares, are received and accepted by
the Company and paid for in compliance with the applicable Subscription
Agreements on or prior to the Termination Date, an additional Closing respecting
such additional Shares will be held at such place as is agreed by the Placement
Agent and the Company. One or more such additional Closings may be held during
the Offering Period.
(H) Purchase of the Warrants. On the date of each Closing, the
------------------------
Company shall issue and sell to the Placement Agent Warrants at a purchase price
of $0.0001 per Warrant, which Warrants shall entitle the holders thereof to
purchase an aggregate number of shares of Common Stock equal to ten percent
(10%) of the Shares sold by the Company in such Closing. Each Warrant shall
expire five (5) years after the Minimum Closing Date and shall be exercisable
commencing one (1) year from the date of the Closing respecting which it is
issued at a price equaling one hundred sixty-five percent (165%) of the initial
public offering price of the Shares. The Placement Agent's Warrant Agreement
and form of Warrant Certificate shall be substantially in the form filed as
Exhibit 4.02 to the Registration Statement. Payment for the Warrants shall be
made on the date of the Closing respecting which it is issued.
3. Covenants of the Company. The Company covenants and agrees with the
------------------------
Placement Agent as follows:
(A) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before the Termination Date 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
-12-
issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Shares in
the Offering 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 on the Registration Statement; 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 on
the Registration Statement. If the Commission or any state securities
commission shall enter such 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 Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Regulations), and will
furnish the Placement Agent with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the Placement
Agent or Camhy Xxxxxxxxx & Xxxxx LLP ("Placement Agent's Counsel") shall
reasonably object.
(E) The Company shall endeavor in good faith, in cooperation with the
Placement Agent, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Placement Agent may reasonably designate to
permit offers and sales thereof during the Offering Period, and shall make such
applications, file such documents and furnish such information as may be
required for such purpose; provided, however, the Company shall not be required
to qualify as a foreign corporation or become subject to service of process in
any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Placement Agent agrees that such action
is not at the time necessary or advisable, use all reasonable efforts to file
and make such statements or reports at such times as are required by the laws of
such jurisdiction to continue such qualification.
(F) During the Offering Period, 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 offers and sales of the Securities in accordance with the
provisions hereof and the Prospectus, or any amendments or supplements thereto.
If at any time when a prospectus relating to the Securities is required to be
delivered under the Act, any event shall have occurred as a result of which, in
the opinion of counsel for the Company or Placement Agent's Counsel, the
Prospectus, as then amended or supplemented, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend or supplement the Prospectus to comply with the Act, the Company will
notify the Placement Agent promptly and
-13-
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) After the effective date of the Registration Statement until the
Termination Date and, if the Minimum Closing occurs, after the Termination Date,
as soon as practicable, but in any event not later than 45 days after the end of
the 12-month period beginning on the day after the end of the fiscal quarter of
the Company during which the effective date of the Registration Statement occurs
(90 days in the event that the end of such fiscal quarter is the end of the
Company's fiscal year), the Company shall make generally available to its
security holders, in the manner specified in Rule 158(b) of the Regulations, and
to the Placement Agent, an earnings statement which will be in the detail
required by, and will otherwise comply with, the provisions of Section 11(a) of
the Act and Rule 158(a) of the Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(H) After the effective date of the Registration Statement until the
Termination Date and, if the Minimum Closing occurs, after the Termination Date,
during a period of five (5) years after the date hereof, until and including the
like day and month in 2002, the Company will furnish to its stockholders, as
soon as practicable, annual reports (including consolidated financial statements
of the Company and its consolidated subsidiaries audited by independent public
accountants) and will make available to its stockholders consolidated unaudited
quarterly reports (except for the last quarter of each fiscal year) of earnings
of the Company and its consolidated subsidiaries, and will deliver to the
Placement Agent:
(i) concurrently with furnishing such quarterly reports to its
stockholders, a consolidated statement of income of the Company and its
consolidated subsidiaries for each quarter in the form furnished to the
Company's stockholders;
(ii) concurrently with furnishing such annual reports to its
stockholders, a consolidated balance sheet of the Company and its consolidated
subsidiaries as at the end of the preceding fiscal year, together with
statements of consolidated operations, stockholders' equity, and cash flows of
the Company and its consolidated subsidiaries for such fiscal year, accompanied
by a copy of the report thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all other reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, Nasdaq or any
securities exchange;
(v) every press release and every material news item or article
of interest to the financial community in respect of the Company or its
affairs which was released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature concerning the
Company and its businesses which the Placement Agent may reasonably request.
-14-
During such five-year period, the foregoing financial statements will
be accompanied by similar financial statements for any significant subsidiary
which is not consolidated.
(I) If the Minimum Closing occurs, the Company will maintain a
transfer agent (the "Transfer Agent") and, if necessary under the jurisdiction
of incorporation of the Company, a registrar (which may be the same entity as
the transfer agent) for the Shares.
(J) The Company will furnish to the Placement Agent, without charge,
at such place as the Placement Agent may designate, copies of each preliminary
prospectus, the Registration Statement, the Prospectus and any pre-effective or
post-effective amendments thereto (two of which copies will be signed and will
include all financial statements and exhibits), in each case as soon as
available and in such quantities as the Placement Agent may reasonably request.
(K) On or before the effective date of the Registration Statement, the
Company shall provide the Placement Agent with true copies of duly executed
Lock-up Agreements. On or before the Minimum 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) After the effective date of the Registration Statement until the
Termination Date and, if the Minimum Closing occurs, after the Termination Date,
the Company shall use its best efforts to cause its officers, directors,
stockholders or affiliates (within the meaning of the Regulations) not to take,
directly or indirectly, any action designed to, or which might in the future
reasonably be expected to cause or result in, unlawful stabilization or
manipulation of the price of any securities of the Company.
(M) The Company shall apply the net proceeds from the sale of the
Securities substantially in the manner, and subject to the conditions, set forth
under "Use of Proceeds" in the Prospectus.
(N) After the effective date of the Registration Statement until the
Termination Date and, if the Minimum Closing occurs, after the Termination Date,
the Company shall timely file all such reports, forms or other documents as may
be required (including, but not limited to, a Form SR if 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) If the Minimum Closing occurs, the Company shall use its best
efforts to cause the Common Stock to be quoted on the OTC Electronic 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 Common Stock to the extent outstanding.
(P) For a period of two (2) years from the Minimum Closing Date, the
Company shall furnish to the Placement Agent, at the Company's sole expense,
monthly transfer sheets relating to the Common Stock.
-15-
(Q) After the effective date of the Registration Statement until the
Termination Date and, if the Minimum Closing occurs, after the Termination Date,
for a period of five (5) years after the effective date of the Registration
Statement, the Company shall, at the Company's sole expense, take all reasonable
and appropriate actions to qualify the Securities in all jurisdictions of the
United States which do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process in order to
permit secondary sales of such securities pursuant to the Blue Sky laws of those
jurisdictions.
(R) The Company (i) prior to the effective date of the Registration
Statement has filed a Form 8-A with the Commission providing for the
registration of the 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 or
Xxxxx'x OTC Manual and, if the Minimum Closing occurs, to continue such
inclusion for a period of not less than five (5) years.
(S) Until the Termination Date, 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 similar 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.
(T) Following the Minimum Closing, 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
Warrant Shares, the Company will not take any action or actions which may
prevent or disqualify the Company's use of an appropriate form for the
registration under the Act of the Warrant Shares (or the shares of Common Stock
issuable upon exercise of the Warrants).
(U) For a period of two (2) years following the Minimum Closing Date,
the Placement Agent shall be entitled to designate a non-voting observer,
reasonably acceptable to the Company, who shall be entitled to receive notice of
all meetings of the Board of Directors of the Company, and all actions proposed
to be taken by written consent of the directors, at the same time such materials
are distributed to directors of the Company and to attend, in person or by
telephone call, all meetings of the Board of Directors of
-16-
the Company. Such observer agrees to hold, and the Placement Agent will use
its best efforts to ensure that such observer holds, in confidence and keep
all information and material obtained or learned in connection with such
meetings confidential. The Board may exclude the observer from portions of
meetings where highly confidential or trade secret matters are being
discussed, where the observer's attendance could jeopardize the attorney-
client privilege, or where the Board of Directors in good faith concludes that
it would be inappropriate, in light of potential conflicts of interest
considerations or otherwise, for the observer to attend that portion of the
meeting.
(V) The Company agrees that within forty-five (45) days after the date
of the last Closing it shall retain a public relations firm which is reasonably
acceptable to National. National acknowledges and agrees that Investor
Relations Group is acceptable to National. Provided that such public relations
firm performs in a commercially reasonable and satisfactory manner, the Company
shall keep such public relations firm and any replacement for a total period of
two (2) years from such date. Any replacement public relations firm shall be
retained only with the consent of National, which shall not be unreasonably
withheld.
(W) The Company agrees that after the effective date of the
Registration Statement until the Termination Date and, if the Minimum Closing
occurs, after the Termination Date any and all future transactions between the
Company and any of its officers, directors, principal stockholders and the
affiliates of the foregoing persons will be on terms no less favorable to the
Company than could reasonably be obtained in arm's length transactions with
independent third parties, and that any such transactions also be approved by a
majority of the Company's outside independent directors disinterested in the
transaction.
(X) The Company shall prepare and deliver, at the Company's sole
expense, to National within the one hundred and twenty (120) day period after
the later of the effective date of the Registration Statement and the date of
the latest Closing, as the case may be, one bound volume containing all
correspondence with regulatory officials, agreements, documents and all other
materials in connection with the offering to which such Registration Statement
relates as requested by Placement Agent's Counsel.
4. Payment of Expenses.
-------------------
(A) The Company hereby agrees to pay on the date of each Closing (to
the extent not previously paid) all expenses and fees (other than fees of
Placement Agent's Counsel, except as provided in (iv) below) incident to the
performance of the obligations of the Company under this Agreement and the
Placement Agent's Warrant Agreement, including, without limitation, (i) the fees
and expenses of accountants and counsel for the Company, (ii) all costs and
expenses incurred in connection with the preparation, duplication, printing,
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the duplication, mailing (including the payment of
postage with respect thereto) and delivery of this Agreement and related
documents, including the cost of all copies thereof and of each preliminary
prospectus and of the Prospectus and any amendments thereof or supplements
thereto
-17-
supplied to the Placement Agent as the Placement Agent may request, in
quantities as hereinabove stated, (iii) the printing, engraving, issuance and
delivery of the certificates representing the Securities, (iv) the qualification
of the Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of word processing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and reasonable disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including but not limited to the
costs and expenses incurred by the Company and the Placement Agent in connection
with the "road show," information meetings and presentations, bound volumes and
prospectus memorabilia and reasonable "tombstone" advertisement expenses, (vi)
experts, (vii) fees and expenses of the transfer agent and registrar, (viii) the
fees payable to the Commission and the NASD, (ix) issue and transfer taxes, if
any and (x) the fees and expenses incurred in connection with the quotation of
the Common Stock on the OTC Electronic Bulletin Board and any other market or
exchange.
(B) If this Agreement is terminated by the Placement Agent in
accordance with the provisions of Section 5, Section 9(a) or Section 10, the
Company shall reimburse and indemnify the Placement Agent for all of its actual
out-of-pocket expenses on an accountable basis, including the fees and
disbursements of Placement Agent's Counsel, less any amounts already paid
pursuant to Section 4(c) hereof provided that National shall notify the Company
of any single expense or any series of similar expenses which in the aggregate
exceed $5,000 (provided further that such notice requirement shall not apply to
National's actual out-of-pocket legal expenses).
(C) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 4, it will pay to the
Placement Agent on the date of each Closing by certified or bank cashier's check
or, at the election of the Placement Agent, by deduction from the proceeds in
that Closing of the Offering a non-accountable expense allowance equal to one
and eight-tenths of one percent (1.8%) of the gross proceeds received by the
Company from the sale of the Shares in that Closing, $30,000 of which has been
paid to date.
5. Conditions of the Placement Agent's Obligations. The obligations of
-----------------------------------------------
the Placement Agent hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the date of each Closing, if any, as if they had been made on and as of
such date, as the case may be; the accuracy on and as of the date of each
Closing, if any, of the statements of officers of the Company made pursuant to
the provisions hereof; and the performance by the Company on and as of the date
of each Closing, if any, of its covenants and obligations hereunder and to the
following further conditions:
(A) The Registration Statement shall have become effective not later
than 5:00 p.m., New York City time, on the date prior to the date of this
Agreement or such later date and time as shall be consented to in writing by the
Placement Agent, and, at the date of each Closing, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the 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
-18-
the Shares and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the
Regulations within the prescribed time period, and prior to the Minimum
Closing Date the Company shall have provided evidence satisfactory to the
Placement Agent of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Regulations.
(B) The Placement Agent shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Placement Agent's opinion, is material, or omits to state
a fact which, in the Placement Agent's opinion, is material and is required to
be stated therein or is necessary to make the statements therein not misleading,
or that the Prospectus, or any supplement thereto, contains an untrue statement
of fact which, in the Placement Agent's reasonable opinion, is material, or
omits to state a fact which, in the Placement Agent's reasonable opinion, is
material and is required to be stated therein or is necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(C) At the Minimum Closing Date, the Placement Agent shall have
received the favorable opinion of Fenwick & West LLP ("Fenwick & West"), counsel
to the Company, dated the Minimum Closing Date, addressed to the Placement Agent
and in form and substance satisfactory to Placement Agent's Counsel, to the
effect that:
(i) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its jurisdiction
of incorporation, (B) is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations requires such qualification
or licensing, except where the failure to be so qualified or licensed would
not have a material adverse effect on the Company's business and (C) to such
counsel's knowledge, has all requisite corporate power and authority and has
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus.
(ii) except as described in the Prospectus, and to such counsel's
knowledge, the Company does not currently engage in any substantial activities,
and to such counsel's knowledge, the Company does not own an interest in any
corporation, limited liability company, partnership, joint venture, trust or
other business entity;
(iii) to such counsel's knowledge, the Company has a duly
authorized, issued and outstanding capitalization as set forth in the
Prospectus, and any amendment or supplement thereto, under "Capitalization"
and "Description of Capital Stock," and to the knowledge of such counsel, the
Company is not a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement, the Placement Agent's
Warrant Agreement, and as described in the Prospectus. The Securities and all
other securities issued or issuable by the Company which will be outstanding
after the Closing Date conform in all material respects to the statements with
respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding
-19-
securities of the Company have been duly authorized and validly issued and are
fully paid and nonassessable; and none of such securities were issued in
violation of any preemptive rights in the Company's Certificate of
Incorporation, the Company's By-laws, the agreements and instruments
identified in such counsel's opinion as having been reviewed for purposes of
the opinion or other preemptive rights known to such counsel of any holders of
any security of the Company. The Securities to be sold by the Company
hereunder and under the Placement Agent's Warrant Agreement are not and will
not be subject to any preemptive rights in the Company's Certificate of
Incorporation, the Company's By-laws, the agreements and instruments
identified in such counsel's opinion as having been reviewed for purposes of
the opinion or any other preemptive or similar rights of any stockholder known
to such counsel, have been duly authorized and, when issued, paid for and
delivered in accordance with their terms, will be validly issued, fully paid
and nonassessable and will conform in all material respects to the description
thereof contained in the Prospectus; all corporate action required to be taken
for the authorization, issue and sale of the Securities has been duly and
validly taken; and the certificates representing the Securities are in due and
proper form. The Warrants constitute valid, binding and enforceable
obligations of the Company to issue and sell, upon exercise thereof and
payment therefor, the number and type of securities of the Company called for
thereby (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable
law). Upon the issuance and delivery pursuant to this Agreement of the
Securities to be sold by the Company, the Company will convey, against payment
therefor as provided herein, to the Purchasers good and marketable title to
the Securities free and clear of all liens and other encumbrances;
(iv) if applicable, filing of all pricing information has been timely
made in the appropriate form under Rule 430A, and based solely upon the oral
advice of the Staff of the Commission, the Registration Statement is effective
under the Act and no stop order suspending the use of 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 proceedings for that purpose have been instituted or are pending or, to
such counsel's knowledge, threatened or contemplated under the Act;
(v) each of 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 representatives of the Company and the Placement Agent and representatives
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
-20-
to be stated therein or necessary to make the statements therein not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and schedules and other financial and
statistical data included in the Preliminary Prospectus, the Registration
Statement or Prospectus, and any amendments or supplements thereto);
(vi) to such counsel's knowledge, (A) there are no agreements,
contracts or other documents required by the Act to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or amendment
thereto of contracts and other agreements to which the Company is a party that
are expressly referred to in the Registration Statement and the Prospectus, are
accurate in all material respects; (C) there is not pending and the Company has
received no oral or written notice of any action, arbitration, suit, proceeding,
litigation, governmental or other proceeding against the Company (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, which (x) is required by the Regulations to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), (y) questions the validity of the capital
stock of the Company this Agreement or the Placement Agent's Warrant Agreement,
or of any action taken or to be taken by the Company pursuant to or in
connection with any of the foregoing; and (D) there is not pending and the
Company has received no oral or written notice of any action, suit or proceeding
against the Company before any court or arbitrator or governmental body, agency
or official in which there is a reasonable possibility of an adverse decision
which may result in a material adverse change in the Business, which could
reasonably be expected to materially adversely affect the present or prospective
ability of the Company to perform its obligations under this Agreement or the
Placement Agent's Warrant Agreement, or which in any manner draws into question
the validity or enforceability of this Agreement or the Placement Agent's
Warrant Agreement;
(vii) the Company has the corporate power and authority to enter
into each of this Agreement and the Placement Agent's Warrant Agreement and to
consummate the transactions provided for therein; and each of this Agreement
and the Placement Agent's Warrant Agreement has been duly authorized, executed
and delivered by the Company. Each of this Agreement and the Placement Agent's
Warrant Agreement, assuming due authorization, execution and delivery by each
other party thereto, constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms (except
as the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application
of equitable principles in any action, legal or equitable, except as rights to
indemnity or contribution may be limited by applicable law). To such counsel's
knowledge, none of the Company's execution, delivery or performance of this
Agreement and the Placement Agent's Warrant Agreement, the consummation by the
Company of the transactions contemplated herein or therein, or the conduct of
the Company's business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto conflicts with or
results in any material breach or violation of any of the terms or provisions
of, or constitutes a material default under, or results in the creation or
imposition of any material lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever upon,
any property or assets (tangible or intangible) of the Company pursuant to the
terms of (A) the certificate of incorporation or by-laws of the Company, as
amended, (B) any license, contract, indenture, mortgage, deed of trust, voting
trust agreement,
-21-
stockholders' agreement, note, loan or credit agreement or any other agreement
or instrument known to such counsel, to which the Company is a party or by
which it is bound, or (C) any federal, state or local statute, rule or
regulation known to such counsel to be applicable to the Company or any
judgment, decree or order known to such counsel of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental
or similar matters), domestic or foreign, having jurisdiction over the Company
or any of its activities or properties, in each case where such conflict,
breach, violation or default would have a material adverse effect on the
Company's business;
(viii) no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other than
such as may be required under Blue Sky laws, as to which no opinion need be
rendered or under federal securities laws, as to which no opinion need be
rendered pursuant to this subsection (viii)) is required in connection with
the issuance of the Securities pursuant to the Prospectus and the Registration
Statement, the performance of this Agreement and the Placement Agent's Warrant
Agreement, and the transactions contemplated hereby and thereby;
(ix) to such counsel's knowledge, the properties of the Company
conform in all material respects to the description thereof contained in the
Registration Statement and the Prospectus;
(x) to the knowledge of such counsel, and except as disclosed in the
Registration Statement and the Prospectus, (A) the Company is not in material
breach of, or in material default under, any term or provision of any license,
contract, agreement, indenture, mortgage, installment sale agreement, deed of
trust, lease, voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument evidencing an obligation
for borrowed money, or other agreement or instrument to which the Company is a
party or by which the Company is bound or to which the property or assets
(tangible or intangible) of the Company is subject, in each case where such
breach or default would have a material adverse effect on the business of the
Company, and (B) the Company is not in material violation of any term or
provision of its articles of incorporation or by-laws, as amended, or in
material violation of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation known to such counsel to be applicable to the
Company, in each case where such breach, default or violation would have a
material adverse effect on the Company's business;
(xi) the statements in the Prospectus under "Dividend Policy,"
"Description of Capital Stock," and "Shares Eligible for Future Sale" have been
reviewed by such counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or legal conclusions,
are correct in all material respects;
(xii) the Common Stock has been accepted for quotation on the OTC
Electronic Bulletin Board;
(xiii) to such counsel's knowledge and based upon a review of the
outstanding securities and the contracts furnished to such counsel by the
Company, except as disclosed in the Registration Statement and Prospectus, no
person, corporation, trust, partnership, association or other entity has the
right to include and/or register any securities of the Company in the
-22-
Registration Statement, require the Company to file any registration statement
or, if filed, to include any security in such registration statement; and
(xiv) assuming the authority and capacity of, and due execution
by the parties thereto other than the Company, each Lock-up Agreement is a
legal, valid and binding obligation of the party thereto, enforceable against
the party and any subsequent holder of the securities subject thereto in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law).
In rendering such opinion, such counsel (A) need not express any
opinion as to matters involving the application of laws other than the laws,
rules and regulations of the United States (with such exceptions and limitations
as are set forth in such counsel's opinion) and the laws, rules and regulations
of the State of Delaware; and (B) as to matters of fact, to the extent they deem
proper, on certificates and written statements of responsible officers of the
Company and certificates or other written statements of officers of departments
of various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company, provided that copies of any such
statements or certificates shall be delivered to Placement Agent's Counsel if
requested.
At the date of each Closing following the Minimum Closing, if any, the
Placement Agent shall have received the favorable opinion of Fenwick & West,
counsel to the Company, dated such date, addressed to the Placement Agent and in
form and substance satisfactory to Placement Agent's Counsel confirming as of
such date the statements made by Fenwick & West in its opinion delivered on the
Minimum Closing Date.
(D) On or prior to the date of each Closing, if any, Placement Agent's
Counsel shall have been furnished such documents, certificates and opinions as
they may reasonably require for the purpose of enabling them to review or pass
upon the matters referred to in subsection (c) of this Section 5, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions of the Company or herein contained.
(E) Prior to the date of each Closing, if any, (i) there shall have
been no material adverse change nor development involving a prospective material
adverse change in the condition, financial or otherwise, prospects,
stockholders' equity or the business activities of the Company, whether or not
in the ordinary course of business, from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus; (ii) except
as disclosed in the Registration Statement or the Prospectus, there shall have
been no transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company; (iii) the Company shall not be in default under any
provision of any instrument relating to any outstanding indebtedness which
default has not been waived; (iv) except as disclosed in the Registration
Statement or the Prospectus, the Company shall not have issued any securities
(other than the Securities) or declared or paid any dividend or made any
distribution in respect of its capital stock of any class and there has not been
-23-
any change in the capital stock, or any material increase in the debt (long or
short term) or liabilities or obligations of the Company (contingent or
otherwise) except for the issuance of the Shares, the Warrants, and shares of
Common Stock issued upon the exercise of currently outstanding warrants or
options, or options and warrants granted in the ordinary course of business
consistent with prior practice; (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (vi) there shall not have been pending
and the Company shall not have received oral or written notice of any action,
suit or proceeding, at law or in equity, (or circumstances giving rise to same)
against the Company, or affecting any of its respective properties or businesses
before or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the Business of the Company except as set forth in
the Registration Statement and Prospectus; and (vii) no stop order shall have
been issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(F) At the date of each Closing, 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 such date, as the case may
be, to the effect that such executive has carefully examined the Registration
Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of such date, as the case
may be, and the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part to be performed
or satisfied at or prior to such date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no proceedings
for that purpose have been instituted or are pending or, to the best of each
of such person's knowledge after due inquiry, are contemplated or threatened
under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all statements and
information required by the Act to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and neither the Preliminary Prospectus or
any supplement, as of their respective dates, thereto included any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and except as
disclosed in the Prospectus, (a) the Company has not incurred up to and
including the date of each Closing, as the case may be, other than in the
ordinary course of its business, any material liabilities or obligations,
direct or contingent; (b) the Company has not paid or declared any dividends
or other distributions on its capital stock; (c) the Company has not entered
into any material transactions not in the ordinary course of business; (d)
there has not been any change in the capital stock as described
-24-
in the Registration Statement and Prospectus or material increase in long-term
debt or any increase in the short-term borrowings (other than any increase in
the short-term borrowings in the ordinary course of business) of the Company,
(e) the Company has not sustained any material 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
(F) are to such documents as amended and supplemented at the date of such
certificate.
(G) By the Closing Date, the Placement Agent will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Placement Agent.
(H) At the time this Agreement is executed, the Placement Agent shall
have received a letter, dated such date, addressed to the Placement Agent in
form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Placement Agent and Placement Agent's Counsel, from Xxxxxx Xxxxxxxx:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Regulations thereunder
and that the Placement Agent may rely upon the opinion of Xxxxxx Xxxxxxxx with
respect to the financial statements and supporting schedules included in the
Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the board of directors of the Company, consultations with
officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention which would lead them to believe that (A) the
unaudited financial statements and supporting schedules of the Company
included in the Registration Statement, if any, do not comply as to form in
all material respects with the applicable accounting requirements of the Act
and the Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent
with that of the audited financial statements of the Company included in the
Registration Statement, or (B) at a specified date not more than five (5) days
prior to the effective date of the Registration Statement, there has been any
change in the capital stock or material increase in long-term debt of the
Company, or any material decrease in the stockholders' equity or net current
assets or net assets of the Company as compared with amounts shown in the most
recent balance sheet included in the Registration Statement, other than as set
forth in or contemplated by the Registration Statement, or, if there was any
change or decrease, setting forth the amount of such change or decrease.
-25-
(iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements
and information may be derived from the general accounting records, including
work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letter and found them
to be in agreement; and
(v) statements as to such other material matters incident to the
transaction contemplated hereby as the Placement Agent may reasonably request.
(I) At the date of each Closing, if any, the Placement Agent shall
have received from Xxxxxx Xxxxxxxx a letter, dated as of such date, as the case
may be, to the effect that it reaffirms that statements made in the letter
furnished pursuant to Subsection (i) of this Section 5, except that the
specified date referred to shall be a date not more than five (5) days prior to
such date, as the case may be, and, if the Company has elected to rely on Rule
430A of the Rules and Regulations, to the further effect that they have carried
out procedures as specified in clause (iv) of Subsection (i) of this Section 5
with respect to certain amounts, percentages and financial information as
specified by the Placement Agent and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (iv).
(J) On the date of each Closing, if any, the Company shall have duly
executed and delivered the appropriate amount and designation of Shares to the
Placement Agent as agent for the respective Purchasers thereof.
(K) No order suspending the sale of the Securities in any jurisdiction
designated by the Placement Agent pursuant to subsection (e) of Section 3 hereof
shall have been issued on the date of each Closing, if any, and no proceedings
for that purpose shall have been instituted or shall be contemplated.
(L) On or before the Minimum Closing Date, the Company shall have
executed and delivered to the Placement Agent, (i) the Placement Agent's Warrant
Agreement, substantially in the form filed as Exhibit 4(b) to the Registration
Statement, in final form and substance satisfactory to the Placement Agent, and
(ii) on or before the date of each Closing, if any, the Warrants issuable in
such Closing in such denominations and to such designees as shall have been
provided to the Company.
(M) On or before the Minimum Closing Date, there shall have been
delivered to the Placement Agent all of the Lock-up Agreements, subject to the
exceptions set forth in Section (V) above, in final form and substance
satisfactory to Placement Agent's Counsel.
If any condition to the Placement Agent's obligations hereunder to be
fulfilled prior to or at the date of each Closing, as the case may be, is not so
fulfilled, the Placement Agent may terminate this Agreement or, if the Placement
Agent so
-26-
elects, it may waive any such conditions which have not been fulfilled
or extend the time for their fulfillment.
6. Indemnification.
---------------
(A) The Company agrees to indemnify and hold harmless the Placement
Agent (for purposes of this Section 6 "Placement Agent" shall include the
officers, directors, partners, employees, agents and counsel of the Placement
Agent), and each person, if any, who controls the Placement Agent ("controlling
person") within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all loss, liability, 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 any action, suit or proceeding,
commenced or threatened, by a third party arising out of, based upon or in
connection with (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in the Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented); or
(B) in any application or other document or communication (in this Section 6
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
or any securities exchange or the OTC Electronic Bulletin Board; or any omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (in the case of the
Prospectus, in the light of the circumstances under which they were made),
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company with respect to the Placement
Agent by or on behalf of the Placement Agent expressly for use in the
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be; or (ii) any breach of any representation, warranty, covenant or agreement of
the Company contained in this Agreement. The indemnity agreement in this
subsection (a) shall be in addition to any liability which the Company may have
at common law or otherwise.
(B) The Placement Agent agrees to indemnify and hold harmless the
Company, each of its directors, employees, agents, each of its officers who has
signed the Registration Statement, and each other person, if any, who controls
the Company, within the meaning of the Act, to the same extent as the foregoing
indemnity from the Company to the Placement Agent but with respect to statements
or omissions, if any, made in the Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
application, only with respect to statements or omissions made in reliance upon,
and in strict conformity with, written information furnished to the Company with
respect to the Placement Agent by the Placement Agent expressly for use in the
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
the Offering. The Company acknowledges that the statements with respect to the
public offering of the Securities set forth under the heading "Plan of
-27-
Distribution" and the stabilization legend in the Prospectus have been furnished
by the Placement Agent expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Placement Agent or the
Placement Agent for inclusion in the Prospectus.
(C) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 6, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure to so notify an indemnifying party shall not relieve it from any
liability which it may have otherwise or which it may have under this Section 6,
except to the extent that it has been prejudiced in any material respect by such
failure). In case any such action is brought against any indemnified party, and
it notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of such action at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
the reasonable fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 6 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent was not
-------- -------
unreasonably withheld.
(D) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 6, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such
-28-
losses, claims, damages, expenses or liabilities, as well as any other
relevant equitable considerations. In any case where the Company is a
contributing party and the Placement Agent is the indemnified party, the
relative benefits received by the Company on the one hand, and the Placement
Agent, on the other, shall be deemed to be in the same proportion as the total
net proceeds from the offering of the Securities (before deducting expenses
other than commissions) bear to the total commissions received by the
Placement Agent hereunder, in each case as set forth in the table on the Cover
Page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Placement Agent, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions in respect thereof) referred to above in
this subdivision (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subdivision (d) the Placement Agent shall not be required to contribute any
amount in excess of the commissions applicable to the Securities purchased by
the Placement Agent hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 6, each person, if any, who
controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission
so to notify such party or parties shall not relieve the party or parties from
whom contribution may be sought from any obligation it or they may have
hereunder or otherwise than under this subparagraph (d), or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
7. Representations and Agreements to Survive Delivery. All
--------------------------------------------------
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements of the Company
at the date of each Closing, as the case may be, and such representations,
warranties and agreements of the Company and the respective indemnity and
contribution agreements contained in Section 6 hereof shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
the Placement Agent, the Company, any controlling person of either the Placement
Agent or the Company, and shall survive termination of this Agreement or the
issuance and delivery of the Securities by the Company.
8. Effective Date. This Agreement shall become effective at 5:00 p.m.,
--------------
New York City time, on the date hereof.
9. Termination.
-----------
-29-
(A) Subject to subsection (b) of this Section 9, the Placement Agent
shall have the right to terminate this Agreement, if between the date of this
Agreement and the Minimum Closing Date, (i) if any domestic or international
event or act or occurrence has materially disrupted, or in the Placement Agent's
reasonable opinion will in the immediate future have a material and adverse
effect on the securities markets generally; or (ii) any material adverse change
in the financial markets shall have occurred; or (iii) if trading on the New
York Stock Exchange, the American Stock Exchange, or in the over-the-counter
market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required on the over-the-counter market by the NASD or by order of the
Commission or any other government authority having jurisdiction; or (iv) if the
United States shall have become involved in a war or major hostilities, or if
there shall have been an escalation in an existing war or major hostilities or a
national emergency shall have been declared in the United States; or (v) if a
banking moratorium has been declared by a state or federal authority; or (vi) if
the Company shall have sustained a loss material to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Placement Agent's opinion, make it inadvisable to proceed with the delivery of
the Securities; or (viii) if there shall have occurred either of the following
which in the Placement Agent's good faith judgment would make it inadvisable to
proceed with the offering, sale and/or delivery of the Securities: (X) a
material adverse change in the prospects or conditions of the Company, or (Y) a
material adverse change in the general market, political or economic conditions,
in the United States or elsewhere, in each case in this clause (Y) having a
material and adverse effect on the securities markets generally.
(B) If this Agreement is terminated by the Placement Agent in
accordance with any of the provisions of Section 5, Section 9(a) or Section 10,
the Company shall promptly reimburse and indemnify the Placement Agent pursuant
to Section 4(b) hereof. If this Agreement is terminated by the Company pursuant
to the paragraph immediately preceding Section 1 of this Agreement, the Company
shall promptly reimburse and indemnify the Placement Agent pursuant to Section
4(a) hereof. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 5, 9, and 10 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 4 and Section 6 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
10. Default by the Company. If the Company shall fail at the date of each
----------------------
Closing to sell and deliver the number of 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.
11. Notices. All notices and communications hereunder, except as herein
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otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Placement Agent shall be directed to the
Placement Agent, c/o National Securities Corporation, 0000 Xxxxxx Xxxxxx, Xxxxx
0000, Xxxxxxx, Xxxxxxxxxx 00000, Attention: Xxxxxx X. Xxxxxxxxx, with a copy,
which shall not constitute notice, to Camhy Xxxxxxxxx & Xxxxx LLP, 0000
Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxx X. Annex, Esq.
Notices to the Company shall be directed to the Company at Xxxxxx X. Xxxxxx,
Osmotics Corporation, 0000 X. 00xx Xxxxxx, Xxxxx 0000, Xxxxxx,
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Xxxxxxxx 00000, with a copy, which shall not constitute notice, to Fenwick &
West LLP, Xxx Xxxx Xxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000, Attention: C.
Xxxxx Xxxxx, Esq.
12. Parties. This Agreement shall inure solely to the benefit of and
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shall be binding upon the Placement Agent, the Company and the controlling
persons, directors and officers referred to in Section 6 hereof and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from the Placement Agent shall be deemed
to be a successor by reason merely of such purchase.
13. Construction. This Agreement shall be governed by and construed and
------------
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
14. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
15. Entire Agreement; Amendments. This Agreement and the Placement
----------------------------
Agent's Warrant Agreement constitute the entire agreement of the parties hereto
and supersede all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended except in a writing, signed by the Placement Agent and the Company.
If the foregoing correctly sets forth the understanding between the
Placement Agent and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
OSMOTICS CORPORATION
By:________________________________
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
NATIONAL SECURITIES CORPORATION
By:______________________________
Name: Xxxxxx X. Xxxxxxxxx
Title: Chairman
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