Exhibit 4.9
QUERYOBJECT SYSTEMS CORPORATION
AGENCY AGREEMENT
As of January 22, 2001
EarlyBirdCapital, Inc.
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Ladies and Gentlemen:
QueryObject Systems Corporation, a Delaware corporation ("Company"),
proposes to offer for sale ("Offering") Units ("Units"), each Unit consisting of
(i) one share of the Company's common stock ("Common Stock" or "Share(s)") and
(ii) two warrants ("Warrant(s)") as described below. The Units will be offered
on a "best efforts, minimum/maximum" basis with the minimum number of Units
("Minimum Number") being the number of Units which can be sold by the Company
without obtaining shareholder approval ("Shareholder Approval") under the rules
of The American Stock Exchange ("AMEX"), and the maximum number of Units
("Maximum Number") being the number determined by dividing $3,000,000* by the
per Unit offering price. The Offering will be made in accordance with Section
4(2) of the Securities Act of 1933, as amended ("Securities Act"), and
Regulation D ("Reg D") promulgated thereunder, only to "accredited investors,"
as defined in Reg D. The minimum subscription amount will be $50,000, although
subscriptions for amounts less than $50,000 may be accepted at the discretion of
the Placement Agent (as defined below) and the Company.
The per-Unit offering price shall be 75% of the average closing
price of a share of Common Stock for the five consecutive trading days ending
two business days prior to the First Closing (such average referred to as the
"First Market Price"). Notwithstanding this, if (a) Shareholder Approval is
obtained, (b) there is a Final Closing, and (c) if the average closing price of
the Shares for five consecutive business days ended two business days prior to
the Final Closing ("Final Market Price") is less then the First Market Price,
then the per-Unit Offering price shall be reduced to 75% of the Final Market
Price and all investors who purchased Units in the First Closing will be issued
additional Units as if the purchase price paid by them at the First Closing was
75% of the Final Market Price.
Each Warrant shall entitle the holder to purchase one share of
Common Stock during the five-year period commencing on the First Closing, for an
initial exercise price equal to $0.125 above the First Market Price.
Notwithstanding the foregoing, if (a) Shareholder Approval is obtained, (b)
there is a Final Closing, and (c) the Final Market Price is lower than the First
Market Price, then the Warrants to be issued at the Final Closing shall have an
exercise price equal to $0.125 above the Final Market Price and the exercise
price of the Warrants issued to investors at the First Closing shall be reduced
to the same price. The Warrants will be
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* The Company and the Placement Agent, as defined herein, may mutually
determine to increase the maximum amount to up to $5,000,000.
redeemable by the Company at any time when the Registration Statement (as
defined below), is effective and the closing sales price of the Common Stock has
been at least 160% of the then exercise price of the Warrants for 20 consecutive
trading days ending within two business days of the notice of redemption.
The Units, Shares and Warrants have the terms and conditions
reflected in the Company's Confidential Private Placement Memorandum dated
January 22, 2001 ("Memorandum") to be delivered to each purchaser of the Units.
The Memorandum, together with all exhibits thereto, will be referred to herein
as the "Offering Documents."
1. Appointment of Placement Agent; The Offering Period.
1.1 Appointment of Placement Agent. EarlyBirdCapital, Inc. ("EBC" or
"Placement Agent") is hereby appointed exclusive Placement Agent of the Company
during the offering period herein specified ("Offering Period") for the purpose
of assisting the Company in placing the Units with purchasers who are qualified
accredited investors ("Subscribers"). The Placement Agent hereby accepts such
agency and agrees to assist the Company in placing the Units with the
Subscribers. The Placement Agent's agency hereunder is not terminable by the
Company except upon termination of the Offering, a breach by the Placement Agent
of its material obligations hereunder or as otherwise provided in Section 7
hereon.
1.2 Offering Period. The Offering Period shall commence on the date
of the Memorandum, January 22, 2001 ("Commencement Date") and shall continue
until March 31, 2001 ("First Termination Date"). If, at any time prior to the
First Termination Date, subscriptions for the Minimum Number of Units have been
received and accepted by the Placement Agent and the Company (and funds in
payment therefor have cleared), then, upon the mutual consent of the Company and
the Placement Agent, the initial closing ("First Closing") shall take place with
respect to such accepted subscriptions. If subscriptions for at least the
Minimum Number of Units are not received and accepted (and funds in payment
therefor cleared) by the First Termination Date, the Offering will be terminated
and all funds received from Subscribers will be returned, without interest and
without any deduction. If the Minimum Number of Units is sold and the First
Closing occurs, then the second and final closing ("Final Closing"), if any,
shall occur only if, and immediately after, requisite Shareholder Approval for
the sale of additional Units is obtained, but at no time later than May 31,
2001.
1.3 Placement Agent's Option. The Company hereby agrees to issue and
sell to the Placement Agent (and/or its designees) at each Closing, for an
aggregate purchase price of $100.00, an option ("Placement Agent's Option") to
purchase a number of Units equal to 10% of the number of Units sold at each
Closing at a price per Unit equal to $0.125 above the Market Price (such
exercise price to be adjusted in the same manner as the Warrants, as described
in the third paragraph of this Agreement) ("Placement Agent's Units" and
together with the securities underlying the Placement Agent's Units, "Placement
Agent Securities"). The Placement Agent's Option shall entitle the holder
thereof to purchase securities that are identical to the securities sold
pursuant to the Offering. The Placement Agent's Option is exercisable for a
five-year period commencing on the First Closing. The Placement Agent's Option
shall contain registration rights with respect to the Placement Agent Option and
Placement Agent Securities identical to the registration rights granted to the
Subscribers in the Offering. The Purchase Option will contain an appropriate
cashless exercise provision.
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1.4 Offering Documents. The Company will provide the Placement Agent
with a sufficient number of copies of the Offering Documents, including the form
of Subscription Agreement/Investor Information Statement ("Subscription
Agreement") and NASD Questionnaire to be executed by each Subscriber for
delivery to potential Subscribers and such other information, documents and
instruments that the Placement Agent deems reasonably necessary to act as
Placement Agent hereunder and to comply with the rules, regulations and judicial
and administrative interpretations respecting compliance with applicable state
and federal statutes related to the Offering.
1.5 Escrow of Funds. Each Subscriber for the Units shall tender to
the Placement Agent a check or wire transfer to "ASTT AAF - Query Escrow
Account" in the amount of the investment subscribed for, which funds shall be
held in a non-interest bearing escrow account, maintained by American Stock
Transfer & Trust Company, as escrow agent ("Account").
1.6 No Firm Commitment. The Company understands and acknowledges
that the undertaking by the Placement Agent pursuant to this Agreement is not a
"firm commitment" offering and that the Placement Agent is not obligated in any
way to purchase or sell the Units offered hereby.
1.7 Participation by Selected Dealers. The Placement Agent may
engage other persons that are members of the National Association of Securities
Dealers, Inc. ("NASD") or registered representatives of such members to assist
the Placement Agent in the Offering (each such person being hereinafter referred
to as a "Selected Dealer") and the Placement Agent may allow such persons such
part of the compensation and payment of expenses payable to the Placement Agent
hereunder as the Placement Agent shall determine.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Placement Agent and the Selected Dealers upon
the execution of this Agreement and again at the Closing as follows:
2.1 Due Incorporation and Qualification. The Company has been duly
incorporated, is validly existing and is in good standing under the laws of its
state of incorporation and is duly qualified as a foreign corporation for the
transaction of business and is in good standing in each jurisdiction in which
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to so qualify would not
have a material adverse effect on the business, operations, assets, financial
condition or prospects of the Company ("Material Adverse Effect"). The Company
has all requisite corporate power and authority necessary to own or hold its
properties and conduct its business as described in the Offering Documents.
2.2 Authorized Capital; Outstanding Securities. As of the date
hereof, the Company's capitalization, consisting of its authorized, issued and
outstanding shares of common stock ("Common Stock") and convertible securities
(including all options and warrants), is substantially as described in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999
("10-KSB") as amended by its subsequent Quarterly Reports on Form 10-QSB, except
to the extent such capitalization information is updated by the Memorandum.
Other than as set forth therein, the Company does not have outstanding any
option, warrant, convertible security, or other right permitting or requiring it
to issue, or otherwise to purchase or convert any obligation into, shares of
Common Stock or other securities of the Company and the Company has not agreed
to issue or sell any shares of Common Stock or other securities of the Company.
As of the date of each Closing, there will be no other
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securities of the Company outstanding, except for (i) the securities issued in
the Offering, (ii) stock options granted to employees since the date hereof in
the ordinary course with exercise prices no less than the greater of (a) $0.75
per share or (b) the fair market value on the date of grant, and (iii)
additional Common Stock which may be issued upon conversion or exercise of such
outstanding options, warrants and convertible securities. All of the issued and
outstanding securities of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable. None of the holders of such
outstanding securities is subject to personal liability solely by reason of
being such a holder. The offers and sales of all securities of the Company
within the last three years were at all relevant times either registered under
the Securities Act and the applicable state securities or Blue Sky laws or
exempt from such registration.
2.3 Registration Rights. Except as set forth on Schedule 2.3, no
holder of any of the Company's securities has any "piggyback" or demand
registration rights with respect to which the Company has not already registered
such securities. The Company represents that other than the securities to be
issued to the Subscribers in the Offering, fewer than 100,000 shares of Common
Stock have rights to be included on the Registration Statement which the Company
covenants to file with the SEC and NASD to register the securities sold in the
Offering ("Registration Statement"). The Company has reserved for issuance a
sufficient number of shares of Common Stock to be issued to the Subscribers upon
the issuance of the Units, the exercise of the Warrants, upon the exercise of
the Placement Agent's Option, the exercise of the Warrants underlying the
Placement Agent's Option and upon the exercise of any Extra Warrants (as
hereinafter defined).
2.4 Financial Statements. The financial statements of the Company,
including the notes thereto, incorporated by reference into the Offering
Documents ("Financials") fairly present, in all material respects, the financial
position and results of operations of the Company at the dates thereof and for
the periods covered thereby, subject, in the case of interim periods, to
year-end adjustments and normal recurring accruals and to the extent that such
Financials may not include footnotes. Such Financials have been prepared in
conformity with generally accepted accounting principles, consistently applied
throughout the periods involved except as may otherwise be stated therein and
except that the notes in the interim financial statements may be abbreviated and
do not contain all of the information in the notes to the audited financial
statements. The Company has no material liabilities or obligations, contingent,
direct, indirect or otherwise except (i) as described on Schedule 2.4 hereof,
(ii) as set forth in the latest balance sheet included in the Financials or the
footnotes thereto (the date of such balance sheet being referred to as the
"Balance Sheet Date"), and (iii) those incurred in the ordinary course of
business since the Balance Sheet Date. The financial data set forth in the
Memorandum fairly present in all material respects the information set forth
therein and have been compiled on a basis consistent with that of the audited
financial statements contained in the Offering Documents. Except as may be
disclosed in the Financials, there are no amounts due to any officers, directors
or 5% or greater stockholders of the Company, or to any of their respective
affiliates, other than salary and other compensation disclosed in the Offering
Documents and expense reimbursements.
2.5 No Material Adverse Changes. Except as otherwise stated on
Schedule 2.5 hereof, since the Balance Sheet Date, there has not been any
material adverse change in the condition, financial or otherwise, of the
Company.
2.6 Subsidiaries. The Company has no subsidiaries and has no
interest in shares of capital stock of or right to acquire an interest in or
shares of capital stock of any other
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corporation, limited liability company, partnership or other entity, except as
set forth on Schedule 2.6 hereof.
2.7 Taxes. The Company has filed all federal tax returns and all
state and municipal and local tax returns (whether relating to income, sales,
franchise, withholding, real or personal property or other types of taxes)
required to be filed under the laws of the United States and applicable states,
and has paid in full all taxes that have become due pursuant to such returns or
claimed to be due by any taxing authority; provided, however, that the Company
has not paid any tax, assessment, charge, levy or license fee that it is
contesting in good faith and by proper proceedings and adequate reserves for the
accrual of same are maintained if required by generally accepted accounting
principles. The Company has withheld, collected and paid all levies,
assessments, license fees and taxes to the extent required. As used herein,
"tax" or "taxes" include all taxes, charges, fees, levies or other assessments
imposed by any Federal, state, local, or foreign taxing authority, including,
without limitation, income, premium, recapture, credit, excise, property, sales,
use, occupation, service, service use, leasing, leasing use, value added,
transfer, payroll, employment, license, stamp, franchise or similar taxes
(including any interest earned thereon or penalties or additions attributable
thereto).
2.8 Finder's Fees; Other Broker/Dealers. The Company is not
obligated to pay a finder's fee to anyone in connection with the introduction of
the Company to the Placement Agent or the consummation of the Offering
contemplated hereunder. Since March 29, 2000, neither the Company or its
affiliates has paid or issued any monies, securities or other compensation to
any member of the NASD or to any affiliate or associate of such a member, or to
any other person in consideration for such person raising funds for the Company
or providing financial consulting services to the Company, except as set forth
on Schedule 2.8. The Company does not owe any monies or other obligations to any
NASD member, affiliate or associate other than as may be owed to the Placement
Agent under this Agreement other than set forth on Schedule 2.8.
2.9 No Pending Actions. There are no actions, suits, proceedings,
claims or hearings of any kind or nature existing or pending or, to the best
knowledge of the Company, threatened and, to the best knowledge of the Company,
no investigations or inquiries, before or by any court, or other governmental
authority, tribunal or instrumentality (or, to the Company's best knowledge, any
state of facts that would give rise thereto), pending or threatened against the
Company, or involving the properties of the Company, that, as to any matter
covered by this Section 2.9, are reasonably likely to result in any Material
Adverse Effect or that might adversely affect the transactions or other acts
contemplated by this Agreement or the validity or enforceability of this
Agreement.
2.10 Private Offering Exemption; Offering Documents. The Offering
Documents taken as a whole do not contain any untrue statement of a material
fact or omit to state a 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. The Units, Shares, Warrants and "Extra Warrants"
(as defined in the Subscription Agreement and the Placement Agent's Option)
("Extra Warrants"), if any, and the Placement Agent's Option, conform in all
material respects to the descriptions thereof contained in the Offering
Documents. Assuming that (i) a proper Form D is filed in accordance with Rule
503 of Reg D, (ii) the offer and the sale of the Units by the Placement Agent
was made in compliance with Rule 502(c) of Reg D and/or Section 4(2) of the
Securities Act, and (iii) the representations of the Subscribers in the
Subscription Agreements signed by them are true and correct (which facts will
not be independently verified by the
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Company), the sale of Units in the Offering is exempt from registration under
the Securities Act and is in compliance with Reg D.
2.11 Due Authorization. The Company has full right, power and
authority to enter into this Agreement, the Subscription Agreements, the
Warrants, Extra Warrants, if any, and the Placement Agent's Option, to issue the
Units, Shares, Warrants, Extra Warrants, if any, the Placement Agent's Option
and the Placement Agent Securities and to perform all of its obligations
hereunder and thereunder. This Agreement has been, and the Subscription
Agreements, Warrants, Extra Warrants, if any, and the Placement Agent's Option,
when executed and delivered, will have been, duly authorized by all necessary
corporate action and no further corporate action or approval is or will be
required for their respective execution, delivery and performance. This
Agreement constitutes, and the Subscription Agreements, Warrants, Extra
Warrants, if any, and the Placement Agent's Option, upon execution and delivery
will constitute, valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as the enforceability thereof
may be limited by bankruptcy, fraudulent conveyance, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally, (ii) that
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceedings therefor may be brought, and (iii) that the
enforceability of the indemnification and contribution provisions of the
respective agreements may be limited by the federal and state securities laws
and public policy.
2.12 Non-Contravention; Consents. The Company's execution and
delivery of this Agreement, the Subscription Agreements, the Warrants, Extra
Warrants, if any, and the Placement Agent's Option, and the incurrence of the
obligations herein and therein set forth, and the consummation of the
transactions contemplated herein and therein will not (i) result in a breach of,
or conflict with any of the terms and provisions of, or constitute a default
under, or result in the creation, modification, termination or imposition of any
lien, charge or encumbrance upon any property or assets of the Company pursuant
to the terms of, any indenture, mortgage, deed of trust, note, loan or credit
agreement or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which the Company is a
party or by which the Company may be bound or to which any of the property or
assets of the Company is subject, except where such breach, conflict, default,
creation, modification, termination or imposition, singly or in the aggregate,
would not have a Material Adverse Effect; (ii) result in any violation of the
provisions of the Certificate of Incorporation of the Company as currently in
effect ("Certificate of Incorporation") or the bylaws of the Company as
currently in effect ("Bylaws"); (iii) violate any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business (collectively, "Laws"), except where such violation(s)
would not, singly or in the aggregate, result in a Material Adverse Effect; or
(iv) have any effect on any permit, certification, registration, approval,
consent, license or franchise (collectively, "Permits") necessary for the
Company to own or lease and operate any of its properties or to conduct its
business, except for such effects as would not, singly or in the aggregate, have
a Material Adverse Effect. No consent, Permit, approval, authorization, order
of, or filing with, any court or governmental authority or any other third party
is required to consummate the transactions contemplated by this Agreement, the
Subscription Agreements, Warrants, Extra Warrants, if any, and the Placement
Agent's Option, and the issuance of the Shares, Warrants, Extra Warrants, if
any, and the Placement Agent Securities, except that the offer and sale of such
securities in certain jurisdictions may be subject to the provisions of the
securities or Blue Sky laws of such jurisdictions.
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2.13 Valid Issuances. The Warrants included in the Units and
underlying the Placement Agent's Option and the Extra Warrants, if any, when
issued and delivered in accordance with the terms of the Subscription Agreement,
the Placement Agent's Option and this Agreement, will be duly and validly
issued. The Shares included in the Units and underlying the Placement Agent's
Option and underlying the Warrants and Extra Warrants, if any, have been duly
and validly authorized and, when issued and delivered in accordance with the
terms of this Agreement, Warrants, Extra Warrants and the Placement Agent's
Option will be duly and validly issued, fully paid and non-assessable. The
holders of the Shares will not be subject to personal liability by reason of
being such holders and will not be subject to the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company.
2.14 No Right to Receive or Purchase. Except as set forth on Schedule
2.14 hereof, the issuance of the Units or underlying Shares and Warrants in the
Offering and upon exercise of the Placement Agent's Option or exercise of the
Warrants will not give any holder of any of the Company's outstanding shares of
Common Stock, options, warrants or other convertible securities or rights to
purchase securities of the Company (i) the right to receive or purchase any
additional shares of Common Stock or any other securities of the Company, or
(ii) the right to an adjustment to the purchase or exercise price of such
security.
2.15 No Regulatory Problems. The Company (i) has not filed a
registration statement that is the subject of any pending proceeding or
examination under Section 8 of the Securities Act, and is not and has not been
the subject of any refusal order or stop order thereunder; (ii) is not subject
to any pending proceeding under Rule 258 of the Securities Act or any similar
rule adopted under Section 3(b) of the Securities Act, or to an order entered
thereunder; (iii) has not been convicted of any felony or misdemeanor in
connection with the purchase or sale of any security or involving the making of
any false filing with the Commission; (iv) is not subject to any order,
judgment, or decree of any court of competent jurisdiction temporarily or
preliminarily restraining or enjoining, or any order, judgment, or decree of any
court of competent jurisdiction permanently restraining or enjoining, the
Company from engaging in or continuing any conduct or practice in connection
with the purchase or sale of any security or involving the making of any false
filing with the Commission; and (v) is not subject to a United States Postal
Service false representation order entered under Section 3005 of ▇▇▇▇▇ ▇▇,
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entered under Section 3007 of Title 39, United States Code, with respect to
conduct alleged to have violated Section 3005 of ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code.
To the Company's knowledge, none of the Company's directors, officers, or
beneficial owners of 10 percent or more of any class of its equity securities
(i) has been convicted of any felony or misdemeanor in connection with the
purchase or sale of any security, involving the making of a false filing with
the Commission, or arising out of the conduct of the business of an underwriter,
broker, dealer, municipal securities dealer, or investment advisor; (ii) is
subject to any order, judgment or decree of any court of competent jurisdiction
temporarily or preliminarily enjoining or restraining, or is subject to any
order, judgment or decree of any court of competent jurisdiction permanently
enjoining or restraining, such person from engaging in or continuing any conduct
or practice in connection with the purchase or sale of any security, or
involving the making of a false filing with the Commission, or arising out of
the conduct of the business of an underwriter, broker, dealer, municipal
securities dealer, or investment adviser; (iii) is subject to an order of the
Commission entered pursuant to Section 15(b), 15B(a) or 15B(c) of the Exchange
Act, or is subject to an order of the Commission entered pursuant to Section
203(e) or (f) of the Investment Advisers Act of 1940; (iv) is suspended or
expelled from membership in, or suspended or barred from association with a
member of, an exchange registered as a national securities exchange pursuant to
Section 6 of the Exchange Act, an association
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registered as a national securities association under Section 15A of the
Exchange Act, or a Canadian securities exchange or association for any act or
omission to act constituting conduct inconsistent with just and equitable
principles of trade; or (v) is subject to a United States Postal Service false
representation order entered under Section 3005 of Title 39, United States Code,
or is subject to a restraining order or preliminary injunction entered under
Section 3007 of Title 39, United States Code, with respect to conduct alleged to
have violated Section 3005 of ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code.
2.16 Material Contracts; No Defaults. The exhibit index set forth in
the Company's annual report on 10-KSB, as it may have been updated with
subsequent filings by the Company with the SEC, contains a true and complete
list of all material contracts, agreements, instruments, indentures, mortgages,
loans, leases, licenses, arrangements or undertakings of any nature, of the
Company that are required to be filed with the Commission (collectively,
"Contracts"). Except in instances which singly or in the aggregate would not
cause a Material Adverse Effect and as set forth on Schedule 2.16, each of the
Contracts is in full force and effect, the Company has performed in all material
respects all of its obligations thereunder and is not in default thereunder, and
no party to a Contract has made a claim to the effect that the Company has
failed to perform any obligations thereunder. To the knowledge of the Company,
there is no plan, intention, or indication of any contracting party to a
Contract to cause termination, cancellation or modification of such Contract or
to reduce or otherwise change its activity thereunder so as to adversely affect
in any material respect the benefits derived or expected to be derived therefrom
by the Company, except where such termination, cancellation or modification of
such Contract or reduction or other change would not have a Material Adverse
Effect. The Company does not know of the occurrence of any event or the
existence of any state of facts that with notice or the passage of time or both
could cause it to be in default under any Contract which could result in a
Material Adverse Effect. The Company is not in violation of any term or
provision of (i) its Certificate of Incorporation or Bylaws or (ii) any Permit,
or applicable Law, except, in the case of (ii), where such violation, singly or
in the aggregate, would not have a Material Adverse Effect.
2.17 Conduct of Business; Compliance with Law. The Company has all
requisite corporate power and authority, and has all necessary Permits, to own
or lease its properties and conduct its business as described in the Offering
Documents, except where the failure to have such Permits would not have a
Material Adverse Effect. The Company has been operating its business in
compliance with all such Permits, except where such noncompliance would not have
a Material Adverse Effect. The disclosures in the Offering Documents concerning
the effects of federal, state and local regulation on the Company's business as
currently conducted and contemplated are correct in all material respects and do
not omit to state a material fact. The Company is in compliance with all Laws
except where noncompliance, singly or in the aggregate, would not have a
Material Adverse Effect.
2.18 Title to Property; Insurance. The Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property (tangible and intangible) owned or leased by it, free
and clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, except (a) as reflected in the
Financials and (b) such as would not, singly or in the aggregate, have a
Material Adverse Effect. The Company has adequately insured its properties
against loss or damage by fire or other casualty and maintains such insurance in
adequate amounts.
2.19 Intangibles. The Company owns, licenses or possesses the
requisite licenses or rights to use all trademarks, service marks, service
names, trade names, patents, patent
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applications, and copyrights used and to be used by the Company in its business
(collectively, "Intangibles"). All of the Company's Intangibles are set forth on
Schedule 2.19 hereto. The Intangibles that have been registered in the United
States Patent and Trademark Office and the United States Copyright Office and
have been fully maintained and are in full force and effect. There is no claim
or action by any person pertaining to, or proceeding pending or, to the
Company's knowledge, threatened and the Company has not received any notice of
conflict with, the asserted rights of others that challenges the exclusive right
of the Company with respect to any Intangibles used in the conduct of the
Company's business except in instances which would not cause a Material Adverse
Effect. To the best of the Company's knowledge, the Intangibles and the
Company's products, services and processes do not infringe on any intangibles
held by any third party. To the best of the Company's knowledge, no others have
infringed upon the Intangibles of the Company, except in instances which would
not cause a Material Adverse Effect.
2.20 Employee Matters. The Company has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto, except where noncompliance,
singly or in the aggregate, would not have a Material Adverse Effect. There are
no pending investigations involving the Company by any government Department of
Labor or any other governmental agency responsible for the enforcement of
employment laws and regulations. There is no unfair labor practice charge or
complaint against the Company pending before a Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or, to the
best of the Company's knowledge, threatened against or involving the Company or
any predecessor entity and none has ever occurred. No questions concerning
representation exist respecting the employees of the Company and 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, if any. The Company
is not liable for any severance pay or other payments to any employee or former
employee arising from the termination of employment, other than payments, singly
or in the aggregate, that would not have a Material Adverse Effect.
Other than as set forth in the Company's 10-KSB, the Company
neither maintains, sponsors nor contributes to, nor is it required to contribute
to, any program or arrangement that is an "employee pension benefit plan," an
"employee welfare benefit plan," or a "multi-employer 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, and has at no time maintained or
contributed to, a defined benefit plan, as defined in Section 3(35) of ERISA. If
the Company does maintain or contribute to a defined benefit plan, any
termination of the plan on the date hereof would not give rise to liability
under Title IV 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 Internal Revenue Code of 1986, as amended ("Code"), that
could subject the Company to any tax penalty for 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 that 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 "multi-employer plan."
9
2.21 Litigation; Governmental Proceedings. There is no action, suit,
proceeding, inquiry, arbitration, investigation, litigation or governmental
proceeding pending or, to the Company's knowledge, threatened against, or
involving the properties or business of, the Company that might, if determined
adversely, have a Material Adverse Effect, or that questions the validity of the
capital stock of the Company or this Agreement or of any action taken or to be
taken by the Company pursuant to, or in connection with, this Agreement. There
are no outstanding orders, judgments or decrees of any court, governmental
agency or other tribunal, domestic or foreign, naming the Company and enjoining
the Company from taking, or requiring the Company to take, any action, or to
which the Company, its properties or business is bound or subject, except as set
forth on Schedule 2.21 or such as would not singly or in the aggregate, have a
Material Adverse Effect.
2.22 Use of Proceeds. Except as set forth on Schedule 2.22, or as
specifically authorized herein, none of the net proceeds of the Offering will be
paid by the Company (i) for any debt for borrowed funds or (ii) for any debt or
obligation owed to any Insider (as hereinafter defined) other than the repayment
or conversion into Units of the Interim Financing Notes as defined in the
Memorandum.
2.23 Insiders' NASD Affiliation. Except as set forth on Schedule
2.23, to the Company's knowledge, no officer or director of the Company or owner
of any of the Company's unregistered securities has any direct or indirect
affiliation or association with any NASD member. The Company will advise the
Placement Agent and the NASD if it becomes aware that any officer, director or
stockholder of the Company is or becomes an affiliate or associated person of an
NASD member participating in the Offering.
2.24 No AMEX Notice. The Company has not received any correspondence
from AMEX regarding the Company's Common Stock or any other correspondence which
could have a Material Adverse Effect on the Company.
2.25 Exchange Act Reports. The Company is subject to the reporting
requirements of the Securities Act and Exchange Act and has timely filed all
reports and statements required under the Securities Act and Exchange Act on a
timely basis, and each report and statement was true and complete in all
material respects when filed and does not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
2.26 Accounting Controls. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2.27 Creditor Agreements. The Company has entered into repayment
arrangements reasonably satisfactory to the Placement Agent with significant
creditors of the Company who would have a right to be paid from the proceeds of
the Offering, but for such Creditor Agreements.
10
2.28 Proxy Statement. The Company has prepared and filed with the
SEC or is in a position to file with the SEC within three business days of the
Commencement Date, preliminary proxy materials to obtain the Shareholder
Approval.
3. Representations, Warranties and Certain Covenants of the Placement
Agent and Selected Dealers. The Placement Agent and each Selected Dealer that
the Placement Agent may from time to time appoint, severally represents and
warrants as follows:
3.1 Due Incorporation. The Placement Agent is validly existing and
is in good standing under the laws of its state of incorporation.
3.2 Broker/Dealer Registration. Such Placement Agent or Selected
Dealer is registered as a broker-dealer under Section 15 of the Exchange Act.
3.3 Good Standing. Such Placement Agent or Selected Dealer is a
member in good standing of the NASD.
3.4 Sale In Certain Jurisdictions. Sales of Units by the Placement
Agent or Selected Dealer will be made only in such jurisdictions in which (i)
the Placement Agent or its Selected Dealer is a registered broker-dealer or
where an applicable exemption from such registration exists and (ii) the
offering and sale of the Units is registered under, or is exempt from,
applicable registration requirements.
3.5 Due Authorization. The Placement Agent has full right, power and
authority to enter into this Agreement and to perform all of its obligations
hereunder.
3.6 Compliance with Laws. Offers and sales of the Units by the
Placement Agent or Selected Dealer will be made in compliance with the
provisions of Rule 502(c) of Reg D and Section 4(2) of the Securities Act, and
the Placement Agent or Selected Dealer will furnish to each investor a copy of
the Offering Documents prior to accepting any payments for the Units.
4. Closing.
4.1 Closing. Each Closing (each a "Closing") shall take place at the
office of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇ ("GM&M"), ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ or such other location as may be agreed upon by the parties. The Company
shall hold a First Closing upon the sale of the Minimum Number of Units and the
clearance of the funds representing such Units as promptly as possible after
dissemination of the Offering materials but no later than the First Termination
Date. A second and Final Closing shall be held only if, and immediately after
the Company receives requisite Shareholder Approval for the sale of additional
Units but not later than the Final Termination Date. At each Closing, payment
for the Units issued and sold by the Company (by certified check or wire
transfer payable to the order of the Company), less the amount deductible by the
Placement Agent pursuant to Section 4.4 hereof, shall be made against delivery
of certificates representing Shares and Warrants comprising the Units sold at
that Closing.
4.2 Deliveries at Closing. At each Closing, and as a condition to
each Closing, the Company shall deliver or cause to be delivered to the
Placement Agent:
11
4.2.1 Opinion of Counsel. The opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, counsel to the Company, dated as of the date of each
Closing to the effect that:
(1) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own or lease its property and
conduct its business and is duly qualified to do business in New York.
(2) The Company has all requisite right, corporate power
and authority to enter into this Agreement, the Placement Agent's Option, the
Subscription Agreements and the Warrant Agreement (as hereinafter defined) and
to carry out its obligations hereunder and thereunder. No consents, approvals,
authorizations or orders of, and no filings with, any court or governmental
agency or body, other than any approval or consent required under any state
securities or Blue Sky laws, are required for the Company to execute, deliver
and perform its obligations under this Agreement, or to authorize, issue, sell
and deliver the Securities, and to consummate the transactions and agreements
contemplated by this Agreement, the Placement Agent's Option, the Subscription
Agreements and the Warrant Agreement, except for those authorizations,
approvals, consents, orders and filings as have been made or obtained and are in
full force and effect and except for such authorizations, approvals, consents,
orders and filings required under the Act and the applicable Blue Sky laws of
any state or jurisdiction in the United States in which the Securities may be
offered (but counsel need not express any opinion as to the applicability of any
state securities or Blue Sky laws).
(3) All issued and outstanding shares of Common Stock of
the Company have been duly authorized and validly issued and are fully paid and
non-assessable. To such counsel's knowledge, the Company has no options,
warrants or other convertible securities outstanding other than as set forth on
Schedule 2.2 annexed to the Agency Agreement. To such counsel's knowledge, all
of the issued and outstanding securities were issued in compliance with the
registration requirements of the Securities Act and the rules and regulations
promulgated thereunder or pursuant to an exemption from such registration
requirements. None of the holders of the Common Stock is subject to personal
liability under the Certificate of Incorporation or Bylaws of the Company or the
General Corporation Law of the State of Delaware solely by reason of being such
a holder. None of the issued and outstanding shares of Common Stock were issued
in violation of statutory preemptive rights of any holders of such securities of
the Company or, to such counsel's knowledge, were issued in violation of similar
contractual rights granted by the Company. All of the issued and outstanding
options and warrants to purchase shares of Common Stock were validly authorized
by the Board of Directors and constitute valid and binding obligations of the
Company enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, fraudulent conveyance and other laws of
general applicability relating to or affecting creditors' rights and to general
principles of equity.
(4) The Units, Shares, Warrants, Extra Warrants (as
hereinafter defined), Shares underlying the Warrants and Extra Warrants and the
Placement Agent Securities (collectively referred to hereinafter as the
"Securities") have been duly authorized for issuance and sale by the Company by
all requisite corporate action by the Company. When issued and delivered by the
Company in accordance with the terms of the Agency Agreement, the Placement
Agent's Option and the Subscription Agreements, against payment of the
consideration set forth herein, the Securities will be duly and validly issued,
fully paid and non-
12
assessable. The holders of the Securities will not be subject to personal
liability under the Certificate of Incorporation or Bylaws of the Company or the
General Corporation Law of the State of Delaware solely by reason of being such
holders. The Securities are not and will not be subject to the preemptive rights
of any holders of any security of the Company or, to the best of such counsel's
knowledge after due inquiry, similar contractual rights granted by the Company.
The forms of certificate used to evidence the Common Stock, Warrants, Extra
Warrants, if any, and Placement Agent Securities comply with the applicable
requirements of the Certificate of Incorporation and Bylaws of the Company and
the General Corporation Law of the State of Delaware. The Company has currently
reserved for issuance a number of shares of Common Stock sufficient for issuance
of all of the shares of Common Stock issuable upon exercise or conversion of the
Securities.
(5) To the best of such counsel's knowledge, except as
set forth on Schedule 2.3 or Schedule 2.14 to the Agency Agreement, no holders
of any securities of the Company or of any options, warrants or other securities
of the Company exercisable for or convertible or exchangeable into securities of
the Company (i) have the right to require the Company to register any such
securities of the Company under the Securities Act or to include any such
securities in a registration statement filed by the Company, or (ii) have rights
to have the exercise or conversion prices of their securities lowered and/or the
number of securities that may be purchased thereunder increased as a result of
the issuance by the Company of securities for a price less than such exercise or
conversion price. To the best of such counsel's knowledge, other than the
securities to be issued to subscribers in the Offering, fewer than 100,000
shares of Common Stock have rights to be included on the Registration Statement.
(6) Assuming that (a) a proper Form D is filed in
accordance with Rule 503 of Reg D, (b) that the offer and the sale of the
Securities by the Placement Agent was made in compliance with Rule 502(c) of Reg
D and (c) that the representations of the Subscribers in the Subscription
Agreements signed by them are true and correct (which facts will not be
independently verified by such counsel), the sale by the Company of the
Securities in the Offering is exempt from registration under the Securities Act
and is in compliance with Reg D.
(7) The Agency Agreement, the Subscription Agreements,
the Placement Agent's Option and the Warrant Agreement have each been duly and
validly authorized and, when executed and delivered by the Company, will
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, subject to, in each case: (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance and other laws of
general applicability relating to or affecting creditors' rights and to general
principles of equity, (ii) the fact that the indemnification and contribution
provisions set forth in this Agreement, the Placement Agent's Option and the
Warrant Agreement may be limited under federal and applicable state securities
laws and by public policy, and (iii) the fact that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(8) The execution, delivery and performance by the
Company of the Agency Agreement, the Placement Agent's Option and the Warrant
Agreement, the issuance and sale of the Securities, the performance by the
Company of its obligations hereunder and thereunder (other than the performance
by the Company of its obligations under the indemnification and contribution
provisions of this Agreement, the Placement Agent's Option and the Warrant
Agreement, as to which no opinion need be rendered), do not and will not,
13
(a) result in any violation of the provisions of the Certificate of
Incorporation or the Bylaws of the Company, (b) to such counsel's knowledge,
will not constitute a breach of, or a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to any material contracts, agreements, instruments, leases
or licenses of the Company other than those which would not have a Material
Adverse Effect, or (c) to such counsel's knowledge, will not result in any
violation of any law, administrative regulation or administrative or court
decree applicable to the Company (other than those which would not have a
Material Adverse Effect and other than the Blue Sky or securities laws or
regulations of the various states, as to which counsel need not express any
opinion).
(9) The statements in the Offering Documents have been
reviewed by such counsel and, insofar as they refer to statements of law,
descriptions of statutes, rules or regulations or legal conclusions, are correct
in all material respects.
(10) To such counsel's knowledge, there are no claims,
actions, suits, hearings, investigations, inquiries or proceedings of any kind
or nature, before or by any court, governmental authority, tribunal or
instrumentality pending or threatened against or affecting the Company or
involving any of its property which might reasonably be expected to have a
Material Adverse Effect, or which might adversely affect the transactions or
other acts contemplated by this Agreement or the validity or enforceability of
the Agency Agreement.
(11) To the best of such counsel's knowledge, there is
no claim or action by any person pertaining to, or proceeding, pending or
threatened that challenges the rights of the Company with respect to any of the
Intangibles.
(12) In the course of the preparation of the Offering
Documents, such counsel participated in discussions with officers and directors
of the Company. 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 Offering Documents (as amended and supplemented through the
date of the opinion) (except as otherwise set forth in the opinion), no facts
have come to the attention of such counsel which leads them to believe that the
Offering Documents or any amendment or supplement thereto, as of the date of
such opinion, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (it being understood that such counsel expresses no opinion with
respect to the financial statements and schedules and other financial and
statistical data included in the Offering Documents).
(13) To such counsel's knowledge, the Company has all
necessary Approvals to own or lease its properties and conduct its business as
currently described in the Offering Documents, except where failure to obtain
such Approvals would not, either singly or in the aggregate, have a Material
Adverse Effect on the Company. To such counsel's knowledge, the Company is not
in violation of any applicable law, rule or regulation, or any judgment or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any of its properties or business, except where
such violation, singly or in the aggregate, would not have a material adverse
effect on the Company.
14
(14) The Minimum Number of Units constitutes the number
of Units which could be sold by the Company in this Offering without obtaining
Shareholder Approval under applicable AMEX rules; and
(15) {To be issued in connection with the Final Closing,
if any}. The Company has obtained the requisite Stockholder Approval for the
sale of additional Units and in connection therewith has complied in all
material respects with the requirements of Regulation 14A under the Exchange Act
and Schedule 14A thereunder.
4.2.2 Officers' Certificate. A certificate of the Company,
signed by an executive officer thereof, stating (a) that the representations and
warranties contained in Section 2 hereof are true and accurate at the Closing as
applied to the Company with the same effect as though expressly made at the
Closing, and (b) that the Company has complied with all covenants and agreements
required to be complied with as of the Closing.
4.2.3 Subscription Agreements. Subscription Agreements signed
by the Company and each of the Subscribers for that Closing.
4.2.4 Certificates. The certificates representing the Shares
and the Warrants.
4.2.5 Placement Agent's Option. The Placement Agent's Option
in the names and denominations designated by the Placement Agent.
4.2.6 Lock-Up Agreements. {Only at the First Closing.} The
Lock-Up Agreements referred to in Section 5.8 hereof executed by all officers,
directors and significant stockholders of the Company.
4.2.7 Waivers. [Waiver of Anti-Dilution Rights, Registration
Rights].
4.2.8 AMEX Additional Listing. The Company shall have filed an
additional listing application with AMEX regarding the Shares underlying the
Units, the Warrants, the Placement Agent's Option and the Extra Warrants, if
any, and the Shares underlying the Warrants and Extra Warrants, if any included
in the Placement Agent's Option.
4.2.9 Proxy Statement/Shareholder Approval. {Only at the First
Closing.} A copy of the definitive proxy materials as mailed to all of the
voting securityholders of the Company and at and only at the Final Closing,
evidence of the Shareholder Approval.
4.2.10 Other Documents. Such other closing documents as shall
be reasonably requested by the Placement Agent or its counsel.
4.3 Conditions.
4.3.1 Conditions to the Placement Agent's Obligations. The
obligations of the Placement Agent under this Agreement shall be subject to the
following conditions:
(1) All representations and warranties of the Company
set forth in this Agreement shall be true and accurate as of the Closing with
the same effect as though expressly made at the Closing;
15
(2) The Company has complied with all covenants and
agreements required to be complied with as of the date of the Closing;
(3) The Company has obtained all consents of third
parties required to be obtained in connection with this Offering;
(4) There shall be no action, lawsuit, administrative or
other proceeding pending or threatened that seeks to enjoin the transactions
contemplated by this Agreement;
(5) The AMEX additional listing application referenced
in subsection 4.2.8 above shall have been filed with AMEX as certified by an
officer of the Company and AMEX shall not have issued any comment letter with
respect thereto.
4.3.2 Conditions to Company's Obligations. The obligations of
the Company under this Agreement shall be subject to the conditions that:
(1) The representations and warranties of the Placement
Agent set forth in this Agreement are true and accurate as of the Closing with
the same effect as though expressly made at the Closing;
(2) The Placement Agent has complied with all covenants
and agreements required to be complied with as of the Closing; and
(3) There shall be no action, lawsuit, administrative or
other proceeding pending or threatened that seeks to enjoin the transactions
contemplated by this Agreement.
4.4 Placement Agent's Fees and Expenses. At Closing, the Company
shall pay to the Placement Agent a cash commission equal to 8% of the gross
proceeds of the sale of the Units, a nonaccountable expense allowance equal to
3% of the gross proceeds of the sale of the Units less the $25,000 deposit paid
by the Company upon the execution of the Letter of Intent dated November 30,
2000 as amended December 18, 2000. At the First Closing, the Company also shall
reimburse the Placement Agent for the expenses described in Section 5.3 hereof.
All the foregoing amounts and any other expenses to be paid pursuant to Section
5.3 are payable at the Placement Agent's direction directly to the parties who
are owed same by deduction from the aggregate purchase price of the Units sold
and to the extent any expenses occur after the First Closing, those expenses
shall be reimbursed at the Final Closing.
4.5 Issuance of Placement Agent's Option. At the Closing, the
Company shall issue to the Placement Agent and/or its designees for an aggregate
of $100, the Placement Agent's Option for the Units sold at that Closing.
5. Covenants. The Company covenants and agrees that:
5.1 Amendments to Offering Documents. Until the Offering has been
completed or terminated, if there shall occur any event relating to or
affecting, among other things, the Company or any affiliate, or the proposed
operations of the Company as described in the Offering Documents, as a result of
which it is necessary, in the reasonable opinion of counsel for the Company or
counsel for the Placement Agent, to amend or supplement the Offering Documents
in order that the Offering Documents will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
16
they were made, not misleading, the Company shall immediately prepare and
furnish to the Placement Agent a reasonable number of copies of an appropriate
amendment of or supplement to the Offering Documents, in form and substance
satisfactory to counsel for the Placement Agent.
5.2 Use of Proceeds. The proceeds of the Offering will be used for
such purposes as described in the Memorandum and other than the repayment or
conversion into Units of the Interim Financing Notes, no proceeds will be used
to pay (i) any debt for borrowed funds, or (ii) any debt or obligation owed to
any Insider.
5.3 Expenses of Offering and Other Expenses. The Company shall be
responsible for, and shall pay, all fees, disbursements and expenses incurred in
connection with the Offering, including, but not limited to, the costs of
conducting an "Internet roadshow" and posting the Memorandum on the Placement
Agent's and other websites, the costs of one Internet interview for the first
quarter after the Offering (including a video broadcast), the Company's legal
and accounting fees and disbursements, the costs of preparing, printing, mailing
and delivering, and filing, where necessary, the Offering Documents and all
amendments and supplements thereto (all in such quantities as the Placement
Agent may reasonably require), preparing and printing the certificates for the
Shares and Warrants, and Extra Warrants, if any, preparation of transaction
"bibles" in such reasonable quantities as requested by the Placement Agent, the
reasonable costs of any "due diligence" meetings held by the Company, filing
fees, costs and expenses as incurred (including fees and disbursements of
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇, blue sky counsel as provided in Section 5.4) incurred
in qualifying the Offering under the "blue sky" laws of the states reasonably
specified by the Placement Agent, the substantiated costs of (up to $10,000)
"tombstone" and other advertisements in various publications selected by the
Placement Agent, as well as transfer taxes, transfer and warrant agent and
registrar fees. The Company shall also prepay an on-account retainer to
Placement Agent's counsel of $10,000 for legal fees in connection with their
engagement as special counsel for the Investors under the Subscription Agreement
in connection with the preparation of the Registration Statement provided for
therein, which amount shall be an "on-account" retainer from which any amounts
in excess of actual time (at regular hourly rates) and disbursements expended
shall be refunded to the Company.
5.4 Blue Sky Requirements. The Company shall "Blue Sky" the Offering
in such states as the Placement Agent shall reasonably request and shall pay for
all blue sky filing fees and costs and expenses of any necessary blue sky
registration or qualification or notice filings associated with an exemption
from registration or qualification, including the fees and disbursements of
counsel. All blue sky work shall be undertaken by counsel designated by the
Placement Agent. Upon the commencement of blue sky filings (which shall be at or
prior to the Commencement Date), the Company shall pay $2,500 to such counsel
for such professional services (plus the filing fees to be paid to the various
states), with the balance due for professional services of $2,500, plus
counsel's other out-of-pocket disbursements, due at the First Closing.
5.5 Board of Directors. For a period of three years from the First
Closing, the Company will use its best efforts to cause one person designated by
the Placement Agent to be elected to the Board of Directors of the Company. Such
best efforts shall include but are not limited to the immediate expansion of the
Board of Directors by the Directors and the appointment by the Board of
Directors of the Placement Agent designee to the Board of Directors and,
thereafter, the recommendation of the Placement Agent designee as a nominee for
election as a director of the Company at each annual meeting of stockholders of
the Company during such three year period at which such designee is subject to
election or re-
17
election. Alternatively, at the sole option of the Placement Agent, it shall
have the right to send a representative (who need not be the same individual
from meeting to meeting) to observe each meeting of the Board of Directors. Such
designee or representative, as the case may be, shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings,
including, but not limited to, food, lodging and transportation. The Company
agrees to give the Placement Agent written notice of each such meeting and to
provide the Placement Agent with an agenda and minutes of the meeting no later
than it gives such notice and provides such items to the other directors. To the
extent permitted by law, the Company will agree to indemnify the Placement Agent
and its designee for the actions of such designee as a director of the Company.
In the event the Company maintains a liability insurance policy affording
coverage for the acts of its officers and directors, it will, if possible,
include each of the Placement Agent and its designee as an insured under such
policy.
5.6 Right of First Refusal. The Company hereby grants the Placement
Agent a right of first refusal to determine whether to manage or co-manage any
underwriting or private placement of debt or equity securities of the Company or
any subsidiary or successor of the Company for which the Company engages the
services of an investment banker during the period commencing on the date of the
First Closing and terminating on the three-year anniversary of the Final
Closing. If the Placement Agent fails to accept in writing any such proposal for
such public or private sale within 30 days after receipt of a written notice
from the Company containing such proposal, then the Placement Agent shall have
no claim or right with respect to any such sale contained in any such notice.
If, thereafter, such proposal is modified in any material respect, the Company
shall adopt the same procedure as with respect to the original proposed public
or private sale.
5.7 Transfer Sheets. Upon Placement Agent's reasonable request, the
Company shall provide Placement Agent with copies of the Company's daily stock
transfer sheets and lists of the beneficial and record holders of the Company's
securities from the Company's transfer agent and the Weekly Position Listings
from the Depository Trust Company, at the Company's sole cost and expense.
5.8 Transfer Restrictions. The Company agrees not to permit or cause
a private or public sale or private or public offering of any securities of the
Company (in any manner, including pursuant to Rule 144 under the Act) that are
owned or to be owned of record, or beneficially by any of the Company's officers
or directors or by certain significant shareholders of the Company as listed on
Schedule 5.8 hereto (collectively "Insiders") or by any family members or
affiliate of such persons for a period commencing on November 30, 2000 and
terminating twelve months after the Effective Date (as defined herein) without
obtaining the prior written approval of the Placement Agent (but excluding
securities acquired in the Offering for which the "lock-up" agreement set forth
in the Subscription Agreement shall apply). The Company shall cause the Insiders
to execute an agreement ("Lock-Up Agreement") with the Placement Agent regarding
such restrictions.
5.9 Further Assurances. The Company will take such actions as may be
reasonably required or desirable to carry out the provisions of this Agreement
and the transactions contemplated hereby.
5.10 Accuracy of Representations and Warranties. The Company hereby
agrees that, prior to the Termination Date or the Closing, as the case may be,
it will not enter into any transaction or take any action, and will use its best
efforts to prevent the occurrence of any event, that could result in any of its
representations, warranties or covenants contained in this
18
Agreement or any of the Offering Documents not to be true and correct, or not to
be performed as contemplated, at and as of the time immediately after the
occurrence of such transaction or event.
5.11 Reservation of Shares. If the Company becomes obligated to
issue any Extra Warrants, it will promptly reserve with its transfer agent and
register the number of shares of Common Stock issuable upon exercise thereof.
5.12 Registration Statements. During the period commencing on the
First Closing and terminating on the twelve-month anniversary of the date the
Registration Statement registering the securities being sold in the Offering is
declared effective by the Commission ("Effective Date"), the Company will not,
without the Placement Agent's consent, (i) allow any registration statement
(other than those on Forms S-4 or S-8 and post effective amendments) to be
declared effective or (ii) consummate any offering of its equity securities
under Regulation D or Regulation S with respect to which the Company becomes
obligated to file a registration statement within 12 months of the Effective
Date; provided, however, that this restriction shall not apply to registered
offerings which relate to transactions which are the subject of the Placement
Agent's right of first refusal as set forth in Section 5.6 hereof or which were
offered to the Placement Agent in accordance with such Section 5.6 and rejected.
5.13 Press Release. Commencing on November 30, 2000 and continuing
until five days after the Final Closing, the Company will not issue a press
release or engage in any other publicity without the Placement Agent's prior
written consent, which shall not be unreasonably withheld. The Placement Agent
agrees to respond to the Company within 24 hours of receipt of any proposed
press release.
5.14 Registration Rights. As additional consideration for the Agency
Agreement and the transactions contemplated hereby and as set forth in each
subscriber's Subscription Agreement and the Placement Agent's Option, the
Company agrees with the Placement Agent and will agree with each subscriber to
grant such persons the registration rights set forth in the Placement Agent's
Option and the Subscription Agreements.
5.15 Internet Accessibility. The Company will cooperate with the
Placement Agent and afford it an Internet interview per quarter after the
Offering (including a video broadcast) in form and at the reasonable request of
the Placement Agent other than if such Internet interview would violate
applicable securities laws in the opinion of counsel to the Placement Agent and
the Company.
5.16 Proxy Statement. The Company shall mail the definitive proxy
materials regarding the Shareholder Approval at or about the date of the First
Closing or in the event of SEC review of the proxy statement as soon as
reasonably practicable after the SEC has approved the mailing of definitive
proxy materials. The Company shall as soon as practicable enter into
confidentiality agreements with its employees, consultants and third parties as
are reasonably necessary to protect the Company's Intangibles.
6. Indemnification and Contribution.
6.1 Indemnification of the Placement Agent by the Company. The
Company agrees to indemnify and hold harmless the Placement Agent and each
person, if any, who controls the Placement Agent within the meaning of the
Securities Act and/or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such Placement Agent or
19
controlling person may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in the Offering Documents, or
(B) in any blue sky application or other document executed by the Company
specifically for blue sky purposes or based upon any other written information
furnished by the Company or on its behalf to any state or other jurisdiction in
order to qualify any or all of the Shares under the securities laws thereof (any
such application, document or information being hereinafter called a "Blue Sky
Application"), (ii) any breach by the Company of any of its representations,
warranties or covenants contained herein or in any of the Offering Documents, or
(iii) the omission or alleged omission by the Company to state in the Offering
Documents or in any Blue Sky Application a 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 will reimburse the
Placement Agent and each such controlling person for any legal or other expenses
reasonably incurred by the Placement Agent or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action, whether arising out of an action between the Placement
Agent and the Company or the Placement Agent and a third party; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon (i) an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information regarding the
Placement Agent that is furnished to the Company by the Placement Agent
specifically for inclusion in the Offering Documents or any such Blue Sky
Application or (ii) any breach by the Placement Agent of the representations,
warranties or covenants contained herein (together, (i) and (ii) above are
referred to as the "Placement Agent Non-Indemnity Events"), or (iii) a Selected
Dealer Non-Indemnity Event, as defined below.
6.2 Indemnification of the Company by the Placement Agent. The
Placement Agent agrees to indemnify and hold harmless the Company and each
person, if any, who controls the Company within the meaning of the Securities
Act and/or the Exchange Act against any losses, claims, damages or liabilities,
joint or several, to which the Company or such controlling person may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any Placement Agent Non-Indemnity Event; and will reimburse the Company and
each such controlling person for any legal or other expenses reasonably incurred
by the Company or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action, provided that such
loss, claim, damage or liability is found ultimately to arise out of or be based
upon any Placement Agent Non-Indemnity Event.
6.3 Indemnification of the Selected Dealers by the Company. The
Company agrees to indemnify and hold harmless each Selected Dealer and each
person, if any, who controls a Selected Dealer within the meaning of the
Securities Act and/or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such Selected Dealer or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in the Offering Documents, or (B) in any Blue Sky
Application, (ii) any breach by the Company of any of its representations,
warranties or covenants contained herein or in any of the Offering Documents, or
(iii) the omission or alleged omission by the Company to state in the Offering
Documents or in any Blue Sky Application a 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 will reimburse
each Selected Dealer and each such controlling
20
person for any legal or other expenses reasonably incurred by such Selected
Dealer or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action, whether arising out of an action
between such Selected Dealer and the Company or such Selected Dealer and a third
party; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information regarding such Selected Dealer specifically for inclusion in the
Offering Documents or any such Blue Sky Application or (ii) any breach by such
Selected Dealer of the representations, warranties or covenants contained herein
together, (i) and (ii) above are referred to as the "Selected Dealer
Non-Indemnity Events") or (iii) a Placement Agent Non-Indemnity Event.
6.4 Indemnification of the Company by the Selected Dealers. The
Selected Dealers, severally and not jointly, agree to indemnify and hold
harmless the Company and each person, if any, who controls the Company within
the meaning of the Securities Act and/or the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
controlling person may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any Selected Dealer Non-Indemnity Event;
and will reimburse the Company and each such controlling person for any legal or
other expenses reasonably incurred by the Company or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action provided that such loss, claim, damage or liability is found
ultimately to arise out of or be based upon any Selected Dealer Non-Indemnity
Event.
6.5 Procedure. Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 6, notify in writing the indemnifying party of the
commencement thereof; and the omission so to notify the indemnifying party will
relieve the indemnifying party from any liability under this Section 6 as to the
particular item for which indemnification is then being sought, but not from any
other liability that it may have to any indemnified party. In case any such
action is brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may wish, jointly with any other
indemnifying party, similarly notified, to assume the defense thereof, with
counsel who shall be to the reasonable satisfaction of such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 6 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. Any such
indemnifying party shall not be liable to any such indemnified party on account
of any settlement of any claim or action effected without the consent of such
indemnifying party.
6.6 Contribution. If the indemnification provided for in this
Section 6 is unavailable to any indemnified party (other than as a result of the
failure to notify the indemnifying party as provided in Section 6.5 hereof) in
respect to any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, will contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand, and the Placement Agent or Selected Dealer, on the
other hand, from the Offering, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not
21
only the relative benefits referred to in clause (i) above, but also the
relative fault of the Company, on the one hand, and of the Placement Agent or
Selected Dealer, on the other hand, in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or expenses
as well as any other relevant equitable considerations. The relative benefits
received by the Company, on the one hand, and the Placement Agent or Selected
Dealer, on the other hand, shall be deemed to be in the same proportion as the
total proceeds from the Offering (net of sales commissions and the
nonaccountable expense allowance, but before deducting other expenses) received
by the Company bear to the commissions and nonaccountable expense allowance
received by the Placement Agent or Selected Dealer. The relative fault of the
Company, on the one hand, and the Placement Agent or Selected Dealer, on the
other hand, will be determined with reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the Company, on the one
hand, and the Placement Agent or Selected Dealer, on the other hand, and their
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
6.7 Equitable Considerations. The Company, the Placement Agent and
each Selected Dealer agree that it would not be just and equitable if
contribution pursuant to this Section 6 were determined by pro rata allocation
or by any other method of allocation that does not take into account the
equitable considerations referred to in the immediately preceding paragraph.
6.8 Attorneys' Fees. The amount payable by a party under this
Section 6 as a result of the losses, claims, damages, liabilities or expenses
referred to above will be deemed to include any reasonable legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending any action or claim (including, without limitation, fees and
disbursements of counsel incurred by an indemnified party in any action or
proceeding between the indemnifying party and indemnified party or between the
indemnified party and any third party or otherwise).
7. Termination. Placement Agent reserves the right not to proceed with
the Offering for any reason, including if: (i) material adverse information
known to management and not previously disclosed to Placement Agent by the
Company comes to the Placement Agent's attention relating to the Company, its
management or its position in the industry which would preclude a successful
Offering; (ii) a material adverse change not yet reported in the Company's
public filings has occurred in the financial condition, business or prospects of
the Company; or (iii) the Company has breached any of its material
representations, warranties or obligations hereunder, or failed to expeditiously
proceed with the Offering. If Placement Agent elects not to proceed with the
Offering as a result of the conditions enumerated in either of clauses (i) or
(iii) above after notice and a reasonable opportunity to cure, or (except as
provided in the next sentence) if the Company elects not to proceed with the
Offering for any reason, then the Company, in full satisfaction of its
obligations to Placement Agent hereunder (other than with respect to the payment
of "Source Fees," described below), shall reimburse Placement Agent in full for
its reasonable out-of-pocket expenses (including, without limitation, its legal
fees and disbursements), against which the Deposit shall be applied as a credit
and, in addition, pay to Placement Agent a fee of $150,000 ("Break-up Fee").
Notwithstanding anything contained herein to the contrary, if the First Closing
does not occur within 90 days of the Commencement Date through no fault of the
Company (it being deemed to be the Company's "fault" if it refuses to accept
subscriptions from qualified investors sufficient to have a Closing), then the
Company may elect to abandon the Offering. In such event, or in the event
Placement Agent elects not to proceed with the Offering other than as a result
of the condition enumerated in clauses (i) or (iii)
22
above, Placement Agent shall be entitled to be reimbursed for its expenses,
including legal fees and disbursements, and shall apply the Deposit against such
expenses to the extent provided in Section 4.4 hereof (non-accountable), but the
Company shall not be liable to Placement Agent for any other expenses or the
Break-up Fee. Notwithstanding anything contained herein to the contrary, whether
or not the Offering is consummated, the Company shall pay to Placement Agent the
commissions referenced herein ("Source Fees") with respect to, and based on, any
investment in the Company by any "Source" (as defined below) made at any time
within 24 months after November 30, 2000. A Source shall be any person
introduced to the Company by, or who received a copy of the Memorandum from, EBC
in connection with the Offering, except those persons listed on Schedule 7 to
the Agency Agreement.
8. Notices. Any notice hereunder shall be in writing and shall be
effective when delivered in person or by facsimile transmission or mailed by
certified mail, postage prepaid, return receipt requested, to the appropriate
party or parties, at the following addresses: if to the Placement Agent, to
EarlyBirdCapital, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇ (fax no. (▇▇▇) ▇▇▇-▇▇▇▇); with a copy to ▇▇▇▇▇▇▇▇
Mollen & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, Esq. (Fax No. (▇▇▇) ▇▇▇-▇▇▇▇); if to the Company, to QueryObject
Systems Corporation, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, CFO, EVP; with a copy to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome
▇▇▇▇▇▇▇▇▇▇ & Wolosky LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇
▇. ▇▇▇▇▇; or, in each case, to such other address as the parties may hereinafter
designate by like notice.
9. Parties. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns. Neither
party may assign this Agreement or its obligations hereunder without the prior
written consent of the other party. This Agreement is intended to be, and is,
for the sole and exclusive benefit of the parties hereto and the persons
described in Sections 6.1 through 6.4 hereof and their respective successors and
assigns, and for the benefit of no other person, and no other person will have
any legal or equitable right, remedy or claim under, or in respect of this
Agreement.
10. Amendment and/or Modification. Neither this Agreement, nor any term
or provision hereof, may be changed, waived, discharged, amended, modified or
terminated orally, or in any manner other than by an instrument in writing
signed by each of the parties hereto.
11. Further Assurances. Each party to this Agreement will perform any
and all acts and execute any and all documents as may be necessary and proper
under the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
12. Validity. In case any term of this Agreement will be held invalid,
illegal or unenforceable, in whole or in part, the validity of any of the other
terms of this Agreement will not in any way be affected thereby.
13. Waiver of Breach. The failure of any party hereto to insist upon
strict performance of any of the covenants and agreements herein contained, or
to exercise any option or right herein conferred in any one or more instances,
will not be construed to be a waiver or relinquishment of any such option or
right, or of any other covenants or agreements, and the same will be and remain
in full force and effect.
14. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof, and
there are no representations,
inducements, promises or agreements, oral or otherwise, not embodied in this
Agreement. Any and all prior discussions, negotiations, commitments and
understanding relating to the subject matter of this Agreement are superseded by
this Agreement.
15. Counterparts. This Agreement may be executed in counterparts and
each of such counterparts will for all purposes be deemed to be an original, and
such counterparts will together constitute one and the same instrument.
16. Law. Pursuant to Section 5-401 of the New York General Obligation
Law, this Agreement will be governed as to validity, interpretation,
construction, effect and in all other respects by the internal law of the State
of New York. The Company and the Placement Agent each (i) agree that any legal
suit, action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in the New York State Supreme Court, County of New York,
or in the United States District Court for the Southern District of New York,
(ii) waives any objection to the venue of any such suit, action or proceeding,
and the right to assert that such forum is an inconvenient forum, and (iii)
irrevocably consents to the jurisdiction of the New York State Supreme Court,
County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. The Company and the
Placement Agent further agree to accept and acknowledge service of any and all
process that may be served in any such suit, action or proceeding in the New
York State Supreme Court, County of New York, or in the United States District
Court for the Southern District of New York and agree that service of process
upon either of them mailed by certified mail to their respective addresses shall
be deemed in every respect effective service of process in any such suit, action
or proceeding.
17. Representations, Warranties and Covenants to Survive Delivery. The
respective representations, indemnities, agreements, covenants, warranties and
other statements of the Company and the Placement Agent shall survive execution
of this Agreement and delivery of the Units and/or the termination of this
Agreement prior thereto.
If you find the foregoing is in accordance with our understanding,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between us.
Very truly yours,
QUERYOBJECT SYSTEMS CORP.
By:
-----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, CFO and EVP
AGREED:
EARLYBIRDCAPITAL, INC.
By:
----------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇, Executive Vice President
Schedule 5.8
Insiders
Officers, Directors and
Significant Shareholders
Subject to Lock-Up for
One-Year After the Effective Date
Of the Registration Statement
-----------------------------
