Watchout!
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February 5, 1997
Sands Brothers & Co., Ltd.
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Gentlemen:
The undersigned, Watchout!, a California (the "Company"), proposes to
offer for sale to certain "accredited investors", through Sands Brothers & Co.,
Ltd., as placement agent ("Sands Brothers" or the "Placement Agent") in a
private placement, a minimum of $6,000,000 (the "Minimum Amount") in any
combination of (a) the Company's capital stock (whether Common Stock, Preferred
Stock or any combination thereof)(collectively, the "Capital Stock") and (b)
capital lease, operating lease or equipment lease financing on behalf of the
Company or any form of commercial, institutional or bank debt financing
transactions (hereinafter, collectively "Other Financing"). The Securities (as
hereinafter defined) to be offered pursuant to the Offering Documents (as
hereinafter defined) and Other Financing transactions to be consummated are
sometimes hereinafter referred to collectively as the "Financing" or the
"Offering". Notwithstanding the foregoing, at least $3,000,000 of the Financing
shall be available to the Remaining Company (as hereinafter defined)as of the
Closing Date (as hereinafter defined) subject to no specified and directed use
of proceeds.
The closing (the "Closing") of the Financing shall not occur until the
Company has, in any combination, received and accepted subscriptions for the
purchase of Securities and/or consummated Other Financing transactions in
amounts equal to the Minimum Amount.
The Securities will be offered pursuant to those terms and conditions
reasonably acceptable to you, the Company and your respective counsel as
reflected in the final form of Confidential Private Placement Memorandum of the
Company (together with the exhibits and any supplements thereto, the
"Memorandum"). The Securities will be offered pursuant to the Memorandum in
accordance with Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
Each prospective investor subscribing to purchase Securities
("Subscriber") will be required to deliver, among other things, a
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subscription agreement ("Subscription Agreement") and an investment suitability
questionnaire ("Questionnaire") in the forms to be provided, representing and
warranting, among other things, that such Subscriber is an "accredited investor"
as such term is defined in Regulation D.
The Memorandum and the form of proposed Subscription Agreement between the
Company and each Subscriber and the exhibits which are part of the Memorandum
(including, without limitation, the Registration Rights Agreement between the
Company and each of the Subscribers with respect to certain registration rights
under the Securities Act (the "Registration Rights Agreement"))and/or the
Subscription Agreement are referred to herein collectively as the "Offering
Documents."
The Securities will be offered for minimum subscription amounts of
$100,000; on a "best efforts, all-or-none" basis as to the Minimum, exclusively
by Sands Brothers; provided, however, that the Company and the Placement Agent
may, in their discretion and upon their mutual agreement, accept subscriptions
for a lesser amount from a Subscriber.
The Company will prepare and deliver to the Placement Agent a reasonable
number of copies of the Offering Documents in form and substance reasonably
satisfactory to the Placement Agent and its counsel, which Offering Documents
shall include audited financial statements for such periods as reasonably may be
required.
It is the understanding and agreement of the parties that the
Company will merge (on the terms and conditions described in the Memorandum)
with and into a public company reasonably acceptable to Sands Brothers which
merger will result in a remaining company (i) qualified and maintaining a NASDAQ
National Market, Small Cap, Electronic Bulletin Board or other over-the-counter
listing, and (ii) controlled by the shareholders of the Company (the "Remaining
Company")(such merger or similar transaction, the "Remaining Company
Transaction"). The Offering Documents will included a form of registration
rights agreement (the "Registration Rights Agreement" pursuant to which
investors will be entitled to certain automatic and incidental registration
rights, subject to customary terms and conditions. In the event the Company
cannot effectuate a merger, it (rather than the Remaining Company) shall
nonetheless be obligated to file a Registration Statement and comply with all
provisions of the Registration Rights Agreement.
Capitalized terms used herein, unless otherwise defined or unless the
context otherwise indicates, shall have the same meanings provided in the
Memorandum.
1. Appointment of Placement Agent. You are hereby appointed exclusive
Placement Agent of the Company during the offering period
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herein specified (the "Offering Period") for the purposes of assisting the
Company on a "best efforts" basis in finding qualified Subscribers for the
purchase of Securities and to identify potential sources to engage in Other
Financing transactions with the Company in connection with the Offering. The
Offering Period shall commence on the date of delivery and acceptance by the
Placement Agent of the Memorandum ("Commencement Date") and shall continue until
the earlier to occur of (i) the sale of the Minimum Amount; or (ii) 70 days from
the Commencement Date (as the same may be extended by the Placement Agent for an
additional 60 days or another period to be determined by mutual consent of the
Placement Agent and the Company). If the Minimum Amount is not sold prior to the
end of the Offering Period, the Offering will be terminated and all funds
received from Subscribers and held in a special non-interest bearing account
(the "Account") at Republic National Bank, New York, New York (the "Bank") will
be returned, without deduction or accrued interest thereon. You hereby accept
such agency and agree to assist the Company in finding qualified Subscribers for
the purchase of Securities and to identify potential sources to engage in Other
Financing transactions with the Company in connection with the Offering. Your
agency hereunder is not terminable by the Company except upon termination of the
Offering or as otherwise set forth herein.
As part of the Placement Agent's exclusive representation of the Company
with respect to the Offering, the Placement Agent shall assist the Company in
identifying potential investors and sources of Other Financing and shall on
behalf of the Company, contact such potential investors and other potential
investors as the Company may designate. In addition, the Placement Agent shall
assist the Company in structuring, negotiating and effecting the Offering. The
Company agrees that, during the course of the engagement hereunder, neither it,
nor any of its management, nor any of its affiliates, shall initiate any
discussions with third parties with respect to the Offering and to the extent
any of such persons receives an inquiry from any third parties concerning the
Offering or any other financing related to the Company, they will promptly
identify to the Placement Agent the name of such person and the date of such
initial contact.
2. Representations and Warranties of the Company. Subject to the
Disclosure Schedule attached hereto, the Company represents and warrants as
follows:
(a) Securities Law Compliance. The Offering Documents, upon delivery, will
conform in all material respects with the requirements of the Securities Act and
Regulation D promulgated thereunder and with the requirements of all other
published rules and regulations of the United States Securities and Exchange
Commission (the "Commission") currently in effect relating to "private
offerings" and/or "accredited investors" of the type
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contemplated by the Company. The Offering Documents will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that this representation and warranty
does not apply to statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of the Placement Agent in connection with the Offering Materials or any
amendment or supplement thereto expressly for use therein. The Offering
Documents will not be amended or supplemented and no amendment or supplement
thereto will be made without the prior consent of the Placement Agent, which
consent shall not be unreasonably withheld.
(b) Organization. The Company, and each of the companies under its control
(each a "Subsidiary", and collectively, the "Subsidiaries"), is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own and lease its properties, to carry on its business as described
in the Memorandum. The Company and each Subsidiary is duly qualified to do
business in the states or jurisdictions set forth on the Disclosure Schedule.
Except as set forth in the Disclosure Schedule, there is no jurisdiction in
which the conduct of the Company's or Subsidiary's business or ownership or
leasing of its properties requires it to be qualified to do business as a
foreign corporation, except where such qualifications have been obtained or the
failure to be so qualified would not have a material adverse effect on the
business, financial condition or prospects of the Company (as described in the
Memorandum) and such Subsidiary, taken as a whole. The Company has all requisite
power and authority to execute and deliver this Agreement and to carry out the
transactions contemplated by this Agreement.
(c) Capitalization.
(i) The authorized, issued and outstanding capital stock of the
Company as of the date hereof is set forth on the Disclosure Schedule. Each such
share is validly paid, fully paid and nonassessable. Except as set forth on the
Disclosure Schedule, there are no other classes of capital stock or other
securities authorized by the Company.
(ii) Intentionally deleted.
(iii) The Company has no obligation (contingent or otherwise) to pay
any dividend or make any other distribution in respect of any of its capital
stock. The Company is not a party to, and has no knowledge of, voting trusts or
agreements, stockholders' agreements, pledge agreements, buy-sell agreements,
rights of first refusal or proxies relating to any securities of the Company
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(whether or not the Company is a party thereto). All of the outstanding
securities of the Company were issued, in all material respects, in compliance
with all applicable federal and state securities laws. The Company has no
obligation (contingent or otherwise) to repurchase, redeem or otherwise acquire
any shares of its capital stock.
(iv) The stockholders of record and the holders of subscriptions,
warrants, options, preemptive rights, convertible securities and other rights
(contingent or otherwise) to purchase or otherwise acquire equity securities of
the Company, and the number of shares of capital stock of the Company and the
number of such subscriptions, warrants, options, preemptive rights, convertible
securities and other such rights held by each, are as set forth in the
Disclosure Schedule. The designations, powers, preferences, rights, privileges,
qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of the Company are as set forth in the Certificate
of Incorporation and all such designations, powers, preferences, rights,
privileges, qualifications, limitations and restrictions are valid, binding and
enforceable in accordance with all applicable laws (subject, as to enforcement,
to the discretion of the courts in awarding equitable relief and to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
the rights of creditors generally). Except as disclosed in the Disclosure
Schedule, no person owns of record, or is known to the Company to own
beneficially, any share of capital stock of the Company; no subscription,
warrant, option, preemptive right, convertible security, agreement or other
right (contingent or otherwise) to purchase or otherwise acquire equity
securities of the Company is authorized or outstanding; and there is no
commitment by the Company to issue shares, subscriptions, warrants, options,
preemptive rights, convertible securities or other such rights or to distribute
to holders of any of its equity securities any evidence of indebtedness or
asset. An appropriate number of shares of the Common Stock have been reserved
for issuance upon the conversion or exercise, as the case may be, of any of the
securities referred to in this Section. All of the outstanding securities of the
Company were issued, in all material respects, in compliance with all applicable
federal and state securities laws. The Company has no obligation (contingent or
otherwise) to repurchase, redeem or otherwise acquire any shares of its capital
stock.
(d) Subsidiaries and Investments. Except as set forth in the Disclosure
Schedule, the Company does not own, directly or indirectly, any capital stock,
or other equity ownership or proprietary interest, in any other corporation,
association, trust, partnership, joint venture or other entity. Each Subsidiary
is wholly owned by the Company.
(e) Financial Statements. The audited consolidated balance
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sheet of the Company as of December 31, 1996 (the "1996 Balance Sheet") and the
related consolidated statements of operations, shareholders equity and
statements of cash flow for the fiscal year ended December 31, 1996 certified by
[________] and the unaudited consolidated balance sheet (the "September Balance
Sheet") of the Company as of September 30, 1996 (the "Balance Sheet Date"), and
the related unaudited consolidated statements of operations, shareholders equity
and statements of cash flow for the nine month period ending September 30, 1996
(collectively, the "Financial Statements"), have heretofore been delivered to
the Placement Agent. Except as may be otherwise indicated herein and therein and
in the notes thereto, the Financial Statements have been prepared in conformity
with Generally Accepted Accounting Principles consistently applied and present
fairly in all material respects the financial position and results of operations
of the Company as of the dates and for the periods indicated.
(f) Keeping of Records and Books of Account. The Company has maintained
adequate records and books of account, in which complete entries have been made
in accordance with Generally Accepted Accounting Principles, consistently
applied, reflecting all financial transactions of the Company and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business have been made. The records and books of account of the Company are in
good order and have been properly maintained in all material respects.
(g) Access to Corporate Documents. The minute books of the Company and of
its Subsidiaries have been made available to the Placement Agent and reflects in
all material respect the meetings and actions of the directors and stockholders
of the Company or of its Subsidiaries, respectively, since the time of their
respective incorporation and reflect all transactions referred to in such
minutes accurately in all material respects.
(h) Absence of Undisclosed Liabilities. The Company has no material
outstanding claims, liabilities, obligations or indebtedness, contingent or
otherwise, whether asserted or unasserted, except as set forth in the 1996
Balance Sheet, or referred to in any of the notes thereto. All liabilities of
the Company and its Subsidiaries incurred subsequent to the Balance Sheet Date
have been incurred in the ordinary course of business and do not involve
borrowings which individually exceed $5,000 and which do not exceed $10,000 in
the aggregate. Neither the Company nor its Subsidiaries is in default in respect
of the terms or conditions of any indebtedness.
(i) Absence of Changes. Since the 1996 Balance Sheet Date, there has not
been any material change in the condition, financial or otherwise, of the
Company or of any of its Subsidiaries, which
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materially adversely affects the ability of the Company or the ability of any of
its Subsidiaries to conduct its operations to be described in the Offering
Documents and neither the Company nor any of its Subsidiaries have incurred any
material liabilities or obligations, direct or contingent, not in the ordinary
course of business since such 1996 Balance Sheet Date.
(j) Accounts Receivable. The accounts receivable of the Company reflected
on the 1996 Balance Sheet, and all accounts receivable of the Company arising
since the 1996 Balance Sheet Date, are not subject to discount (other than
discounts and allowances provided by normal trade terms), rebate or offset and
have arisen from bona fide transactions in the ordinary course of business.
(k) Title to Properties; Encumbrances.
(i) Except for properties and assets reflected in the 1996 Balance
Sheet or acquired since the 1996 Balance Sheet Date which have been sold or
otherwise disposed of in the ordinary course of business since such date, the
Company and each of its Subsidiaries has good, valid and marketable title to (A)
all of its properties and assets (personal, tangible and intangible), reflected
as owned in the 1996 Balance Sheet, except as indicated in the notes thereto;
and (B) all the properties and assets purchased or otherwise acquired by the
Company or by any Subsidiary since the 1996 Balance Sheet Date; in each case
clear of all encumbrances, liens, claims, charges or other restrictions of
whatever kind or character ("Liens"), except for (1) liens reflected in the 1996
Balance Sheet, (2) liens for current taxes, assessments or governmental charges
or levies on property not yet due and delinquent and (3) such Liens as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company.
(ii) The Company and its Subsidiaries own no real property. To the
best of the Company's knowledge after due inquiry, there are no condemnation,
environmental, zoning or other land use regulation proceedings, either
instituted or planned to be instituted, which would materially and adversely
affect the use or operation of the Company's and its Subsidiaries' properties
and assets for their respective intended uses and purposes or the value of such
properties, and the Company and its Subsidiaries have not received notice of any
special assessment proceedings which would affect such properties and assets.
(l) Condition of Equipment, Machinery and Fixtures. The equipment,
machinery and fixtures leased and/or owned by the Company and utilized by the
Company and its Subsidiaries in the conduct of their business are in good
operating condition and are fit for their intended purpose.
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(m) Leased Property. Each real property and personal property lease or
sublease to which the Company or any of its Subsidiaries is a party is valid and
binding and is in full force and effect; all rent and other sums, and charges
payable by the Company or by each Subsidiary as lessee or sublessee thereunder,
are current through the last day of the immediately preceding calendar month; no
notice of default or termination under any lease is outstanding; no termination
event or condition or uncured default on the part of the Company or any
Subsidiary, or the landlord, exists under any lease; the Company and its
Subsidiaries currently occupy or use the premises leased pursuant to the real
property leases; and no event has occurred and no condition exists which with
the giving of notice or the lapse of time or both, would constitute such a
default or termination event or condition. Neither the Company, nor its
Subsidiaries, nor any of the officers or directors of the Company or of its
Subsidiaries has any ownership, financial or other interest in the landlord
under any real property lease. Each lease was negotiated on an arm's-length
basis.
(n) Inventories. All inventory reflected in the 1996 Balance Sheet of the
Company and of its Subsidiaries and all inventory acquired by the Company and by
its Subsidiaries subsequent to the 1996 Balance Sheet Date, were acquired and
have been maintained in accordance with the regular business practices of the
relevant entity, consists of items of quality and quantity reasonably expected
to be useable or saleable in the ordinary course of business consistent with
past practice, are valued in accordance with United States Generally Accepted
Accounting Principles, and such inventory which is known or reasonably believed
to be obsolete or slow moving has been adequately reserved to reduce such
inventory to net realizable value. Subject to amounts reserved therefor on the
Financial Statements, the values at which all inventories of the Company and of
its Subsidiaries (collectively, the "Inventories") are carried on the Financial
Statements reflect the historical inventory valuation policy of the Company and
of its Subsidiaries of stating such Inventories. at the lower of cost
(determined on the first-in, first-out method) or market value and all
Inventories are valued such that the Company and its Subsidiaries will earn
its/their customary gross margins thereon. The Company has good and marketable
title to the Inventories free and clear of all encumbrances. The Inventories do
not consist of any items held on consignment. The Company is under no obligation
or liability with respect to accepting returns of items of Inventory or
merchandise in the possession of its customers other than in the ordinary course
of business consistent with past practice. No clearances or extraordinary sale
of the Inventories has been conducted since the 1996 Balance Sheet Date. Neither
the Company or any of its Subsidiaries has manufactured Inventory for sale which
is not of a quality and quantity usable in the ordinary course of business
consistent with past practice and within a reasonable period of time nor has the
Company or any of its Subsidiaries changed the price of
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any Inventory except (i) for reductions to reflect any reduction in the cost
thereof to the Company or to any of its Subsidiaries; (ii) for reductions and
increases responsive to normal competitive conditions and consistent with the
Company's or the Subsidiaries' past sales practices; and (iii) to reflect any
increase in the cost thereof to the Company or to the Subsidiaries. The
Inventories are in good and merchantable condition in all material respects, are
suitable and usable for the purposes for which they are intended and are in a
condition such that they can be sold in the ordinary course of business
consistent with past practice.
(o) Patents, Trademarks and Copyrights, Etc. The Company and its
Subsidiaries own or are licensed or otherwise entitled to use all patents,
trademarks, trade names, service marks, copyrights, technology, know-how,
processes and other intellectual property used in the conduct of its business as
currently conducted and as proposed to be conducted in the Memorandum. The
Company and its Subsidiaries have received no notice of any claims, and have no
knowledge of any threatened claims, and know of no facts which would form the
basis of any claim, asserted by any person, to the effect that the sale or use
of any product or process now used or offered by the Company or any Subsidiary
infringes on any patents or infringes upon the use of any such trademarks, trade
names, service marks, copyrights, technology, know-how, processes or other
intellectual property of another person or challenges or questions the validity
or effectiveness of any such license or agreement. To the Company's knowledge,
the sale and use of any such products and processes by the Company and its
Subsidiaries, and the use of any such patents, trademarks, trade names, service
marks, copyrights, technology, know-how, processes or other intellectual
property by the Company and its Subsidiaries, does not infringe on the rights of
any person.
(p) Litigation. There is no action, suit, investigation, customer
complaint, claim or proceeding at law or in equity by or before any arbitrator,
governmental instrumentality or other agency now pending or, to the Company's
knowledge, threatened against or affecting the Company or any Subsidiary, nor,
to the best of the Company's knowledge, does there exist any basis therefor.
Neither the Company nor any Subsidiary is subject to any judgment, order, writ,
injunction or decree of any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. The Company agrees to promptly notify the Placement Agent of the
commencement of any litigation or proceedings against the Company or any
Subsidiaries or any of its/their respective officers or directors in connection
with the sale of the transaction contemplated in the Offering Documents.
(q) Non-Defaults; Non-Contravention. Except as set forth in the Disclosure
Schedule, neither the Company nor its Subsidiaries
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is in default in the performance or observance of any obligation (i) under its
Certificate of Incorporation, as amended, or its By-laws, or any indenture,
mortgage, contract, purchase order or other agreement or instrument to which the
Company is a party or by which it or any of its property is bound or affected;
or (ii) with respect to any order, writ, injunction or decree of any court of
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, except for such
defaults as would not, individually or in the aggregate, result in a material
adverse effect on the business or operations of the Company as a whole, and
there exists no condition, event or act which constitutes, nor which after
notice, the lapse of time or both, would constitute, a material default under
any of the foregoing.
(r) Employment of Officers, Employees and Consultants. To the Company's
knowledge, no third party may assert any valid claim against the Company or its
Subsidiaries with respect to the (i) continued employment by, or association
with, the Company or its Subsidiaries of any of its present officers, employees
or consultants; or (ii) the use by the Company or its Subsidiaries of any
information which the Company or its Subsidiaries would be prohibited from using
under any prior agreements or arrangements or any laws applicable to unfair
competition, trade secrets or proprietary information.
(s) Taxes. The Company and its Subsidiaries have filed all federal, state,
local and foreign tax returns which are required to be filed by them or have
requested extensions thereof, and all such returns are true and correct in all
material respects. The Company and its Subsidiaries have paid all taxes pursuant
to such returns or pursuant to any assessments received by them and have
withheld all amounts which they are obligated to withhold from amounts owing to
any employee, creditor or third party. The tax returns of the Company and of its
Subsidiaries have never been audited by any state, local or federal authorities.
The Company and its Subsidiaries have not waived any statute of limitations with
respect to taxes or agreed to any extension of time with respect to any tax
assessment or deficiency. All tax elections have been made by the Company and
its Subsidiaries in accordance with generally accepted practices. No deficiency
assessment with respect to or proposed adjustment of the Company's and its
Subsidiaries federal, state, county or local taxes is pending or, to the best of
the Company's knowledge, threatened. There is no tax lien, whether imposed by
any federal, state, county or local taxing authority, outstanding against the
assets, properties or business of the Company or of its Subsidiaries. Neither
the Company nor any of its Subsidiaries nor any of its/their respective present
or former stockholders has ever filed an election pursuant to Section 1362 of
the Internal Revenue Code of 1986, as amended (the "Code"), that the Company or
any of its Subsidiaries be taxed as an S corporation.
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(t) Agreements. Except as set forth in the Disclosure Schedule, neither
the Company nor any Subsidiary is a party to any written or oral contract not
made in the ordinary course of business and, whether or not made in the ordinary
course business, neither the Company nor any Subsidiary is a party to any
written or oral (i) collective bargaining agreement or any other contract with
any labor union; (ii) contract for the future purchase of fixed assets or for
the future purchase of materials, supplies or equipment in excess of $10,000;
(iii) contract for the employment of any officer, key employee or other key
person on a full-time basis or any contract with any person on a consulting
basis requiring the payment of any amount in the future; (iv) bonus, pension,
profit-sharing, vacation, deferred compensation, retirement, stock purchase,
stock option, hospitalization, health, medical insurance, life insurance,
disability insurance or similar plan, contract or understanding in effect with
respect to employees, or any other employee benefit plan, including, without
limitation, any employee benefit plan" as defined in Section 3(l) of the
Employee Retirement Income Security Act of 1974 and the rules and regulations
thereunder, as amended from time to time (collectively, "ERISA"), to which the
Company or any Subsidiary contributes or is a party, or is bound, or under which
it may have liability and under which employees or former employees of the
Company or any Subsidiary (or their beneficiaries) are eligible to participate
or derive a benefit; (v) agreement, indenture or other instrument relating to
the borrowing of money or to the mortgaging, pledging or otherwise placing a
lien on any assets of the Company or of any Subsidiary; (vi) guaranty of any
obligation for borrowed money or otherwise; (vii) agreement or other commitment
for capital expenditures in excess of $10,000; (viii) contract or agreement
under which the Company or any Subsidiary is obligated to pay any broker's fees,
finder's fees or any such similar fees, to any third party other than in
conjunction with the transactions contemplated by this Agreement; (ix) sales
agency, marketing, distributorship or continuing brokerage agreements or
franchises between the Company or any Subsidiary and any other person; (x)
partnership or joint venture agreement of any kind to which the Company or any
Subsidiary or their assets may be bound; (xi) licenses to or from others with
respect to the business or assets of the Company or any Subsidiary; (xii)
contracts or commitments limiting the freedom of the Company or any Subsidiary
or any of their officers or employees to compete with respect to the business of
the Company or any Subsidiary in any geographic area or with any person or
otherwise restricting the conduct of the Company's business or that of any
Subsidiary; (xiii) contract, agreement, arrangement, or understanding with
respect to the sale of the business of the Company or of any Subsidiary or of a
substantial portion of the Company's or any Subsidiary's assets to any third
party, including any option agreement for any such sale or disposition; or (xiv)
contract, agreement, arrangement or understanding which is material to the
business of the Company or to the business of any Subsidiary or which is
material to, and which
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a prudent investor would need to review in order to make an informed investment
decision with respect to the purchase of the Securities offered pursuant to the
Offering Documents. Each material contract of the Company or of any of its
Subsidiaries is valid and binding on the Company or on such Subsidiary, and
neither the Company nor any of its Subsidiaries has received notice that any
such contract is not binding on any party thereto. The Company and its
Subsidiaries have performed in all material respects all obligations to have
been performed on such contracts through the date hereof, and neither the
Company nor any Subsidiary is in default in any material respect under any such
contract. Each material contract of the Company or of any of its Subsidiaries is
valid and binding on the Company or the respective Subsidiary and the Company or
the respective Subsidiary has not received notice that any such contract is not
binding on any party thereto. The Company and each of its Subsidiaries has
performed in all material respects all obligations to have been performed on
such contracts through the date hereof and the Company and each of its
Subsidiaries is not in default in any material respect under any such contract.
(u) Compliance with Laws; Environmental Matters, Licenses, Etc. The
Company and its Subsidiaries have received no notice of any violation of, or
noncompliance with, any federal, state, local or foreign laws, ordinances,
regulations or orders (including, without limitation, those relating to
environmental protection, occupational safety and health and other labor laws,
ERISA, federal drug laws, federal securities laws, equal employment opportunity,
consumer protection, credit reporting, "truth-in-lending," and warranties and
trade practices) applicable to its business or the business of any Subsidiary,
the violation of, or noncompliance with which, would have a material adverse
effect on the Company's business or operations, taken as a whole, or that of any
Subsidiary, and the Company knows of no facts or set of circumstances which
would give rise to such a notice. The Company and its Subsidiaries have all
licenses and permits and other governmental certificates, authorizations and
permits and approvals (collectively, "Licenses") required by every federal,
state and local government or regulatory body for the operation of their
business and the use of their properties, the absence of which would have a
material adverse affect on the business of the Company, taken as a whole. The
Licenses are in full force and effect and no violations are or have been
recorded in respect of any License and no proceeding is pending or, to the
Company's knowledge threatened to revoke or limit any thereof. The Company and
its Subsidiaries have not received any written opinion or memorandum from legal
counsel providing that it/they has taken any action which has resulted in, or is
reasonably likely to result in, the Company or any of its Subsidiaries incurring
any liability which may be material to its/their respective business, prospects,
financial condition, operations, property or affairs.
12
(v) Authorization of Agreement, Etc. Each of this Agreement, the Offering
Documents and all other agreements or documents required to be executed and
delivered by the Company in connection with the Offering (collectively the
"Ancillary Documents") has been or will be duly executed and delivered by the
Company and the execution, delivery and performance by the Company of this
Agreement and the Ancillary Documents has been duly authorized by all requisite
corporate action by the Company; and each constitutes, or will constitute, the
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, except as enforce ability may be limited by bankruptcy,
insolvency, reorganization, usury or other similar laws affecting the
enforcement of creditors' rights generally and except as rights to
indemnification hereunder may be limited by applicable law. The execution,
delivery and performance of this Agreement and the issuance, sale and delivery
of the Securities will not (i) violate any provision of law or statute or any
order of any court or other agency of government binding on the Company or its
Subsidiaries; or (ii) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time or
both) a default under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or of
its Subsidiaries under the Certificate of Incorporation, as amended, or By-Laws
of the Company or of its Subsidiaries or any indenture, mortgage, lease
agreement or other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which it or any of its property is bound or
affected, except for such conflict, breach or default (i) as to which requisite
waivers or consents shall have been obtained by the Company or by its
Subsidiaries and delivered to the Subscribers by the time of Closing or (ii)
which individually or int he aggregate would not result in a material adverse
effect on the business of the Company, taken as a whole.
(w) Intentionally deleted.
(x) Authorization of Reserved Shares. Intentionally deleted.
(y) Related Transactions. Except as set forth on the Disclosure Schedule,
no current or former shareholder, director, officer or employee of the Company,
nor any affiliate of any such person, is presently, or since the inception of
the Company has been, directly or indirectly, through his, her or its
affiliation with any other person or entity, a party to any loan from the
Company or from any of its Subsidiaries.
(z) Registration Rights. Except as may exist with respect to the holders
of the Securities, (i) no person or entity has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company and (ii) no person or entity holds any anti-dilution or "piggy back"
rights with respect to any
13
securities of the Company.
(AA) Salaries and Bonuses. The Disclosure Schedule contains a true and
complete list of all current officers, directors and employees of the Company
and of its Subsidiaries who received during the fiscal year ended December 31,
1996 remuneration from the Company or from any of its Subsidiaries in excess of
$50,000, together with the current aggregate base salary rate for each such
person.
(BB) Insurance. All insurable assets and properties of the Company and its
Subsidiaries are insured, for the benefit of the Company and its Subsidiaries,
against all risks usually insured against by persons owning or operating similar
properties in the localities where such properties are located, through
insurance policies all of which are in full force and effect. The Company and
each Subsidiary are insured, for their benefit, against all claims relating to
their services to the same extent that the risks of such claims are usually
insured against by persons providing similar services. Each of the insurance
policies referred to in this Section is issued by an insurer of recognized
responsibility, and neither the Company nor its Subsidiaries has received any
notice or threat of the cancellation or nonrenewal of any such policy. The
Company will make available to the Placement Agent, upon its request, a list of
all insurance coverage carried by the Company or its Subsidiaries, the carrier
and the terms and amount of coverage.
(CC) Employee Benefit Plans.
(i) Welfare Plans. Each welfare plan of the Company and its
Subsidiaries is in compliance with the applicable provisions of ERISA and
the Internal Revenue Code of 1986, as amended (the "Code"). The Company
and each Subsidiary have no contingent, future or other obligations or
liabilities under or with respect to any welfare plan which provides for
the continuation of benefits at the expense of the Company or any
Subsidiary after retirement or other termination of employment.
(ii) Pension Plans. Each pension plan of the Company and of each
Subsidiary is in compliance with the applicable provisions of ERISA and
the Code including, without limitation, any applicable minimum funding
requirements. There have been no reportable events within the meaning of
Section 4043 of ERISA with respect to any pension plan. In the event of
the termination of all pension plans, the Company and each Subsidiary
would have no liability under Sections 4062, 4063 or 4064 of ERISA.
(iii) Effect of Transactions. The execution and delivery of this
Agreement by the Company and the consummation
14
of the transactions contemplated hereby will not involve any prohibited
transactions with respect to the Company or any of its Subsidiaries within
the meaning of ERISA.
(DD) Brokers. The Company has not, nor have any of its Subsidiaries, or
any of its/their respective officers, directors, employees or shareholders,
employed any broker or finder in connection with the transactions contemplated
by this Agreement, other than Sands Brothers.
(EE) No Material Changes. Intentionally deleted.
(FF) Issuance of Other Securities. Intentionally deleted.
(GG) No Consents. No permit, consent, approval, authorization, order or
filing with any court or governmental authority is required to consummate the
transactions contemplated by this Agreement, except that the offer and sale of
the Securities in certain jurisdictions may be subject to the provisions of the
securities or Blue Sky laws of such jurisdictions.
(HH) Information. Intentionally deleted.
(II) Restrictive Agreements Prohibited. Intentionally deleted.
(JJ) Change in Nature of Business. Intentionally deleted.
(KK) Corporate Existence. Intentionally deleted.
(LL) Intentionally deleted.
(MM) Employee Relations. Each of the Company and its Subsidiaries has
generally enjoyed a satisfactory employer-employee relationship with its
employees and is in material compliance with all federal, state, local, and
foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours. There are no pending
investigations involving the Company or any of its Subsidiaries by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company or its
Subsidiaries pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or its Subsidiaries, or any predecessor entity, and
none has ever occurred. No representation question exists respecting the
employees of the Company or the employees of any of its Subsidiaries, and no
collective bargaining agreement or modification thereof is currently being
negotiated by the Company or its Subsidiaries. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
15
agreements of the Company or any of its Subsidiaries. No labor dispute with the
employees of the Company or its Subsidiaries exists, or, is imminent.
(NN) Foreign Corrupt Practices Act. None of the Company, its Subsidiaries
nor to their knowledge any of their respective officers, employees, agents or
any other person acting on behalf of the Company or any of its Subsidiaries has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company or the business of any of its Subsidiaries (or to assist the Company or
any of its Subsidiaries in connection with any actual or proposed transaction)
which (a) might subject the Company or any of its Subsidiaries, or any other
such person, to any damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign); (b) if not given in the past,
might have had a material adverse effect on the assets, business or operations
of the Company or of any of its Subsidiaries; or (c) if not continued in the
future, might adversely affect the assets, business, operations or prospects of
the Company and of its Subsidiaries, taken as a whole. The Company believes that
its and its Subsidiaries' international accounting controls are sufficient to
cause the Company and its Subsidiaries to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
(OO) Affiliations. Except as set forth in the Disclosure Schedule, no
officer, director or shareholder of the Company or officer, director or
shareholder of any of its Subsidiaries, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any such person or entity or of the Company or its Subsidiaries, has or has
had, either directly or indirectly (i) an interest in any person or entity which
(A) furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company or its Subsidiaries; or (B)
purchases from or sells or furnishes to the Company or any of its Subsidiaries
any goods or services; or (ii) a beneficiary interest in any contract or
agreement to which the Company or any of its Subsidiaries is a party or by which
it may be bound or affected. Except as set forth in the Disclosure Schedule,
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among the Company or any of its Subsidiaries, and any officer, director, or
principal stockholder of the Company or any of its Subsidiaries, or any
affiliate or associate of any such person or entity.
16
(PP) Corporate Representations. Any certificate signed by any officer of
the Company or by an officer of any of the Company's Subsidiaries and delivered
to the Placement Agent or to the Placement Agent's counsel pursuant to this
Agreement, shall be deemed a representation and warranty by the Company and by
any of its Subsidiaries to the Placement Agent as to the matters covered
thereby.
(QQ) Escrow Arrangements. Pursuant to paragraph 3(e)(i) hereof, if the
Closing does not take place before the termination of the Offering Period, the
Company will instruct the Bank to return the funds to the Subscribers without
any deduction therefrom or interest thereon.
(RR) Confidential Arrangements. The Company and its Subsidiaries agree to
take reasonable precautions in protecting the confidentiality, privacy and
security of the business contacts identified by the Placement Agent by taking
appropriate administrative and managerial action, and to use its/their
respective reasonable efforts to prevent disclosure of such property information
to any all persons and entities. The Company and each of its Subsidiaries agree
that, without the expressed written consent of the Placement Agent, it/they will
not initiate, respond or otherwise abide any contract, except as required by law
or in the ordinary course of business, with any person, company, institution,
professional association, nor other entity to which it has been introduced or
with whom it has become acquainted in the course of doing business with the
other party. The Company and each of its Subsidiaries agrees to hold completely
confidential the name, address, telephone, telex, facsimile number, account or
other business number of such contact as may be introduced by the Placement
Agent. The above restrictions apply to any subsequent follow up, repeated or
extended or renegotiation transactions related to the Offering regardless of the
results of the Offering.
(SS) Disclosure. Neither this Agreement nor any other document,
certificate or written statement to be furnished to the Subscribers by or on
behalf of the Company in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact known to the
Company which adversely affects the business operations, affairs, prospects,
conditions, properties or assets of the Company or of its Subsidiaries
(hereinafter "Material Facts") which has not been set forth in this Agreement.
To the extent Material Facts become known to the Company subsequent to the date
hereof and up and through the Closing Date, such facts will be set forth in the
Memorandum and/or in the other documents, certificates or statements furnished
to the Subscribers by or on behalf of the Company pursuant hereto.
17
3. Representations, Warranties and Covenants of the Placement Agent. The
Placement Agent represents, warrants and covenants as follows:
(a) Authorization of Agreement, Etc. This Agreement has been duly and
validly authorized, executed and delivered by or on behalf of the Placement
Agent and constitutes, or will constitute, the legal, valid and binding
obligation of the Placement Agent, enforceable in accordance with its terms,
except as enforce ability may be limited by bankruptcy, insolvency,
reorganization, usury or other similar laws affecting the enforcement of
creditors' rights generally and except as rights to indemnification hereunder
may be limited by applicable law.
(b) Compliance with the Securities Act. The Placement Agent will not
knowingly take any action which will result in the Securities being offered or
sold in a manner which does not comply with the provisions of Regulation D under
the Securities Act.
(c) Compliance with Offering Documents. The Placement Agent will offer the
Securities in accordance with the Offering Documents and will deliver the
Offering Documents to each Subscriber before accepting a signed copy of the
Subscription Agreement or payment for any Securities.
(d) Compliance with Laws of Jurisdictions. The Placement Agent will offer
the Securities only in those jurisdictions in which it is permitted to sell the
Securities pursuant to the laws of said jurisdiction, and the Placement Agent
may arrange for the Securities to be offered by a broker/dealer or offshore
facilitator.
(e) Escrow Arrangements.
(i) The Placement Agent will promptly deposit funds received from
Subscribers in the Account with the Bank and hold the funds in accordance with
the terms of this Agreement and hold the Offering Documents for the benefit of
the Subscribers and the Company. The Bank shall release funds from such Account
only upon receipt of instruction executed by each of the Placement Agent and the
Company. If the Closing does not take place before the termination of the
Offering Period, the Placement Agent will instruct the Bank to return the funds
to the Subscribers without any deduction therefrom or interest thereon.
4. Closing; Placement and Fees.
(a) Closing. The Closing of the Financing shall take place at the offices
of counsel for the Placement Agent, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, at
a time and date agreed upon between the Placement Agent and the Company upon the
(i) receipt of Subscription
18
Agreements and related documents in form and substance satisfactory to the
Company and the Placement Agent and (ii) delivery of documentation evidencing
the consummation of Other Financing transactions which, in the cases of (i) or
(ii) individually, or in the aggregate (in any combination), are equal to or are
in excess of the Minimum Amount. At the Closing, payment for the Securities
shall be made against delivery of certificates representing the Securities sold.
All proceeds received from the sale of the Securities sold after the Closing
date will continue to be deposited in the Account maintained with the Bank.
(b) Procedures at Closing. At the Closing:
(i) The Placement Agent on behalf of itself and the Subscribers
shall receive the opinion of Company Counsel in form and substance reasonably
satisfactory to the Placement Agent.
(ii) At the Closing, the Placement Agent will have received a signed
letter from independent public accountants for the Company in form and substance
reasonably satisfactory to the Placement Agent.
(iii) Counsel for the Placement Agent and Company Counsel shall
receive certificates from the Company, signed by the President or a Vice
President thereof, certifying (A) that the representations and warranties
contained in Section 2 hereof are true and accurate at the Closing with the same
effect as though expressly made at the Closing; and (B) that attached thereto is
(1) a true and correct copy of resolutions adopted by the Company's Board of
Directors authorizing (i) the execution, delivery and performance of this
Agreement and the Ancillary Documents, and (ii) the issuance of the Securities
and certifying that such resolutions have not been modified, rescinded or
amended and are in full force and effect; and (2) a true and correct copy of a
resolution adopted by the Company's Board of Directors and by each of the
Company's Subsidiaries, authorizing the execution, delivery and performance of
each document to which it is a party, and that such resolutions have not been
modified, rescinded or amended and are in full force and effect.
(iv) There shall be delivered on behalf of each Subscriber one copy
of the Subscription Agreement signed by each Subscriber and one copy of the
Questionnaire signed by each Subscriber.
(v) The Placement Agent shall have received certificates of good
standing of the Company, dated as of a recent date, from the Secretary of State
of the jurisdiction of its incorporation and certificates of good standing of
each of the Company's Subsidiaries, dated as of a recent date, by the Secretary
of State of the jurisdictions of incorporation of the Subsidiaries.
19
(vi) At the Closing the Placement Agent shall instruct the Bank to
pay to the Company out of the funds on deposit in the Account, as such funds are
received from Subscribers whose Subscriptions have been accepted.
(vii) The Placement Agent shall receive documentation, in form and
substance reasonably acceptable to the Placement Agent, that (a) the Remaining
Transaction has been successfully consummated, (b) this Agreement has been
assigned and assumed by the Remaining Company, either by written assignment and
assumption or as a matter of law, (c) the Remaining Company delivers a schedule
which indicates the authorized, issued and outstanding capital stock of the
Company immediately upon the consummation of the Closing, (d) the Remaining
Company evidences to the Placement Agent that the issuance, sale and delivery of
the Securities have been duly authorized by all requisite corporate action of
the Remaining Company, and when so issued, sold and delivered, (i) the shares of
Capital Stock will be validly issued and outstanding, duly executed and
delivered, fully paid and nonassessable, free and clear of all liens, charges,
claims, encumbrances, restrictions or preemptive or any other similar rights and
the Remaining Company shall have paid all taxes, if any, in respect of the
issuance thereof;(ii) the shares of Capital Stock will not be subject to
preemptive or any other similar rights of the shareholders of the Remaining
Company or others which rights shall not have been waived prior to the time of
acceptance by the Remaining Company of the first Subscriber's Subscription
Agreement and (iii)the offer and sale of the Securities was exempt from the
registration requirements of the Securities Act and the rules and regulations
promulgated thereunder and the Securities have been issued in compliance with
all applicable federal securities laws.
(c) Blue Sky. Where appropriate, counsel for the Placement Agent shall
prepare a summary blue sky survey stating the extent to which and the conditions
upon which offers and sales of the Securities may be made in certain
jurisdictions. Blue Sky applications shall be made in such states and
jurisdictions as shall be requested by the Placement Agent. It is understood
that such survey may be based on or rely upon (i) the representations of each
Subscriber set forth in the Subscription Agreement delivered by such Subscriber;
(ii) the representations, warranties and agreements of the Company and of its
Subsidiaries set forth herein; (iii) the representations and warranties of the
Placement Agent set forth herein; and (iv) the representations of the Company
and of its Subsidiaries set forth in the certificate to be delivered at the
Closing pursuant to paragraph 4(b)(iii) hereof.
(d) Placement Fee and Expenses.
(i) At the Closing the Company shall pay to the Placement Agent a
commission equal to ten (10%) percent of the aggregate
20
proceeds derived from the Financing. In addition, the Company shall pay the
Placement Agent a non-accountable and non-refundable expense allowance, equal to
three (3%) percent of the aggregate proceeds derived from the Financing. Prior
to or from the proceeds of the Closing, subject to the Company's approval, which
shall not be unreasonably withheld or delayed, the Company shall pay all
Placement Agent's expenses in connection with the proposed Offering, including,
but not limited to, reasonable counsel expenses, disbursements and fees,
reasonable accountant expenses, disbursements and fees, filing fees, business
and environmental investigatory expenses, printing costs, postage and mailing
expenses with respect to the transmission of the Offering and Ancillary
Documents, registrar and transfer agent fees, issue and transfer taxes, if any,
and counsel fees of the Placement Agent in connection with the qualification of
the Securities under the securities or blue sky laws of the states which the
Placement Agent shall designate. The Company also shall pay for the costs of
placing "tombstone advertisements" in any publications which may be selected by
the Placement Agent in an amount not to exceed $10,000, all costs and expenses
in connection with the establishment and maintenance of the Account referred to
in paragraph 1 of this Agreement not to exceed $2,500, and all other
pre-approved costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this paragraph
4(d).
(ii) Subject to the successful completion of the Offering, the Company
will grant to the Placement Agent a right of first refusal to underwrite or
place any future public sales or private sales of debt or equity securities
whatsoever of the Company or of any subsidiary or successor thereof, (excluding
sales to employees of the Company or of its subsidiaries or successors), or any
such sale by any of the principal shareholders of the Company, or of its
Subsidiaries and successors, from a three (3) year period which commenced on
November 19, 1996. If any such proposed financing is offered to the Placement
Agent as aforesaid, the Placement Agent shall have 15 days in which to determine
whether or not to accept such offer and, if the Placement Agent declines the
offer, the right of first refusal shall be forfeited by the Placement Agent, but
only if such a financing is consummated with another underwriter or placement
agent upon substantially the same terms and conditions as those offered to the
Placement Agent, and such financing is consummated within six (6) months after
the end of the 15 day period referred to above. If after a declination by the
Placement Agent the aforesaid conditions are not satisfied, then the right of
first refusal to the Placement Agent shall be reinstated.
(iii) The Company shall pay the Placement Agent a finder's fee consisting
of five (5%) of all consideration in the event that the Company or any of its
subsidiaries is party to any merger, acquisition, joint venture or other
transaction introduced directly or indirectly by Sands Brothers during the
two(2) year period
21
commencing which commenced on November 19, 1996.
(iv) Intentionally deleted.
(e) Intentionally deleted.
5. Covenants of the Company.
(a) Amendments and Supplements. The Company covenants and agrees that,
until the Offering contemplated by the Offering Documents has been completed or
terminated, if there shall occur any event relating to or affecting, among other
things, the Company, any of its Subsidiaries, or the proposed operations of the
Company or of any of its Subsidiaries as described in the Offering Documents, as
a result of which it is necessary, in the reasonable opinion of the Placement
Agent and its counsel or Company Counsel, to amend or supplement the Offering
Documents in order that the Offering Documents will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, the Company shall immediately prepare and
furnish to the Placement Agent a reasonable number of copies of an appropriate
amendment of or supplement to the Offering Documents, in form and substance
satisfactory to the Placement Agent and its counsel.
(b) Use of Proceeds. The net proceeds of the Offering of the Securities
will be used by the Company, as more fully described in the Memorandum, for the
purposes to be set forth in the Memorandum.
(c) Expenses of Offering. The Company shall be responsible for, and shall
bear all reasonable expenses directly and necessarily incurred in connection
with the proposed financing, including, but not limited to, the costs of
preparing, printing and filing the Offering and Ancillary Documents to be used
in connection with the Offering contemplated hereby and all amendments and
supplements thereto; preparing, printing and delivering exhibits to the Offering
and Ancillary Documents; preparing, printing and delivering all Placement Agent
and selling documents, including, but not limited to, this Agreement and the
blue sky memorandum, the Share certificates, blue sky fees, filing fees and the
fees and disbursements of the Placement Agent's counsel and the other fees and
expenses set forth above. As promptly as practicable after the final Closing
date, the Company shall prepare, at its own expense, hard cover "bound volumes"
relating to the Offering and will distribute such volumes to the individuals
agreed to the Company and the Placement Agent.
(d) Intentionally deleted
(e) Intentionally deleted.
22
(f) Early Termination by the Company. Anything contained herein to the
contrary notwithstanding, in the event that, following the date of this
Agreement until the termination or expiration of the Offering Period, either (1)
the Company desires to terminate this Agreement for any reason, other than a
willful breach by Sands Brothers, or (2) the Company is in willful breach of a
representation, warranty or covenant contained herein, the result of which shall
be deemed to be a desired termination of this Agreement, Sands Brothers has the
right, but not the obligation, to agree to such early termination upon the
payment by the Company to Sands Brothers of a sum equal to the placement fees
and expenses Sands Brothers would have received with respect to the Offering but
for such early termination.
(g) No Closing. Anything set forth herein to the contrary notwithstanding,
in the event that, for any reason other than termination hereof by the Company
in accordance with the terms of Section 5(f) above, a Closing does not occur in
accordance with the terms provided herein, no amounts shall be payable further
to Sands Brothers hereunder, except for reimbursement of the reasonable
pre-approved out-of-pocket expenses incurred by Sands Brothers prior to the
expiration date of the Offering Period. In no event shall Sands Brothers be
responsible for any of the Company's fees, costs or expenses and the Company
shall pay all expenses of the Offering and the preparation of the Offering and
Ancillary Documents.
(h) Placement Agent's Board Representative. Subject to the occurrence of
the Financing, the Placement Agent and its successors shall have the right to
designate one nominee for election, at its or their option, either as a member
of or non-voting advisor to the Board of Directors of the Company, who, for such
purposes, shall be ▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇"), and the Company will use its best
efforts to cause such nominee to be elected and continued in office as a
director of the Company or as such advisor until the expiration of five (5)
years from the consummation of the Offering. Following the election of such
nominee as a director or advisor, such person shall attend meetings of the Board
and receive no more or less compensation than is paid to other non-officer
directors of the Company for attendance at meetings of the Board of Directors of
the Company and 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 indemnify and hold Sands
Brothers and it designee harmless, to the maximum extent permitted by law,
against any and all claims, actions, awards and judgments arising out of its/his
service as a director or advisor (except for claims arising out of its/his gross
negligence or wilful misconduct) and, in the event the Company maintains a
liability insurance policy affording coverage for the acts of its officers and
directors, to include Sands Brothers, its designee and such director or advisor
as an insured under such policy. The rights and benefits of such indemnification
23
and the benefits of such insurance shall, to the extent possible, extend to such
designee and the Placement Agent insofar as it may be, or may be alleged to be,
responsible for such director or advisor.
If the Placement Agent does not exercise its option to designate a member
of or advisor to the Board of Directors of the Company, the Placement Agent
shall nonetheless 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. The Company agrees to give Placement Agent notice of each such
meeting and to provide Placement Agent with an agenda and minutes of the meeting
no later than it gives such notice and provides such items to the directors.
(i) Financing Sources. The Company will provide to the Placement Agent a
list of each of its present financing sources, with such list to be amended for
a period of the earlier of (i) termination or expiration of this Agreement or
(ii) one year from the date of termination of the Offering if, and when, the
Company is approached by, or has any contact with, any potential financing
sources ("Company Sources").
(j) Placement Agent Sources. For a period of one year from the date of
this Agreement, the Placement Agent shall keep a list of the names of all its
sources of potential financing ("Placement Agent Sources" and together with the
Company Sources collectively, the "Sources") for the Company, which list may be
furnished to the Company and amended from time to time by the Placement Agent at
its discretion. The Company agrees, in the event it directly or indirectly
receives financing in any form or nature whatsoever from any Source, that it
will fully compensate the Placement Agent under the terms and conditions of this
Agreement to the same extent as if the Placement Agent itself had obtained such
financing from such Source; provided, however, that the provisions of this
sentence shall not apply to (i) any financing received by the Company pursuant
to its pre-existing agreements with Camke Development Ltd, from ▇▇▇▇▇ ▇▇▇▇▇▇ or
▇▇▇▇▇▇ ▇▇▇▇▇▇ or (ii)from any other Company Sources in the event that the
Offering is not consummated.
(k) No Finder's Fee. The Company represents and warrants to the Placement
Agent that it is not obligated to pay a finders' fee to any one in connection
with the introduction of the Company to Sands Brothers.
(l) Employment Agreements. The Company shall enter into employment
agreements with its executive officers in form and substance reasonably
acceptable to the Placement Agent by no later than the Closing Date.
6. Indemnification.
24
(a)(1) Terms of Indemnification by the Company. The Company agrees to
indemnify and hold harmless the Placement Agent and its agents, stockholders,
officers and directors, and each person, if any, who controls the Placement
Agent, as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever arising out of any untrue statement or alleged untrue statement
of a fact contained in the Offering Documents or the omission or alleged
omission therefrom of a fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, unless such untrue statement or omission was made in the
Offering or Ancillary Documents in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by
the Placement Agent expressly for use therein;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of any
litigation (provided that such settlement has been approved by the Company
in writing), commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission or any such alleged untrue statement
or omission; and
(iii) against any and all expense whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under clause (i) or (ii) above.
(a)(2) Terms of Indemnification. The Placement Agent agrees to indemnify
and hold harmless the Company and its agents, stockholders, officers and
directors, and each person, if any, who controls the Company against any and all
loss, liability, claim, damage and expense whatsoever arising out of any untrue
statement or alleged untrue statement of a fact contained in the Offering
Documents or the omission or alleged omission therefrom of a fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Offering Documents or such supplement or
such amendment in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Placement Agent specifically for
use therein.
(b) Indemnity under Securities Laws. The Company agrees to indemnify and
hold harmless the Placement Agent and its agents, and each person, if any, who
controls the Placement Agent, to the same
25
extent as the foregoing indemnity, against any and all loss, liability, claim,
damage and expense whatsoever directly arising out of the exercise by any person
of any right under the Securities Act or the Exchange Act or the securities or
blue sky laws of any state on account of violations of the representations,
warranties or agreements set forth herein.
(c) If any action is brought against the Placement Agent or any of its
officers, directors, stockholders, employees, agents, advisors, consultants and
counsel or any controlling persons of the Placement Agent (each, an "Indemnified
Party" and collectively, "Indemnified Parties"), in respect of which indemnity
may be sought against the Company pursuant to Sections 6(a)(i) or 6(b) above,
each such Indemnified Party shall promptly notify the Company (the "Indemnifying
Party") in writing of the institution of such action (but the failure to so
notify shall not relieve the Indemnifying Party to the extent that the
Indemnifying Party is not materially prejudiced as a proximate result of such
failure) and the Indemnifying Party shall promptly assume the defense of such
action, including the employment of counsel reasonably satisfactory to each such
Indemnified Party and payment of expenses. Each such Indemnified Party shall
have the right to employ its own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of each such Indemnified Party
unless the employment of such counsel shall have been authorized in writing by
the Indemnifying Party in connection with the defense of such action or the
Indemnifying Party shall have not have promptly employed counsel reasonably
satisfactory to each such Indemnified Party to have charge of the defense of
such action or each such Indemnified Party shall have reasonably concluded that
there may be one or more legal defenses available to it or them or to other
Indemnified Parties which are different from or additional to those available to
one or more of the Indemnifying Parties and it would be inappropriate for the
same counsel to represent both parties due to actual or potential differing
interests between them, in any of which events such fees and expenses shall be
borne by the Indemnifying Party and the Indemnifying Party shall not have the
right to direct the defense of such action on behalf of each Indemnified Party.
Anything in this Section 6(c) to the contrary notwithstanding, the Indemnifying
Party shall not be liable for any settlement of any such claim or action
effected without its written consent, which consent shall not be unreasonably
withheld. The Company agrees to promptly notify the Placement Agent of the
commencement of any litigation or proceedings against the Company or any of its
officers or directors in connection with the sale of the Securities or the
Memorandum. Notwithstanding anything to the contrary herein, the parties agree
that under no circumstances will the Indemnifying party be liable for the
expenses of more than one separate counsel for each Indemnified Party.
(d) Contribution. In order to provide for just and equitable
26
contribution in any case in which (i) an indemnified party makes a claim for
indemnification pursuant to this Section 6, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case; notwithstanding the fact
that the express provisions of this Section 6 provide for indemnification in
such case; or (ii) contribution under the Securities Act may be required on the
part of any indemnified party, then each indemnifying party shall contribute to
the amount paid as a result of such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand, from the Offering of the Securities; or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified on the other hand, in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Placement Agent is the indemnified party, the relative benefits received
by the Company on the one hand, and the Placement Agent, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the Offering
of the Securities (before deducting expenses) bear to the total Placement Agent
commissions received by the Placement Agent hereunder, in each case as set forth
in the table on the cover page of the Memorandum. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Placement Agent, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subsection (c), shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating, preparing or defending any such action or claim.
Notwithstanding the provisions of this subsection (c), the Placement Agent shall
not be required to contribute any amount in excess of the Placement Agent
commissions and other fees under Section 4(d) applicable to the Securities
placed by the Placement Agent hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 6, each person, if
any, who controls the
27
Company within the meaning of the Securities Act, each officer of the Company
who has signed the Memorandum, and each director of the Company shall have the
same rights to contribution as the Company, subject in each case to this
subsection (c). Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect to which a claim for contribution may be made against another party
or parties under this subsection (c), notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have hereunder or otherwise than under this
subsection (c), or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
7. Miscellaneous.
(a) General. Sands Brothers' obligation to proceed with the Offering is
conditioned upon Sands Brothers' due diligence investigation of the Company and
the consummation of the Remaining Company Transaction. Failure by the Company to
consummate the Remaining Company Transaction will result, at Sands Brothers'
sole discretion, in Sands Brothers being completely absolved and relieved from
any and all obligations under this Agreement. The Company shall supply Sands
Brothers' with such financial statements, contracts and other corporate records
and documents as may be reasonably requested of it. In addition, Sands Brothers
shall be fully informed by the Company of any events which might have a material
affect on the financial condition of the Company or of any of its Subsidiaries.
If, in the reasonable opinion of Sands Brothers, the condition of the Company,
or the condition of any of its Subsidiaries, financial or otherwise, and
its/their prospects are affected in a material and/or adverse manner and do no
fulfill the expectation of Sands Brothers, it shall have the sole discretion to
review and determine its continued interest in the Offering.
(b) Survival. Any termination of the Offering without consummation thereof
shall be without obligation on the part of any party except that the provisions
of Sections 4(d)(iii), 4(e), 5(c), 5(g) and 5(i) and 5(j) hereof and the
indemnification provisions provided in Section 6 hereof shall survive any
termination and shall survive each Closing. Notwithstanding anything provided
herein to the contrary, the provisions of Section 4(d)(i) hereof shall survive
the termination of the Offering Period and shall remain in full force and effect
with respect to all Sources (other than Company Sources excluded pursuant to the
last sentence of Section 5(j)) who invest, or commit to invest, in the Company
at any time during the twelve month period commencing on the earlier of (i) the
termination or expiration of this Agreement or (ii) the day that the Offering
28
Period terminates. Additionally, the Placement Agent shall be entitled to also
retain its non-accountable and non-refundable expense allowance to the extent it
has been paid prior to the date of termination.
(c) Representations, Warranties and Covenants to Survive Delivery. The
respective representations, warranties, indemnities, agreements, covenants and
other statements of the Company and its Subsidiaries, and where appropriate,
its/their respective principal stockholders, shall survive execution of this
Agreement and delivery of the Securities and the termination of this Agreement.
(d) No Other Beneficiaries. This Agreement is intended for the sole and
exclusive benefit of the parties hereto and their respective successors, assigns
and controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(e) Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York. The parties hereby agree: (i)
in any legal proceeding brought in connection with this Agreement or the
transactions contemplated hereby, to irrevocably submit to the nonexclusive in
personam jurisdiction of (A) any state or federal court of competent
jurisdiction sitting in the State of New York, County of New York; or (B) in the
event that any party is a defendant in any legal proceeding in which it seeks to
join the other as a third party defendant, then, any state or federal court in
which such proceeding has properly been brought, and consents to suit therein;
and (ii) to waive any objection they may now or hereafter have to the venue of
such proceeding in any such court or that such proceeding was brought in an
inconvenient court.
(f) Notices. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given when delivered personally, receipt
acknowledged, or five (5) days after being sent by registered or certified mail,
return receipt requested, postage prepaid. All notices shall be made to the
parties at the addresses designated above, or at such other or different
addresses which a party may subsequently provide with notice thereof, and to
their respective legal counsel, as follows:
(i) If to the Placement Agent, to:
Sands Brothers & Co., Ltd.
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇
Senior Managing Director
29
- with a copy to -
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
or to such other person or address as the Placement Agent shall furnish the
Company in writing.
(ii) If to the Company, to:
Watchout!
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
- with a copy to -
▇▇▇▇▇▇ ▇▇▇▇ et al.
▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Company Counsel:
or to such other person or address as the Company shall furnish the Placement
Agent in writing.
(g) Counterparts. This Agreement may be signed in counterparts with the
same effect as if both parties had signed one and the same instrument.
(h) Reimbursement. Notwithstanding the non-occurrence of an Closing, or
any other condition, in no event shall the Placement Agent be responsible for
any of the Company's fees, costs or expenses.
(i) Form of Signature. The parties hereto agree to accept a facsimile
transmission copy of their respective signatures as evidence of their respective
actual signatures to this Agreement; provided however, that each party who
produces a facsimile signature agrees, by the express terms hereof, to place,
immediately after transmission of his or her signature by fax, a true and
correct original copy of his or her signature in overnight mail to the address
of the other party.
(j) Modification. This Agreement (i) may only be modified by a written
instrument which is executed by both parties thereto, (ii)
30
constitutes the entire agreement between the parties, and (iii) shall be binding
upon and inure to the benefit of both parties hereto and their respective
successor and assignees.
(k) Non-Circumvention. Each of the Company and the Placement Agent each
agree that no effort shall be made to circumvent the terms and conditions of
this Agreement or gain a fee, commission, remuneration, consideration or benefit
whatsoever. With respect to any attempt at circumvention of this Agreement, the
injured party is entitled to seek any and all legal remedies, fees or
compensation equal to those received or committed or agreed to be paid pursuant
to the terms of this Agreement as the same are due and payable to the
circumvented party under the terms of this Agreement.
(l) Good Faith. Each of the Company and the Placement Agent understand
that this Agreement is a reciprocal and mutual one and both warrant, covenant,
and promise that it will act in good faith toward each other in the performance
of this Agreement and in other matters.
(m) Further Services. The Placement Agent shall, if requested by the
Company, testify in, and shall prepare and assist in the preparation of
testimony for, any judicial or administrative proceeding in respect of the
services performed by the Placement Agent hereunder. With respect thereto, the
Company shall pay, in addition to the fees and expenses payable to the Placement
Agent hereunder, for the time required to expend by the Placement Agent at its
standard hourly rates as then in effect, together with reasonable out-of-pocket
expenses, but not limited to, fees and expenses of its legal counsel.
(n) Waiver of Breach. The waiver by either the Placement Agent or the
Company of any provision of this Agreement shall not be construed as a waiver of
any subsequent breach hereof.
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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,
Watchout!
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
Title: President
Agreed:
SANDS BROTHERS & CO., LTD.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
Name:▇▇▇▇ ▇. ▇▇▇▇▇
Title:Managing Director
32