USA Finance, Inc.
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▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
October 15, 1996
Sands Brothers & Co., Ltd.
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Gentlemen:
The undersigned, USA Finance, Inc., a Delaware corporation (the "Company"),
proposes to offer for sale, in a private placement, up to a maximum amount (the
"Maximum Amount") of (i) $1,000,000 principal amount 10% Convertible
Subordinated Debentures due one year from the date of issuance (each a
"Debenture" and collectively, the "Debentures") and (ii) three year warrants
(each a "Warrant" and collectively, the "Warrants") to purchase an aggregate of
55,000 shares of the Company's common stock, par value $.001 per share ("Common
Stock"); provided, however, that the initial closing hereunder (the "Initial
Closing") shall not occur until the Company has received and accepted
subscriptions for the total minimum of $250,000 principal amount of Debentures
and Warrants to purchase 13,750 shares of Common Stock (the "Minimum Amount").
The forms of Debenture and Warrant are annexed hereto respectively as Exhibit
A-1 and Exhibit A-2.
The Debentures and Warrants (collectively, the "Units") will be offered
pursuant to those terms and conditions acceptable to you and your counsel as
reflected in the final form of Confidential Term Sheet of the Company (together
with the exhibits and any supplements thereto, the "Term Sheet"). Each Unit
shall consist of (i) $50,000 principal amount of Debenture and (ii) a Warrant to
purchase 2,750 shares of Common Stock. The Units are being offered pursuant to
the Term Sheet in accordance with Regulation D promulgated under the Securities
Act of 1933 as amended (the "Securities Act").
Each prospective investor subscribing to purchase Units ("Investor") will
be required to deliver, among other things, a securities purchase agreement
("Securities Purchase Agreement") in the form to be provided to each offeree,
representing and warranting, among other things, that such Investor is an
"accredited investor" as such term is defined in Regulation ▇.
▇▇▇▇▇ Brothers & Co., Ltd. is sometimes referred to herein as "Sands
Brothers" or the "Placement Agent." The Term Sheet and the form of proposed
Securities Purchase Agreement between the Company and each Investor and the
exhibits which are part of the Term Sheet including, without limitation, the
Registration Rights Agreement between the Company and each of the Investors are
referred to herein collectively as the "Offering Documents." The offering of
Units described in the Offering Documents is referred to herein as the
"Offering."
The Units will be offered at a minimum investment of $50,000 on a "best
efforts, all-or-none" basis as to the Minimum Amount and on a "best efforts"
basis as to any amounts above the Minimum Amount exclusively by the Placement
Agent. The Company may, in its sole discretion, establish a limit on the
purchase of Units by a particular purchaser and may sell less than the minimum
investment of $50,000 of Units to investors who otherwise meet the suitability
standards set forth in the Memorandum. Purchases may be made by the Placement
Agent and its officers, directors, employees and affiliates or by officers,
directors, employees and affiliates of the Company. All such purchases may be
used to satisfy the Minimum Amount. Additionally, the Maximum Amount may be
increased at the mutual agreement of the Company and the Placement Agent.
The Company will prepare and deliver to the Placement Agent a reasonable
number of copies of the Offering Documents in form and substance satisfactory to
the Placement Agent and its counsel, which Offering Documents shall include
certified consolidated financial statements for the fiscal year ended December
31, 1995.
Capitalized terms used herein, unless otherwise defined or unless the
context otherwise indicates, shall have the same meanings provided in the Term
Sheet.
1. Appointment of Placement Agent. You are hereby appointed exclusive Placement
Agent of the Company for the purposes of assisting the Company on a "best
efforts" basis in finding qualified Investors pursuant to the Offering. The
Offering Period shall commence on the date of delivery and acceptance by the
Placement Agent of the Term Sheet (the "Commencement Date") and shall continue
until the earlier to occur of (i) the sale of the Maximum Amount; or (ii)
November 30, 1996 (as the same may be extended by the Placement Agent for an
additional 30 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 Investors 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 Investors
pursuant to the Offering described in the Offering Documents. Your agency
hereunder is not terminable by the Company except upon termination of the
Offering.
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 shall on behalf of the Company, contact such
potential investors and other potential investors as the Company may designate.
The Company agrees that, during the course of the Offering Period, 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 convertible debt or equity 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. Notwithstanding the foregoing, the
Company shall have the right to issue a convertible debt instrument ranking pari
passu with the Debentures to ▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co. or its affiliated entities
("AG & Co.") in principal amounts as follows: (i) during the Offering Period, a
principal amount not to exceed $1 million and (ii) following the Offering
Period, a principal amount equal to the difference, if any, between $2 million
and (X) any amounts sold to AG & Co. pursuant to (i) above and (Y) any amounts
raised in this Offering.
2. Representations and Warranties of the Company. The Company represents and
warrants as follows:
(a) Securities Law Compliance. The Offering Documents conform in all
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 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. 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.
(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 currently
conducted and as proposed to be conducted. The Company and each Subsidiary is
duly qualified to do business in the states or jurisdictions described in the
Term Sheet. 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 or such Subsidiary. 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. All material aspects of the capitalization of the
Company are fully disclosed in the Term Sheet.
(d) Subsidiaries and Investments. Except as set forth in the Term Sheet,
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 directly by the Company.
(e) Financial Statements. The audited consolidated balance sheet of the
Company as of December 31, 1995 (the "December Balance Sheet") and the related
consolidated statements of operations, shareholders' equity and statements of
cash flow for the fiscal year ended December 31, 1995 certified by KPMG Peat
Marwick LLP and the unaudited consolidated balance sheet (the "June Balance
Sheet") of the Company as of June 30, 1996 (the "Balance Sheet Date"), and the
related unaudited consolidated statements of operations, stockholders' equity
and cash flows for the six-month period then ending, along with the review
report of KPMG Peat Marwick LLP (collectively, the "Financial Statements"), have
heretofore been delivered to the Placement Agent. Except as may be otherwise
indicated therein, the Financial Statements have been prepared in conformity
with Generally Accepted Accounting Principles consistently applied and present
fairly the financial position and results of operations of the Company as of the
dates and for the periods indicated. Except as may be otherwise indicated
herein, the Financial Statements of the Company as of the dates indicated, and
for the periods then ended, present fairly the financial position and results of
operations of the Company (and its Subsidiaries) as of the dates and for the
periods indicated.
(f) Absence of Undisclosed Liabilities. The Company has no material
outstanding claims, liabilities, obligations or
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indebtedness, contingent or otherwise, whether asserted or unasserted, except as
disclosed in the Term Sheet or as set forth in the December Balance Sheet, the
June Balance Sheet, or referred to in any of the notes thereto. Except as set
forth in the Term Sheet, all liabilities of the Company and its Subsidiaries
incurred subsequent to the Balance Sheet Date have been incurred in the ordinary
course of business not involving borrowings which individually exceed $50,000
and which do not exceed $100,000 in the aggregate. Neither the Company nor any
Subsidiary is in default in respect of the terms or conditions of any
indebtedness.
(g) Absence of Changes. Subsequent to the respective dates as of which
information is given in the Term Sheet, the Company has operated its business
diligently and only in the ordinary course as theretofore conducted and, except
as may otherwise be set forth in the Term Sheet, there has been no: (i) material
adverse change in the condition (financial or otherwise), of the Company or any
Subsidiary; (ii) transaction otherwise than in the ordinary course of business;
(iii) issuance of any securities (debt or equity) or any rights to acquire any
such securities; (iv) damage, loss or destruction, whether or not covered by
insurance, with respect to any asset or property of the Company or any
Subsidiary; or (v) agreement to permit any of the foregoing.
(h) 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. The Company and its
Subsidiaries have received no oral or written notice of any claims, have no
actual 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. 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.
(i) Litigation. Except as described in the Term Sheet, 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 threatened against the Company or any Subsidiary, nor, to the best of
the Company's knowledge, does there exist any basis therefor which, in either
case, if adversely determined could in any one case or in the aggregate, have a
material adverse effect on the business of the Company or any Subsidiary.
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.
(j) Non-Defaults; Non-Contravention. Except as described in the Term Sheet,
neither the Company nor its Subsidiaries 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 and there exists no condition, event or act
which constitutes, nor which after notice, the lapse of time or both, would
constitute, a default under any of the foregoing.
(k) Taxes. The Company and its Subsidiaries have filed all federal, state,
local and foreign tax returns which are required to be filed by them, 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.
(l) Agreements. Each material contract of the Company and its Subsidiaries
is valid and binding on the Company and its Subsidiaries, as applicable and the
Company has not received any oral or written 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 its
Subsidiaries is in default in any material respect under any such contract.
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(m) Compliance with Laws, Licenses, Etc. The Company and its Subsidiaries
have received no oral or written notice of any violation of, or noncompliance
with, any federal, state, local or foreign laws, ordinances, regulations,
licenses or orders (including, without limitation, those relating to, insurance,
occupational safety and health and other labor laws, ERISA, 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, 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 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 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. The Company and its Subsidiaries shall comply with all applicable laws,
rules, regulations and orders, the noncompliance with which could materially
adversely affect its/their respective business or condition, financial or
otherwise.
(n) 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 enforceability may be limited by bankruptcy,
insolvency, reorganization, usury or other similar laws affecting the
enforcement of creditors' rights generally. The (i) execution, delivery and
performance of this Agreement; (ii) the issuance, sale and delivery of the
Debentures and (iii) the issuance and delivery of the shares of Common Stock
issuable upon conversion of the Debentures and exercise of the Warrants
(collectively, the "Reserved Shares") will not (X) 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 (Y) 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 as to which
requisite waivers or consents shall have been obtained by the Company or by its
Subsidiaries and delivered to the Investors by the time of Closing.
(o) Authorization of Debentures and Warrants. The issuance, sale and
delivery of the Debentures and the Warrants have been duly authorized by all
requisite corporate action of the Company, and when so issued, sold and
delivered, (i) the Debentures will be duly executed and delivered, binding
obligations of the Company and enforceable in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, usury or other similar laws affecting the enforcement of
creditors' rights generally and the Company shall have paid all taxes, if any,
in respect of the issuance thereof and (ii) the Warrants will be duly executed
and delivered, validly issued and outstanding and fully paid and nonassessable
and will be free and clear of all liens, charges, claims, encumbrances,
restrictions or preemptive or any other similar rights imposed by or through the
Company, except as waived prior to the Initial Closing, as disclosed herein or
as shall be disclosed in the Offering Documents and the Company shall have paid
all taxes, if any, in respect of the issuance thereof. The offer and sale of the
Units is exempt from the registration requirements of the Securities Act and the
rules and regulations promulgated thereunder and the Securities will be issued
in compliance with all applicable federal securities laws.
(p) Authorization of Reserved Shares. The issuance, sale and delivery by
the Company of the Reserved Shares have been duly authorized by all requisite
corporate action of the Company, and the Reserved Shares have been duly reserved
for issuance upon conversion of the Debentures and exercise of all or any of the
Warrants, and when so issued, sold and delivered, the Reserved Shares will be
validly issued and outstanding, duly executed, issued 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 Company shall
have paid all taxes, if any, in respect of the issuance thereof and the Reserved
Shares will not be subject to any preemptive or any other similar rights of the
shareholders of the Company or others which rights shall not have been waived
prior to the time of acceptance by the Company of the first Investor's
Securities Purchase Agreement
(q) 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 Units in certain jurisdictions may be subject to the provisions of the
securities or Blue Sky laws of such jurisdictions.
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(r) Disclosure. Neither this Agreement nor any other document, certificate
or written statement to be furnished to the Investors by or on behalf of the
Company in connection with the transactions contemplated hereby, including the
Offering Documents, 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 materially 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 disclosed in the
Term Sheet. To the extent Material Facts become known to the Company subsequent
to the date hereof, such facts will be set forth in the Term Sheet and/or in the
other documents, certificates or statements furnished to the Investors by or on
behalf of the Company pursuant hereto.
3. Representations, Warranties, and Covenants of the Placement Agent. The
Placement Agent represents, warrants and covenants as of the date hereof as
follows, with such representations, warranties and covenants to be true and
correct in all material respects as of the date of any Closing hereunder:
(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 the execution, delivery and performance by the Placement Agent of this
Agreement has been duly authorized by all requisite corporate action by the
Placement Agent; and each constitutes, or will constitute, the legal, valid and
binding obligation of the Placement Agent, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, usury or other similar laws affecting the enforcement of
creditors' rights generally.
(b) Compliance with the Securities Act. The Placement Agent will not
knowingly take any action which will result in the Units 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
Units in accordance with the Offering Documents and will deliver the Offering
Documents to each Investor before accepting a signed copy of the Securities
Purchase Agreement or payment for any Units.
(d) Compliance with Laws of Jurisdictions. The Placement Agent will offer
the Units only in those jurisdictions in which it is permitted to sell the Units
pursuant to the laws of said jurisdiction.
(e) Escrow Arrangements. The Placement Agent will promptly deposit funds
received from Investors 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 Investors 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 Initial 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 Investors without any deduction or interest thereon.
(f) Broker/Dealer. The Placement Agent is licensed as a broker/dealer with
the Securities & Exchange Commission and is in good standing with the National
Association of Securities Dealers, Inc. Additionally, the Placement Agent is
licensed as a broker/dealer or is otherwise qualified to offer and sell the
Units in all jurisdictions in which the Units will be offered for sale.
4. Closing: Placement and Fees
(a) Closing. Upon receipt from Investors, in a form acceptable to the
Company and the Placement Agent, of Securities Purchase Agreements for the
Minimum Amount and other relevant documentation in form and substance
satisfactory to the Company and the Placement Agent, the Initial Closing of the
purchase and sale of such Units 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. At the Initial Closing,
payment for the Units shall be made against delivery of certificates and
instruments representing the Units sold. After the Initial Closing, all proceeds
received from the sale of the Units sold after the Initial Closing date will
continue to be deposited in the Account maintained with the Bank. Following the
Initial Closing date, the Placement Agent will continue to assist the Company in
locating qualified Investors during the remainder of the Offering Period. If a
subsequent Closing does not take place within the Offering Period pursuant to
the terms of the Offering, the Placement Agent will return the funds to the
additional Investors, without deduction or interest thereon. Any Subsequent
Closing will be made on the same terms as the Initial Closing, as set forth in
this Section 4(a).
(b) Procedures at Closing. At the Closing:
(i) The Placement Agent on behalf of itself and the Investors shall
receive the opinion of ▇▇▇▇▇▇▇▇ Ingersoll ("Company Counsel"), dated the Closing
date, in such form as may be reasonably acceptable to the Placement Agent and
its counsel.
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(ii) Intentionally Omitted.
(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 Initial Closing (and
each Subsequent Closing) with the same effect as though expressly made at the
Initial Closing (and each Subsequent 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 Debentures,
the Warrants, and the Reserved Shares, 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 Investor one copy of
the Securities Purchase Agreement and Registration Rights Agreement signed by
each Investor.
(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 State of 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.
(vi) At the Initial 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 Investors whose Securities Purchase Agreements have been
accepted.
(vii) At each Subsequent Closing, the Placement Agent shall receive
certificates of the Company signed by the Chief Executive Officer and the Chief
Financial Officer thereof, in form and substance satisfactory to its counsel,
substantially the same in scope and substance as the certificates furnished to
the Placement Agent and the Company at the Initial Closing date pursuant to this
Section, except that such certificates, where appropriate, shall cover the Units
purchased and sold at each Subsequent Closing.
(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 Units 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 Investor set forth in the
Securities Purchase Agreement delivered by such Investor; (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. Simultaneously with payment for and
delivery of the Units at the Initial Closing (and each Subsequent Closing) as
provided in paragraph 4(a) above, the Company shall at such Closing pay to the
Placement Agent a commission equal to ten (10%) percent of the aggregate
purchase price of the Units sold. Additionally, from the proceeds of the Initial
Closing, the Company shall pay all Placement Agent's reasonable counsel
expenses, disbursements and fees, not to exceed the sum of $10,000 (exclusive of
the blue sky legal expenses hereinafter described). Additionally, at the Initial
Closing, the Company shall pay the Placement Agent the sum of $25,000 in
consideration of its delivery of a "fairness" opinion respecting the fair market
value of the Company's purchase of Gold Coast Finance, Inc. and National-Wide
Premium Finance Co. The Company shall also pay filing fees, 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 Units under the securities or blue sky laws of the states
which the Placement Agent shall designate at a fee of Seven Thousand Five
Hundred ($7,500.00) Dollars, plus expenses and disbursements. The Company also
shall pay for the costs of placing "tombstone advertisements" in any
publications which may be selected by the Placement Agent, all costs and
expenses in connection with the establishment and maintenance of the Account
referred to in paragraph I of this Agreement, and all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this paragraph 4(d), including the reasonable cost
of transaction memorabilia determined at the reasonable discretion of the
Placement Agent.
(e) Delivery of Documents. At each Subsequent Closing after the Initial
Closing, there shall be delivered an update of the documents delivered pursuant
to this Section 4.
5. Covenants of the Company.
(a) Intentionally Omitted.
6
(b) Use of Proceeds. The net proceeds of the Offering of the Units will be
used by the Company, as more fully described in the Term Sheet, for the purposes
to be set forth in the Term Sheet. In no event shall any of such proceeds be
used to reduce or satisfy the Company's indebtedness in favor of Odyssey Capital
Group, L.P.
(c) Expenses of Offering. The Company shall be responsible for, and shall
bear all 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 Debentures, the Warrant certificates, blue sky legal
fees not to exceed $7,500 (excluding fees and disbursements), filing fees and
the reasonable fees and disbursements of the Placement Agent's counsel not to
exceed $10,000 (exclusive of blue sky counsel fees) and the other fees and
expenses set forth above. As promptly as practicable after the Closing date, the
Company shall prepare, at its own expense, hard cover "bound volumes" relating
to the Offering and will distribute such two (2) bound volumes to the
individuals designated by counsel to the Placement Agent.
(d) Intentionally Omitted.
(e) Financial Advisory Agreement. Reference is hereby made to that certain
letter agreement, dated August 14, 1996, between the Company and the Placement
Agent ("Financial Advisory Agreement"), which is specifically incorporated
herein by this reference. The Company hereby acknowledges that all terms and
conditions of the Financial Advisory Agreement shall continue in effect
following the execution, as well as any early termination, of this Agreement,
including, without limitation, the right of first refusal provisions with
respect to subsequent equity financings and fees payable to the Placement Agent
upon consummation of certain debt financings.
(f) Intentionally Omitted.
(g) 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 of the Offering Period, the Company desires to
terminate this Agreement for any reason, 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
(which expenses shall be limited to Sands Brothers' legal fees and blue sky
legal fees) that Sands Brothers would have received pursuant to paragraph 4(d)
of this Agreement had the Maximum Amount been sold but for the early termination
of this Agreement.
(h) 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(g) 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 Sands Brothers' legal fees and blue sky
legal fees as in such amounts as heretofore provided. 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. The Company shall reimburse Sands Brothers for
any out-of-pocket expenses (including, but not limited to, reasonable counsel
fees and expenses) which Sands Brothers may incur in connection with the
enforcement of its rights hereunder.
(i) Placement Agent's Board Representative; Financial Advisory Committee.
Subject to the sale of at least ten (10) Units, 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 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 two (2) 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 its 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 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
7
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.
Additionally, subject to the sale of at least ten (10) Units, the Company
shall organize a Financial Advisory Committee at Closing consisting of four (4)
individuals, three of whom shall be directors of the Company (of which one of
such directors shall be the Sands nominee) and one of whom shall be a
non-director Sands Brothers' nominee. The Financial Advisory Committee shall
advise the Company from time to time on general financial matters and strategic
planning and shall remain in effect throughout such period as the Placement
Agent retains a designee on the Board of Directors of the Company.
6. Indemnification.
(a) Terms of Indemnification. 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
referenced 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, 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.
(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 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) 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 from any liability it may have
under this Section 6 unless such failure results in the imposition of a default
judgment which cannot be reopened) 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 Units or the Term Sheet
(d) Contribution. In order to provide for just and equitable 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
8
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 Units; 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 Units (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 Term Sheet. 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 applicable to the Units 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 Company within the meaning of
the Securities Act, each officer of the Company who has signed the Term Sheet,
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. The
Company shall supply Sands Brothers' with such financial statements, contracts
and other corporate records and documents as may be 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 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 not 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 5(c), 5(e), 5(g) and 5(h) 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) hereof shall survive the termination of the Offering
Period and shall remain in full force and effect with respect to all sources of
potential financing that Placement Agent directly or indirectly introduced to
the Company who invest, or commit to invest, in the Company at any time during
the twelve month period commencing the day that the Offering Period terminates.
(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 Units 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 and
controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
9
(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: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
V.P. - Corporate Finance
- with a copy to -
▇▇▇▇▇▇▇ Krooks & ▇▇▇▇, 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:
USA Finance, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
- with a copy to -
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Two ▇▇▇▇▇ Square; ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
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 a Closing, or any
other condition, in no event shall the Placement Agent be responsible for any of
the Company's fees, costs or expenses; however, the Company shall reimburse the
Placement Agent for any out-of-pocket expenses (including, but not limited to,
reasonable counsel fees and expense) which the Placement Agent may incur in
connection with the enforcement of its rights hereunder.
(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
10
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) 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) 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.
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,
USA FINANCE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
Agreed:
SANDS BROTHERS & CO., LTD.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Vice President -- Corp. Finance
EXHIBITS
Exhibit A-l Form of Debenture
Exhibit A-2 Form of Warrant
11