112296/4
THE GREAT AMERICAN BACKRUB STORE, INC.
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
AGENCY AGREEMENT
November 22, 1996
Investors Associates, Inc.
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▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Ladies and Gentlemen:
THE GREAT AMERICAN BACKRUB STORE, INC., a New York corporation (the
"Company" or "GAB"), proposes to offer for sale in a private placement (the
"Offering"), four (4) units (the "Units") at a purchase price of $50,000 per
Unit, each Unit consisting of a $49,250 principal amount promissory note (the
"Note(s)"), and warrants (the "Warrants") to purchase an aggregate of 750,000
shares of preferred stock (the "Preferred Stock"), convertible into common stock
(the "Common Stock") of the Company, $0.001 par value per share. The minimum
purchase is one Unit, but you may accept subscriptions for fractional Units in
your discretion and with the Company's consent. Payment of the Notes will be
secured by a pledge of all the Common Stock legally or beneficially owned by
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ which shall be evidenced by a Stock Pledge
Agreement (the "Security Agreement") to be entered into with you or your
affiliates as agent for the benefit of each purchaser of the Units. The Warrants
will be issued in the form of Exhibit A hereto. The Units will be offered to
"accredited investors" on a "best efforts" basis in accordance with Section 4(2)
and/or 3(b) of the Securities Act of 1933, as amended (the "Securities Act"),
and Regulation D promulgated thereunder, and to non-United States investors.
The Units, Notes and Warrants will contain the terms and conditions
set forth in the Company's Confidential Private Offering Memorandum to be
prepared by our counsel and delivered to each prospective purchaser of Units
(the "Memorandum"). The Memorandum, together with all exhibits thereto,
including the Subscription Agreement to be executed by each purchaser and the
Company, will be referred to herein as the "Offering Documents". Investors
Associates, Inc. is sometimes referred to herein as the "Placement Agent".
1. APPOINTMENT OF PLACEMENT AGENT; THE OFFERING.
1.1. APPOINTMENT OF PLACEMENT AGENT. You are hereby appointed
exclusive placement agent (the "Placement Agent") of the Company during the
offering period herein specified (the "Offering Period") for the purpose of
assisting the Company in finding qualified investors (the "Subscribers"). The
Offering Period shall commence on the day the Offering Documents are first made
available to you by the Company and shall continue until the 30th day following
the date first written above, PROVIDED, the Offering Period may be extended for
an additional period not to exceed 10 days by the mutual agreement of the
Company and the Placement Agent, or may be terminated earlier if all $200,000 of
the Units offered hereby have been sold. The day that the Offering Period
terminates is hereinafter referred to as the "Termination Date." You hereby
accept such agency and agree to assist the Company in finding qualified
subscribers. Your agency hereunder is not terminable by the Company except upon
termination of the Offering. You shall have the right to enter into selling
agreements with members of your selling group, who shall be members of the NASD
(as hereunder defined).
1.2 OFFERING DOCUMENTS. The Company will provide the Placement
Agent with a sufficient number of copies of the Offering Documents for delivery
to potential Subscribers and such other information, documents and instruments
which the Placement Agent deems reasonably necessary to comply with the rules,
regulations and judicial and administrative interpretations respecting
compliance with state and Federal statutes applicable to the Offering.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants as set forth below. For purposes of this Article 2, the
term "Company" shall include the Subsidiaries (as defined below):
2.1. DUE INCORPORATION AND QUALIFICATION. The Company has been
duly incorporated, is validly existing and is in good standing under the laws of
its state of incorporation and is duly qualified as a foreign corporation
(except where the failure to so qualify would not have a material adverse effect
on the business of the Company) for the transaction of business and is in good
standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification. GAB has
no subsidiaries, other than those corporations (the "Subsidiaries") named on
Schedule A annexed hereto, each of which was formed solely to acquire a lease of
retail premises indicated opposite its name. The Company has all requisite
corporate power and authority necessary to own or hold its properties and
conduct its business as described in the Offering Documents.
2.2 AUTHORIZED CAPITAL. Immediately prior to the closing (the
"Closing") of this Offering, the Company will have an
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authorized and outstanding capitalization as set forth on Schedule 2.2 hereto,
and all of the then issued and outstanding shares of capital stock of the
Company (the "Capital Stock") will have been duly and validly authorized and
issued and will be fully paid and non-assessable. None of the holders of such
outstanding shares of Capital Stock is subject to personal liability solely by
reason of being such a holder. Except as described on Schedule 2.2 hereto, the
offers and sales of such outstanding shares of Capital Stock were at all
relevant times either registered under the Securities Act and the applicable
state securities or blue sky laws, or exempt from such registration. Except as
described on Schedule 2.2 hereto, no holder of any of the Company's securities
has any rights, "demand", "piggyback" or otherwise, to have such securities
registered or to demand the filing of a registration statement. Immediately
prior to the Closing of the Offering, GAB will have reserved for issuance a
sufficient number of shares of Common Stock to be issued to the Subscribers upon
the exercise of the Warrants.
2.3 NO PREEMPTIVE RIGHTS; OPTIONS. Except as set forth on
Schedule 2.3 hereto, there are no preemptive or other rights to subscribe for or
purchase, or any restriction upon the voting or transfer of, any shares of
Capital Stock or other securities of the Company, under the articles or
certificates of incorporation or by-laws of the Company or under any agreement
or other outstanding instrument to which the Company is a party or by which it
is bound. Except as set forth in the Memorandum or on Schedule 2.3 hereto, the
Company does not have outstanding any option, warrant, convertible security, or
other right permitting or requiring it to issue, or otherwise to purchase or
convert any obligation into shares of Capital Stock or other securities of the
Company and the Company has not agreed to issue or sell any shares of Capital
Stock or other securities of the Company.
2.4 FINANCIAL STATEMENTS. The financial statements of GAB,
including the notes thereto, included in the Offering Documents fairly present
the financial position and results of operations of GAB at the dates thereof and
for the periods in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved.
2.5. NO MATERIAL ADVERSE CHANGES. Except as otherwise stated in
the Offering Documents and/or Schedule 2.5 hereto, since the date of our last
report filed with the SEC (as below defined) (i) there has not been any change
in the condition, financial or otherwise, of the Company which could materially
adversely affect its ability to conduct its operations as described in the
Offering Documents, and (ii) the Company has not incurred any material
liabilities or obligations, direct or contingent, not in the ordinary course of
business and except as may be contemplated by the Offering Documents.
2.6. TAXES. Except as set forth on Schedule 2.6 hereto,
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the Company has filed all Federal tax returns and all state and municipal and
local tax returns (whether relating to income, sales, franchise, real or
personal property or other types of taxes) required to be filed under the laws
of the United States and applicable states, and has paid in full all taxes which
have become due pursuant to such returns or claimed to be due by any taxing
authority or otherwise due and owing, PROVIDED, the Company has not paid any
tax, assessment, charge, levy or license fee that it contests in good faith and
by proper proceedings and adequate reserves for the accrual of same are
maintained if required by generally accepted accounting principles. Each of the
tax returns heretofore filed by the Company correctly and accurately reflects
the amount of its tax liability thereunder. The Company has withheld, collected
and paid all other levies, assessments, license fees and taxes to the extent
required and with respect to payments, to the extent that the same have become
due and payable.
2.7 FINDER'S FEES; OTHER UNDERWRITERS. The Company is not
obligated to pay a finder's fee to anyone in connection with the introduction of
the Company to the Placement Agent or the consummation of the offering
contemplated hereunder or the PO (as below defined) other than payments to the
Placement Agent. The Company has not paid or issued any monies, securities or
other compensation to any member of the National Association of Securities
Dealers, Inc. (the "NASD") or to any affiliate of such a member during the
previous 12 months, except payments made (i) to the Placement Agent hereunder;
(ii) to the Placement Agent under the Letter (as below defined); (iii) to the
Placement Agent under the Financial Advisory and Consulting Agreement dated
February 8, 1996, or (iv) to Horatio Management Services Corp. under a
consultative agreement dated February 1, 1996. The Letter and agreements
aforesaid are in full force and effect and Investors Associates, Inc. is in full
compliance with all of its obligations thereunder.
2.8 NO PENDING ACTIONS. Except as set forth on Schedule 2.8
hereto, or in the Memorandum, there are no actions, suits, proceedings, claims
or hearings of any kind or nature or, to the best of the knowledge of the
Company, any investigations or inquiries, before or by any court, governmental
authority, tribunal or instrumentality, pending or threatened against the
Company, or involving the properties of the Company which could result in any
material adverse change in the business, properties, financial position or
results of operations of the Company, or which could materially adversely affect
the transactions or other acts contemplated by this Agreement or the validity or
enforceability of this Agreement.
2.9 PRIVATE OFFERING EXEMPTION; OFFERING DOCUMENTS. Assuming
that each United States purchaser of Units in this Offering is an "accredited
investor" as defined in Rule 502 of Regulation D, or a foreign investor, the
Offering Documents conform
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in all material respects with the requirements of Section 4(2) and/or 3(b) of
the Securities Act and Rules 501-506 of Regulation D promulgated thereunder
("Reg D") and with the requirements of all other published rules and regulations
of the Securities and Exchange Commission (the "SEC" or the "Commission")
currently in effect relating to "private offerings". To the best knowledge of
the Company, the Memorandum, as supplemented by the information disclosed
pursuant hereto in the annexed schedules, does 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 Notes, Preferred Stock and Warrants conform to the
descriptions thereof contained in the Subscription Agreement and the Memorandum.
2.10 DUE AUTHORIZATION. GAB has full right, power and authority
to enter into this Agreement and the Security Agreement and issue the Units and
the securities contained therein and the securities underlying the same and to
perform all of its obligations hereunder and thereunder and as contemplated
hereby and thereby and pursuant to the terms of the securities comprising the
Units. The execution and delivery of this Agreement and the Security Agreement
have been duly authorized by all necessary corporate action and no further
corporate action or approval is required for such execution, delivery and
performance. This Agreement constitutes, and the Security Agreement and the
Warrants will, upon execution and delivery and payment therefor, as applicable,
constitute a valid and binding obligation of the Company, enforceable in
accordance with its respective terms (except (i) as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally or by general principles of
equity, and (ii) that the enforceability of the indemnification and contribution
provisions of this Agreement may be limited by the Federal securities laws and
public policy), and no consent, approval, authorization, order of, or filing
with, any court or governmental authority or any other third party is required
to consummate the transactions contemplated by this Agreement, 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. No licenses
issued by the department of health or other authorities will be required in
order to become a Subscriber.
2.11 NON-DEFAULT; NON-CONTRAVENTION. The Company is not in
violation of its articles or certificate of incorporation or by-laws or, except
as described in the financial statements and on Schedule 2.11 hereto, in default
in the performance or observance of any material obligation, agreement, covenant
or condition contained in any material contract, lease or other instrument to
which it is a party, and GAB's execution and delivery of this Agreement, the
Security Agreement and/or the securities comprising
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the Units, and the incurrence of the obligations herein and therein set forth.
The consummation of the transactions contemplated herein will not immediately
prior to the Closing of the Offering (i) conflict with, or constitute a breach
of, or a default under the articles or certificate of incorporation or by-laws
of the Company, or any material contract, lease or other material agreement or
instrument to which the Company is a party or in which the Company has a
beneficial interest or by which the Company is bound; (ii) violate any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its properties or business, or (iii) have any material adverse effect on
any permit, certification, registration, approval, consent, license or franchise
necessary for the Company to own or lease and operate any of its properties and
to conduct its business or the ability of the Company to make use thereof.
2.12 VALID ISSUANCES. The shares of Preferred Stock to be issued
upon exercise of the Warrants and underlying Common Stock have been duly and
validly authorized and, when issued and delivered and paid for in accordance
with the terms of the Offering Documents, this Agreement and the Warrants, as
applicable, will be duly and validly issued, fully paid and non-assessable. The
Notes and the Warrants included in the Units have been duly and validly
authorized and, when issued and delivered in accordance with the terms of the
Subscription Agreement and this Agreement, will be duly and validly issued.
2.13 NO ANTI-DILUTION ADJUSTMENT. The issuance of the Units in
the Offering will not give any holder of any of the Company's outstanding
options, warrants or other convertible securities or rights to purchase shares
of the Company's capital stock, the right to purchase any additional shares of
capital stock and/or the right to purchase shares at a reduced price.
2.14 NO REGULATORY ISSUES. The Company (i) has not filed a
registration statement which is the subject of any pending proceeding or
examination under Section 8 of the Securities Act, or is the subject of any
refusal order or stop order thereunder; (ii) is not subject to any pending
proceeding under Rule 261 of the Securities Act or any similar rule adopted
under Section 3(b) of the Securities Act, or to an order entered thereunder;
(iii) has not been convicted of any felony or misdemeanor in connection with the
purchase or sale of any security involving the making of any false filing with
the Commission; (iv) is not subject to any order, judgment, or decree of any
court of competent jurisdiction temporarily or preliminarily restraining or
enjoining the Company from engaging in or continuing any conduct or practice in
connection with the purchase or sale of any security or involving the making of
any false filing with the Commission; (v) is not subject to a United States
Postal Service false representation order entered under Section 3005 of Title
39, United States Code,
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or a temporary restraining order or preliminary injunction entered under Section
3007 of Title 39, with respect to conduct alleged to have violated Section 3005
of Title 39, United States Code, or (vi) has not been the subject of any
investigation or proceeding involving the suspension or cessation of the trading
or quotation of its securities on any exchange or quotation system. None of the
Company's directors or officers (i) has been convicted of any felony or
misdemeanor in connection with the purchase or sale of any security involving
the making of a false filing with the Commission, or arising out of the conduct
of the business of an underwriter, broker, dealer, municipal securities dealer,
or investment advisor; (ii) is subject to any order, judgment, or decree of any
court of competent jurisdiction temporarily or preliminarily enjoining or
restraining, or is subject to any order, judgment, or decree of any court of
competent jurisdiction permanently enjoining or restraining such person from
engaging in or continuing any conduct or practice in connection with the
purchase or sale of any security, or involving the making of a false filing with
the Commission, or arising out of the conduct of the business of an underwriter,
broker, dealer, municipal securities dealer, or investment advisor; (iii) is
subject to an order of the Commission entered pursuant to Section 15(b), 15B(a)
or 15B(c) of the Securities Exchange Act of 1934, as amended ("1934 Act"), or is
subject to an order of the Commission entered pursuant to Section 203(e) or (f)
of the Investment Advisors Act of 1940; (iv) is suspended or expelled from
membership in, or suspended or barred from association with a member of an
exchange registered as a national security exchange pursuant to Section 6 of the
1934 Act, an association registered as a national securities association under
Section 15A of the 1934 Act, or a Canadian securities exchange or association
for any act or omission to act constituting conduct inconsistent with just and
equitable principles of trade, or (v) is subject to a United States Postal
Service false representation order entered under Section 3005 of Title 39,
United States Code, or is subject to a restraining order or preliminary
injunction entered under Section 3007 of Title 39, United States Code, with
respect to conduct alleged to have violated Section 3005 of ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇ Code.
2.15 NO VIOLATIONS. Except as described in the Memorandum, the
Company is not in violation of any material franchise, license, permit,
applicable law, rule, regulation, judgment or decree of any governmental agency
or court, domestic or foreign, having jurisdiction over the Company or any of
its properties or business other than any violation which individually or in the
aggregate would not have a material adverse effect on the Company's business,
properties or operations.
2.16 CONDUCT OF BUSINESS. The Company has all necessary
authorizations, approvals, orders, licenses, certificates and permits
(collectively, the "Approvals") of and from all governmental regulatory
officials and bodies, to own or lease its
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properties and conduct its business as it is being presently conducted in the
Company's existing form as described in the Memorandum, and the Company is and
has been doing business in compliance with all such material Approvals, and all
Federal, state and local laws, rules and regulations, other than any such
Approvals, laws, rules and regulations, the failure to comply with which would
not have material adverse effect on the Company, its business, properties or
operations. All licenses and findings of suitability required to be obtained by
any affiliate of the Company have been obtained and are in full force and
effect.
2.17. TITLE TO PROPERTY; INSURANCE. The Company has good title to,
or valid and enforceable leasehold estates in, all items of real property owned
or leased by it, including, without limitation, the backrub centers referred to
in the Memorandum and has good title to, or valid and enforceable leases with
respect to, all items of personal property (tangible and intangible), free and
clear of all liens, encumbrances, claims, security interests, defects of title,
and restrictions of any material nature whatsoever, other than those contained
in the Memorandum and liens for real estate taxes not yet due and payable. The
Company has adequately insured its tangible and/or real properties against loss
or damage by fire or other casualty (other than earthquake and flood) and
maintains such insurance in adequate amounts, on terms generally offered by
reputable insurance carriers in the area.
2.18 INTANGIBLES. The Company owns or possesses the requisite
licenses or rights to use all trademarks, service marks, service names, trade
names, and other rights (collectively, the "Intangibles") described as owned or
used by it in the Memorandum. There is no proceeding or action by any person
pertaining to, or proceeding or claim pending or, to the best knowledge of the
Company, threatened and the Company has not received any notice of conflict with
the asserted rights of others which challenges the exclusive right of the
Company with respect to any Intangibles used in the conduct of the Company's
business except as described in the Memorandum. To the best knowledge of the
Company, the Intangibles and the Company's operations do not infringe on any
intangibles held by any third party.
2.19 SECURITY INTEREST. Assuming the Subscribers have taken
possession of the Pledged Shares (as defined below) in good faith and without
notice of any adverse claim and maintain physical possession of the certificates
representing the Pledged Shares in the State of New York, the Security Agreement
will create a valid first priority security interest in favor of the Subscribers
in and to the Pledged Shares, enforceable against the Company and all third
parties securing payment of the Obligations (as below defined) (PROVIDED, the
enforceability of the Security Agreement may be limited or affected by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights and by general principles of equity). No filings
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or recordings are required in order to perfect fully the security interest in
the Pledged Shares under the Security Agreement.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLACEMENT
AGENT. The Placement Agent represents, warrants and covenants as follows:
(a) The Placement Agent is duly incorporated and validly
existing and in good standing under the laws of the state of its incorporation.
(b) The Placement Agent is a broker-dealer registered as such
under the Securities Exchange Act of 1934 and is a member in good standing of
the NASD.
(c) Sales of Units by the Placement Agent or members of its
selling group will only be made in such jurisdictions in which the Placement
Agent is a registered broker-dealer or where an applicable exemption from such
registration exists.
(d) Offers and sales of Units by the Placement Agent or any
members of its selling group will be made solely to accredited investors in
compliance with the provisions of Rule 502(c) of Regulation D, and to non-U.S.
investors, and the Placement Agent will furnish to each investor a copy of the
Offering Documents prior to accepting any payments for Units.
(e) The Placement Agent has the necessary power to enter into
this Agreement and to consummate the transactions contemplated hereby.
(f) The execution and delivery by the Placement Agent of this
Agreement and the consummation of the transactions herein contemplated will not
result in any violation of, or be in conflict with, or constitute a default
under, any agreement or instrument to which the Placement Agent is a party or by
which the Placement Agent or its properties are bound, or any judgment, decree,
order or, to the Placement Agent's knowledge, any statute, rule or regulation
applicable to the Placement Agent. This Agreement, when executed and delivered
by the Placement Agent, will constitute the legal, valid and binding obligation
of the Placement Agent, enforceable in accordance with its terms, except to the
extent that (i) the enforceability hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect and affecting the rights of creditors generally; (ii) the enforceability
hereof is subject to general principles of equity, or (iii) the indemnification
provisions hereof may be held to be violative of public policy.
(g) The Placement Agent will deliver to each purchaser, prior to
any submission by such person of a written offer to purchase any Units, a copy
of the Memorandum, as it may have been most recently amended or supplemented by
the Company.
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(h) Upon receipt of an executed Subscription Agreement and the
payments representing subscriptions for Units, the Placement Agent will promptly
forward copies of the subscription documents to the Company and shall forward
all consideration received for such Units to the escrow agent specified in the
Memorandum to be held in escrow.
4. CLOSING.
4.1 TIME AND PLACE. At any time prior to the Termination Date
and after the receipt of subscription agreements and related documentation, and
the receipt and clearance of funds representing the sale of four Units, a
Closing (the "Closing") shall take place at the office of the Placement Agent,
at its address above given or at the offices of its counsel, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇. At the Closing, payment for the Units issued and sold
by the Company shall be recognized against delivery of the Notes and
certificates representing the Warrants comprising the Units.
4.2 DELIVERIES AT CLOSING.
(a) At the Closing, and as a condition to the Closing, the
Company shall deliver or cause to be delivered to the Placement Agent on behalf
of the Placement Agent and the Subscribers:
(i) the opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome & ▇▇▇▇▇▇▇▇▇▇ LLP as at
the date of the Closing, substantially to the effect that:
(A) The Company has been duly organized and is validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
has all requisite corporate power and authority necessary to own or hold its
properties and conduct its business as described in the Offering Documents and
is duly qualified as a foreign corporation for the transaction of business in
any state requiring such qualification where the failure to so qualify would
reasonably be expected to have a material adverse effect on the Company. In
giving such opinion counsel may rely solely on a certificate of an officer of
the Company as to the jurisdictions in which the Company conducts business.
(B) The Company has all requisite corporate power and authority
to enter into this Agreement and to perform all of its obligations hereunder;
the Company has all requisite corporate power and authority to issue and deliver
the Units, this Agreement, the Notes, the Warrants, the Preferred Stock
underlying the Warrants and the Common Stock underlying the Preferred Stock; and
this Agreement, the Notes and the Warrants have been duly authorized, executed
and delivered by the Company and are the valid and binding obligations of the
Company, each enforceable against the Company in accordance with its respective
terms except (I) as
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the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally, or by general principles
of equity, and (II) that the enforceability of the indemnification and
contribution provisions of this Agreement may be limited by the Federal
securities laws and public policy.
(C) The Preferred Stock to be issued upon exercise of the
Warrants, when issued and paid for in accordance with the terms of the Warrants,
and the Common Stock underlying the Preferred Stock, when issued upon conversion
of the Preferred Stock in accordance with the terms thereof and upon payment
therefor, will be duly and validly issued and fully paid and non-assessable. The
Preferred Stock, the Common Stock, the Warrants and the Notes conform to the
description thereof contained in the Offering Documents. To the best knowledge
of such counsel, except as described on Schedule 2.2 hereto or in the
Memorandum, no holder of any of the Company's securities has any rights,
"demand", "piggyback" or otherwise, to have such securities registered or to
demand the filing of a registration statement. Except as set forth on Schedule
2.3 hereto or in the Memorandum, to the best knowledge of such counsel following
due inquiry, there are no preemptive or other rights to subscribe for or
purchase, or any restriction upon the voting or transfer of, any shares of
Common Stock of the Company, under the articles or certificate of incorporation
or by-laws of the Company or under the business corporation law of the state of
the Company's incorporation or, to the best knowledge of such counsel, under any
agreement or other outstanding instrument to which the Company is a party or by
which it is bound.
(D) Neither the execution and delivery of this Agreement, the
certificates representing the Warrants or the Notes, nor compliance with the
terms hereof or thereof will (i) conflict with, result in a breach of, or
constitute a default under the articles or certificate of incorporation or
by-laws of the Company or, to the best of such counsel's knowledge, any
contract, instrument, agreement or document to which the Company is a party, or
by which the properties of the Company are bound; (ii) to the best knowledge of
counsel following due inquiry, violate any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business, or (iii) to the best knowledge of counsel following due
inquiry, have any material adverse effect on any permit, certification,
registration, approval, consent, license or franchise necessary for the Company
to own or lease and operate any of its properties.
(E) No approval, consent or finding of any court, board or
governmental agency, instrumentality or authority of the United States or of any
state having jurisdiction or authority over the
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Company or of any other third party, not duly obtained (other than any approval
or consent required under any state securities or Blue Sky Laws) is required for
the valid authorization, issuance, sale and delivery of the Units and the
consummation of the transactions contemplated by this Agreement.
(F) To the best of counsel's knowledge following due inquiry,
except as disclosed on Schedule 2.8 hereto, there are no claims, actions, suits,
hearings, investigations, inquiries or proceedings of any kind or nature, before
or by any court, governmental authority, tribunal or instrumentality pending or
threatened against or affecting the Company which could reasonably be
anticipated to materially and adversely affect the business, properties or
financial position of the Company, or the transactions or other acts
contemplated by this Agreement or the validity or enforceability of this
Agreement.
(G) To the best of counsel's knowledge following due inquiry,
there are no material licenses, permits, certificates, registrations, approvals
or consents of any governmental agency, commission, board, instrumentality or
department that are required to be obtained by the Company in order to conduct
its business as conducted at the date hereof which have not been so obtained and
as to which the failure to so obtain would reasonably be anticipated to have a
material adverse effect on the Company's business.
(H) To the best of counsel's knowledge following due inquiry,
the issuance of the Units in the Offering will not give any holder of any of the
Company's outstanding options, warrants or other convertible securities or
rights to purchase shares of the Company's capital stock, the right to purchase
any additional shares of capital stock or the right to purchase shares at a
reduced price.
(I) Assuming the Subscribers have taken possession of the shares
of Common Stock subject to the Security Agreement (the "Pledged Shares") in good
faith and without notice of any adverse claim and maintain physical possession
of the certificates representing the Pledged Shares in the State of New York,
the Security Agreement creates a valid and perfected first priority security
interest in favor of the Subscribers in the Pledged Shares that is subject to no
other security interest in favor of any other person, as security for the
Obligations (as defined in the Security Agreement). No filings or recordings are
required in order to perfect the security interest in the Pledged Shares created
under the Security Agreement.
Counsel's opinion shall be limited to the laws of the state of New
York and applicable federal law. Where opinions of counsel are stated to be to
Counsel's "knowledge" or "best knowledge" after due inquiry, or words to that
effect, such
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references shall mean that, after an examination of documents made available to
counsel by the Company and after inquiries of the Company, but without any
further independent factual investigation, counsels finds no reason to believe
that its opinions are factually incorrect, and the expression "to our knowledge"
or similar language with reference to matters of fact refers to the current
actual knowledge of attorneys at counsel's firm involved in the matter;
(ii) a certificate of the Company, signed by two executive
officers thereof stating that the representations and warranties contained in
Section 2 hereof are true and accurate in all material respects at the Closing,
with the same effect as though expressly made at the Closing;
(iii) the certificates representing the Warrants and the Notes to
be included in the Units;
(iv) the Security Agreement, the form of which shall be
reasonably satisfactory to Placement Agent's counsel, and the Pledged Shares,
and
(v) such other closing documents as shall be reasonably
requested by the Placement Agent or its counsel.
(b) The Law Offices of ▇▇▇▇ ▇▇▇▇▇▇▇, will as a condition to the
Closing, deliver its opinion that assuming (i) a proper Form D is filed in
accordance with Rule 503 of Reg D; (ii) the offer and the sale of the Units by
the Placement Agent was made in compliance with Rule 502(c) of Reg D; (iii) the
Placement Agent's representations and warranties set forth in Section 3 hereof
are true and correct, and (iv) the representations of the Subscribers in the
Subscription Agreement signed by them are true and correct (which facts will not
be independently verified by such counsel), the sale of Units in the Offering is
exempt from registration under the Securities Act and is in compliance with Reg
D.
4.3 BLUE SKY SURVEY. Counsel for the Placement Agent shall
survey the blue sky laws of the states designated by the Placement Agent in
order to determine the extent to which and the conditions upon which offers and
sales of the Units may be made in such states. It is understood that such survey
(the "Blue Sky Survey"), which shall be delivered to the Company and the
Placement Agent, may be based on or may rely upon (i) the representations of
each Subscriber set forth in his or her Subscription Agreement, and (ii) the
representations, warranties and agreements of the Company and the Placement
Agent set forth in this Agreement.
4.4 PLACEMENT AGENT'S FEES AND EXPENSES. At the Closing, the
Company shall pay to the Placement Agent a commission equal to 10 percent of the
aggregate purchase price of the Units
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sold at the Closing. In order to reimburse the Placement Agent for its expenses
incurred in connection with the Offering, at the Closing, the Company also shall
pay to the Placement Agent a non-accountable expense allowance equal to three
percent (3%) of the aggregate purchase price of the Units sold at such Closing.
On or before the Closing, the Company shall pay the fees and disbursements of
counsel to the Placement Agent referred to in paragraph 5.3 below in connection
with the qualification of the Units under the securities or blue sky laws of the
states which the Placement Agent shall designate. All the foregoing amounts are
payable directly to the parties who are owed same by deduction from the
aggregate purchase price of the Units sold otherwise payable to the Company. If
the Offering is not consummated because the Placement Agent prevents its
completion (except if such prevention is based upon a breach by the Company of
any covenant, representation or warranty contained herein or upon a written
misstatement to the Placement Agent by the Company of a fact or omission by the
Company to state a fact relating to the business and financial condition of the
Company), then the Company shall not be liable to the Placement Agent or its
counsel for any of the foregoing expenses. If the Offering is not consummated
because the Company prevents its completion or because of a breach by the
Company of any such covenants, representations or warranties or because of any
such misstatements or omissions by the Company, then the Company's liability for
the Placement Agent's expenses shall be equal to the Placement Agent's actual
accountable expenses.
5. COVENANTS. The Company covenants and agrees that:
5.1 AMENDMENTS TO OFFERING DOCUMENTS. Until the Offering has
been completed or terminated, if there shall occur any event relating to or
affecting, among other things, the Company or any affiliate, or the proposed
operations of the Company as described in the Memorandum, as a result of which
it is necessary, in the opinion of counsel for the Placement Agent or counsel
for the Company, 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 any appropriate amendment or supplement to the
Offering Documents, in form and substance satisfactory to counsel for the
Placement Agent.
5.2 USE OF PROCEEDS. The net proceeds of the Offering will be
used by the Company only for the purposes stated in the Offering Documents.
5.3 EXPENSES OF OFFERING. The Company shall be responsible for,
and shall pay, all expenses directly and necessarily incurred in connection with
the proposed financing, including, but not limited to, the costs of preparing,
printing and filing, where necessary, the Offering Documents and all amendments
and supplements thereto, fees of Placement Agent's counsel for blue
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sky and other matters in the amount of $15,000 as provided in par. "E" of the
Letter, filing fees and disbursements of the Placement Agent's counsel in
connection with blue sky matters.
5.4. LETTER OF INTENT. The Company will use its best efforts to
expeditiously proceed to the consummation of the public offering (the "PO")
contemplated by the letter dated June 18, 1996, as extended, between you and us
(the "Letter"), including but not limited to, the preparation, execution and
filing with all necessary governmental authorities of the Registration Statement
on Form SB-2 (including the related prospectus and necessary exhibits), the
satisfaction of the obligations of the Company in connection therewith, the
cooperation with you in requesting effectiveness of the Registration Statement
at such time as the Commission is prepared to declare the Registration Statement
effective, complying with all applicable statutes, laws, rules and regulations
concerning the PO, and paying the necessary expenses to be incurred in
connection therewith to the extent provided in the Letter.
6. REGISTRATION RIGHTS. As more fully described in the
Subscription Agreement to be executed by the Company and each Subscriber, the
Company agrees to register for public sale, Warrants and shares of Common Stock
underlying the Warrants included in each Subscriber's Units pursuant to the
Company's Registration Statement to be filed in connection with the PO. The
Company shall use its best efforts with due diligence to keep the Registration
Statement current throughout the term of the Warrants.
7. INDEMNIFICATION AND CONTRIBUTION.
7.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the Placement Agent and each person, if any, who
controls the Placement Agent within the meaning of the Securities Act and/or the
1934 Act against any losses, claims, damages or liabilities, joint or several,
to which the Placement Agent or such controlling person may become subject,
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained
(A) in the Offering Documents, or (B) in any blue sky application or other
document executed by the Company specifically for blue sky purposes or any other
written information furnished by the Company or on its behalf to any state or
other jurisdiction in order to qualify any or all of the Units under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or (ii) the omission or alleged
omission by the Company to state in the Offering Documents or in any Blue Sky
Applications a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and will reimburse the Placement Agent
-15-
and each such controlling person for any legal or other expenses reasonably
incurred by the Placement Agent or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action,
PROVIDED, the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon (x) an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
the Company by the Placement Agent in the preparation of the Offering Documents
or any such Blue Sky Application; (y) any failure by the Placement Agent to be
registered or be in good standing as a broker-dealer in any jurisdiction in
which Units are sold or to comply with the terms of the Blue Sky Survey, or (z)
any misrepresentation made to a Subscriber by the Placement Agent or its agents
not included in the Offering Documents and made by means other than the mere
delivery of the Offering Documents to a Subscriber (collectively, (x), (y), and
(z) above are referred to as the "Non-Indemnity Events").
7.2 INDEMNIFICATION BY THE PLACEMENT AGENT. The Placement Agent
agrees to indemnify and hold harmless the Company and each person, if any, who
controls the Company within the meaning of the Securities Act and/or the 1934
Act against any losses, claims, damages or liabilities, joint or several, to
which the Company or such controlling person may become subject, under the
Securities Act or otherwise insofar as such losses, claims, damages or
liabilities(or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained
(A) in the Offering Documents, or (B) in any Blue Sky Application, or (ii) the
omission or alleged omission to state in the Offering Documents or in any Blue
Sky Application a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; but in each case, only if and to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by the Placement Agent specifically for use with reference to the
Placement Agent in the preparation of the Offering Documents or any such Blue
Sky Application, or (iii) any other Non-Indemnity Event; and will reimburse the
Company and each such controlling person for any legal or other expenses
reasonably incurred by the Company or such controlling person in connection with
investigating or defending any such loss, claim, damage or liability which is
found ultimately to arise out of or be based upon the circumstances described in
clauses (i), (ii) or (iii) of this Section 7.2.
7.3 PROCEDURE. Promptly after receipt by an indemnified party
under this Section 7 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7,
-16-
notify in writing the indemnifying party of the commencement thereof, PROVIDED,
that the omission to so notify the indemnifying party will not relieve the
indemnifying party from any liability under this Section 7. In case any such
action is brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may elect, jointly with any other
indemnifying party, similarly notified, to assume the defense thereof, with
counsel who shall be to the reasonable satisfaction of such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. Any such
indemnifying party shall not be liable to any such indemnified party on account
of any settlement of any claim or action effected without the consent of such
indemnifying party.
7.4 CONTRIBUTION. If the indemnification provided for in this
Section 7 is unavailable to any indemnified party in respect to any losses,
claims, damages, liabilities or expenses referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party, will
contribute to the amount paid or payable by such indemnified party, as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company on
the one hand, and the Placement Agent on the other hand, from the Offering, or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefit but also the relative fault of the Company on the one hand, and
of the Placement Agent on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Placement Agent on the
other hand, shall be deemed to be in the same proportion as the total proceeds
from the Offering (net of sales commissions, but before deducting expenses)
received by the Company, bear to the commissions received by the Placement
Agent. The relative fault of the Company on the one hand, and the Placement
Agent on the other hand, will be determined with reference to, among other
things, whether the untrue or alleged untrue statements of a material fact or
the omission to state a material fact relates to information supplied by the
Company, and its relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
7.5 EQUITABLE CONSIDERATIONS. The Company and the Placement
Agent agree that it would not be just and equitable if
-17-
contribution pursuant to this Section 7 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding subsection.
7.6 ATTORNEYS' FEES. The amount payable by a party under this
Section 7 as a result of the losses, claims, damages, liabilities or expenses
referred to above will be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim.
8. TERMINATION BY PLACEMENT AGENT. The Placement Agent will
have the right to terminate this Agreement by giving notice as herein specified,
at any time, at or prior to the Closing Date if (i) the Company shall have
failed, refused or been unable to perform any of its obligations hereunder, or
breached any of its representations or warranties hereunder, or (ii) if there
has occurred an event materially and adversely affecting the value of the
Warrants or Notes.
9. NOTICES. Any notice, election, demand or other communication
hereunder shall be in a signed writing and shall be deemed given or made when
actually received by personal delivery or by facsimile transmission, or two
business days following the date when mailed by certified mail, postage prepaid,
return receipt requested, to the appropriate party or parties, at the following
addresses: if to the Placement Agent, to Investors Associates, Inc., ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
Chairman (Fax No. (▇▇▇) ▇▇▇-▇▇▇▇) with a copy to the Law Offices of ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇
▇▇▇▇▇▇▇, Esq. (Fax No. (▇▇▇) ▇▇▇-▇▇▇▇), and if to the Company, at its address
above given, Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, President with a copy to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Frome & ▇▇▇▇▇▇▇▇▇▇ LLP, Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq., (Fax No. (▇▇▇)▇▇▇-▇▇▇▇)
or, in each case, to such other address as the parties may hereinafter designate
by like notice.
10. PARTIES. This Agreement will inure to the benefit of and be
binding upon the Placement Agent, the Company and their respective successors
and assigns. This Agreement is intended to be, and is for the sole and exclusive
benefit of the parties hereto and the persons described in subsections 7.1 and
7.2) hereof, and their respective successors and assigns, and no other person
will have any legal or equitable right, remedy or claim under or in respect of
this Agreement.
11. AMENDMENT AND/OR MODIFICATION. Neither this Agreement, nor
any term or provision hereof, may be changed, waived, discharged, amended,
modified or terminated orally or in any manner other than by an instrument in
writing signed by each of the parties hereto.
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12. FURTHER ASSURANCES. Each party to this Agreement will
perform any and all acts and execute any and all documents as may be necessary
and proper under the circumstances in order to accomplish the intents and
purposes of this Agreement and to carry out its provisions.
13. VALIDITY. In case any term or provision of this Agreement
will be held invalid, illegal or unenforceable, in whole or in part, the
validity of the other terms of this Agreement will not in any way be affected
thereby.
14. WAIVER OF BREACH. The failure of any party hereto to insist
upon strict performance of any of the covenants and agreements herein contained,
or to exercise any option or right herein conferred in any one or more
instances, will not be construed to be a waiver or relinquishment of any such
option or right, or of any other covenants or agreements, and the same will be
and remain in full force and effect.
15. ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding of the parties with respect to the subject matter
hereof, and there are no representations, inducements, promises or agreements,
oral or otherwise, not embodied in this Agreement. Any and all prior
discussions, negotiations, commitments and understanding relating to the subject
matter of this Agreement are superseded by and merged into it.
16. COUNTERPARTS. This Agreement may be executed in counterpart
and each such counterpart will for all purposes be deemed to be an original, and
such counterparts will together constitute one and the same instrument.
17. LAW. This Agreement will be deemed to have been made and
delivered in the state of New York and will be governed as to validity,
interpretation, construction, effect and in all other respects by the internal
laws of the state of New York. The parties hereto consent to the jurisdiction
and venue of any state or Federal court located in New York for purposes of
resolving any disputes hereunder.
18. REPRESENTATIONS, WARRANTIES AND COVENANTS TO SURVIVE
DELIVERY. The respective representations, indemnities, agreements, covenants and
warranties of the Company and the Placement Agent shall survive execution of
this Agreement and delivery of the Units and/or the termination of this
Agreement prior thereto.
19. NO ASSIGNMENT. Neither this Agreement nor any rights or
obligations hereunder may be assigned by either party without the prior consent
of the other party, and any attempted assignment without such consent shall be
void and of no effect.
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20. SCHEDULES. Any disclosure made on any schedule hereto shall
be deemed as also having been made on any other schedule hereto as to which such
disclosure is also responsive.
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,
THE GREAT AMERICAN BACKRUB STORE INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
-----------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Chief Executive Officer
ACCEPTED AND AGREED TO:
INVESTORS ASSOCIATES, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Chairman
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December 20, 1996
The Great American BackRub Store, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Re: Agency Agreement (the "Agreement")
Between us dated November 11, 1996
----------------------------------
Ladies and Gentlemen:
We refer to the Agency Agreement and your request to increase the
Offering by 1-1/3 (one and one-third) Units to 5-1/3 (five and one-third) Units
(or a total of $266,666.67). This letter will serve to confirm our mutual
understanding to amend the Agreement in accordance with the foregoing and
regarding related matters. Capitalized terms used herein shall have the meanings
ascribed to them in the Agreement unless otherwise defined herein:
1. The references to "four (4)" on page 1 and in Section 4.1 are
hereby changed to read "5-1/3 (five and one-third)". Further, an additional
sentence shall be inserted after the second sentence on page 1 to read in its
entirety as follows: "One and one-third (1-1/3) Units shall be reserved for
purchase by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ or their affiliates
in such proportion as shall be determined by them on notice to us".
2. The reference to $200,000 in Section 1.1 shall be changed to read
"$266,666.67".
3. The second line on page 6 is hereby amended to read in its entirety
"set forth, and the consummation of the transactions contemplated".
4. After the word "to" in the second line of subparagraph "3(d)"
insert the language: "persons or entities who the Placement Agent has reason to
believe constitute".
In furtherance of the foregoing, the terms and conditions
of the letter of intent between us dated June 18, 1996 under the caption "Bridge
Financing" commencing on page 21 are hereby amended accordingly. Further, the
reference to page 23 to "24-month" shall be changed to "36-month".
The Great American BackRub Store, Inc.
December 20, 1996
Page -2-
Additionally, it is understood that the investors who executed
documents to subscribe to the previous bridge financing shall have the option to
receive an immediate refund of their subscription funds or remain in the
enlarged bridge financing by so indicating on a simplified ratification form to
be circulated in substantially the form annexed hereto.
Kindly acknowledge receipt and acceptance of the foregoing by signing
where indicated at the foot of the duplicate hereof enclosed and returning the
same to this office.
Thank you for your courtesy and cooperation.
Very truly yours,
INVESTORS ASSOCIATES, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------
Vice President
Receipt and Acceptance Acknowledged:
THE GREAT AMERICAN BACKRUB STORE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
President