MANAGING DEALER AGENCY AGREEMENT
February 15, 2002
▇. ▇. ▇▇▇▇▇▇ & Company, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇. ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
Fortune Natural Resources Corporation, a Delaware corporation (the
"Company") desires to increase the capital of the Company in the maximum amount
of $4,000,000 (or, at our mutual consent, $5,000,000) by the sale of units
("Units") consisting of one share of Series A Convertible Participating
Preferred Stock, par value $1.00 per share, of the Company (the "Preferred
Stock") and one stock purchase warrant (a "Warrant") to purchase shares of the
Company's Common Stock, par value $0.01 per share, on the terms and in the
amounts set forth in the Warrants. The subscribers therefor, each of whom will
be named in a subscription agreement substantially similar to the form of
subscription agreement attached as an exhibit to the Confidential Private
Placement Memorandum ("Memorandum") hereinafter referred to (the "Subscription
Agreement"), and by which all such subscribers will be bound, will, at the
election of and sole discretion of the Company, become holders of the Preferred
Stock and the Warrants.
SECTION 1 Representations and Warranties of the Company
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(a) The Company represents and warrants to, and agrees with you for your
benefit as of the date hereof, and as of the Minimum Subscription Closing Date
(as defined below) and each Additional Issuance Date (as defined below), if any,
as follows:
(i) The Company has prepared a Confidential Private Placement
Memorandum, dated February 19, 2002 pursuant to which the Company will offer and
sell the Units. The original Confidential Private Placement Memorandum and as it
may be amended and supplemented after February 19, 2002 is hereafter referred to
herein as the "Memorandum." The offering and sale of the Units will be made
without complying with the registration requirements of the Securities Act of
1933, as amended (the "Act"), in reliance on the exemption provided by
Regulation D of the regulations under the Act (the "Regulations"). The
Memorandum contains all information required to be included therein by order to
satisfy the requirements of Regulation D.
(ii) The Certificate of Incorporation of the Company (the
"Certificate of Incorporation"), as amended to be effective on the Minimum
Subscription Closing Date (as defined below), provides for the issuance and sale
of the shares of Preferred Stock and common stock issuable upon exercise of the
Warrants comprising the Units; all action required to be taken by the Company
and its officers as a condition to the issuance and sale of the Units to
qualified subscribers therefor has been, or prior to the Minimum Subscription
Closing Date, will have been, taken.
(iii)The Certificate of Designations provides for the rights,
preferences and privileges of the Preferred Stock.
(iv) The Company is duly organized and validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company is duly qualified and licensed and in good standing under the laws of
each other jurisdiction, if any, in which such qualification and license is
necessary in order to protect the limited liability of the Shareholders and to
enable the Company to conduct the business in which it is engaged or proposes to
engage as described in the Memorandum; the Company is qualified as a foreign
corporation in good
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standing in each other jurisdiction which (a) requires such qualification or (b)
may require such qualification and the failure to so qualify might result in
material adverse consequences to the Company. The Company has full power and
authority (corporate and other) and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to invest in, acquire, hold, maintain, operate, lease,
license, sell, transfer, explore, develop and otherwise engage in the
exploration and development of oil and gas properties as referred to in the
Memorandum or to engage in the financing transactions referred to or to be
referred to in the Memorandum, and to conduct the business in which it is
engaged or proposes to engage as described in the Memorandum. The Company is and
has been doing business in compliance with all material authorizations,
approvals, orders, licenses, certificates, franchises and permits and all
federal, foreign, state and local laws, rules and regulations, or if a failure
to so comply exists, such failure would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business affairs, position,
prospects, value, operation, properties, business or results of operations of
the Company taken as a whole; and the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise or permit which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect the condition, financial or
otherwise, or the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company taken as
a whole. The disclosures in the Memorandum concerning the effects of federal,
state and local laws, rules and regulations on each of the Company's businesses
as currently conducted and as contemplated are correct in all material respects
and do not omit to state a material fact necessary to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
(v) When the Memorandum is distributed and at all times subsequent
thereto up to the Minimum Subscription Closing Date and each Additional Issuance
Date, if any, neither the Memorandum, nor any amendment or supplement thereto,
will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in this
paragraph shall not apply to statements in or omissions from the Memorandum made
in reliance upon and in conformity with written information furnished to the
Company by you expressly for use in the Memorandum.
(vi) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Memorandum and will have the adjusted
capitalization set forth therein on the Minimum Subscription Closing Date and
each Additional Issuance Date, if any, based upon the assumptions set forth
therein. The Company is not a party to or bound by any material instrument,
agreement or other arrangement, including, but not limited to, any voting trust
agreement, stockholders' agreement or other agreement or instrument, affecting
the securities or options, warrants or rights or obligations of security holders
of the Company or providing for any of them to issue, sell, transfer or acquire
any capital stock, rights, warrants, options or other securities of the Company,
except for this Managing Dealer Agency Agreement, the Subscription Agreement and
as described or referred to in the Memorandum. The Units and all other
securities issued or issuable by the Company conform or, when issued and paid
for, will conform in all material respects to all statements with respect
thereto contained in the Memorandum. All issued and outstanding securities of
the Company have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto and are not subject to personal liability for the Company's acts or
omissions solely by reason of being such holders; and none of such securities
was issued in violation of the preemptive rights of any security holder of the
Company or similar contractual rights granted by the Company. The Units will be
issued pursuant to the terms and conditions of the Subscription Agreement, and
the provisions of the Subscription Agreement described in the Memorandum will
conform to the description thereof contained in the Memorandum but such
description is qualified by reference to the actual terms of the Subscription
Agreement. The securities comprising the Units have been duly authorized and,
when validly authenticated, issued, delivered and paid for in the manner
contemplated by the Subscription Agreement, will be duly authorized, validly
issued and outstanding obligations of the Company entitled to the benefits of
the Subscription Agreement. The shares of Common Stock issuable upon conversion
of the Preferred Stock and exercise of the Warrants (the "Underlying Stock")
will, upon such issuance, be duly authorized, validly issued, fully paid and
nonassessable, and the Company has duly authorized and reserved for issuance
upon conversion of the Preferred Stock and exercise of the Warrants the Common
Stock issuable upon such conversion and exercise. The Units, the Preferred Stock
and the Underlying Stock are not and will not be subject to any
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preemptive or other similar rights of any securityholder of the Company; the
holders thereof will not be subject to any liability for the Company's acts or
omissions solely as such holders; all corporate action required to be taken for
the authorization, issue and sale of the Units and the Underlying Stock has been
duly and validly taken; and the certificates representing the Preferred Stock
and the Underlying Stock will be in due and proper form. Upon the issuance and
delivery of the Units pursuant to the terms of this Managing Dealer Agency
Agreement and the Subscription Agreement, the purchasers of the Units will
acquire good and marketable title to the securities comprising the Units, free
and clear of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever resulting from the
affirmative act of the Company or from a judgment or nonconsensual lien rendered
against the Company.
(vii) The accountants who certified the financial statements included
in the Company's Annual Report on Form 10-KSB for the year ended December 31,
2000 (the "Annual Report") and incorporated in the Memorandum by reference are,
with respect to the Company, independent public accountants.
(viii) The financial statements of the Company together with the
related notes thereto included in the Memorandum fairly present the financial
position, income, change in stockholders' equity, cash flow and the results of
operations of the Company at the respective dates and for the respective periods
to which they apply. There has been no adverse change or development involving a
material prospective change in the condition, financial or otherwise, or in the
earnings, business affairs, position, prospects, value, operation, properties,
business or results of operations of the Company, whether or not arising in the
ordinary course of business, since the date of the financial statements included
in the Memorandum, except as set forth in the Memorandum, and the outstanding
debt, the property, both tangible and intangible, and the businesses of the
Company described in the Memorandum conform in all material respects to the
descriptions thereof contained in the Memorandum. Financial information set
forth in the Memorandum fairly presents, on the basis stated in the Memorandum,
the information set forth therein and has been derived from or compiled on a
basis consistent with that of the audited financial statements included in the
Annual Report and incorporated in the Memorandum by reference.
(ix) The Company (A) has paid all federal, state and local taxes for
which it is currently liable, including, but not limited to, withholding taxes
and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986, as amended (the "Code"), and has furnished all information returns it is
required to furnish pursuant to the Code, (B) has established adequate reserves
for such taxes that are not due and payable or are being contested in good faith
by the Company and (C) does not have any material tax deficiency or claims
outstanding, proposed or assessed against its respective business or assets.
(x) No U.S. transfer tax, stamp duty or other similar tax is payable
by you or on your behalf in connection with (A) the issuance by the Company of
the Units or the Underlying Stock, or (B) the consummation by the Company of any
of its obligations under this Managing Dealer Agency Agreement and the
Subscription Agreement.
(xi) The Company maintains insurance policies, including, but not
limited to, general liability insurance and surety bonds which insures the
Company and its professional staffs against such losses and risks generally
insured against by comparable businesses. The Company (A) has not failed to give
notice or present any insurance claim with respect to any matter, including, but
not limited to, the Company's businesses, property or professional staff, under
any insurance policy or surety bond in a due and timely manner, (B) has no
disputes or claims against any underwriter of such insurance policies or surety
bonds or has failed to pay any premiums due and payable thereunder or (C) has
failed to comply with all conditions contained in such insurance policies and
surety bonds. The Company has not received notice of facts or circumstances
under any such insurance policy or surety bond which would relieve any insurer
of its obligation to satisfy in full any valid claim of the Company.
(xii) There is no material action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or, to the best of the Company's
knowledge after due inquiry, threatened against, or involving the properties or
businesses of, the Company which (A) questions the validity of the capital stock
of the Company, this Managing Dealer Agency Agreement and the Subscription
Agreement or of any action
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taken or to be taken by the Company pursuant to or in connection with this
Managing Dealer Agency Agreement or the Subscription Agreement, (B) is
undisclosed in the Memorandum (and such proceedings as are summarized in the
Memorandum are accurately summarized in all respects) or (C) materially and
adversely affects the condition, financial or otherwise, or the earnings,
business affairs, position, prospects, stockholders' equity, value, operation,
properties, businesses or results of operations of the Company taken as a whole.
For the purposes hereof, a material action shall be an action resulting in
liability to the Company in excess of five percent of its net worth, as
reflected on its most recent balance sheet.
(xiii) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Units and the Underlying Stock, to enter
into this Managing Dealer Agency Agreement and the Subscription Agreement and to
consummate the transactions provided for in such agreements; and this Managing
Dealer Agency Agreement and Subscription Agreement have each been duly and
properly authorized, executed and delivered by the Company. Each of the Managing
Dealer Agency Agreement and the Subscription Agreement constitutes a legal,
valid and binding agreement of the Company enforceable against the Company in
accordance with its terms, and none of the Company's issue and sale of the
Units, the Preferred Stock and the Underlying Stock, the execution or delivery
of this Managing Dealer Agency Agreement and the Subscription Agreement, its
performance hereunder and thereunder, its consummation of the transactions
contemplated herein and therein or the conduct by it of its businesses as
described in the Memorandum or any amendments or supplements thereto conflicts
or will conflict with or results or will result in any breach or violation of
any of the terms or provisions of, or constitutes or will constitute a default
under, or results or will result in the creation or imposition of any lien
(other than the lien created by the Subscription Agreement), charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity of
any kind whatsoever upon any property or assets (tangible or intangible) of the
Company pursuant to the terms of, (A) the Certificate of Incorporation or
by-laws of the Company, (B) any material license, contract, indenture, mortgage,
deed of trust, voting trust agreement, stockholders' agreement, note, loan or
credit agreement or other agreement or instrument to which the Company is a
party or by which it is or may be bound or to which its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or (C) to
the best of the Company's knowledge, any statute, judgment, decree, order, rule
or regulation applicable to the Company of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its respective activities or properties.
(xiv) No consent, approval, authorization or order of, and no filing
with, any domestic court, regulatory body, government agency or other body is
required for the issuance of the Units pursuant to the Memorandum, the
performance of this Managing Dealer Agency Agreement and the Subscription
Agreement or the transactions contemplated hereby or thereby, including, without
limitation, any waiver of any preemptive, first refusal or other rights that any
entity or person may have for the issue and/or sale of any of the Units, except
such as have been or may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Units.
(xv) The Company shall have duly and validly authorized, executed and
delivered each material agreement, contract or other document to which it is a
party or by which it may be bound or to which its assets, properties or
businesses may be subject, and each such agreement, contract or other document
constitutes its legal, valid and binding agreement enforceable against it in
accordance with its terms. The descriptions in the Memorandum of agreements,
contracts and other documents are accurate but such descriptions are qualified
by reference to the actual terms of such agreements, contracts and other
documents.
(xvi) Subsequent to the respective dates as of which information is
set forth in the Memorandum, and except as may otherwise be indicated or
contemplated herein or therein, the Company has not (A) entered into any
material transaction other than in the ordinary course of business or (B)
declared or paid any dividend or made any other distribution on or in respect of
its capital stock of any class and there has not been any material change in the
capital stock, debt (long or short term) or liabilities (except for (x)
financing in connection with acquisition of assets of the Company through
purchase money financing, (y) debt incurred to finance capital improvements to
existing properties not to exceed $500,000 outstanding and (z) debt for working
capital not to exceed $500,000 outstanding) or any material change in or
affecting the general affairs, management, financial operations, stockholders'
equity or results of operations of the Company.
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(xvii) No material default exists in the due performance and
observance of any material term, covenant or condition of any license, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders' agreement, note, loan or credit agreement,
purchase order, agreement or instrument evidencing an obligation for borrowed
money or other material agreement or instrument to which the Company is a party
or by which the Company may be bound or to which the property or assets
(tangible or intangible) of the Company is subject or affected. For the purposes
hereof, a material default shall be a default resulting in liability to the
Company in excess of five percent of its net worth, as reflected on its most
recent balance sheet.
(xviii) The Company is in material compliance with all federal,
state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours.
The Company has not received notice of any pending investigations involving the
Company by the U.S. Department of Labor or any other governmental agency
responsible for the enforcement of such federal, state, local or foreign laws
and regulations. The Company has not received notice of any unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against or involving the Company or any of the
Subsidiaries, or any predecessor entity of the Company, and none has ever
occurred. No collective bargaining agreement or modification thereof is
currently being negotiated by the Company. No material labor dispute with the
employees of the Company exists or, to the best of the Company's knowledge, is
imminent.
(xix) Except for (A) a Company administered 401(k) plan, (B) a health
insurance plan (Group Policy 62591 with Blue Cross and Blue Shield of Texas),
(C) a life and death and disability insurance policy (Group Policy G48758,
Account 07777 with Group Life and Health Insurance Company) and (D) a dental
insurance plan (Group Policy 13085 with Multi Protection Trust - Utah, Pacific
Life), the Company does not maintain, sponsor or contribute to any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan" or a "multi-employer plan" ("ERISA Plans") as such terms are
defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Company does
not maintain or contribute to, now or at any time previously, a defined benefit
plan as defined in Section 3(35) of ERISA. The Company has never completely or
partially withdrawn from a "multi-employer plan" as so defined.
(xx) The Company (A) to the best of the Company's knowledge, owns or
possesses, or has a license or other right to use, all copyrights, trademarks,
service marks and trade names, together with all applications for any of the
foregoing, presently used or held for use by it in connection with its
businesses as described in the Memorandum, (B) has not received any notice of
infringement of or conflict with asserted rights of others with respect to any
of the foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse effect on
the condition, financial or otherwise, or the business affairs, position,
prospects, properties, results of operations or net worth of the Company, taken
as a whole, and (C) is not obligated or under any liability whatsoever to make
any material payments by way of royalties, fees or otherwise to any owner or
licensee of, or other claimant to, any trademark, service ▇▇▇▇, trade name or
copyright or other intangible asset with respect to the use thereof or in
connection with the conduct of its business or otherwise. None of the
copyrights, trademarks, service marks and trade names presently owned or used by
the Company or any of the Subsidiaries are in dispute or, to the best of the
Company's knowledge, are in conflict with the right of any other person or
entity.
(xxi) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all material items of real and personal
property described in the Memorandum, including all royalty, working and
participating interests in mineral producing properties, to be owned or leased
by it, in each case free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects and other restrictions and equities of any
kind whatsoever, other than those referred to in the Memorandum and liens for
taxes not yet due and payable.
(xxii) Neither the Company nor any of its respective executive
officers, principal stockholders, or, to the best of the Company's knowledge,
employees or agents nor any other person acting on behalf of the Company has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or any official or employee of any governmental agency (domestic or
foreign), or any
5
instrumentality of any government (domestic or foreign), or any political party
or candidate for office (domestic or foreign), or any other person who was, is
or may be in a position to help or hinder the businesses of the Company (or
assist the Company in connection with any actual or proposed transaction) which
(A) might subject the Company, or any of such others to any damage or penalty in
any civil, criminal or governmental litigation or proceeding (domestic or
foreign), (B) if not given in the past, might have had a materially adverse
effect on the assets, businesses or operations of the Company or (C) if not
continued in the future, might adversely affect the assets, businesses,
operations or prospects of the Company or any of the Subsidiaries.
(xxiii) Except as set forth in the Memorandum, no officer, director,
principal stockholder or key employee of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the
Regulations) of any of the foregoing persons or entities, has or has had, either
directly or indirectly, (A) any interest in any person or entity which furnishes
or sells services or products which are furnished or sold or are proposed to be
furnished or sold by the Company or (B) a material interest in any person or
entity which purchases from or sells or furnishes to the Company any goods or
services or (C) a beneficial interest in any material contract or agreement to
which the Company is a party or by which the Company may be bound or affected.
Except as set forth in the Memorandum, there are no existing material
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company and any such officer, director, principal stockholder or key employee or
any "affiliate" or "associate."
(xxiv) The minute books of the Company have been made available to
you, contain a complete summary of all actions of the directors and stockholders
of the Company since the time of its incorporation and reflect all transactions
referred to in such minutes accurately in all respects.
(xxv) No holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Memorandum and no
person or entity holds any anti-dilution rights with respect to any securities
of the Company that would be triggered by the issuance of the Units or the
Underlying Stock as described in the Memorandum.
(xxvi) There exists no actual or, to the best of the Company's
knowledge, threatened termination, cancellation or limitation of, or any adverse
modification or change in, the business relationship of the Company, or the
business of the Company, with any customer or supplier or any group of customers
or suppliers whose purchases or inventories provided to the Company's business
are individually or in the aggregate material to the condition of the Company,
and there exists no present condition or state of fact or circumstances that
would adversely affect the condition of the Company or prevent the Company from
conducting such business relationships or such business with any such customer,
supplier or group of customers or suppliers in the same manner as heretofore
conducted by the Company.
(xxvii) The Company is in material compliance with all applicable
Environmental Laws. There is no civil, criminal or administrative judgment,
action, suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter pending or, to the best of the Company's
knowledge, threatened against the Company pursuant to Environmental Laws; and,
to the best of the Company's knowledge, there are no past or present events,
condition, circumstances, activities, practices, incidents, agreements, actions
or plans which could reasonably be expected to prevent compliance with, or which
have give rise to or will give rise to liability under, Environmental Laws. For
purposes herein, "Environmental Laws" means federal, state, local and foreign
laws, principles of common laws, civil laws, regulations, and codes, as well as
orders, decrees, judgements or injunctions, issued, promulgated, approved or
entered thereunder relating to pollution, protection of the environment or
public health and safety.
(xxviii) The Company has never received a notice, orally or in
writing, with respect to the denial of any license the Company has sought to
obtain, and the Company-approved operating procedures and practices of the
Company are, to the best of the Company's knowledge, in material compliance
with, federal, state and local laws, rules and regulations.
6
(xxix) On the date hereof, and at all times through the Offering
Termination Date, referred to below, the Company is not and shall not be an
investment company as that term is defined in the Investment Company Act of
1940, as amended.
(xxx)Neither the Company nor any affiliate thereof shall give any
information or make any representation in connection with the offering of Units
other than those contained in the Memorandum or such other material as may be
provided or approved by you.
(b) Any certificate signed by the Company and delivered to you or to ▇▇▇▇▇
& ▇▇▇▇▇▇ LLP for the purposes of this Managing Dealer Agency Agreement shall be
deemed a representation and warranty by the Company to you as to the matters
covered thereby.
SECTION 2 Offering and Sale of Preferred Stock.
------------------------------------
(a) On the basis of the representations, warranties and covenants herein
contained, but subject to the terms and conditions herein set forth, you, as the
Managing Dealer, are hereby appointed the agent of the Company during the term
herein specified (the "Offering Period") for the purpose of finding subscribers
for the Units for the account and risk of the Company through a private
placement offering exempt from the registration requirements of the Act, and
subject to the performance by the Company of all of its obligations to be
performed hereunder and to the completeness and accuracy of all the
representations and warranties contained herein, you hereby accept such agency
and agree on the terms and conditions herein set forth to use your best efforts
during the Offering Period to find subscribers for the Units at an offering
price of $10 per Unit, each investor being required to subscribe for at least
1,000 Units ($10,000). Except as provided in Section 2(g) hereof, your agency
hereunder is not terminable by the Company without your permission, shall
continue until the close of business on such date not later than March 28, 2002
unless extended by the Company with your consent. The offering may be terminated
at any time by the Company and you (the close of business of such date being
hereinafter referred to as the "Offering Termination Date").
(b) A signature page to the Subscription Agreement must be completed by or
on behalf of each person desiring to purchase Units in form and substance
satisfactory to the Company, and you shall provide such other information the
Company deems reasonably necessary, and all documents, if any, required under
state securities laws. You shall ascertain that each signature page to the
Subscription Agreement sent in by or on behalf of a prospective purchaser of
Units has been properly completed and executed. You shall return the
Subscription Agreements together with the subscribers' checks (in the amount or
amounts required by paragraph (a) above) payable to Pacific Mercantile Bank -
FNRC Escrow Account (the "Bank") by the end of the next business day following
receipt of the subscriber's check.
You will comply with the requirements of Rule 15c2-4 of the
Securities Exchange Act of 1934, as amended.
(c) You agree to retain in your records and make available to us, for a
period of at least four years after the Offering Termination Date, information
establishing that each purchaser of the Units pursuant to a Subscription
Agreement solicited by you is within the permitted class of investors under the
requirements, if any, of the jurisdiction in which such purchaser is a resident.
In addition, you agree that you shall be responsible for determining that each
purchaser of Units pursuant to a Subscription Agreement solicited by you meets
the suitability requirements for investors contained in the Memorandum and you
agree to retain records evidencing such compliance with the suitability
requirement for each investor.
(d) The Company, upon receipt of the aforementioned signature pages to the
Subscription Agreement, will determine as soon as practicable (but in no event
more than 30 days after receipt) whether it expects to accept the proposed
purchaser as a shareholder of the Company, it being understood the Company
reserves the right to reject the tender of any signature page to the
Subscription Agreement and to reject all tenders after all of the Units have
been sold. Should the Company determine to accept the
7
tender of the signature page to the Subscription Agreement, the Company will
promptly advise you of such action. Should the Company determine to reject the
tender of the signature page to the Subscription Agreement, it will promptly
notify you in writing (and, if the Company elects, the prospective purchaser),
of such determination, and will promptly cause the return of the tendered
signature page to the Subscription Agreement and the check in payment of the
purchase price of the Units directly to you or to the prospective purchaser.
(e) Prior to the Minimum Subscription Closing Date (as hereinafter
defined), the Company will have no right to obtain such funds from the Bank. The
right of the Company to receive such funds on the Minimum Subscription Closing
Date is subject to fulfillment of the conditions specified in Section 6 hereof.
(f) "Minimum Subscription Closing Date" as used herein shall mean the
date, no later than March 28, 2002 (as such date may be extended to April 30,
2002 by us with your consent), or such later date as funds deposited in escrow
with the Bank on March 28, 2002 or such extended date have been collected in
good funds, on which the Company and the Bank shall notify you in writing that
subscriptions and payments for an aggregate of at least 1,500,000 Units
($1,500,000) shall have been received and accepted by the Company. "Minimum
Subscription Closing Date" as used herein shall mean the first full business day
following the Minimum Subscription Closing Date or such day thereafter as shall
be mutually agreed upon by you and the Company.
(g) In the event the offering is commenced and subscriptions for at least
150,000 Units shall not have been received by the Minimum Subscription Closing
Date, all funds received from subscribers (if any) shall be returned in full,
without deduction of any escrow or other fees and expenses; and your agency and
this Managing Dealer Agency Agreement shall terminate without obligation on your
part or on the part of the Company, except as provided in Section 5 hereof and
except that the indemnification or contribution, as the case may be, provided in
Section 7 hereof shall continue after such termination of this Managing Dealer
Agency Agreement.
(h) Subject to fulfillment of the conditions specified in Section 6
hereof, at the Minimum Subscription Closing Date payment of the purchase price
for the Units for which you have found acceptable subscribers as of said Minimum
Subscription Closing Date, and delivery, with respect to each subscriber for
Units, of a copy of the Subscription Agreement signed by such subscriber, shall
be made to the Company at the office of the Bank, or at such other place as
shall be agreed between you and the Company.
(i) If at least 150,000 Units but less than all of the Units have been
subscribed and paid for and accepted by the Company at the Minimum Subscription
Closing Date, the Offering Period shall continue until the earlier to occur of
the Offering Termination Date or the date on which all Units shall have been
subscribed and paid for and accepted by the Company. At all times during the
Offering Period you shall follow the procedures prescribed by Section 2(b)
hereof. At periodic intervals to be mutually agreed upon by you and the Company
during the Offering Period, dates shall be established on which additional
subscribers shall be issued Units by the Company (the "Additional Issuance
Dates"). On each of the Additional Issuance Dates, you shall notify the Company
of the aggregate number of additional Units for which you have received
subscriptions and shall make delivery of such executed subscriptions and payment
of the purchase price for each of the additional Units, and delivery of a copy
of the Subscription Agreement signed by each such prospective purchaser shall be
made by you to the Company at the office of the Bank or at such other place as
you and the Company may agree.
(j) As consideration for your services, your compensation
will be paid to you as follows:
(i) If at least 150,000 of the Units are subscribed for and the
payments and deliveries provided for in Section 2(b), 2(h) and 2(i) are made at
the Minimum Subscription Closing Date and all conditions precedent hereunder to
the obligations of you and the Company are satisfied on the Minimum Subscription
Closing Date, you will be (A) paid a cash commission per Unit subscribed and
paid for at the Minimum Subscription Closing Date in the amount of nine percent
of the gross proceeds from the sale of Units and (B) issued Warrants in the same
form as included in a Unit having a value equal to five percent of the gross
proceeds from the sale of Units. Any other Soliciting Dealer (as defined below)
selling Units shall be reallowed by you a portion of your paid a commission and
your Warrants as described in the Soliciting Dealer Agreement entered into
between you and such Soliciting Dealer.
8
(ii) After the Minimum Subscription Closing Date, you will be paid at
an Additional Issuance Date a commission pursuant to the above schedule and
issued Warrants in the amount described above, for Units purchased subsequent to
the Minimum Subscription Closing Date; and
(iii)Regardless of whether the Minimum Subscription Closing Date
occurs, you will be paid an expense allowance (on account of your marketing
services) in an amount not to exceed to $50,000 as presented by you.
Such commissions will be paid to you directly by the Bank on the
Minimum Subscription Closing Date and each Additional Issuance Date, the
Warrants shall be issued directly to you or your designees by the Company and
such expenses shall be paid to you by the Company.
(k) Subscriptions for Units may be solicited by one or more dealers which
are member broker-dealers of the National Association of Securities dealers,
Inc. (the "NASD") (the "Soliciting Dealers") and sales by Soliciting Dealers
shall be made under a Soliciting Dealer Agreement substantially in the form
attached hereto as Exhibit A. Pursuant to any Soliciting Dealer Agreements, you
will reallow each Soliciting Dealer a concession of 7.5% out of the nine percent
commission and Warrants having a value of 2.5% of the gross proceeds from the
sale of Units with respect to each Unit sold by the Company pursuant to a
Subscription Agreement solicited by such Soliciting Dealer, subject to the terms
of subparagraph (i) of this Section 2.
(l) Neither you, the Company, nor any dealer participating in the offering
of the Units shall, directly or indirectly, pay or award any finder's fees,
commissions or other compensation to any person engaged by a potential investor
for investment advice as an inducement to such advisor to the purchase of Units.
(m) You agree that you will not disseminate or publish any advertisement
relating to your solicitation of subscribers for the Units (including, without
limitation, any advertisement relating to seminars) the form of which has not
been approved by the Company.
(n) For purposes of determining the number of Warrants to be issued to you
under this Section 2, the value of the Warrants shall equal five percent of the
gross proceeds from the sale of the Units. For example, if gross proceeds from
the sale of Units equals $4,000,000, the value of the Warrants to be issued to
you under this Section 2 would be $200,000 (five percent of $4,000,000) and the
number of common shares issuable upon exercise of such Warrants shall be that
number of shares issuable at the exercise price as stated in the Warrants. The
exercise price is $1.50 per share. In this example that would result in the
issuance of 133,334 warrants to purchase shares of the Company's common stock.
SECTION 3 Covenants of the Company.
------------------------
The Company covenants with you as follows:
(a) During the period when the Memorandum is required to be delivered
pursuant to the Act, the Company will comply, so far as it is able and at its
own expense, with all requirements imposed upon it by the Act, as now and
hereafter amended, and by the Regulations, as from time to time in force, so far
as necessary to permit the continuance of sales of or dealings in, the Units
during such period in accordance with the provisions herein and as set forth in
the Memorandum.
(b) If any event relating to or affecting the Company or any of its
assets, property or business shall occur as a result of which it is necessary,
in the opinion of ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, to amend or supplement the Memorandum in
order to make the Memorandum not misleading in the light of the circumstances
existing at the time it is delivered to a subscriber, the Company will forthwith
prepare and furnish to you, without expense to you, a reasonable number of
copies of an amendment or amendments of, or a supplement or supplements to, the
Memorandum (in form and substance satisfactory to ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP) which will
amend or supplement the Memorandum so that as amended or supplemented it 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 existing at the
9
time the Memorandum is delivered to a subscriber, not misleading. For the
purposes of this subsection the Company will furnish such information with
respect to itself as you or ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, may from time to time reasonably
request.
(c) It will endeavor in good faith, in cooperation with you, to qualify
the Units for offering and sale under the applicable securities or "blue sky"
laws of such jurisdictions as you may designate; provided, however, that the
Company shall not be obligated to file any general consent to service of process
or to qualify to do business or to qualify as a dealer in securities in any
jurisdiction in which it is not so qualified. In each jurisdiction where the
Units shall have been qualified as above provided, the Company will make and
file such statements and reports in each year as are or may be required by the
laws of such jurisdiction.
(d) It will, so long as any Units remain outstanding,
furnish directly to you the following:
(i) concurrently with furnishing such quarterly reports to its
securityholders, statements of income of the Company for each quarter in the
form furnished to the Company's securityholders and certified by the Company's
principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
securityholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity and
cash flows of the Company for such fiscal year, accompanied by a copy of the
report thereon of independent certified public accountants;
(iii)as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any state
securities commission, NASDAQ/SCMS, the NASD or any securities exchange;
(v) every press release and every material news item or article of
interest to the financial community in respect of the Company or its respective
affairs which was released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature concerning the
Company or any of the Subsidiaries (and any future subsidiaries) or their
respective businesses which you may request.
During such period, if the Company has active subsidiaries, the foregoing
financial statements will be on a consolidated basis to the extent that the
accounts of the Company and its subsidiaries are consolidated, and will be
accompanied by similar financial statements for any significant subsidiary which
is not so consolidated.
(e) The Company will act as the transfer agent and registrar for the
Preferred Stock. The Company may designate a third party to be the transfer
agent and registrar.
(f) Neither the Company nor any of its executive officers, directors,
principal stockholders or affiliates (within the meaning of the Regulations)
will take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company in violation of the
Exchange Act.
(g) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "USE OF
PROCEEDS" in the Memorandum. No portion of the net proceeds will be used,
directly or indirectly, to acquire or redeem any securities issued by the
Company other than any securities issued in connection with interim funding to
the Company of up to $500,000 described under "Use of Proceeds" in the
Memorandum.
10
(h) Until the completion of the distribution of the Units, the Company
shall not, without the prior written consent of you and your counsel, issue,
directly or indirectly, any press release or other communication or hold any
press conference with respect to the Company, its respective activities or the
offering contemplated hereby, other than trade releases issued in the ordinary
course of the Company's business consistent with past practices with respect to
the Company's operations.
(i) The Company shall file an amended and restated Certificate of
Incorporation or a Certificate of Designations in conjunction with the
authorization of the Preferred Stock and the Underlying Stock, and such
Certificate shall state that, within 90 days of the end of the Offering Period,
the Company shall effect a registration, qualification or compliance (including,
without limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the Act and any other governmental requirements or regulations)
with respect to the Underlying Stock as would permit or facilitate the sale and
distribution of all or a portion of the Underlying Stock.
SECTION 4 Your Covenants.
--------------
You covenant with the Company as follows:
(a) You agree to manage the distribution of the Units and to sell the
Units according to all of the terms and conditions of the NASD, all applicable
state and federal laws, including the Act, and any and all regulations related
thereto. You shall not have any authority to give any information or make any
representations in connection with any offer or sale of the Units other than as
contained in the Memorandum or as is otherwise expressly authorized in writing
by the Company.
(b) The Units shall be offered and sold only where the Units may be
legally offered and sold, and only to such persons in such states who shall be
legally qualified to purchase the Units.
(c) Neither you nor any person associated with you shall give any
information, written or oral, or make any representation, written or oral, in
connection with the offering other than those contained in the Memorandum or
such other material as may be provided or approved by the Company.
(d) You agree to engage as Soliciting Dealers only entities which are
also members of the NASD.
SECTION 5 Payment of Expenses and Fees.
----------------------------
The Company will pay all expenses incident to the performance of the
obligations of the Company under this Managing Dealer Agency Agreement,
including (i) the printing and delivery to you in quantities as you deem
necessary of copies of the Memorandum and any supplements or amendments thereto,
and of the Subscription Agreement; (ii) the printing, execution, filing and
delivery to you in quantities as you deem necessary of copies of any
supplemental sales material to be used in connection with the offering approved
by the Company and utilized in sales of the Units directly to the public; (iii)
the qualification of the Units under the securities or "blue sky" laws of the
jurisdictions designated by you in accordance with the provisions of Section
3(f), including filing fees and the fees and disbursements of any counsel
incurred in connection therewith; and (iv) the fees and disbursements of counsel
and accountants for the Company. In the event that the offering is commenced and
whether or not subscriptions for at least 150,000 Units shall not have been
received, then the Company will pay you an accountable expense allowance not to
exceed $50,000.
In the event (a) the offering of Units is cancelled by us without your
consent prior to the Offering Termination Date, (b) you inform us that the
Memorandum contains an untrue statement of a material fact or fails to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (c) any of our representations, warranties or
agreements contained in Section 1(a) are not true and correct at the Minimum
Subscription Closing Date, the Company shall pay you a break-up fee equal to
$50,000, provided that no such break-up fee shall be payable if either of the
events specified in (b) and (c) are cured prior to the Minimum Subscription
Closing Date and the event specified in clause (a) has not occurred.
11
SECTION 6 Conditions of Your Obligations.
------------------------------
Your obligations hereunder are subject to the accuracy of and compliance
with the representations and warranties of Company, to the performance by the
Company of its obligations hereunder and to the following further conditions:
(a) At the Minimum Subscription Closing Date and on each Additional
Issuance Date thereafter you shall receive the opinion of ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
& ▇▇▇▇▇▇▇, as counsel for the Company, in the form set forth in Exhibit B
hereto.
(b) At the Minimum Subscription Closing Date and on each Additional
Issuance Date thereafter you shall receive a certificate signed by the Company
to the effect that (i) the signer has carefully examined the Memorandum and, in
the signer's opinion, at the time the Memorandum was dated and at the Minimum
Subscription Closing Date and Additional Issuance Date, as the case may be, the
Memorandum did not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Memorandum did 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; (ii) since the date of the Memorandum no event
has occurred which should have been set forth in an amendment of, or supplement
to, the Memorandum but which has not been so set forth; (iii) no proceedings
have been instituted or threatened by the Commission or any state securities
administrator preventing, suspending or stopping the offer or sale of the Units
and not rescinded; (iv) the representations, warranties and agreements contained
in Section 1(a) are true and correct in all material respects with the same
effect as though expressly made at the Minimum Subscription Closing Date and
Additional Issuance Date as the case may be; and (v) since the date of the
Memorandum, no material adverse change in circumstance has occurred with regard
to the transactions described in any letters of intent described in the
Memorandum which should have been set forth in an amendment of, or supplement
to, the Memorandum, but which has not been so set forth, provided, however, that
with respect to clauses (i) and (ii) above, such certificate may exclude from
its coverage any matters relating to you.
(c) At the time the Memorandum is dated, you shall have received from
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co. a letter, in form and substance satisfactory to you and
your counsel, advising that (i) they are independent public accountants as
required by the Act and the published Regulations, (ii) it is their opinion that
the audited financial statements of the Company for the year ended December 31,
2000 included in the Memorandum or incorporated therein by reference to the
Annual Report, and covered by their opinions therein, comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Regulations relating to financial statements in registration statements on Form
SB-1.
At the Minimum Subscription Closing Date and on each Additional
Issuance Date you shall receive from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co. a letter dated as of
the Minimum Subscription Closing Date or such Additional Issuance Date to the
effect that they reaffirm, as of such date and as though made at such date, the
statements made in the letter furnished by such accountants pursuant to
subsection (c) of this Section 6, except that the specified date referred to in
such subsection will be a date not more than five days prior to the Minimum
Subscription Closing Date or such Additional Issuance Date.
(d) No order suspending the sale of the Units in any jurisdiction
designated by you shall have been issued on either the Minimum Subscription
Closing Date or the relevant Additional Issuance Date, if any, and no
proceedings for that purpose shall have been instituted or shall be
contemplated.
(e) If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Managing Dealer Agency Agreement to
be fulfilled, this Managing Dealer Agency Agreement and all your obligations
hereunder may be cancelled by you by notifying the Company of such cancellation
in writing or by telegram at any time at or prior to the Minimum Subscription
Closing Date, or at any time after the Minimum Subscription Closing Date, all
your obligations hereunder may be cancelled or terminated by you by notifying
the Company of such cancellation or termination in writing or by telegram at any
time at or prior to the Offering
12
Termination Date and any such cancellation or termination shall be without
liability of any party to any other party except for the break-up fee as
otherwise provided in Section 5.
SECTION 7 Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless you, your
representatives and employees, and each person, if any, who controls you within
the meaning of Section 15 of the Act, you and such person (referred to
collectively as the "Indemnified Parties"), 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
material fact contained in the Memorandum (or any amendment or supplement
thereto) or any omission or alleged omission therefrom of a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading or arising out of any untrue statement or alleged untrue statement of
a material fact contained in the Memorandum (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material 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 reliance upon and in conformity with
information furnished to the Company in writing by you expressly for use in the
Memorandum (or any amendment or supplement thereto);
(ii) against any and all loss, liability, claim, damage and expense
whatsoever arising out of any untrue statement or alleged untrue statement of a
material fact contained in any supplemental sales material approved by the
Company for use by you, or any omission or alleged omission therefrom of a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were made
and in conjunction with the Memorandum delivered therewith, not misleading;
provided, however, that with respect to any indemnification relating to
supplemental sales material designated for broker-dealer use only such
indemnification shall be limited to any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission of a material
fact related to the Memorandum or the offering;
(iii)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 of any claim whatsoever based upon any
such untrue statement or omission or any such alleged untrue statement or
omission as provided in subparagraph (a)(i) and (a)(ii) above, if such
settlement is effected with the written consent of the Company; and
(iv) against any and all expense whatsoever reasonably 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 (a)(i), (a)(ii) or (a)(iii) above.
The foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any untrue statement, alleged untrue statement,
omission or alleged omission made in the Memorandum or any supplemental sales
material, it shall not inure to the benefit of any of the Indemnified Parties if
you failed to send or give a copy of the Memorandum (as amended or supplemented,
if the Company shall have furnished any amendment or supplement thereto to you
which shall correct such untrue statement or omission which is the basis of the
loss, liability, claim, damage or expense for which indemnification is sought)
to the person asserting any such loss, liability, claim, damage or expense prior
to or together with the written confirmation of the receipt of the subscription
for Units from such person; or if you sell any Units and deliver to the person
asserting any such loss, liability, claim, damage or expense a Memorandum
containing an alleged untrue statement or omission which is the basis of the
loss, liability, claim, damage or expense for which indemnification is sought at
a time subsequent to having been notified by the Company that it believes that
such Memorandum should be amended or supplemented; or if you delivered any
copies of the Memorandum to potential subscribers in a state in which the offer
or sale of the Units were not authorized or for which there was no exemption for
such offer and sale.
13
(b) You agree to indemnify and hold harmless the Company, each of its
representatives and employees, and each person, if any, who controls any such
person, within the meaning of Section 15 of the Act, to the same extent as the
foregoing indemnity from the Company in Section 7(a) but only with respect to
statements or omissions in the Memorandum (or any amendment or supplement
thereto) or relating to you or your affiliates in the supplemental sales
literature distributed to the public made in reliance upon and in conformity
with information furnished to the Company in writing by you expressly for use in
the Memorandum (or any amendment or supplement thereto) or the supplemental
sales literature distributed to the subscribers; or if you fail to send or give
a copy of the Memorandum to the person asserting a claim against the Company; or
if you delivered any copies of the Memorandum to potential subscribers in a
state in which the offer or sale of Units were not authorized or for which there
was no exemption for such offer and sale. In case any action shall be brought
against the Company based on the Memorandum (or any amendment or supplement
thereto) or the supplemental sales literature distributed to the subscribers and
in respect of which indemnity may be sought against you, you shall have the
rights and duties given to the Company by the provisions of Sections 7(a) and
7(c).
(c) In no case shall the Company be liable under this Section 7 for
indemnity with respect to any claim made against any of the Indemnified Parties
unless the Company shall be notified in writing of the nature of the claim
within a reasonable time after the assertion thereof, but failure so to notify
the Company shall not relieve it from any liability which it may have otherwise
than on account of this Section 7 for indemnity. In no case shall the Company be
liable under this Section 7 for indemnity to the indemnified parties for any
loss, liability, claim, damage or expense described in Section 7(a) above if
such loss, liability, claim, damage or expense arose entirely or primarily,
directly or indirectly, from your gross negligence or willful misconduct. For
purposes of the foregoing sentence, an Indemnified Party shall be considered
having been grossly negligent or engaged in willful misconduct for purposes of
this Managing Dealer Agency Agreement only if, without limitation, any court
having jurisdiction has made a final determination as to such circumstances and
issued an order with respect thereto or any settlement agreement approved by any
court having jurisdiction has been entered into. The Company shall be entitled
to participate at its own expense in the defense or, if it so elects within a
reasonable time after receipt of such notice, to assume the defense of any suit
so brought, which defense shall be conducted by counsel chosen by it and
satisfactory to the Indemnified Parties, defendant or defendants therein. In the
event that the Company elects to assume the defense of any such suit and retain
such counsel, the Indemnified Parties, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel thereafter retained
by them. In the event that the parties to any such action (including impleaded
parties) include the Company and any of the Indemnified Parties and such
Indemnified Party or Parties shall have been advised by counsel chosen by such
Indemnified Party or Parties and satisfactory to Company that there may be one
or more legal defenses available to such Indemnified Party or Parties which are
different from or additional to those available to the Company, the Company
shall not have the right to assume the defense of such action on behalf of such
Indemnified Party or Parties and will reimburse such Indemnified Party or
Parties as aforesaid for the reasonable fees and expenses of any counsel
retained by such Indemnified Party or Parties, it being understood that the
Company shall not, in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for such Indemnified Party or Parties,
which firm shall be designated in writing by such Indemnified Party or Parties.
The Company agrees to notify you within a reasonable time of the assertion of
any claim in connection with the sale of the Units against it, any of its
officers or directors or any person who controls the Company within the meaning
of Section 15 of the Act.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 7 is for
any reason held by a court of competent jurisdiction to be unavailable to you
from the Company or to the Company from you, as the case may be, for any matters
covered by Sections 7(a) or 7(b), the Company and you shall contribute to the
aggregate losses, claims, expenses, damages and liabilities (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted) to which the Company and you may be subject as a result of a matter
referred to in Sections 7(a) or 7(b) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and you
and your affiliates on the other from the offering of the Units and the
operation of the Company 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 benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and you and your affiliates on
the other in
14
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 you and your affiliates on the other shall be deemed to be in the
same proportions so that you and your affiliates are responsible for that
portion represented by the percentage that the sales commission and other
compensation from the proceeds of the offering received by you or your
affiliates in the aggregate bears to the aggregate payments made for the
purchase of the Units, and the Company shall be responsible for the balance. The
relative fault of the Company on the one hand and you and your affiliates 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 on the one hand
or by you and your affiliates and the parties' relative intent, knowledge and
access to information. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this Section 7(d), notify such party or parties from whom
contribution may be sought; and the omission so to notify such party or parties
will relieve the party or parties from whom contribution may be sought from any
obligation it or they may have hereunder as to the particular item for which
contribution is then being sought but not from any other liability which it or
they may have to the party seeking contribution.
SECTION 8 Representations., Warranties and Agreements to Survive Delivery.
----------------------------------------------------------------
All representations, warranties and agreements contained in this Managing
Dealer Agency Agreement (including your covenants provided in Section 4 hereof)
or contained in certificates of the Company submitted pursuant hereto shall
remain operative and in full force and effect, regardless of any investigation
made by, or on behalf of, you or any person who controls you, or by or on behalf
of the Company and shall survive the Offering Termination Date.
SECTION 9 Effective Date of this Agency Agreement and Termination Thereof.
---------------------------------------------------------------
(a) This Managing Dealer Agency Agreement shall become effective on the
date of the Memorandum. The Company may prevent this Managing Dealer Agency
Agreement from becoming effective without liability of any party to any other
party, except for the break-up fee and expenses as otherwise provided in Section
5, by giving the notice indicated below in this Section prior to the time when
this Managing Dealer Agency Agreement would otherwise become effective as herein
provided.
(b) You shall have the right to terminate this Managing Dealer Agency
Agreement by giving the notice indicated below in this Section 9 (A) at any time
at or prior to the Minimum Subscription Closing Date or any Additional Issuance
Date if there shall have been, since the dates as of which information is given
in the Memorandum, any material adverse change in the condition of the Company,
financial or otherwise, or in the earnings, affairs or business prospects of the
Company, whether or not arising in the ordinary course of business, or (B) at
any time at or prior to the Minimum Subscription Closing Date (i) if there shall
have occurred any new outbreak of hostilities or other national or international
calamity or crisis (including acts of terrorism conducted in the United States),
or a bankruptcy default with respect to the debt obligations of, or the
institution of proceedings under the Federal bankruptcy laws by or against, any
State of the United States, the effect of such outbreak, calamity or crisis on
the financial markets of the United States being such as in your judgment would
make the offering or delivery of the Units impracticable, or (ii) if trading on
the New York Stock Exchange shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required on such Exchange, or if a banking moratorium
shall have been declared by either Federal or California authorities. If you
terminate this Managing Dealer Agency Agreement as provided in this Section,
such termination shall be without liability of any party to any other party
except for the break-up fee and expenses as otherwise provided in Section 5.
(c) If you elect to prevent this Managing Dealer Agency Agreement from
becoming effective or to terminate this Managing Dealer Agency Agreement as
provided in this Section 9, the Company shall be notified promptly by you, by
telephone or telegram, confirmed by letter. If the Company elects to prevent
this Managing
15
Dealer Agency Agreement from becoming effective as provided in this Section 9,
you shall be notified promptly by the Company by telephone or telegram,
confirmed by letter.
SECTION 10 Notices and Authority to Act.
----------------------------
All communications hereunder shall be in writing and, if sent to you,
shall be mailed, delivered or telegraphed and confirmed to you at ▇. ▇. ▇▇▇▇▇▇ &
Company, Inc., ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, with a copy to ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq. at ▇▇▇▇▇ &
▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
or, if sent to the Company, shall be delivered or telegraphed and confirmed at
Fortune Natural Resources Corporation, One Commerce Green, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Chairman, with a
copy to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq. at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
SECTION 11 Notices and Authority to Act.
----------------------------
This Managing Dealer Agency Agreement shall inure to the benefit of and be
binding upon each of you, the Company and the Company's respective successors,
this Managing Dealer Agency Agreement and the conditions and provisions hereof
being intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective successors and controlling persons, and for the
benefit of no other person, firm or corporation, except as otherwise
specifically provided herein.
SECTION 12 Applicable Law.
--------------
This Managing Dealer Agency Agreement shall be construed in accordance
with the laws of the State of California.
If the foregoing is accordance with your understanding of our agreement,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement among you and the
Company in accordance with its terms.
Very truly yours,
FORTUNE NATURAL RESOURCES CORPORATION, a
Delaware corporation
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chairman of the Board
Confirmed and Accepted
as of the date first above written:
▇. ▇. ▇▇▇▇▇▇ & COMPANY, INC.
By /s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Managing Director
EXHIBIT A
FORTUNE NATURAL RESOURCES CORPORATION
(a Delaware corporation)
$4,000,000 Aggregate Amount of Units
(Each Unit represents one share of Series A Convertible
Participation Preferred Stock, par value $1.00 per share,
and one stock purchase warrant to purchase shares of common stock,
par value $0.01 per share, on the terms and in the
amounts set forth in such warrants)
SOLICITING DEALER AGREEMENT
_______________, 2002
Ladies/Gentlemen:
We have agreed to use our best efforts to sell up to 400,000 Units (the
"Units"), subscribers to which may, at the election and sole discretion of the
Company, become holders of the Units, which number of Units may be increased by
up to an additional 100,000 Units as described in the enclosed Memorandum. The
Units are being offered by us as agent for the Company. The Units and the terms
of the offering are more fully described in the enclosed Memorandum, receipt of
which you hereby acknowledge.
We are hereby inviting certain Soliciting Dealers, subject to the other
terms and conditions set forth below and in such Memorandum, to solicit
subscriptions for Units. You hereby confirm that you are a dealer actually
engaged in the investment banking or securities business and that you are either
(i) a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD") or (ii) a dealer with its principal place of business located
outside the United States, its territories or possessions and not registered
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), who
hereby agrees not to make any sales within the United States, its territories or
its possessions or to persons who are nationals thereof or residents therein.
You hereby agree to comply with the provisions of Sections 24 and 34 of Article
III of the Rules of Fair Practice of the NASD, including Appendix F thereto, and
if you are a foreign dealer and not a member of the NASD, you also agree to
comply with: (i) the NASD's interpretation with respect to free-riding and
withholding, (ii) the provisions of Sections 8 and 36 of Article III of such
Rules of Fair Practice, as though you were a member of the NASD, and (iii)
Section 25 of Article III thereof as that Section applies to non-member foreign
dealers.
The offering price of the Units is $10 per Unit with a minimum purchase
requirement of 1,000 Units. We will pay to you a commission of 7.5% of the
proceeds received in each case with respect to each Unit sold by the Company
pursuant to a Subscription Agreement solicited by you and warrants equal to 2.5%
of the proceeds received. Payment will be made promptly on the Minimum
Subscription Closing Date or any Additional Issuance Date; provided, however,
that in the event that a sale of a Unit for which you have solicited a
Subscription Agreement shall not occur, whether by reason of the failure of any
condition specified herein or in the Subscription Agreement or the Managing
Dealer Agency Agreement, rejection of the subscription by the Company or
otherwise, no commission in respect thereof shall be due. Commissions will be
payable only with respect to transactions lawful in the jurisdiction where they
occur. You agree that each subscriber entitled to a reduction in purchase price
shall pay an amount net of any such reduction in the manner set forth in the
enclosed Memorandum. Attached hereto as Exhibit A is information regarding your
address, states you are qualified in and notice provisions.
You agree to submit on behalf of each person desiring to purchase Units a
Subscription Agreement Signature Page in form and substance satisfactory to the
Company and such other information as the Company
A-1
deems reasonably necessary, and all documents, if any, required under state
securities laws. You shall ascertain that each Subscription Agreement Signature
Page has been properly completed. All payments for subscriptions shall be made
by check payable to the order of "Pacific Mercantile Bank -- FNRC Escrow
Account."
You agree to promptly submit on behalf of each person desiring to purchase
Units a completed Subscription Agreement as well as all checks received by you
from subscribers to us, whereupon such Subscription Agreement and checks will be
forwarded by us to Pacific Mercantile Bank.
Subscriptions for Units shall be made only during the offering period
described in the Memorandum.
Upon receipt of the aforementioned Subscription Agreement by the Bank, the
Company will determine as soon as practicable (but in no event more than 30 days
after receipt) whether it expects to accept the proposed purchaser as a
unitholder with respect to Units of the Company, it being understood that the
Company reserves the right to reject the tender of any Subscription Agreement.
Should the Company determine to accept the tender of the Subscription Agreement,
the Company will promptly advise you of such action. Should the Company
determine to reject the tender of the Subscription Agreement, it will promptly
notify you in writing (and, if the Company elects, the prospective purchaser) of
such determination and the Company shall promptly return the tendered
Subscription Agreement and the check in payment of the purchase price of the
Units to you and you shall then promptly return the same to the Subscriber.
You agree to retain in your records and make available to us and the
Company, for a period of at least four years, information establishing that each
purchaser of the Units pursuant to a Subscription Agreement solicited by you is
within the permitted class of investors under the requirements, if any, of the
jurisdiction in which such purchaser is a resident, and such purchaser has met
the suitability requirements of Appendix F of the NASD's Rules of Fair Practice
as set forth in the Subscription Agreement. In that connection, you shall bring
to the attention of potential investors the liquidity and marketability
limitations with respect to the Units. You shall not execute any transaction in
a discretionary account without the prior written approval of the purchaser. In
this regard, you represent that each of your agents or employees has been
instructed that he or she must comply with the requirements of Section 3 of
Appendix F and that all steps necessary to insure that such salesmen will comply
with such requirements have been taken.
You shall have no reasonable grounds to believe, on the basis of having
received and examined the Memorandum, including, without limitation, the "Use of
Proceeds" and "Risk Factors" sections thereof, that all material facts are not
adequately and accurately disclosed and provide a basis for evaluating an
investment in the Company, and for purposes of evaluating the Company, you
recognize that under Appendix F you may rely on the information from an inquiry
conducted by another NASD member only if you have reasonable grounds to believe
that such inquiry was conducted with due care, the results of the inquiry were
given to you with the permission of the NASD member that made the inquiry and
that no NASD member that participated in the inquiry is a sponsor or affiliate
of the sponsor of the Company.
All subscriptions solicited by you will be strictly subject to
confirmation by us and acceptance thereof by the Company. Neither you nor any
other person is authorized to give any information, written or oral, or make any
representations, written or oral, in connection with the offer and sale of Units
other than those contained (i) in the Memorandum in connection with the sale of
any of the Units or (ii) any supplemental sales material supplied or prepared by
the Company and delivered to you by the Company for use in making offers of
Units. No dealer is authorized to act as agent for us when offering any of the
Units to the public or otherwise, it being understood that you and each other
Soliciting Dealer are independent contractors with us. Nothing herein contained
shall constitute you or any other Soliciting Dealer an association or partner
with us.
Upon release by us, you may offer the Units at the offering price, subject
to the terms and conditions hereof.
We understand that the Company will provide you with such number of copies
of the enclosed Memorandum and such number of copies of amendments and
supplements thereto as you may reasonably request. We also understand that the
Company may provide you with certain supplemental sales material to be used by
you in
A-2
connection with the solicitation of Units of the Company. In the event you elect
to use such supplemental sales material, you agree that such material shall not
be used in connection with the solicitations of Units unless accompanied or
preceded by the Memorandum as then currently in effect and as it may be amended
or supplemented in the future. You agree that you will deliver a copy of the
Memorandum, and any amendments or supplements thereto, to each person to whom
you make an offer of Units and that you will not disseminate or publish any
advertisement relating to your solicitation of subscribers for the Units
(including, without limitation, any so-called tombstone advertisement or any
advertisement relating to seminars) (i) the form of which has not been submitted
to the NASD by the Company and (ii) that has not been approved in writing by the
Company.
This Agreement shall terminate at the close of business on the 45th day
after the completion of the sale of all the Units by the Company, unless earlier
terminated.
We shall have full authority to take such action as we may deem advisable
in respect to all matters pertaining to the offering. We shall be under no
liability to you except for lack of good faith and for obligations expressly
assumed by us in this Agreement. Nothing contained in this paragraph is intended
to operate as, and the provisions of this paragraph shall not constitute, a
waiver by you of compliance with any provision of the Securities Act of 1933, as
amended (the "Act"), or of the rules and regulations thereunder (the
"Regulations").
Upon application to us, we will inform you as to the jurisdictions in
which we believe the Units have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such jurisdictions,
but we assume no responsibility or obligation as to your right to sell Units in
any jurisdiction. You agree that we may limit the number of offers and sales
which may be made, or the number of Units which may be sold, by you in any
jurisdiction. You agree not to sell Units in any jurisdiction where such sale by
you is prohibited.
You warrant and represent that you and your agents and employees are duly
licensed to sell the Units in those jurisdictions in which you do so. You
further agree that you will promptly notify us of any changes in your, or your
agent's or employee's, status as a licensed broker-dealer in any jurisdiction in
which you or your agent or your employee has been offering or selling Units.
We will make available to you, to the extent they are made available to us
by the Company, such number of copies of the Memorandum as you may reasonably
request for the purposes contemplated by the Act, the Regulations, the 1934 Act,
and the applicable rules and regulations thereunder.
In making any offer or sale of Units, you shall comply with the provisions
of the 1933 Act and the 1934 Act, you shall comply with all of the provisions of
this Soliciting Dealer Agreement, and you shall take all necessary actions
pursuant to instructions given by counsel to the Company or us or otherwise
required to permit the offer and sale of the Units to comply with the securities
or "blue sky" laws of the jurisdictions in which you make offers or sales of
Units.
The Company shall execute a copy of this Agreement for the purposes of
affording you the indemnifications provided in Section 7 of the Managing Dealer
Agency Agreement.
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and permitted assigns, this Agreement
and its conditions and provisions being for the sole and exclusive benefit of
the parties hereto and their respective successors and permitted assigns, and
for the benefit of no other person, firm, partnership or corporation.
The terms used herein, unless defined otherwise, shall have the same
meaning as in the Agency Agreement.
This Agreement may be amended only by means of a written document, signed
by the party to be bound, and may not be assigned by you without our prior
written consent.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
A-3
Any notice from us to you shall be deemed to have been duly given if
mailed or telegraphed to you at the address to which this Agreement is mailed.
Please confirm your agreement hereto by signing and returning at once to
us at ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, the enclosed duplicate of this letter. Upon receipt
thereof, this letter and such signed duplicate copy will evidence the agreement
between us.
Very truly yours,
▇. ▇. ▇▇▇▇▇▇ & COMPANY, INC.
By /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President, Administration
Accepted:
---------------------------------
(Signature of Selected Dealer)
---------------------------------
---------------------------------
(Address to which all communications are to be sent)
Agreed to by FORTUNE NATURAL RESOURCES CORPORATION for the purpose of
providing indemnification to the Soliciting Dealer to the same extent as
provided in Section 7 of the Managing Dealer Agency Agreement to which the form
of this Agreement is attached as an Exhibit.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chairman of the Board
A-4
EXHIBIT "A"
TO
SOLICITING DEALER AGREEMENT
1. Date of Agreement: _______________, 20__
2. Identity of Soliciting Dealer:
Name: ______________________________________________________________
Type of Entity: ____________________________________________________
(corporation, partnership, or proprietorship)
Organized in: ______________________________________________________
(which state)
Qualified to do business and in good standing in:
____________________________________________________________________
(which states)
3. Person to receive notice:
Name: _____________________________________________________________
Address: __________________________________________________________
City, State and Zip Code: _________________________________________
Telephone No.: ____________________________________________________
5. Person to receive commission:
____________________________________________________________________
A-5
EXHIBIT B
_______________, 2002
▇. ▇. ▇▇▇▇▇▇ & Company, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Private Placement of Securities of Fortune Natural Resources
Corporation
-------------------------------------------------------------
Ladies and Gentlemen:
This opinion is furnished to you, ▇. ▇. ▇▇▇▇▇▇ & Company,
Inc. as managing dealer to Fortune National Resources
Corporation, a Delaware corporation (the "Company"), pursuant to
Section 6(a) of that certain Managing Dealer Agency Agreement
dated February 15, 2002 (the "Agency Agreement"), by and between
the Company and you.
We have acted as counsel to the Company in connection with the proposed
issuance and sale of up to $5,000,000 of its Series A Convertible Participating
Preferred Stock (the "Preferred Stock") and stock purchase warrants (the
"Warrants") (the Preferred Stock and the Warrants are collectively referred to
as the "Securities") offered and sold pursuant to the Company's Confidential
Private Placement Memorandum, dated February 15, 2002 (the "Memorandum").
Capitalized terms used in this opinion, unless specifically defined in this
opinion, have the meanings given them in the Agency Agreement.
Documents Reviewed
In connection with rendering the opinions set forth herein, we examined
the Company's Certificate of Incorporation and its By-Laws, each as amended to
date, and the proceedings of the Company's Board of Directors and shareholders
taken in connection with issuing the Securities, and the following additional
documents:
1. The Agency Agreement;
2. The Memorandum;
3. The form of Subscription Agreement (the "Subscription
Agreement") by and among the Company and each of the purchasers
of the Securities (the "Investors");
4. Certificate of Status Domestic Corporation, dated
_______________, 2002, issued by the Delaware Secretary of State;
5. Good Standing Certificates from applicable agencies of
other states wherein the Company is qualified to do business; and
6. The Company's Certificate of Designations authorizing
the Preferred Stock.
B-1
Assumptions
In conducting our examination, we have assumed the following: (i) that any
agreement relating to the issuance of the Securities, including, without
limitation, the Agency Agreement and the Subscription Agreement, has been
executed by each of the parties thereto in the same form as the forms which we
have examined, (ii) the genuineness of all signatures, the legal capacity of
natural persons, the authenticity and accuracy of all documents submitted to us
as originals, and the conformity to originals of all documents submitted to us
as copies, and (iii) that the Memorandum and each of the Agreements has been
duly and validly authorized, executed, and delivered by the party or parties
thereto other than the Company.
Opinions
Based upon and subject to the assumptions, qualifications and limitations
set forth in this letter, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company does not, directly or indirectly, own or control or have any interest
in, any corporation, partnership, limited liability company, association or
other entity.
2. The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Memorandum.
3. The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which the ownership or leasing
of its properties or the conduct of its business requires such qualification
except to the extent that failure to so qualify would not have a material
adverse effect on the Company.
4. The authorized, issued and outstanding capital stock of the Company
is as set forth in the Memorandum, including, without limitation, as stated in
the "Capitalization" section of the Memorandum but excepting the financial
statements and related schedules or other financial or statistical data on which
we express no opinion; the issued and outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable,
and, to our knowledge, will not have been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first refusal
or other similar right, except for registration rights that have been fulfilled
by the Company.
5. When delivered to the Investors against payment of the agreed
consideration therefor in accordance with the provisions of the Subscription
Agreement, the Securities and any common stock of the Company (the "Common
Stock") to be issued upon the conversion of the Securities, as described in the
Agreements, will be duly authorized and validly issued, fully paid and
nonassessable, and will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal or
other similar right.
6. The Company has the requisite corporate power and authority to
execute, deliver and perform the Agreements and to issue, sell and deliver to
the Investors the Securities and the Common Stock to be issued upon the
conversion or exercise of the Securities.
7. The Subscription Agreement and the Agency Agreement have been duly
authorized by all necessary corporate action on the part of the Company, and
have been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by the other parties thereto, each is a
valid and binding agreement of the Company, enforceable in accordance with its
respective terms, except as rights to indemnification thereunder may be limited
by applicable law and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by equitable principles.
8. The performance of the Agreements and the consummation of the
transactions, therein contemplated, including, without limitation, the issuance
of the Securities and the Common Stock to be issued upon conversion of the
Securities do not (a) violate any provision of the Company's Certificate of
Incorporation or By-Laws or (b) result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any
B-2
bond, debenture, note or other evidence of indebtedness, or any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument known to us to which the Company is a party or by which
its properties are bound the effect of which would have a material adverse
effect on the business of the Company or the consummation of the transaction
contemplated by the Subscription Agreement or the Agency Agreement, or any
applicable statute, rule or regulation known to us, or any order, writ or decree
of any court, government or governmental agency or body having jurisdiction over
the Company or over any of their properties or operations.
9. No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body having jurisdiction over
the Company, or over any of their properties or operations is necessary in
connection with the consummation by the Company of the transactions contemplated
in the Subscription Agreement or the Agency Agreement, including, without
limitation, the issuance of the Securities and the Common Stock to be issued
upon conversion of the Securities, except such as may be required under state or
other securities or Blue Sky laws in connection with the purchase and the
distribution of the Securities by the Company.
10. Assuming the representations and warranties of the Investors in the
Subscription Agreement are true, the offer and sale of the Securities by the
Company in accordance with the terms of the Subscription Agreement and the
Agency Agreement is exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "Securities Act").
11. To our knowledge, except as described in the Memorandum, there are no
legal or governmental proceedings pending or threatened against the Company.
12. To our knowledge, the Company is not presently (a) in violation of
its Certificate of Incorporation or By-Laws, or (b) in breach of any applicable
statute, rule or regulation known to such counsel or, to our knowledge, any
order, writ or decree of any court or governmental agency or body having
jurisdiction over the Company, or over any of its properties or operations.
In connection with our review of the Memorandum and the Subscription
Agreement and the Agency Agreement, we participated in conferences with officers
and representatives of the Company, and with representatives of the Company's
independent certified public accountants, at which we made inquiries of such
officers and representatives and discussed the contents of the Memorandum and
related matters, and performed such other examinations as we deemed necessary;
without taking further action to verify independently the statements made in the
Memorandum, nothing has come to our attention that would lead us to believe that
the Memorandum or any amendment or supplement thereto made by the Company prior
to the date hereof, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that in connection with
the opinion set forth in this sentence, we express no opinion as to financial
statements and related schedules and other financial or statistical data
therein.
Whenever a statement herein is qualified by "known to us," "to our
knowledge," or similar phrase, it is intended to indicate that, during the
course of our representation of the Company, no information that would give us
current actual knowledge of the inaccuracy of such statement has come to the
attention of_____________________________________________, the attorneys in this
firm who have rendered legal services in connection with the transaction
described in the first two paragraphs of this letter. However, we have not
undertaken any independent inquiry to determine the accuracy of such statement,
and any limited inquiry undertaken by us should not be regarded as such an
investigation. No inference as to our knowledge of any matters bearing on the
accuracy of such statement should be drawn from the fact of our representation
of the Company.
Limitations
This opinion is based solely upon the laws of the United States and the
State of Delaware, as currently in effect, and does not include an
interpretation or statement concerning the laws of any other state or
jurisdiction.
B-3
This opinion is rendered as of the date set forth above solely for your
benefit and the benefit of your counsel and may not be reviewed, relied upon,
used, circulated, referred to or quoted to any party without our prior written
consent.
We make no undertaking to supplement this opinion if, after the date
hereof, facts or circumstances come to our attention or changes in the law occur
which could affect such opinion.
Very truly yours
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
B-4
