MILESTONE SCIENTIFIC INC.
AGENCY AGREEMENT
February 4, 1997
GKN Securities Corp.
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Gentlemen:
Milestone Scientific Inc., a Delaware corporation ("Company"), proposes to
offer for sale in a private placement ("Offering"), units ("Units") aggregating
a minimum of $2,000,000 and a maximum of $4,000,000 of gross proceeds to the
Company. Each Unit consists of one share of common stock, $.001 par value
("Common Stock"), and one Common Stock Purchase Warrant ("Warrant"). The
per-Unit offering price ("Offering Price") will be 80% of the average of the
closing bid price of the Common Stock on the twenty consecutive business days
ending three business days prior to the closing of the Offering. Each Warrant
will entitle the holder thereof to purchase one share of Common Stock during the
three year period commencing on the closing of the Offering, at an exercise
price equal to 150% of the per-Unit Offering Price. The Warrant will be issued
in the form of Exhibit A ("Warrant Agreement") to the Offering Documents (as
hereinafter defined). No fractional Units will be issued; instead, the Company
will round up to the nearest whole number of Units, at no additional cost to the
investor. The Units will be offered on a "best efforts, $2,000,000 minimum,
$4,000,000 maximum" basis, in accordance with Section 4(2) and/or 3(b) of the
Securities Act of 1933, as amended ("Securities Act"), and Rules 501-506 of
Regulation D ("Reg D") promulgated thereunder, only to "accredited investors,"
as defined in Reg D. The minimum subscription amount will be $100,000, but
subscriptions for amounts less than $100,000 may be accepted at the discretion
of the Placement Agent (as defined hereinafter) and the Company.
The Units, Common Stock and Warrants have the terms and conditions
reflected in the Company's Confidential Investment Summary dated February 4,
1997 to be delivered to each purchaser of Units ("Investment Summary"). The
Investment Summary, together with all
exhibits thereto, including, but not limited to, the form of Common Stock
Purchase Warrant, form of Subscription Agreement to be executed by each
purchaser and the Company, the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995 and the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1996, will be referred to herein as the
"Offering Documents." GKN Securities Corp. is sometimes referred to herein as
"GKN" or the "Placement Agent." As used herein, the term "Warrants" include the
"Extra Warrants" as defined herein.
I. Appointment of Placement Agent; The Offering Period.
1.1 Appointment of Placement Agent. You are hereby appointed exclusive
Placement Agent of the Company during the offering period herein specified
("Offering Period") for the purpose of assisting the Company in placing the
Units with purchasers who are qualified accredited investors ("Subscribers").
You hereby accept such agency and agree to assist the Company in placing Units
with the Subscribers. Your agency hereunder is not terminable by the Company
except upon termination of the Offering or breach by you of your material
obligations hereunder.
1.2 Offering Period. The Offering Period shall commence on the day the
Offering Documents are first made available to you by the Company and shall
continue until February 28, 1997; provided, however, that the Offering Period
may be extended for an additional period not to exceed thirty-one (31) days by
the mutual decision of the Company and the Placement Agent, without notice to
any Subscriber. If, at any time during the Offering Period, subscriptions for
not less than $2,000,000 and not more than $4,000,000 have been received and
accepted by the Company (and funds in payment therefor have cleared the banking
system), then, upon the mutual consent of the Company and the Placement Agent, a
closing shall take place with respect to such accepted subscriptions
("Closing"). If subscriptions for at least $2,000,000 are not received and
accepted (and funds in payment therefor cleared) prior to the end of the
Offering Period (including any extension thereof), the Offering will be
terminated and all funds received from Subscribers will be returned, without
interest and without any deduction. The day that the Offering Period terminates
is hereinafter referred to as the "Termination Date."
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1.3 Offering Documents. The Company will provide the Placement Agent with a
sufficient number of copies of the Offering Documents for delivery to potential
Subscribers and such other information, documents and instruments which the
Placement Agent may reasonably request in order to comply with the rules,
regulations and judicial and administrative interpretations respecting
compliance with applicable state and federal statutes related to the Offering.
1.4 Segregation of Funds. Each subscriber for Units shall tender to the
Placement Agent a check payable to "GKN Securities Corp. -- Milestone Special
Account" in the amount of the investment subscribed for, which funds shall be
held by the Placement Agent in a segregated non-interest bearing bank account in
accordance with Rules 10b-9 and 15c2-4 promulgated under the Securities Exchange
Act of 1934 ("Exchange Act"), as set forth in the Offering Documents.
1.5 No Firm Commitment. The Company understands and acknowledges that the
undertaking by the Placement Agent pursuant to this Agreement is not a "firm
commitment" offering, and the Placement Agent is not obligated in any way to
purchase or sell the Units offered hereby.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants as follows:
2.1 Due Incorporation and Qualification. The Company has been duly
incorporated, is validly existing and is in good standing under the laws of its
state of incorporation and is duly qualified as a foreign corporation for the
transaction of business and is in good standing in each jurisdiction in which
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to so qualify would not
have a material adverse effect on the business of the Company and the
Subsidiaries taken as a whole. The Company has all requisite corporate power and
authority necessary to own or hold its properties and conduct its business as
described in the Offering Documents.
2.2Authorized Capital. The Company is authorized to issue 10,000,000 shares
of Common Stock, of which 4,633,350 shares are currently issued and outstanding.
All of the issued and outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and non-assessable. None of the
holders of such outstanding shares of Common
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Stock is subject to personal liability solely by reason of being such a holder.
The offers and sales of such outstanding shares of Common Stock were at all
relevant times either registered under the Securities Act and the applicable
state securities or Blue Sky laws or exempt from such registration. The Company
has reserved for issuance a sufficient number of shares of Common Stock to be
issued to the Subscribers and upon the exercise of the Warrants and Extra
Warrants (as hereinafter defined) as set forth in the Warrant Agreement
(collectively, "Warrant Shares") and to be issued pursuant to the Placement
Agent Options (as herein defined) and the Warrants underlying the Placement
Agent Options.
2.3 No Preemptive Rights; Options; Registration Rights. Except as set forth
on Schedule 2.3, there are no preemptive or other rights to subscribe for or
purchase, or any restriction upon the voting or transfer of, any shares of
Common Stock or other securities of the Company, under the Certificate of
Incorporation or By-Laws of the Company or under any agreement or other
outstanding instrument to which the Company is a party or by which it is bound.
Except as set forth on Schedule 2.3, the Company does not have outstanding any
option, warrant, convertible security, or other right permitting or requiring it
to issue, or otherwise to purchase or convert any obligation into, shares of
Common Stock or other securities of the Company and the Company has not agreed
to issue or sell any shares of Common Stock or other securities of the Company.
Except as set forth on Schedule 2.3, no holder of any of the Company's
securities has any rights, "demand," piggyback" or otherwise, to have such
securities registered or to demand the filing of a registration statement.
2.4 Financial Statements. The financial statements of the Company included
in the Offering Documents ("Financials") fairly present the financial position
and results of operations of the Company at the dates thereof and for the
periods covered thereby, subject, in the case of interim periods, to year-end
adjustments and normal recurring accruals. The Company has no material
liabilities or obligations, contingent, direct, indirect or otherwise except (i)
as set forth in the latest balance sheet included in the Financials (the date of
such Financials being referred to as the "Balance Sheet Date"), (ii) those
incurred in the ordinary course of business since the Balance Sheet Date and
(iii) as set forth on Schedule 2.4. Schedule 2.4 also sets forth all outstanding
amounts due to any officers, directors or shareholders of the Company, or to any
of their respective affiliates, including, but not limited to, accrued salaries,
loans, etc.
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2.5 No Material Adverse Changes. Except as otherwise stated in the Offering
Documents, since the Balance Sheet Date, there has not been any change in the
condition, financial or otherwise, of the Company which could materially
adversely affect its ability to conduct its operations as described in the
Offering Documents.
2.6 Subsidiaries. Except for the Subsidiaries set forth in Schedule 2.6,
the Company has no subsidiaries and has no interest in, shares of capital stock
of or right to acquire an interest in or shares of capital stock of any other
corporation, limited liability company, partnership or other entity. The Company
owns the outstanding capital stock of the Subsidiaries as set forth in Schedule
2.6 free and clear of all liens, charges and encumbrances of any kind
whatsoever, and there are no outstanding rights to acquire, or directly or
indirectly control the vote or transfer of, any of the capital stock of the
Subsidiaries.
2.7 Taxes. The Company has filed all federal tax returns and all state and
municipal and local tax returns (whether relating to income, sales, franchise,
withholding, real or personal property or other types of taxes) required to be
filed under the laws of the United States and applicable states, and has paid in
full all taxes which have become due pursuant to such returns or claimed to be
due by any taxing authority or otherwise due and owing; provided, however, that
the Company has not paid any tax, assessment, charge, levy or license fee that
it is contesting in good faith and by proper proceedings and adequate reserves
for the accrual of same are maintained if required by generally accepted
accounting principles. Each of the tax returns heretofore filed by the Company
correctly and accurately reflects the amount of its tax liability thereunder.
The Company has withheld, collected and paid all levies, assessments, license
fees and taxes to the extent required. As used herein, "tax" or "taxes" include
all taxes, charges, fees, levies or other assessments imposed by any Federal,
state, local, or foreign taxing authority, including, without limitation,
income, premium, recapture, credit, excise, property, sales, use, occupation,
service, service use, leasing, leasing use, value added, transfer, payroll,
employment, license, stamp, franchise or similar taxes (including any interest
earned thereon or penalties or additions attributable thereto).
2.8 Finder's Fees; Other Underwriters. The Company is not obligated to pay
a finder's fee to anyone in connection with the introduction of the Company to
the Placement Agent or the consummation of the Offering contemplated hereunder.
The Company has not paid or issued any
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monies, securities or other compensation to any member of the National
Association of Securities Dealers, Inc. ("NASD") or to any associate or
affiliate of such a member or to any other person in consideration for such
person raising funds for the Company or providing consulting services to the
Company during the previous 12 months, except payments made to the Placement
Agent. The Company does not owe any monies or other obligations to any NASD
member, associate or affiliate.
2.9 No Pending Actions. Except as set forth in the Offering Documents,
there are no actions, suits, proceedings, claims or hearings of any kind or
nature existing or pending (or, to the best knowledge of the Company,
threatened) or, to the best knowledge of the Company, any investigations or
inquiries, before or by any court, or other governmental authority, tribunal or
instrumentality (or, to the Company's best knowledge, any state of facts which
would give rise thereto), pending or threatened against the Company, or
involving the properties of the Company, which might result in any material
adverse change in the business, properties, financial position or results of
operations of the Company, or which might adversely affect the transactions or
other acts contemplated by this Agreement or the validity or enforceability of
this Agreement.
2.10 Private Offering Exemption; Offering Documents. The Offering Documents
conform in all material respects with the requirements of Section 4(2) and/or
3(b) of the Securities Act and Rules 501-506 of Reg D and with the requirements
of all other applicable rules and regulations of the Securities and Exchange
Commission ("Commission") currently in effect relating to "private offerings."
The Offering Documents contain all material statements which are required to be
stated therein in accordance with such requirements and do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The Warrants and
Placement Agent Options conform to the descriptions thereof contained in the
Offering Documents. When any exhibit to the Investment Summary that was required
to be filed with the Commission, was filed with the Commission pursuant to the
Exchange Act or the Regulations promulgated thereunder or other applicable law,
such exhibit complied in all material respects with the applicable provisions of
the Exchange Act and the Regulations promulgated thereunder or other applicable
law and did not contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not
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misleading. Assuming that (i) a proper Form D is filed in accordance with Rule
503 of Reg D, (ii) the offer and the sale of the Units by the Placement Agent
was made in compliance with Rule 502(c) of Reg D and/or Section 4(2) of the
Securities Act, and (iii) the representations of the Subscribers in the
Subscription Agreements signed by them are true and correct (which facts will
not be independently verified by the Company) the sale of Units in the Offering
is exempt from registration under the Securities Act and is in compliance with
Reg D.
2.11 Due Authorization; Consents. The Company has full right, power and
authority to enter into this Agreement and the Warrants, the Subscription
Agreements and the Placement Agent Options to be entered into between the
Company and the Subscribers and the Placement Agent, as the case may be,
(collectively the "Offering Agreements") and to perform all of its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
Offering Agreements has been duly authorized by all necessary corporate action
and no further corporate action or approval is or will be required for their
respective execution, delivery and performance. This Agreement constitutes, and
the Offering Agreements upon execution and delivery will constitute, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms (except (i) as the enforceability thereof may be limited by
bankruptcy or other laws now or hereafter in effect relating to or affecting
creditors' rights generally, (ii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceedings
therefor may be brought, and (iii) that the enforceability of the
indemnification and contribution provisions of the respective agreements may be
limited by the federal and state securities laws and public policy), and no
consent, approval, authorization, order of, or filing with, any court or
governmental authority or any other third party is required to consummate the
transactions contemplated by this Agreement or the Offering Documents, except
that the offer and sale of the Units in certain jurisdictions may be subject to
the provisions of the securities or Blue Sky laws of such jurisdictions and
final action may have to be taken with respect to the listing of the Common
Stock underlying the Units, the Warrant Shares and the Common Stock underlying
the Placement Agent Options and the Warrants underlying the Placement Agent
Options.
2.12 Non-Contravention. The Company's execution and delivery of this
Agreement and the Offering Agreements and the incurrence of the obligations
herein and therein set forth, and the consummation of the transactions
contemplated herein and therein will not (i) conflict with, or
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constitute a breach of, or a default under, the Certificate of Incorporation or
By-Laws of the Company, or any contract, lease or other agreement or instrument
to which the Company is a party or in which the Company has a beneficial
interest or by which the Company is bound; (ii) violate any existing applicable
law, rule or regulation, or any judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its properties or business (collectively, "Laws"), except where such
violation(s) would not have a material adverse effect, singly or in the
aggregate, on the Company; or (iii) have any material adverse effect on any
permit, certification, registration, approval, consent, license or franchise
(collectively, "Permits") necessary for the Company to own or lease and operate
any of its properties or to conduct its business.
2.13 Shares and Warrants. The shares of Common Stock included in the Units,
the Warrant Shares and the shares of Common Stock underlying the Placement Agent
Options and the Warrants issuable thereunder have been duly and validly
authorized and, when issued and delivered in accordance with the terms of the
Subscription Agreements, the Warrants and Placement Agent Options, as the case
may be, will be duly and validly issued, fully paid and non-assessable. The
holders of the shares of Common Stock included in the Units and Warrant Shares
and the shares of Common Stock underlying the Placement Agent Options and the
Warrants issuable thereunder will not be subject to personal liability by reason
of being such holders and will not be subject to the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company. All corporate action required to be taken for the authorization,
issuance and sale of the Common Stock, included in the Units, the Warrant Shares
and the shares of Common Stock underlying the Placement Agent Options and the
Warrants issuable thereunder have been duly and validly taken.
2.14 No Right to Purchase. The issuance of the Units in the Offering and
the Placement Agent Options and the Common Stock upon exercise of the Warrants,
the Placement Agent Options and the Warrants issuable thereunder will not give
any holder of any of the Company's outstanding shares of Common Stock, options,
warrants or other convertible securities or rights to purchase securities of the
Company (i) the right to purchase any additional shares of Common Stock or any
other securities of the Company, or (ii) the right to purchase any securities at
a reduced price.
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2.15 No Regulatory Problems. The Company (i) has not filed a registration
statement which is the subject of any pending proceeding or examination under
Section 8 of the Securities Act, and is not and has not been the subject of any
refusal order or stop order thereunder; (ii) is not subject to any pending
proceeding under Rule 258 of the Securities Act or any similar rule adopted
under Section 3(b) of the Securities Act, or to an order entered thereunder;
(iii) has not been convicted of any felony or misdemeanor in connection with the
purchase or sale of any security or involving the making of any false filing
with the Commission; (iv) is not subject to any order, judgment, or decree of
any court of competent jurisdiction temporarily or preliminarily restraining or
enjoining, or subject to any order, judgment, or decree of any court of
competent jurisdiction permanently restraining or enjoining, the Company from
engaging in or continuing any conduct or practice in connection with the
purchase or sale of any security or involving the making of any false filing
with the Commission; and (v) is not subject to a United States Postal Service
false representation order entered under Section 3005 of ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇
Code or a temporary restraining order or preliminary injunction entered under
Section 3007 of Title 39, United States Code, with respect to conduct alleged to
have violated Section 3005 of ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code. None of the
Company's directors, officers, or beneficial owners of 10 percent or more of any
class of its equity securities (i) has been convicted of any felony or
misdemeanor in connection with the purchase or sale of any security, involving
the making of a false filing with the Commission, or arising out of the conduct
of the business of an underwriter, broker, dealer, municipal securities dealer,
or investment advisor; (ii) is subject to any order, judgment or decree of any
court of competent jurisdiction temporarily or preliminarily enjoining or
restraining, or is subject to any order, judgment or decree of any court of
competent jurisdiction permanently enjoining or restraining, such person from
engaging in or continuing any conduct or practice in connection with the
purchase or sale of any security, or involving the making of a false filing with
the Commission, or arising out of the conduct of the business of an underwriter,
broker, dealer, municipal securities dealer, or investment adviser; (iii) is
subject to an order of the Commission entered pursuant to Section 15(b), 15B(a)
or 15B(c) of the Exchange Act, or is subject to an order of the Commission
entered pursuant to Section 203(e) or (f) of the Investment Advisers Act of
1940; (iv) is suspended or expelled from membership in, or suspended or barred
from association with a member of, an exchange registered as a national
securities exchange pursuant to Section 6 of the Exchange Act, an association
registered as a national securities association under Section 15A of the
Exchange Act, or a Canadian securities exchange or association for any act or
omission to act constituting conduct inconsistent with just and equitable
principles of trade; or (v) is
9
subject to a United States Postal Service false representation order entered
under Section 3005 of Title 39, United States Code, or is subject to a
restraining order or preliminary injunction entered under Section 3007 of Title
39, United States Code, with respect to conduct alleged to have violated Section
3005 of ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code.
2.16 No Defaults. The Company is not in default in the performance and
observance of any term, covenant or condition of any license, contract,
indenture, mortgage, deed of trust, note, loan or credit agreement, or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the properties or assets of the Company
is subject, except defaults which (singly or in the aggregate) would not have a
material adverse effect on the Company. The Company is not in violation of any
term or provision of its Certificate of Incorporation or By-Laws.
2.17 Conduct of Business; Compliance with Law. The Company has all
requisite corporate power and authority, and has all necessary Permits, to own
or lease its properties and conduct its business as described in the Offering
Documents. The Company has been operating its business in compliance with all
such Permits. The disclosures in the Offering Documents concerning the effects
of federal, state and local regulation on the Company's business as currently
contemplated are correct in all material respects and do not omit to state a
material fact. The Company is in compliance with all Laws except where
noncompliance, singly or in the aggregate, would not have a material adverse
effect on the Company.
2.18 Title to Property; Insurance. The Company has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property (tangible and intangible) owned or leased by it, free and
clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever. The Company has adequately
insured its properties against loss or damage by fire or other casualty and
maintains, in adequate amounts.
2.19 Intangibles. The Company owns or possesses the requisite licenses or
rights to use all trademarks, service marks, service names, trade names, patents
and patent applications, copyrights and other rights (collectively,
"Intangibles") used by the Company in its business or
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relating to products or services sold by the Company, and all such Intangibles
are listed on Schedule 2.19. The Company's Intangibles which have been
registered in the United States Patent and Trademark Office have been fully
maintained and are in full force and effect. There is no claim or action by any
person pertaining to, or proceeding pending or, to the Company's knowledge,
threatened and the Company has not received any notice of conflict with, the
asserted rights of others which challenges the exclusive right of the Company
with respect to any Intangibles used in the conduct of the Company's business
except as described in the Offering Documents. The Intangibles and the Company's
current products, services and processes do not infringe on any intangibles held
by any third party. To the best of the Company's knowledge, no others have
infringed upon the Intangibles of the Company.
2.20 Management Team. The background and other information concerning the
officers and directors of the Company previously furnished to the Placement
Agent and each of such person's responses to the Directors' and Officers'
Questionnaires are true and accurate in all material respects.
2.21 Material Contracts. Schedule 2.21 hereto contains a true and complete
list of all contracts, agreements, instruments, leases, licenses, arrangements
or undertakings of any nature, written or oral, of the Company ("Contracts")
which involve future payments, performance or services, development of products,
or delivery of goods or materials to or by the Company of an aggregate amount or
value in excess of $10,000 or which otherwise is material to the business or
prospects of the Company (collectively, the "Material Agreements"). The Company
has furnished the Placement Agent with true, correct and complete copies (or
where oral, written descriptions) of all Material Agreements, including all
exhibits, schedules, amendments, supplements, modifications and waivers thereto.
Except as set forth on Schedule 2.21, each of the Material Agreements is in full
force and effect, the Company has performed in all material respects all of its
obligations thereunder and is not in default thereunder, and no party to a
Material Agreement has made a claim to the effect that the Company has failed to
perform any obligations thereunder. To the knowledge of the Company, there is no
plan, intention, or indication of any contracting party to a Material Agreement
to cause termination, cancellation or modification of such Material Agreement or
to reduce or otherwise change its activity thereunder so as to adversely affect
in any material respect the benefits derived or expected to be derived therefrom
by the Company. The Company is not a party to, or bound by, any warranty
agreement with
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respect to products sold or any contract, agreement, commitment or restriction
which obligates the Company to perform services or to produce products
unprofitably. The aggregate amount of all liabilities of the Company under
Contracts which are not Material Agreements is not greater than $50,000.
2.22 Exchange Act Reports. The Company is subject to the reporting
requirements of the Securities and Exchange Act and has filed all reports and
statements required thereunder or the rules and regulations promulgated by the
Securities and Exchange Commission pursuant to that act, and each report and
statement was true and complete in all material respects when filed.
2.23 Subsidiaries. The representations and warranties made by the Company
in this Agreement shall also apply and be true with respect to each wholly and
partially owned subsidiary, individually and taken as a whole with the Company
and all subsidiaries, as if each representation and warranty contained herein
made specific referenced to the subsidiary each time the term "Company" was
used.
3. Representations and Warranties of the Placement Agent. The Placement Agent
represents and warrants as follows:
3.1 Due Incorporation. The Placement Agent is duly incorporated and validly
existing and in good standing under the laws of its state of incorporation and
is duly qualified as a foreign corporation for the transaction of business and
is in good standing in each jurisdiction where the failure to be so qualified
would not have a materially adverse effect on the business of the Placement
Agent.
3.2 Broker/Dealer Registration. The Placement Agent is registered as a
broker-dealer under Section 15 of the Exchange Act.
3.3 Good Standing. The Placement Agent is a member in good standing of the
NASD.
3.4 Sale In Certain Jurisdictions. Sales of Units by the Placement Agent
will be made only in such jurisdictions in which (i) the Placement Agent is a
registered broker-dealer or where
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an applicable exemption from such registration exists and (ii) the Offering and
sale of Units is registered under, or is exempt from, applicable registration
requirements.
3.5 Compliance with Laws. Offers and sales of Units by the Placement Agent
will be made in compliance with the provisions of Rule 502(c) of Reg D and/or
Section 4(2) of the Securities Act, and the Placement Agent will furnish to each
investor a copy of the Offering Documents prior to accepting any payments for
Units.
4. Closing.
4.1 Closing. At any time prior to the Termination Date and after the
receipt (and clearance) of subscriptions for not less than $2,000,000 and not
more than $4,000,000 of the Units which are accepted by the Company and the
clearance of the funds representing the sale of such Units, upon the mutual
consent of the Company and the Placement Agent that there should be a Closing, a
Closing shall take place at the offices of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇ ("GM&M"),
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇. At the Closing, payment for the Units
issued and sold by the Company (by certified check payable to the order of, or
by wire transfer to, the Company), less the amount deductible by the Placement
Agent pursuant to Section 4.4 hereof, shall be made against delivery of
certificates representing the shares of Common Stock and the Warrants included
in the Units.
4.2 Deliveries at Closing. At the Closing, and as a condition to such
Closing, the Company shall deliver or cause to be delivered to the Placement
Agent:
4.2.1 Opinions of Counsel. The opinion of Morse, Zelnick, Rose &
Lander, dated as of the date of the Closing, to the effect that:
(i) The Company and each of the Subsidiaries has been duly
organized and is validly existing as a corporation or other entity and is in
good standing under the laws of its state of organization and is duly qualified
and in good standing in each jurisdiction in which it owns or leases any real
property or the character of its operations requires such qualification, except
where the failure to so qualify would not have a material adverse effect on the
business of the Company and the Subsidiaries taken as a whole.
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(ii) Based on a review of the Certificate of Incorporation of the
Company, and its corporate minute book and stock records, the Company is
authorized to issue 10,000,000 shares of Common Stock, of which 4,633,350 shares
are currently issued and outstanding. 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 by reason of being such
holders; and none of such securities was issued in violation of the statutory
preemptive rights of any holders of any security of the Company or, to the
knowledge of such counsel, similar contractual rights granted by the Company.
The options and warrants to purchase shares of Common Stock outstanding
immediately before the Closing constitute the valid and binding obligations of
the Company, enforceable in accordance with their terms. The offers and sales of
Common Stock and options and warrants to purchase shares of Common Stock
outstanding immediately before the Closing were at all relevant times either
registered under the Securities Act and the applicable state securities laws or
Blue Sky Laws or are exempt from the registration requirements thereof.
(iii) The Company and each of the Subsidiaries has all requisite
corporate power or other authority, and has all necessary Permits of and from
all governmental or regulatory officials and bodies to own or lease its
properties and conduct its business as described in the Investment Summary, and,
to the knowledge of such counsel, is and has been doing business in compliance
with all Permits, except where the failure to obtain or comply with any Permit
would not have a material adverse effect on the Company or any Subsidiary.
(iv) Except as set forth on Schedule 2.3 to this Agreement, there
are no statutory preemptive or other rights to subscribe for or purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock of the
Company, or any such right or restriction under the Certificate of Incorporation
or By-Laws of the Company or, to the best of such counsel's knowledge, under any
agreement or other outstanding instrument to which the Company is a party or by
which it is bound. To the best of such counsel's knowledge, except as set forth
in Schedule 2.3, (A) no holders of any securities of the Company or of any
options, warrants or securities of the Company exercisable for or convertible or
exchangeable into securities of the Company have the right to require the
Company to register any such securities of the Company under the Securities Act
or to include any such securities in a registration statement to be filed by the
Company; and (B) the issuance of the Units in the Offering and the issuance of
the Warrant
14
Shares upon the exercise of the Warrants, the issuance of the Placement Agent
Options or the issuance of the Common Stock or Warrants included therein or the
Common Stock issuable upon exercise of such Warrants will not give any holder of
any of the Company's outstanding options, warrants or other convertible
securities or rights to purchase shares of the Company's Common Stock, the right
to purchase any additional shares of Common Stock and/or the right to purchase
shares at a reduced price.
(v) In the course of the preparation of the Offering Documents,
such counsel has participated in discussions with officers of the Company.
Nothing has come to such counsel's attention which has caused such counsel to
believe that the Offering Documents contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading (except that such counsel need not express any opinion
as to the Financial Statements and other financial or statistical data contained
in the Offering Documents). The statements in the Offering Documents have been
reviewed by such counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or legal conclusions,
are correct in all material respects. No statute or regulation or legal or
governmental proceeding required to be described in the Offering Documents is
not described as required, nor are any contracts or documents of a character
required to be described in the Offering Documents not so described or filed as
required. Assuming that (a) a proper Form D is filed in accordance with Rule 503
of Reg D, (b) the offer and the sale of the Units by the Placement Agent was
made in compliance with Rule 502(c) of Reg D and (c) the representations of the
Subscribers in the Subscription Agreements signed by them are true and correct
(which facts have not been independently verified by counsel), the sale of the
Units is exempt from registration under the Securities Act and is in compliance
with Reg D.
(vi) The certificates representing the Common Stock, the Warrants
and the Placement Agent Options are in proper legal form. The Common Stock,
Warrants and Placement Agent Options conform in all respects to the descriptions
thereof contained in the Investment Summary.
(vii) The Company has all corporate power and authority to engage
in and consummate the Offering and to execute and deliver the Offering
Agreements and to carry out the
15
provisions and conditions thereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained. No consents,
approvals, authorizations or orders of, and no filing with, any court or
governmental agency or body (other than such as may be required under applicable
Blue Sky laws and the requirements for listing the Common Stock issuable in the
Offering and upon exercise of the Warrants, Placement Agent Options and the
Warrants underlying the Placement Agent Options) is required for the valid
authorization, issuance, sale and delivery of the Common Stock and Warrants, the
Placement Agent Options or the Common Stock issuable upon exercise of the
Warrants, Placement Agent Options or Warrants underlying the Placement Agent
Options, and the consummation of the transactions and agreements contemplated by
the Offering Documents and the Offering Agreements.
(viii) The Common Stock and Warrants included in the Units have
been duly authorized and validly issued and the Common Stock included in the
Units is, and Warrant Shares when issued and paid for will be, validly issued,
fully paid and non-assessable, and the holders thereof are not and will not be
subject to personal liability by reason of being such holders. The Placement
Agent Options have been duly authorized and validly issued, and the Common Stock
and Warrants issuable upon exercise of the Placement Agent Options and the
Common Stock issuable upon exercise of the Warrants, when issued and paid for,
will be validly issued, fully paid and non-assessable, and the holders thereof
will not be subject to personal liability by reason of being such holders. All
corporate action required to be taken for the authorization, issuance and sale
of the Units, Common Stock, Warrants and Warrant Shares and Placement Agent
Options has been duly and validly taken. This Agreement, the Subscription
Agreements and the other Offering Documents and Offering Agreements have been
duly and validly authorized, executed and delivered by the Company, will
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except (a) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (b) as enforceability of any
indemnification and contribution provisions may be limited under the federal and
state securities laws and public policy, and (c) that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
16
(ix) The execution, delivery and performance by the Company of
the Offering Documents and the Offering Agreements, the issuance and sale of the
Common Stock, Warrants, Warrant Shares and Placement Agent Options, the
consummation of the transactions contemplated hereby and thereby and the
compliance by the Company with the terms and provisions hereof and thereof, do
not and will not, with or without the giving of notice or the lapse of time, or
both, (A) conflict with, or result in a breach of any of the terms or provisions
of, or constitute a default under, or result in the creation or modification of
any lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company pursuant to the terms of, any material mortgage, deed of
trust, note, indenture, loan, contract, commitment or other material agreement
or instrument to which the Company is a party or by which the Company or any of
its properties or assets may be bound, (B) result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws of the Company,
(C) violate any Law, except where such violation would not have a material
adverse effect upon the Company, or (D) have a material effect on any Permit.
(x) To the best of such counsel's knowledge, no default exists in
the due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, deed of trust, note, loan or
credit agreement, or any other material agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument to
which the Company or a Subsidiary is a party or by which the Company or a
Subsidiary may be bound or to which any of its properties or assets is subject,
except such defaults which, singly or in the aggregate, would not have a
material adverse effect on the Company or any Subsidiary. Neither the Company
nor any Subsidiary is in violation of any term or provisions of its Certificate
of Incorporation or By-Laws. To the best of such counsel's knowledge, neither
the Company nor any Subsidiary is in violation of any Law, except where such
violation would not have a material adverse effect on the Company or any
Subsidiary, provided that this opinion does not extend to the matters covered by
the opinions of ▇▇▇▇▇▇▇▇, Rackman & ▇▇▇▇▇▇▇, PC and ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.L.L.C.
dated the date hereof and addressed to you, copies of which are annexed hereto
and to matters of state, local and foreign law applicable to the sale and use of
the TAPS and SDS units and the disposal of medical waste that has been processed
using a TAPS or SDS unit.
17
(xi) To the best of such counsel's knowledge, the Company and
each Subsidiary owns or possesses, free and clear of all liens or encumbrances
and rights thereto or therein by third parties, the requisite licenses or other
rights to use all intangibles and other rights necessary to conduct its business
(including, without limitation, any such licenses or rights described in the
Investment Summary as being licensed to or owned or possessed by the Company or
a Subsidiary) and, to the best of such counsel's knowledge, there is no claim or
action by any person pertaining to, or proceeding, pending or threatened which
challenges the exclusive rights of the Company or a Subsidiary with respect to
any intangibles used in the conduct of its business (including without
limitation any such licenses or rights described in the Investment Summary as
being owned or possessed by the Company or a Subsidiary).
(xii) To the best of such counsel's knowledge, except as
described in the Investment Summary, there are no claims, actions, suits,
hearings, investigations, inquiries or proceedings of any kind or nature, before
or by any court, governmental authority, tribunal or instrumentality, domestic
or foreign, pending or threatened against or affecting the Company or a
Subsidiary or involving the properties of the Company or a Subsidiary which may
result in any material adverse change in the business, properties or financial
condition of the Company or a Subsidiary, or which may adversely affect the
transactions or other acts contemplated by this Agreement or the validity or
enforceability of this Agreement.
4.2.2 Opinion of Patent Counsel. The opinion of ▇▇▇▇▇▇▇▇, Rackman &
▇▇▇▇▇▇▇, P.C. ("Patent Counsel"), dated as of the date of the Closing, to the
effect that (A) the United States patents listed on Schedule 2.19 (1) are owned
by the Company, and (2) are duly issued by the United States Patent and
Trademark Office, and have been fully maintained and are in full force and
effect, (B) to the best of Patent Counsel's knowledge, there is no claim or
action by any person pertaining to or proceeding pending or threatened
concerning, and there is no notice of conflict with, the asserted rights of
others which challenges the exclusive right of the Company with respect to the
United States patents listed on Schedule 2.19, (C) to the best of Patent
Counsel's knowledge, the Company's patents listed on Schedule 2.19 do not
conflict with, and the Company's products, services and processes do not
infringe any proprietary rights held by any third party and no others have
infringed on the Company's patents listed on Schedule 2.19, it being understood
that no searches or market investigations have been undertaken by the Company or
on its behalf to uncover any such patents or products, processes or services,
and
18
(D) Patent Counsel has reviewed the Sections entitled "Risk Factors - Patent
and Intellectual Property Protection" and "Business - Patents and Intellectual
Rights" in the Offering Documents and (1) nothing has come to Patent Counsel's
attention which has caused such counsel to believe that those Sections of the
Offering Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (2) insofar as they refer to statements of law, descriptions
of statutes, licenses, rules or regulations or legal conclusions, such
statements are correct in all material respects, it being understood that Patent
Counsel is not passing on the accuracy or completeness of any reference in the
Offering Documents to foreign patents, laws, rules or regulations.
4.2.3 Opinion of Regulatory Counsel. The opinion of ▇▇▇▇▇▇ & Manelli,
P.L.L.C. ("Regulatory Counsel"), dated as of the date of the Closing, to the
effect that (A) the statements in the Offering Documents under the Sections
entitled "Risk Factors - Government Regulation and FDA Approval," "Business -
Products" and "Business - Government Regulation," insofar as they refer to or
describe federal statues, laws, rules, regulations, requirements or procedures
concerning or relating to the business or operation of the Company or its
products, services or use of its products or services enforced in whole or in
part by the United States Food and Drug Administration ("FDA"), United States
Environmental Protection Agency ("EPA") or other federal authorities regulating
medical devices or medical waste ("Laws and Procedures"), accurately and fairly
present the information given, (B) that the Sections entitled "Risk Factors -
Government Regulation and FDA Approval," "Business Products" and "Business -
Government Regulation," do not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading, (C) to the best of Regulatory Counsel's knowledge, there is no
pending or, threatened legal or governmental proceeding pertaining to or arising
out of the Laws and Procedures to which the Company is a party which could
materially adversely affect the business, operations, property or financial
conditions of the Company, and (D) nothing has come to the attention of
Regulatory Counsel indicating that the Company is not conducting its business as
described in the Investment Summary in compliance with the Laws and Procedures.
4.2.4 A certificate of the Company, signed by two executive officers
thereof, stating (a) that the representations and warranties contained in
Section 2 hereof are true and
19
accurate at the Closing as applied to the Company with the same effect as though
expressly made at the Closing, and (b) that the Company has complied with all
covenants and agreements required to be complied with as of the Closing.
4.2.5 Subscription Agreements signed by the Company and each of the
Subscribers.
4.2.6 The certificates representing the Common Stock and the Warrants
included in the Units.
4.2.7 Consents of any parties required to consummate this Offering and the
transactions contemplated thereby.
4.2.8 Lock-Up Agreements and Right of First Refusal Agreements, as
contemplated by paragraphs (f) and (i) of the Letter of Intent, signed by the
Company's officers, directors (which agreements are also effective against any
family member or affiliate of any of the foregoing persons).
4.2.9 Employment Agreements between the Company and Messrs. ▇▇▇ ▇▇▇▇▇ and
▇▇▇▇ ▇▇▇▇▇ that are reasonably acceptable to the Placement Agent with expiration
dates no earlier than December 31, 1999 and a non-competition provision
extending two-years after termination of employment for ▇▇. ▇▇▇▇▇ and 18 months
after termination of employment for ▇▇. ▇▇▇▇▇; and evidence of key-man insurance
on each of Messrs. Osser and Volok in the amount of $1,000,000.
4.2.10 Copy of letters to DTC and the Company's transfer agent requesting
that the Placement Agent be provided copies of the Company's daily stock
transfer sheet and lists of the beneficial and record holders of the Company's
securities, at the Company's sole cost and expense.
4.2.11 Copy of acceptance for listing of additional shares for the Common
Stock to be issued at the Closing from The Nasdaq Stock Market.
20
4.2.12 Release by LenRon Realty, Inc. of lease obligations of Spintech in
respect of all property leased by Spintech from LenRon Realty, Inc.
4.2.13 Such other closing documents as shall be reasonably requested by the
Placement Agent or GM&M.
4.3 Conditions. The obligations of the Placement Agent under this Agreement
shall be subject to the following conditions:
(i) All representations and warranties of the Company set forth in
this Agreement are true and accurate as of the date of the Closing; and
(ii) The Company has complied with all covenants and agreements
required to be complied with as of the date of the Closing.
4.4 Placement Agent's Fees and Expenses. At the Closing, the Company shall
pay to the Placement Agent a commission equal to 10% of the aggregate purchase
price of the Units sold in the Offering. In order to reimburse the Placement
Agent for its expenses incurred in connection with the Offering, at the Closing,
the Company also shall pay to the Placement Agent a non-accountable expense
allowance equal to 3% of the aggregate purchase price of the Units (less $20,000
paid on account) sold in the Offering. On or before the Closing, the Company
shall pay the fees and disbursements of GM&M referred to in Section 5.3 below in
connection with the qualification of the Units under the securities or Blue Sky
laws of the states which the Placement Agent shall designate and the other
expenses of the offering that are referred to in Section 5.3 below. All the
foregoing amounts are payable directly to the parties who are owed same by
deduction from the aggregate purchase price of the Units sold.
4.5 Placement Agent Options. At the Closing, the Company shall issue to the
Placement Agent and its designees, five-year options ("Placement Agent Options")
to purchase a number of Units equal to 10% of the Units sold in the Offering,
exercisable at a purchase price equal to the per-Unit Offering Price, at any
time until the fifth anniversary of the Closing. The Units purchasable under the
Placement Agent Options will be identical to the Units sold to the Subscribers.
The Placement Agent Option will contain registration rights with respect to the
21
shares underlying the Placement Agent Options and Warrants issuable upon
exercise of the Placement Agent Options identical to the registration rights
granted to the Subscribers in the Offering.
5. Covenants. The Company covenants and agrees that:
5.1 Amendments to Offering Documents. Until the Offering has been completed
or terminated, if there shall occur any event relating to or affecting, among
other things, the Company or any affiliate, or the proposed operations of the
Company as described in the Offering Documents, as a result of which it is
necessary, in the reasonable opinion of GM&M or counsel for the Company, to
amend or supplement the Offering Documents in order that the Offering Documents
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, the Company shall
immediately prepare and furnish to the Placement Agent a reasonable number of
copies of an appropriate amendment of or supplement to the Offering Documents,
in form and substance satisfactory to GM&M.
5.2 Use of Proceeds. The net proceeds of the Offering will not be used to
repay any indebtedness for borrowed funds or any indebtedness to officers,
directors or affiliates of the Company.
5.3 Expenses of Offering. The Company shall be responsible for, and shall
pay, all fees, disbursements and expenses incurred in connection with the
Offering, including, but not limited to, the Company's legal and accounting fees
and disbursements, the costs of preparing, printing, mailing, delivering and,
where necessary, filing the Offering Documents, including all amendments and
supplements thereto, this Agreement, the Subscription Agreement, Warrants and
Placement Agent Options and related documents, all in quantities as the
Placement Agent may reasonably require; preparation of transaction "bibles" in
such quantities as the Placement Agent may reasonably request; the costs of "due
diligence meetings" held by the Company; preparation and printing of stock and
warrant certificates; and the fees and disbursements of GM&M in connection with
blue sky matters (which fees (excluding disbursements) shall be approximately
$20,000), plus "blue sky" filing fees to be paid in the various states (as such
fees become due) and transfer taxes and transfer and warrant agent fees. The
Company shall pay International
22
Business Research (U.S.A.), Inc. ("IBR") the sum of $7,500 in respect of the
investigative due diligence search conducted by IBR on its behalf (which amount
shall be deducted from the non-accountants expense account provided in Section
4.4 hereof).
5.4 Further Assurances. The Company will take such actions as may be
reasonably required or desirable to carry out the provisions of this Agreement
and the transactions contemplated hereby. The Company further agrees to take
promptly, or cause to be taken, all actions and to do promptly, or cause to be
done, all other things necessary, proper or advisable to prepare the
registration statement necessary to file with the Commission in connection with
the proposed initial public offering and have such registration statement
declared effective by the Commission.
5.5 Capitalization. The Company will not change its current capitalization
or issue any shares of capital stock or any options, warrants or other
securities convertible into or exchangeable for shares of Common Stock, other
than as contemplated in the Letter of Intent, without the consent of the
Placement Agent prior to the earlier of the effectiveness or abandonment of the
proposed initial public offering.
5.6 Restriction on Sales of Securities. The Company will not permit or
cause a private or public sale or private or public offering of any of its
securities (in any manner, including pursuant to Rule 144 under the Securities
Act) owned or to be owned of record, or beneficially owned by any of the
Company's officers or directors, or by any family member or affiliate of any of
the foregoing persons (collectively, "Insiders") for a period commencing on the
Closing and terminating on November 3, 1997 without obtaining the prior written
approval of the Placement Agent (and, if required by applicable state blue sky
laws, the securities commissions in any such states). The Company agrees to
cause each Insider to execute a separate agreement with the Placement Agent to
the above effect and deliver such agreement to the Placement Agent at the
Initial Closing. Such agreement shall also provide that during the two-year
period following the Closing, the Placement Agent shall have the right to
purchase for its account or to sell for the account of the Insiders any
securities sold by the Insiders on the open market, including sales pursuant to
Rule 144 under the Securities Act and each Insider will agree to consult with
the Placement Agent with regard to any such sales and will offer the Placement
Agent the exclusive opportunity to purchase or sell such securities on terms at
least as favorable to the Insiders as they can secure elsewhere; provided that
if the Placement Agent fails to accept any such proposal
23
from an Insider within one business day after receipt of a notice containing
such proposal, then the Placement Agent shall have no claim or right with
respect to any such sales contained in any such notice unless such proposal is
modified in any material respect in which event the Insiders shall adopt the
same procedure as with respect to the original proposal.
5.7 Key-Person Insurance. Prior to the Closing, the Company shall purchase
key-person life insurance naming the Company as a beneficiary on the lives of
▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇ in the amount of at least $1,000,000.
5.8 Review of Compensation. During the period of three years after the
Closing, the Company will establish a compensation committee, of which the
majority are independent directors, and this committee must approve all
compensation and other employment arrangements of the officers, directors and
affiliates of the Company and its Subsidiaries.
5.9 Right of First Refusal. The Company hereby grants to the Placement
Agent a right of first refusal to underwrite or place any public or private sale
of debt or equity securities ("Future Offering") of the Company or any
subsidiary or successor of the Company, for which the Company engages a
placement or selling agent or underwriter, during the two-year period following
the Closing. If the Placement Agent fails to accept in writing any proposal for
such Future Offering within 30 days after receipt of a written notice from the
Company containing such proposal, then the Placement Agent shall have no claim
or right with respect to such Future Offering, except as set forth below. If,
thereafter, the terms of the Future Offering are modified in any material
respect, the Company shall adopt the same procedure as with respect to the
original proposal. Notwithstanding the foregoing, if the Placement Agent elects
not to exercise this right of first refusal with respect to any Future Offering
which is an underwritten public offering, then the Company shall, at the
Placement Agent's request, arrange for (i) the Placement Agent to be afforded
the opportunity to participate in the underwriting syndicate for such Future
Offering at a level immediately below the managing underwriter(s) or at such
other level below the managing underwriter(s) as the Placement Agent shall
select; and (ii) the Placement Agent, in its sole discretion, to be afforded the
opportunity to purchase, as a member of the selling group for such Future
Offering, the largest allocation provided to any member of the selling group.
24
5.10 Designee to the Board of Directors. For a period of three (3) years
from the Effective Date, the Placement Agent shall have the right to designate a
person to serve on the Company's Board of Directors, such person to be subject
to the Company's approval, which shall not be unreasonably withheld. The Company
will appoint such designee to the Board promptly after the Placement Agent
designates such person and shall recommend and use its best efforts to have such
designee elected at each annual or other meeting held after such appointment
during the three-year period, at which directors of the Company are to be
elected. Such designee shall receive no more or less compensation than is paid
to other non-management directors of the Company. To the extent permitted by
law, the Company will agree to indemnify the Placement Agent and its designee
for the actions of such designee as a director of the Company. In the event the
Company maintains a liability insurance policy affording coverage for the acts
of its officers and directors, it will, if possible, include each of the
Placement Agent and its designee as an insured under such policy. The Company
agrees to give the Placement Agent written notice of each such meeting of the
board of directors and to provide the Placement Agent with an agenda and minutes
of the meeting no later than it gives such notice and provides such items to the
other directors.
5.11 Accuracy of Representations and Warranties. The Company hereby agrees
that prior to the Termination Date it will not enter into any transaction or
take any action, and will use its best efforts to prevent the occurrence of any
event, which could result in any of its representations, warranties or covenants
contained in this Agreement or any of the Offering Documents not to be true and
correct, or not to be performed as contemplated, at and as of the time
immediately after the occurrence of such transaction or event.
5.12 Warrant Solicitation and Warrant Solicitation Fee.
5.12.1 The Company hereby engages the Placement Agent, on a
non-exclusive basis, as its agent for the solicitation of the exercise of the
Warrants (including Extra Warrants). The Company, at its cost, will (i) assist
the Placement Agent with respect to such solicitation, if requested by the
Placement Agent and (ii) provide the Placement Agent, and direct the Company's
transfer and warrant agents to deliver to the Placement Agent, lists of the
record, and to the extent known, beneficial owners of the Warrants. The Company
shall instruct the transfer and warrant agents to cooperate with the Placement
Agent in every respect in connection with the Placement
25
Agent's solicitation activities, including, but not limited to, providing to the
Placement Agent, at the Company's cost, a list of record and beneficial holders
of the Warrant and providing disclosure documents, where necessary, to holders
of the Warrants at the time of exercise of the Warrants.
5.12.2 In each instance in which a Warrant is exercised, the Company
shall promptly give written notice of such exercise to the Placement Agent. If,
upon the exercise of any Warrant, (i) the market price of the Company's Common
Stock is greater than the Warrant exercise price, (ii) disclosure of
compensation arrangements was made at the time of offering and of exercise (as
required by applicable law, rule or regulation), (iii) the exercise of the
Warrant was solicited by the Placement Agent, (iv) the Warrant was not held in a
discretionary account, and (v) the solicitation of the exercise of the Warrant
was not in violation of Rule 10b-6 (as such rule or any successor rule may be in
effect as of such time of exercise) promulgated under the Exchange Act, then the
Company shall, upon exercise of the Warrant, pay from the proceeds received upon
exercise of the Warrant a fee of 5% of the Warrant exercise price to the
Placement Agent, provided that the Placement Agent delivers to the Company a
certificate that the conditions set forth in the preceding clauses (iii), (iv)
and (v) have been satisfied. The Placement Agent may, at any time during
business hours, examine the records of the Company, including its ledger of
original Warrant certificates returned to the Company upon exercise of Warrants.
5.13 Listing of Securities. The Company shall apply for listing, and obtain
such listing, for the shares of Common Stock issuable upon exercise of the
Warrants, the Placement Agent Options and the Warrants underlying the Placement
Agent Options on The Nasdaq Stock Market and each exchange on which the Common
Stock is listed, at the earliest time that such listing may be obtained in
accordance with the rules and regulations of The Nasdaq Stock Market and the
exchange and maintain such listing until the seventh anniversary of the date of
Closing.
6. Registration Rights; Subscriber Lockup.
6.1 Registration Rights. As additional consideration for this Agreement and
the transactions contemplated hereby, the Company agrees with the Placement
Agent and will agree with each Subscriber, as the case may be, to register for
resale under a Registration Statement ("Registration Statement") pursuant to the
Securities Act and the Blue Sky or state securities laws of states reasonably
selected by the Placement Agent, the Common Stock comprising the Units
26
and the Common Stock underlying the Warrants, the Placement Agent Option and the
Warrants underlying the Placement Agent Option ("Registrable Securities"). The
Company agrees that the Registration Statement will be filed on or before April
30, 1997. The Company agrees to use its best efforts to have the Registration
Statement declared effective by the 75th day after the filing of the
Registration Statement (" Target Date"). If the Company shall either fail to so
file the Registration Statement or to use it best efforts to have the
Registration Statement declared effective by the Target Date, and the
Registration Statement is not declared effective by the Target Date, then on the
Target Date and on each monthly anniversary of the Target Date thereafter until
the earlier of the effective date of the Registration Statement ("Effective
Date") or the twentieth monthly anniversary of the Target Date, the Company
shall issue to each Subscriber (or his successor or transferee), Warrants
("Extra Warrants") to purchase a number of shares of Common Stock equal to 5% of
the number of Units purchased by the Subscriber (or his successor or transferee)
in the Offering. The Extra Warrants shall have the same terms as the Warrants
included in the Units. To the extent that the Company issues any Extra Warrants
or is obligated to issue any Extra Warrants, the Common Stock underlying such
Extra Warrants will be included in the Registration Statement. The Company shall
keep the Registration Statement effective and current until all the securities
registered thereunder are sold ir can be sold freely under an appropriate
exemption from the securities laws of the United States and the states, without
limitation. The Company shall bear all the expenses and pay all the fees it
incurs in connection with the preparation, filing and modification or amendment
of the Registration Statement, including the fees (at regular hourly rates, but
no more than $5,000 and expenses) of one special counsel for the Subscribers,
which shall be GM&M. The Company agrees with the Placement Agent and the
Subscribers that it will provide copies of the Registration Statement (including
each amendment and supplement) to GM&M at least 10 days prior to its planned
filing date with the Commission, and consult with GM&M concerning the timing of
filings and issues and comments from regulatory authorities relating to the
Registration Statement. The registration rights granted in respect of the
Registrable Securities shall inure to the benefit of each pledgee, assignee,
transferee or purchaser of the Registrable Securities and each successor and
heir of the Subscribers, Placement Agent and the holders of the Placement Agent
Options.
6.2 Lockup by Subscribers. Notwithstanding the foregoing, each Subscription
Agreement will provide that each Subscriber will not sell any of the securities
of the Company
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purchased in the Offering or any of the Warrant Shares for a period of one year
after the Closing, without the prior written consent of the Placement Agent.
7. Indemnification and Contribution.
7.1 Indemnification by the Company. The Company agrees to indemnify and
hold harmless the Placement Agent and each person, if any, who controls the
Placement Agent within the meaning of the Securities Act and/or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
the Placement Agent or such controlling person may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (vi)
any untrue statement or alleged untrue statement of a material fact contained
(A) in the Offering Documents, or (B) in any blue sky application or other
document executed by the Company specifically for blue sky purposes or based
upon any other written information furnished by the Company or on its behalf to
any state or other jurisdiction in order to qualify any or all of the Units
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), (vii) any breach by the
Company of any of its representations, warranties or covenants contained herein
or in any of the Offering Agreements, or (viii) the omission or alleged omission
by the Company to state in the Offering Documents or in any Blue Sky Application
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and will reimburse the Placement Agent and each such controlling
person for any legal or other expenses reasonably incurred by the Placement
Agent or such controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action, whether arising out of an
action between the Placement Agent and the Company or the Placement Agent and a
third party; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon (i) an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with written
information regarding the Placement Agent which is furnished to the Company by
the Placement Agent specifically for inclusion in the Offering Documents or any
such Blue Sky Application or (ii) any breach by the Placement Agent of the
representations, warranties or covenants contained herein (collectively, (i) and
(ii) above are referred to as the "Non-Indemnity Events").
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7.2 Indemnification by the Placement Agent. The Placement Agent agrees to
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of the Securities Act and/or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
the Company or such controlling person may become subject, under the Securities
Act or otherwise insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any Non-Indemnity
Event; and will reimburse the Company and each such controlling person for any
legal or other expenses reasonably incurred by the Company or such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action provided that such loss, claim, damage or liability
is found ultimately to arise out of or be based upon any Non-Indemnity Event.
7.3 Procedure. Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 7, notify in writing the indemnifying party of the
commencement thereof; and the omission so to notify the indemnifying party will
relieve the indemnifying party from any liability under this Section 7 as to the
particular item for which indemnification is then being sought, but not from any
other liability which it may have to any indemnified party. In case any such
action is brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may wish, jointly with any other
indemnifying party, similarly notified, to assume the defense thereof, with
counsel who shall be to the reasonable satisfaction of such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. Any such
indemnifying party shall not be liable to any such indemnified party on account
of any settlement of any claim or action effected without the consent of such
indemnifying party.
7.4 Contribution. If the indemnification provided for in this Section 7 is
unavailable to any indemnified party in respect to any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, will contribute to the amount paid
or payable by such indemnified party, as a result of such losses,
29
claims, damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand, and the Placement Agent, on the other hand, from the Offering, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above, but also the relative fault of the Company, on
the one hand, and of the Placement Agent, on the other hand, in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable considerations.
The relative benefits received by the Company, on the one hand, and the
Placement Agent, on the other hand, shall be deemed to be in the same proportion
as the total proceeds from the Offering (net of sales commissions and the
non-accountable expense allowance, but before deducting other expenses) received
by the Company bear to the commissions and non-accountable expense allowance
received by the Placement Agent. The relative fault of the Company, on the one
hand, and the Placement Agent, on the other hand, will be determined with
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company, and its relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
7.5 Equitable Considerations. The Company and the Placement Agent agree
that it would not be just and equitable if contribution pursuant to this Section
7 were determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to in the
immediately preceding paragraph.
7.6 Attorneys' Fees. The amount payable by a party under this Section 7 as
a result of the losses, claims, damages, liabilities or expenses referred to
above will be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
8. Termination by Placement Agent. The Placement Agent shall have the right to
terminate this Agreement at any time prior to the Closing, (i) information comes
to the Placement Agent's attention relating to the Company, its management or
its position in the industry which would preclude a successful offering in the
Placement Agent's opinion; (ii) a material adverse change not yet reported by
the Company in its public filings has occurred in the financial condition,
30
business or prospects of the Company (it is acknowledged by the Placement Agent
that continued losses by the Company of approximately the same magnitude as
previously reported shall not be deemed to be material adverse changes); or
(iii) the Company has breached any of its material representations, warranties
or obligations hereunder, or continually failed to expeditiously proceed with
the Offering. If the Placement Agent elects not to proceed with the Offering as
a result of any of the conditions enumerated in clauses (ii) through (iii)
above, and the Company consummates a private or public equity or debt financing
(excluding bank financing) within 12 months of such election, or if the Company
elects not to proceed with the Offering for any reason, then the Company shall
reimburse the Placement Agent in full for its reasonable out-of-pocket expenses
(including, without limitation its legal fees and disbursements), against which
any amount paid under the Letter of Intent, dated December 13, 1996 ("Letter of
Intent") to the Placement Agent shall be applied as a credit. In the event the
Placement Agent elects not to proceed with the Offering as a result of the
conditions enumerated in clause (i) above, the Placement Agent shall be entitled
to retain the amount paid under the Letter of Intent, but the Company shall not
be liable to the Placement Agent for any other expenses of the Placement Agent.
The provisions of Sections 7 and 8 of this Agreement shall survive the
termination of this Agreement for any reason.
9. Notices. Any notice hereunder shall be in writing and shall be effective when
delivered in person or by facsimile transmission, or mailed by certified mail,
postage prepaid, return receipt requested, to the appropriate party or parties,
at the following addresses: if to the Placement Agent, to GKN Securities Corp.,
▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇., ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Senior Vice President, Investment Banking (Fax No. ▇▇▇-▇▇▇-▇▇▇▇); with a copy to
▇▇▇▇▇▇▇▇ Mollen & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention:
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Esq. (Fax No. 212/▇▇▇-▇▇▇▇); if to the Company, to Milestone
Scientific Inc., ▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇. ▇▇▇
▇▇▇▇▇, President (Fax No. 201/▇▇▇-▇▇▇▇); with a copy to Morse, Zelnick, Rose &
Lander, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ (Fax No. 212/▇▇▇-▇▇▇▇); or, in each case, to such other address as the
parties may hereinafter designated by like notice.
10. Parties. This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. Neither party may
assign this Agreement or its obligations hereunder without the prior written
consent of the other party. This Agreement is intended to be, and is, for the
sole and exclusive benefit of the parties hereto and the persons
31
described in Section 7.1 and 7.2 hereof and their respective successors and
assigns, and for the benefit of no other person, and no other person will have
any legal or equitable right, remedy or claim under, or in respect of this
Agreement.
11. Amendment and/or Modification. Neither this Agreement, nor any term or
provision hereof, may be changed, waived, discharged, amended, modified or
terminated orally, or in any manner other than by an instrument in writing
signed by each of the parties hereto.
12. Further Assurances. Each party to this Agreement will perform any and all
acts and execute any and all documents as may be necessary and proper under the
circumstances in order to accomplish the intents and purposes of this Agreement
and to carry out its provisions.
13. Validity. In case any term of this Agreement will be held invalid, illegal
or unenforceable, in whole or in part, the validity of any of the other terms of
this Agreement will not in any way be affected thereby.
14. Waiver of Breach. The failure of any party hereto to insist upon strict
performance of any of the covenants and agreements herein contained, or to
exercise any option or right herein conferred in any one or more instances, will
not be construed to be a waiver or relinquishment of any such option or right,
or of any other covenants or agreements, and the same will be and remain in full
force and effect.
15. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof and
thereof, respectively, and there are no representations, inducements, promises
or agreements, oral or otherwise, not embodied in this Agreement. Any and all
prior discussions, negotiations, commitments and understanding relating to the
subject matter of these agreements are superseded by them.
16. Counterparts. This Agreement may be executed in counterparts and each of
such counterparts will for all purposes be deemed to be an original, and such
counterparts will together constitute one and the same instrument.
32
17. Law. This Agreement will be deemed to have been made and delivered in New
York City and will be governed as to validity, interpretation, construction,
effect and in all other respects by the internal law of the State of New York.
The Company (iv) agrees that any legal suit, action or proceeding arising out of
or relating to this Agreement shall be instituted exclusively in New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York, (v) waives any objection to the venue of any
such suit, action or proceeding, and the right to assert that such forum is an
inconvenient forum, and (vi) irrevocably consents to the jurisdiction of the New
York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon it mailed by certified mail to its address shall be deemed in every
respect effective service of process upon it in any such suit, action or
proceeding.
18. Representations, Warranties and Covenants to Survive Delivery. The
respective representations, indemnities, agreements, covenants, warranties and
other statements of the Company and the Placement Agent shall survive execution
of this Agreement and delivery of the Units and/or the termination of this
Agreement prior thereto.
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If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement between us.
Very truly yours,
MILESTONE SCIENTIFIC INC.
By: /s/▇▇▇ ▇▇▇▇▇
---------------------
▇▇▇ ▇▇▇▇▇, President
AGREED:
GKN SECURITIES CORP.
By: /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Senior Vice President
34