EXHIBIT 10.35
PLACEMENT AGENT AGREEMENT
Dated as of: May 12, 1997
International Capital Growth, Ltd.
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Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Senior Vice President
Ladies and Gentlemen:
The undersigned, First American Railways, Inc., a Nevada corporation (the
"Company"), hereby agrees with International Capital Growth, Ltd., a Delaware
corporation ("ICG"), as follows:
1. OFFERING.
A. The Company hereby engages ICG to act as its exclusive placement agent in
connection with the issuance and sale of up to $7,500,000 of securities of the
Company (not including the over-allotment option referenced in Section 1(B)
hereof) (the "Offering").
B. In the Offering, the Company shall issue up to a maximum of 150 units
(the "Units") at $50,000 per Unit. The issuance of Units may be increased in the
discretion of the Company and ICG by up to an additional 50 Units to cover
over-allotments. Each Unit consists of (a) a convertible subordinated note (the
"Note") in the principal amount of $50,000 bearing interest at 8% per annum and
(b) 5,000 shares (the "Unit Shares") of common stock of the Company, $.001 par
value per share (the "Common Stock"). The principal amount of the Note and any
accrued but unpaid interest thereon shall be due and payable sixty (60) months
from the date of the first closing of the Offering, unless converted by the
holder thereof. The Notes may not be prepaid by the Company. Interest on the
Note shall be paid in cash semi-annually on June 30 and December 31, commencing
December 31, 1997. Each noteholder, at his option, may convert all, but not less
than all, of the principal amount of his Note, together with accrued but unpaid
interest, into shares of Common Stock (the "Note Shares") at any time prior to
maturity at a conversion price of $3.50 per share (subject to adjustment under
certain circumstances). The Company's obligations under the Notes shall be
unsecured and the Notes shall be subordinate to previously issued and future
indebtedness of the Company. The Note will be in substantially the form of an
exhibit attached to the Confidential Private Offering Memorandum, dated the date
hereof, which has been prepared by the Company (such memorandum, together with
all amendments thereof and supplements and exhibits thereto is referred to
herein as the "Memorandum").
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C. All of such securities are subject to the terms and conditions set forth
in the respective certificate representing such securities, in the Company's
charter documents and in the respective Subscription Agreements for U.S. and
Non-U.S. Persons (collectively, the "Subscription Agreements") to be executed by
each purchaser, as the case may be, and the Company. The Units, the Notes, the
Unit Shares, the Note Shares and the Placement Agent Shares (as defined in
Section 5(G) hereof), are hereinafter sometimes referred to as the "Securities."
The Units will be offered without registration under the Securities Act.
Purchasers of the Units will be granted certain registration rights with respect
to the Securities held by them, as more fully set forth in the Subscription
Agreements.
D. The 200,000 Units (including the over-allotment option) will be offered
by ICG on a "best efforts" basis. The Company will issue the appropriate
securities at the respective closing(s) for the Offering (each, a "Closing")
after subscriptions have been received and accepted by the Company and when
funds from investors have cleared the banking system in the normal course of
business. Each Closing shall take place at the offices of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇ LLP, counsel to ICG, at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or
such other place as shall be agreed upon by ICG and the Company, at such time as
shall be determined by ICG.
E. The Offering shall commence on the date of the Memorandum and shall
terminate on September 30, 1997, unless extended by ICG and the Company in their
sole discretion (such date, as the same may be extended, is hereinafter referred
to as the "Termination Date"; the period commencing on the date hereof and
ending on the Termination Date is sometimes referred to herein as the "Offering
Period").
2. INFORMATION.
A. Up to 200 Units will be offered by ICG during the Offering Period. ICG
shall not be obligated to sell any Units and shall only be obligated to offer
the Units on a "best efforts" basis.
B. The Units will have the terms set forth in and will be offered by the
Company by means of the Memorandum. Payment for the Units shall be made by check
with respect to U.S. purchasers and wire transfer with respect to non-U.S.
purchasers, as more fully described in the respective Subscription Agreements.
Subscriptions for partial Units may be accepted at the discretion of the Company
and ICG. ICG and the Company agree that the Units will be offered and sold only
to qualified non-U.S. Persons in compliance with Regulation S promulgated by the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), and to "accredited investors" within
the meaning of Rule 501 of Regulation D ("Accredited Investors") promulgated by
the Commission under the Securities Act and Rule 506 of Regulation D of the
Securities Act.
C. All funds received from subscriptions will be promptly transmitted
pursuant to the terms of an escrow agreement to the escrow account designated
for the Offering at Continental Stock Transfer & Trust Company (the "Escrow
Agent"). In the event that a Closing occurs, the funds
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received in respect of the Units closed on will be forwarded to the Company,
against delivery of the appropriate amount of the securities offered, net of (i)
the placement agent commission equal to ten percent (10%) of the gross proceeds
from the sale of the Units closed on, (ii) the non-accountable expense allowance
equal to two percent (2%) of the gross proceeds from the sale of the Units
closed on, (iii) legal fees (such legal fees not to exceed $50,000, including
$35,000 from the Offering and $15,000 from a prior terminated offering of the
Company) and expenses of ICG's counsel and (iv) "Blue Sky" filing and legal fees
(such filing and legal fees not to exceed $10,000) and expenses related to each,
to the extent not previously paid.
D. At each Closing, the Company shall pay or cause to be paid by, at the
option of ICG, certified or official bank check or wire transfer, to the extent
not previously paid by the Company or the Escrow Agent to ICG or its counsel, as
applicable, (i) the placement agent commission equal to ten percent (10%) of the
gross proceeds from the sale of the aggregate number of Units closed on, (ii)
the non-accountable expense allowance equal to two percent (2%) of the gross
proceeds from the sale of the aggregate number of Units closed on, (iii) legal
fees (such legal fees not to exceed $50,000, including $35,000 from the Offering
and $15,000 from a prior terminated offering of the Company) and expenses of
ICG's counsel and (v) "Blue Sky" filing and legal fees (such filing and legal
fees not to exceed $10,000) and expenses related thereto, to the extent not
previously paid. In addition to the foregoing, the Company shall be responsible
for the fees and expenses identified in Sections 5, 6, 7, 8 and 10 hereof, which
expenses shall not be deemed to be commissions.
E. The Company reserves the right to reject any subscriber, in whole or in
part, in its sole discretion. Notwithstanding anything to the contrary contained
in this Section 2(E), the Company's right to reject a subscriber shall lapse
upon the earlier to occur of (a) acceptance of such subscription and (b) ten
(10) days after receipt by the Company or its agent of the fully completed and
duly executed subscription documents from ICG with respect to such subscriber.
Funds received by the Escrow Agent or the Company from any subscriber whose
subscription is rejected will be returned to such subscriber, without deduction
therefrom or interest thereon, but no sooner than such funds have cleared the
banking system in the normal course of business.
3. Representations, Warranties and Covenants of ICG.
A. ICG represents, warrants and covenants as follows:
(i) ICG has the necessary power to enter into this Agreement and
to consummate the transactions contemplated hereby.
(ii) ICG is a corporation duly formed and validly existing under the
laws of the State of Delaware; the execution and delivery by ICG of this
Agreement and the consummation of the transactions herein contemplated will
not result in any violation of, or be in conflict with, or constitute a
default under, any agreement or instrument to which ICG is a party or by
which ICG or its properties are bound, or any judgment, decree, order or, to
ICG's knowledge, any statute, rule or regulation applicable to ICG. This
Agreement, when
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executed and delivered by ICG, will constitute the legal, valid and binding
obligation of ICG, enforceable in accordance with its terms, except to the
extent that (a) the enforceability hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect and affecting the rights of creditors generally, (b) the
enforceability hereof is subject to general principles of equity, or (c) the
indemnification provisions hereof may be held to be violative of public
policy.
(iii) ICG will deliver to each purchaser, prior to any submission by
such person of a written offer relating to the purchase of the Units, a copy
of the Memorandum with respect to the Offering, as may have been most
recently amended or supplemented by the Company.
(iv) Upon receipt of an executed Subscription Agreement, ICG will
promptly forward copies of the subscription documents to the Company or its
counsel and shall arrange for the forwarding of all consideration received
for such Units to the Escrow Agent to be held in escrow.
(v) ICG will not deliver the Memorandum to any person it does not
reasonably believe to be an Accredited Investor or a non-U.S. Person.
(vi) ICG will not intentionally take any action which it reasonably
believes would cause the Offering to violate the provisions of the
Securities Act, the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), or the respective rules and regulations promulgated
thereunder (the "Rules and Regulations").
(vii) ICG shall use all reasonable efforts to determine (a) whether any
prospective purchaser is an Accredited Investor or a non-U.S. Person and (b)
that any information furnished by a prospective investor is true and
accurate. ICG shall have no obligation to insure that (a) any check, note,
draft or other means of payment for the Units will be honored, paid or
enforceable against the subscriber in accordance with its terms, or (b)
subject to the performance of ICG's obligations and the accuracy of ICG's
representations and warranties hereunder, (i) the Offering is not subject to
the registration requirements of the Securities Act, any applicable foreign
law or state "Blue Sky" law or (ii) any prospective purchaser is an
Accredited Investor or non-U.S. Person.
(viii) ICG is a member of the National Association of Securities
Dealers, Inc. and is a broker-dealer registered as such under the Exchange
Act and under the securi ties laws of the states in which the Units will be
offered or sold by ICG, unless an exemption for such state registration is
available to ICG. ICG is in material compliance with all material rules and
regulations applicable to ICG generally and applicable to ICG's
participation in the Offering.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
A. THE COMPANY REPRESENTS AND WARRANTS AS FOLLOWS:
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(i) This Agreement, the Escrow Agreement and the Subscription
Agreements have been, or will be upon execution and delivery, duly and
validly authorized by the Company and are, or with respect to the
Subscription Agreements will be, valid and binding agreements of the
Company, enforceable in accordance with their respective terms, except to
the extent that (a) the enforceability hereof or thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time
to time in effect and affecting the rights of creditors generally, (b) the
enforceability hereof or thereof is subject to general principles of equity
or (c) the indemnification provisions hereof or thereof may be held to be
violative of public policy. The Securities have been duly authorized and,
when issued and paid for in accordance with the Memorandum, this Agreement
and the Subscription Agreements, the certificates representing each of such
securities will be valid and binding obligations of the Company, enforceable
in accordance with their respective terms, except to the extent that (a) the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect and
affecting the rights of creditors generally, and (b) the enforceability
thereof is subject to general principles of equity. All corporate action
required to be taken for the authorization, issuance and sale of the
Securities has been duly and validly taken by the Company.
(ii) When issued and paid for in accordance with the terms of the
Memorandum, this Agreement and the Subscription Agreements, the Notes will
constitute valid and binding obligations of the Company to issue and sell,
upon conversion thereof in accordance with their terms, the number and type
of security of the Company called for thereby. The Notes, the Unit Shares,
the Placement Agent Shares and, upon conversion of the Notes in accordance
with their terms, the Note Shares, will, at the time each such security is
issued by the Company, be validly issued, fully paid and non-assessable; the
holders thereof will not be subject to personal liability solely by reason
of being such holders; such securities are not and will not be subject to
the preemptive rights of any shareholder of the Company.
(iii) All issued and outstanding securities of each of the Company and
The Durango & Silverton Narrow Gauge Railroad Company, a Colorado
corporation (the "Subsidiary"), have been duly authorized and validly issued
and are fully paid and non-assessable; the holders thereof have no rights of
rescission or preemptive rights with respect thereto and are not subject to
personal liability solely by reason of being securityholders; and none of
such securities was issued in violation of the preemptive rights of any
holders of any security of the Company or the Subsidiary. The Company has
the respective number of (a) authorized and (b) issued and outstanding
shares of capital stock set forth in the Memorandum.
(iv) Each of the Company and the Subsidiary has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real
and personal property stated in the Memorandum to be owned or leased by
them, respectively, free and clear of all liens, encumbrances, claims,
security interests and defects of any material nature whatsoever, other than
those set forth in the Memorandum and liens for taxes not yet due and
payable.
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(v) Except as disclosed in the Memorandum, there is no material
litigation or governmental proceeding pending or, to the best of the
Company's knowledge, threatened against, or involving the properties or
business of the Company or the Subsidiary.
(vi) Each of the Company and the Subsidiary has been duly organized
and is validly existing as a corporation in good standing under the laws of
its respective jurisdiction of organization. The Company owns all of the
issued and outstanding voting shares of the Subsidiary free and clear of all
liens, encumbrances, claims, security interests and defects of any material
nature, except pledges and liens in favor of NationsBank N.A. (South) and
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. Except as disclosed in the Memorandum, neither
the Company nor the Subsidiary owns or controls, directly or indirectly, an
interest in any other corporation, limited liability company, partnership,
trust, joint venture or other business entity. Each of the Company and the
Subsidiary is duly qualified or licensed and in good standing as a foreign
corporation in each jurisdiction in which the character of its operations
requires such qualification or licensing and where failure to so qualify
would have a material adverse effect on either of the Company or the
Subsidiary. Each of the Company and the Subsidiary has all requisite
corporate power and authority, and all material and necessary
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental regulatory officials and bodies (domestic and foreign)
to conduct its businesses as described in the Memorandum; each of the
Company and the Subsidiary is doing business in strict compliance with all
such authorizations, approvals, orders, licenses, certificates and permits
and all foreign, federal, state and local laws, rules and regulations
concerning the business in which it is engaged, except where such failure to
maintain such compliance would not, individually or in the aggregate, have a
material adverse effect on the Company or the Subsidiary. Any disclosures in
the Memorandum concerning the effects of foreign, federal, state and local
regulation on the Company's or the Subsidiary's business as currently
conducted and as contemplated are correct in all material respects and do
not omit to state a material fact. The Company has all corporate power and
authority to enter into this Agreement, the Escrow Agreement and the
Subscription Agreements and to carry out the provisions and conditions
hereof and thereof, and all consents, authorizations, approvals and orders
required in connection herewith and therewith have been obtained or will
have been obtained prior to the first Closing of the Offering. No consent,
authorization or order of, and no filing with, any court, government agency
or other body is required by the Company or the Subsidiary for the issuance
of the Securities pursuant to the Memorandum or the Subscription Agreements,
except for applicable federal and state securities laws. Neither the Company
nor the Subsidiary has, since its respective inception, incurred any
liability arising under or as a result of the application of any of the
provisions of the Securities Act, the Exchange Act or the Rules and
Regulations.
(vii) To the best knowledge of the Company's officers, there has been
no material adverse change in the condition or prospects of either the
Company or the Subsidiary, either individually or as a whole, financial or
otherwise, from that on the latest dates as of which such condition or
prospects, respectively, are set forth in the Memorandum, and the
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outstanding debt, the property and the business of the Company and the
Subsidiary conforms in all material respects to the descriptions thereof
contained in the Memorandum.
(viii) Neither the Company nor the Subsidiary is in breach of, or in
default under, any term or provision of any indenture, mortgage, deed of
trust, lease, 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 it is a party or by which it or any of its
properties may be bound or affected. Neither the Company nor the Subsidiary
is in violation of any provision of its charter or Bylaws or in violation of
any franchise, license, permit, judgment, decree or order, or in violation
of any statute, rule or regulation. Neither the execution and delivery of
this Agreement, the Escrow Agreement or the Subscription Agreements, nor the
issuance and sale or delivery of the Securities, nor the consummation of any
of the transactions contemplated herein or in the Subscription Agreements,
nor the compliance by the Company with the terms and provisions hereof or
thereof, has conflicted with or will conflict with, or has resulted in or
will result in a breach of, any of the terms and provisions of, or has
constituted or will constitute a default under, or has resulted in or will
result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or the Subsidiary or pursuant to the
terms of any 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 or
the Subsidiary may be bound or to which any of the property or assets of the
Company or the Subsidiary is subject, except, in each case, for which a
waiver has been obtained by the Company or the Subsidiary, as applicable,
and delivered to ICG; nor will such action result in any violation of the
provisions of the charter or the Bylaws of the Company or the Subsidiary or,
assuming the due performance by ICG of its obligations hereunder, any
statute or any order, rule or regulation applicable to the Company or the
Subsidiary of any court or of any foreign, federal, state or other
regulatory authority or other government body having jurisdiction over the
Company or the Subsidiary.
(ix) The Securities and the Subscription Agreements conform in all
material respects to all statements in relation thereto contained in the
Memorandum.
(x) Subsequent to the dates as of which information is given in the
Memorandum, and except as may otherwise be indicated or contemplated herein
or therein, neither the Company nor the Subsidiary has (a) issued any
securities or incurred any material liability or obligation, direct or
contingent, for borrowed money, or (b) entered into any transaction other
than in the ordinary course of business, or (c) declared or paid any
dividend or made any other distribution on or in respect of its capital
stock.
(xi) There are no claims for services in the nature of a finder's or
origination fee with respect to the sale of the Units.
(xii) Each of the Company and the Subsidiary owns or possesses, free
and clear of all liens or encumbrances and rights thereto or therein by
third parties, the requisite licenses or
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other rights to use all trademarks, service marks, copyrights, service
names, trade names, patents, patent applications and licenses necessary to
conduct its business (including, without limitation, any such licenses or
rights described in the Memorandum as being owned or possessed by the
Company or the Subsidiary), and, other than as set forth in the Memorandum,
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 the Subsidiary with respect to any trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses used
in the conduct of the Company's or the Subsidiary's business; and, the
Company's and the Subsidiary's current products, services and processes do
not infringe or will not infringe on the patents currently held by any third
party.
(xiii) Neither the Company nor the Subsidiary is under any obligation to
pay royalties or fees of any kind whatsoever to any third party with respect
to any trademarks, service marks, copyrights, service names, trade names,
patents, patent applications, licenses or technology it has developed, uses,
employs or intends to use or employ.
(xiv) Subject to the performance by ICG of its obligations hereunder,
the Memorandum and the offer and sale of the Securities comply, and will
continue to comply, up to the Termination Date in all material respects with
the requirements of Regulation S and Rule 506 of Regulation D, each as
promulgated by the Commission pursuant to the Securities Act and any other
applicable federal and state laws, rules, regulations and executive orders.
Neither the Memorandum nor any amendment or supplement thereto nor any
documents prepared by the Company in connection with the Offering 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. All statements of material facts in the Memorandum are
true and correct as of the date of the Memorandum and will be true and
correct on the date of each Closing.
(xv) Neither the Company, nor the Subsidiary, or any respective
affiliate thereof, nor any person acting on its or their behalf, has
engaged, directly or indirectly, in any directed selling efforts (as
interpreted by appropriate administrative or judicial authorities under
Regulation S of the Securities Act) with respect to the Offering.
(xvi) All taxes which are due and payable from each the Company and the
Subsidiary have been paid in full and neither the Company nor the Subsidiary
has any tax deficiency or claim outstanding assessed or proposed against it.
(xvii) The financial statements of the Company and the Subsidiary and
the respective notes thereto included in the Memorandum fairly present the
financial position, income, changes in cash flow, changes in stockholders'
equity and the results of operations of the Company and the Subsidiary at
the respective dates and for the respective periods to which they apply.
Such financial statements have been prepared in conformity with generally
accepted accounting principles and the Rules and Regulations, consistently
applied throughout the periods involved. The pro forma financial information
included in the
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Memorandum (A) presents fairly, in all material respects, the information
shown therein, (B) have been prepared in all material respects, in
accordance with the requirements of Rule 11-02 of Regulation S-X promulgated
under the Exchange Act, (C) have been prepared in all material respects in
accordance with the Commission's rules and guidelines with respect to pro
forma financial information, and (D) have been properly compiled on the
bases described therein, and the assumptions used in the preparation of the
pro forma financial information and included in the Memorandum are
reasonable and the adjustments used therein are appropriate to give effect
to the transactions or circumstances referred to therein. There has been no
material adverse change or development involving a material prospective
change in the condition, financial or otherwise, or in the earnings,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company or the Subsidiary, whether or not
arising in the ordinary course of business, since the date of the financial
statements included in the Memorandum; and the outstanding debt, the
property, both tangible and intangible, and the businesses of the Company
and the Subsidiary conform in all material respects to the descriptions
thereof contained in the Memorandum. The financial information set forth in
the Memorandum under the headings "Selected Financial Data" and "Plan of
Operations" fairly presents, on the basis stated in the Memorandum, the
information set forth therein and such financial information has been
derived from or compiled on a basis consistent with that of the audited
financial statements included in the Memorandum.
5. Certain Covenants and Agreements of the Company.
A. The Company covenants and agrees at its expense and without any expense
to ICG as follows:
B. To advise ICG of any adverse change in the Company's or the Subsidiary's
financial condition, prospects or business or of any development materially
affecting the Company or the Subsidiary or rendering untrue or misleading any
material statement in the Memorandum occurring at any time prior to the each
Closing as soon as the Company or the Subsidiary is either informed or becomes
aware thereof.
C. To use its best efforts to cause the Securities to be qualified or
registered for sale, or to obtain exemptions from such qualification or
registration requirements, on terms consistent with those stated in the
Memorandum under the securities laws of such jurisdictions as ICG shall
reasonably request, provided that such states and jurisdictions do not require
the Company to qualify as a foreign corporation. Qualification, registration and
exemption charges and fees shall be at the sole cost and expense of the Company.
ICG's counsel shall perform the required "Blue Sky" services and all filing and
legal fees (such filing and legal fees not to exceed $10,000) and expenses of
ICG's counsel relating to such "Blue Sky" matters shall be paid by the Company.
The Company shall also pay to ICG's counsel all legal fees (not to exceed
$50,000, consisting of $35,000 from this Offering and $15,000 owed to ICG's
counsel from a prior terminated offering) and expenses related thereto.
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D. To provide and to continue to provide to each holder of the Securities,
so long as such holder shall remain a security holder of the Company, for a
period ending on the earlier of (i) the registration of the Unit Shares, the
Note Shares and the Placement Agent Shares under the Securities Act and (ii)
five (5) years from the Termination Date, copies of all quarterly and audited
annual consolidated financial statements prepared by or on behalf of the
Company, other reports prepared by or on behalf of the Company for public
disclosure and all documents delivered to the Company's shareholders.
E. To deliver, with respect to the Company and the Subsidiary, on a
consolidated basis where appropriate, for a period of five (5) years following
the Termination Date, to ICG, in the manner provided in Section 11(B) of this
Agreement: (i) within forty five (45) days after the end of each of the first
three quarters of each fiscal year of the Company, commencing with the first
quarter ending after the Termination Date, a statement of its income for each
such quarterly period, and its balance sheet and a statement of changes in
shareholders' equity as of the end of such quarterly period, all in reasonable
detail, certified by its principal financial or accounting officer; (ii) within
ninety (90) days after the close of each fiscal year, its balance sheet as of
the close of such fiscal year, together with a statement of income, a statement
of changes in shareholders' equity and a statement of cash flow for such fiscal
year, such balance sheet, statement of income, statement of changes in
shareholders' equity and statement of cash flow to be in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
auditors; (iii) within ten (10) business days of the end of every month, its
balance sheet as of the close of the month, together with a statement of income,
a statement of changes in shareholder's equity and a statement of cash flow for
such month; and (iv) a copy of all documents, reports and information furnished
to its shareholders at the time that such documents, reports and information are
furnished to its shareholders.
F. To apply the proceeds of the Offering in accordance with the "Use of
Proceeds" subsection in the "Summary" section Memorandum.
G. To provide ICG with as many copies of the Memorandum as ICG may
reasonably request.
H. To issue to ICG, or ICG's designee, on the date of each Closing, one (1)
share of Common Stock (collectively, the "Placement Agent Shares") for each
$50.00 of gross proceeds of the Offering received by the Company at such
Closing; any fractional shares to be issued pursuant to this Section 5(G) shall
be rounded to the nearest full share of Common Stock.
I. To ensure that any transactions between or among the Company, the
Subsidiary, any of their respective officers or directors, and any of such
entities' or persons' respective affiliates be on terms and conditions that are
no less favorable to the Company or the Subsidiary, as the case may be, than the
terms and conditions that would be available in an "arms' length" transaction
with independent third parties.
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J. To engage an escrow agent and financial printer in connection with the
Offering, in each case acceptable to ICG.
K. To comply with the terms of the Subscription Agreements, including, but
not limited to, each subscriber's rights with respect to registration under the
Securities Act of the Unit Shares and the Note Shares.
L. Not to engage, directly, or through any affiliates, or any person acting
on its or their behalf, in any directed selling efforts (as interpreted by
appropriate administrative or judicial authorities under Regulation S of the
Securities Act) with respect to the Offering.
6. REGISTRATION RIGHTS.
A. THE COMPANY'S REGISTRATION.
As soon as practicable after the date of the first Closing of the
Offering, and in any event not later than 60 days thereafter, the Company shall
prepare and file with the Commission, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for ICG and the holders of the Placement
Agent Shares in order to comply with the provisions of the Securities Act so as
to permit a public offering and sale of the Placement Agent Shares by the
respective holders thereof (collectively, the "Registration Rights Holders") for
a consecutive period (the "Registration Period") ending at such time as, in the
written opinion of counsel for the Company, all of the Placement Agent Shares
are eligible for public resale without restriction and without registration
under the Securities Act.
B. DEMAND REGISTRATION.
(i) If the registration statement referred to in Section 6(A) does
not become effective within six months after the date of the first Closing
of the Offering or the Registration Rights Holders may not resell their
Placement Agent Shares without the availability of an exemption from
registration under the Securities Act, then Registration Rights Holders
representing a Majority (as defined in Section 6(D)(vi) hereof) of the
Placement Agent Shares shall have the right, exercisable by written notice
to the Company, to have the Company prepare and file with the Commission,
one or more registration statements and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the
Company and counsel for ICG and the Registration Rights Holders in order to
comply with the provisions of the Securities Act, so as to permit a public
offering and sale, for the Registration Period, of the Placement Agent
Shares by such Registration Rights Holders and any other Registration Rights
Holders who notify the Company within ten (10) days after receiving notice
from the Company of such registration request (as set forth below).
(ii) The Company covenants and agrees to give written notice of any
registration request under this Section 6(B) by any Registration Rights
Holder to all other Registration
11
Rights Holders within ten (10) days from the date of the receipt of any such
registration request.
(iii) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor and to
have any registration statement declared effective at the earliest possible
time. The Company shall furnish each Registration Rights Holder desiring to
sell Placement Agent Shares such number of prospectuses as shall reasonably
be requested.
C. PIGGYBACK REGISTRATION.
(i) If the registration statement referred to in Section 6(A) does
not become effective within six months after the first Closing of the
Offering or the effectiveness thereof is not maintained for the duration of
the Registration Period or, if for any reason, the Placement Agent Shares
may not be resold without the availability of an exemption from registration
under the Securities Act, and the Company proposes to register any of its
securities under the Securities Act (other than in connection with a merger,
acquisition or exchange offer on Form S-4 or pursuant to Form S-8 or
successor forms), then the Company will give written notice by registered or
certified mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Registration Rights Holders of its intention
to do so. Upon the written request of any Registration Rights Holder given
within ten (10) days after receipt of any such notice of his or her desire
to include any Placement Agent Shares in such proposed registration
statement, the Company shall afford the Registration Rights Holders the
opportunity to have any such Placement Agent Shares registered under such
registration statement.
(ii) Notwithstanding the provisions of this Section 6(C), the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 6(C) (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
D. COVENANTS WITH RESPECT TO REGISTRATION.
(i) In connection with any registration under any of Sections 6(A),
6(B) and 6(C) hereof, the Company covenants and agrees as follows:
(ii) The Company shall pay all costs, (excluding fees and expenses of
Registration Rights Holder(s)' counsel and any underwriting or selling
commissions or other charges of any broker-dealer acting on behalf of
Registration Rights Holder(s)), fees and expenses in connection with all
registration statements filed pursuant to any of Sections 6(A), 6(B) and
6(C) hereof including, without limitation, the Company's legal and
accounting fees and expenses, printing expenses and blue sky fees and
expenses.
12
(iii) The Company will take all necessary action which may be required
in qualifying or registering the securities included in a registration
statement for offering and sale under the securities or blue sky laws of
such states as reasonably are requested by the Registration Rights
Holder(s), provided that the Company shall not be obligated to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
(iv) The Company shall indemnify the Registration Rights Holder(s) and
each person, if any, who controls such Registration Rights Holder(s) within
the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become
subject under the Securities Act, the Exchange Act or any other statute,
common law or otherwise, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in such
registration statement executed by the Company or based upon written
information furnished by the Company filed in any jurisdiction in order to
qualify the Placement Agent Shares under the securities laws thereof or
filed with the Commission, any state securities commission or agency, the
National Association of Securities Dealers, Inc., The Nasdaq Stock Market or
any securities exchange, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements contained therein not misleading, unless such statement or
omission was made in reliance upon and in conformity with written
information furnished to the Company by the Registration Rights Holder(s)
expressly for use in such registration statement, any amendment or
supplement thereto or any application, as the case may be. If any action is
brought against the Registration Rights Holder(s) or any controlling person
of the Registration Rights Holder(s) in respect of which indemnity may be
sought against the Company pursuant to this Section 6(D)(iii), the
Registration Rights Holder(s) or such controlling person shall, within
thirty (30) days after the receipt of a summons or complaint, notify the
Company in writing of the institution of such action and the Company shall
assume the defense of such action, including the employment and payment of
reasonable fees and expenses of counsel (which counsel shall be reasonably
satisfactory to the Registration Rights Holder(s) or such controlling
person), but the failure to give such notice shall not affect such
indemnified person's right to indemnification hereunder except to the extent
that the Company's defense of such action was materially adversely affected
thereby. The Registration Rights Holder(s) or such controlling person shall
have the right to employ its or their own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of the
Registration Rights Holder(s) or such controlling person unless the
employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action, or the Company shall
not have employed counsel to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there
may be defenses available to it or them which are different from or
additional to those available to the Company (in which case the Company
shall not have the right to direct the defense of such action on behalf of
the indemnified party or parties), in any of which events the fees and
expenses of attorneys for all of the Registration Rights Holder(s) and/or
such
13
controlling person shall be borne by the Company. Except as expressly
provided in the previous sentence, in the event that the Company shall have
assumed the defense of any such action or claim, the Company shall not
thereafter be liable to the Registration Rights Holder(s) or such
controlling person in investigating, preparing or defending any such action
or claim. The Company agrees to notify promptly the Registration Rights
Holder(s) of the commencement of any litigation or proceedings against the
Company or any of its officers, directors or controlling persons in
connection with the resale of any of the Placement Agent Shares in
connection with such registration statement. The Company further agrees that
upon demand by an indemnified person, at any time or from time to time, it
will promptly reimburse such indemnified person for any loss, claim, damage,
liability, cost or expense actually and reasonably paid by the indemnified
person as to which the Company has indemnified such person pursuant hereto.
Notwithstanding the foregoing provisions of this Section 6(D)(iii), any such
payment or reimbursement by the Company of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final
judgment by a court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against any Registration Rights
Holder or such indemnified person as a direct result of any Registration
Rights Holder or such person's gross negligence or willful misfeasance will
be promptly repaid to the Company.
(v) The Registration Rights Holder(s), and their successors and
assigns, shall severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20(a) of
the Exchange Act, against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become subject
under the Securities Act, the Exchange Act or any other statute, common law
or otherwise, arising from written information furnished by or on behalf of
such Registration Rights Holder(s), or their successors or assigns,
expressly for use in such registration statement. The Registration Rights
Holder(s) further agree(s) that upon demand by an indemnified person, at any
time or from time to time, they will promptly reimburse such indemnified
person for any loss, claim, damage, liability, cost or expense actually and
reasonably paid by the indemnified person as to which the Registration
Rights Holder(s) have indemnified such person pursuant hereto.
Notwithstanding the foregoing provisions of this Section 6(D) (iv), any such
payment or reimbursement by the Registration Rights Holder(s) of fees,
expenses or disbursements incurred by an indemnified person in any
proceeding in which a final judgment by a court of competent jurisdiction
(after all appeals or the expiration of time to appeal) is entered against
the Company or such indemnified person as a direct result of the Company or
such person's gross negligence or willful misfeasance will be promptly
repaid to the Registration Rights Holder(s).
(vi) In the event of registration of the Placement Agent Shares under
Sections 6(A) or 6(B)(i) hereof, the Company shall enter into an
underwriting agreement with the managing underwriter, if any, selected for
such underwriting by Registration Rights Holders holding a
14
Majority of the securities requested to be included in such underwriting.
Such agreement shall be satisfactory in form and substance to the Company, a
Majority of Registration Rights Holders and such managing underwriter, and
shall contain such representations, warranties and covenants by the Company
and such other terms as are customarily contained in agreements of that type
used by the managing underwriter. The Registration Rights Holders shall be
parties to any underwriting agreement relating to an underwritten sale of
their securities and may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the
benefit of such underwriters shall also be made to and for the benefit of
such Registration Rights Holders. Such Registration Rights Holders shall not
be required to make any representations or warranties to or agreements with
the Company or the underwriters except as they may relate to such
Registration Rights Holders and their intended methods of distribution.
(vii) For purposes of this Agreement, the term "Majority" in reference
to the Placement Agent Shares shall mean in excess of fifty percent (50%) of
the then outstanding Placement Agent Shares that (i) are not held by the
Company, an affiliate (excluding, if applicable, ICG and its affiliates,
officers and directors), officer, creditor, employee or agent thereof or any
of their respective affiliates, members of their family, persons acting as
nominees or in conjunction therewith and (ii) have not been resold to the
public either pursuant to a registration statement filed with the Commission
under the Securities Act or in reliance upon Rule 144.
7. INDEMNIFICATION.
A. The Company hereby agrees that it will indemnify and hold ICG and each
officer, director, shareholder, employee, agent or representative of ICG, and
each person controlling, controlled by or under common control of ICG within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or
the Rules and Regulations, harmless from and against any and all loss, claim,
damage, liability, cost or expense whatsoever (including, but not limited to,
any and all reasonable legal fees and other expenses and disbursements incurred
in connection with investigating, preparing to defend or defending any action,
suit or proceeding, including any inquiry or investigation, commenced or
threatened, or any claim whatsoever or in appearing or preparing for appearance
as a witness in any action, suit or proceeding, including any inquiry,
investigation or pretrial proceeding such as a deposition) to which ICG or such
indemnified person of ICG may become subject (1) as a result of claims asserted
by third parties related to or arising out of the engagements of ICG by the
Company pursuant to the terms hereof or in connection therewith and (2) under
the Securities Act, the Exchange Act, the Rules and Regulations, or any other
federal or state law or regulation, common law or otherwise, arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in (A) Section 4 and Section 5 of this Agreement, (B) the
Memorandum (except those written statements relating to ICG given by an
indemnified person for inclusion therein), (C) any application or other document
or written communication executed by the Company or based upon written
information furnished by the Company filed in any jurisdiction in order to
qualify
15
the Securities under the securities laws thereof, or any state securities
commission or agency; (ii) the omission or alleged omission from documents
described in clauses (A), (B) or (C) above of a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
(iii) the breach of any representation, warranty, covenant or agreement made by
the Company in this Agreement. The Company further agrees that upon demand by an
indemnified person, at any time or from time to time, it will promptly reimburse
such indemnified person for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by the indemnified person as to which the Company
has indemnified such person pursuant hereto. Notwithstanding the foregoing
provisions of this Paragraph 7(A), any such payment or reimbursement by the
Company of fees, expenses or disbursements incurred by an indemnified person in
any proceeding in which a final judgment by a court of competent jurisdiction
(after all appeals or the expiration of time to appeal) is entered against ICG
or such indemnified person as a direct result of ICG or such person's gross
negligence or willful misfeasance will be promptly repaid to the Company.
B. ICG hereby agrees that it will indemnify and hold the Company and each
officer, director, shareholder, employee, agent or representative of the
Company, and each person controlling, controlled by or under common control with
the Company within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act or the Rules and Regulations, harmless from and against any
and all loss, claim, damage, liability, cost or expense whatsoever (including,
but not limited to, any and all reasonable legal fees and other expenses and
disbursements incurred in connection with investigating, preparing to defend or
defending any action, suit or proceeding, including any inquiry or
investigation, commenced or threatened, or any claim whatsoever or in appearing
or preparing for appearance as a witness in any action, suit or proceeding,
including any inquiry, investigation or pretrial proceeding such as a
deposition) to which the Company or such indemnified person of the Company may
become subject under the Securities Act, the Exchange Act, the Rules and
Regulations, or any other federal or state law or regulation, common law or
otherwise, arising out of or based upon (i) the conduct of ICG or its officers,
employees or representatives in its acting as placement agent for the Offering
or (ii) the breach of any representation, warranty, covenant or agreement made
by ICG in this Agreement. ICG further agrees that upon demand by an indemnified
person, at any time or from time to time, it will promptly reimburse such
indemnified person for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by the indemnified person as to which ICG has
indemnified such person pursuant hereto. Notwithstanding the foregoing provision
of this Paragraph 7(B), any such payment or reimbursement by ICG of fees,
expenses or disbursements incurred by an indemnified person in any proceeding in
which a final judgment by a court of competent jurisdiction (after all appeals
or the expiration of time to appeal) is entered against the Company or such
indemnified person as a direct result of such person's gross negligence or
willful misfeasance will be promptly repaid to ICG.
C. Promptly after receipt by an indemnified party of notice of commencement
of any action cover ed by subparagraph (A) or (B) of this Section 7, the party
to be indemnified shall, within five (5) business days, notify the indemnifying
party of the commencement thereof; the omission
16
by one indemnified party to so notify the indemnifying party shall not relieve
the indemnifying party of its obligation to indemnify any other indemnified
party that has given such notice and shall not relieve the indemnifying party of
any liability outside of this indemnification if not materially prejudiced
thereby. In the event that any action is brought against the indemnified party,
the indemnifying party will be entitled to participate therein and, to the
extent it may desire, to assume and control the defense thereof with counsel
chosen by it which is reasonably acceptable to the indemnified party. After
notice from the indemnifying party to such indemnified party of its election to
so assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under such paragraph 7(A) or 7(B) for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof, but the indemnified party may, at its own expense, participate
in such defense by counsel chosen by it, without, however, impairing the
indemnifying party's control of the defense. Subject to the proviso of this
sentence and notwithstanding any other statement to the contrary contained
herein, the indemnified party or parties shall have the right to choose its or
their own counsel and control the defense of any action, all at the expense of
the indemnifying party if, (i) the employment of such counsel shall have been
authorized in writing by the indemnifying party in connection with the defense
of such action at the expense of the indemnifying party, or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel shall be borne by the
indemnifying party; provided, however, that the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstance, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for all such indemnified parties. No
settlement of any action or proceeding against an indemnified party shall be
made without the consent of the indemnifying party.
D. In order to provide for just and equitable contribution in circumstances
in which the indemnification provided for in subparagraphs (A) or (B) of this
Section 7 is due in accordance with its terms but is for any reason held by a
court to be unavailable on grounds of policy or otherwise, the Company and ICG
shall contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with the
investigation or defense of same) which the other may incur in such proportion
so that ICG shall be responsible for ten percent (10%) of the aggregate of such
losses, claims, damages and liabilities and the Company shall be responsible for
the balance; provided, however, that no person guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of the Securities Act
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph 7(D), any person
controlling, controlled by or under common control with ICG, or any partner,
director, officer, employee,
17
representative or any agent of any thereof, shall have the same rights to
contribution as ICG and each person controlling, controlled by or under common
control with the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act and each officer of the Company and each
director of the Company shall have the same rights to contribution as the
Company. 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 the other party
under this paragraph 7(D), notify such party from whom contribution may be
sought, but the omission to so notify such party shall not relieve the party
from whom contribution may be sought from any obligation they may have hereunder
or otherwise if the party from whom contribution may be sought is not materially
prejudiced thereby. The indemnity and contribution agreements contained in this
Section 7 shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified person or any termination
of this Agreement.
8. PAYMENT OF EXPENSES.
Whether or not the Offering is successfully completed, the Company
hereby agrees to bear all of the expenses in connection with the Offering,
including, but not limited to the following: filing fees, printing and
duplicating costs, advertisements, postage and mailing expenses with respect to
the transmission of offering material and, after each Closing, the securities,
registrar and transfer agent fees, escrow agent fees and expenses, fees of the
Company's counsel and accountants, legal fees (such legal fees not to exceed
$50,000, consisting of $35,000 from the Offering, plus $15,000 from a prior
terminated offering of the Company) and expenses of ICG's counsel, issue and
transfer taxes, if any, and "Blue Sky" filing and fees (such filing and legal
fees not to exceed $10,000) and expenses. It is agreed that ICG's counsel shall
perform the required Blue Sky legal services. In this connection, Blue Sky
applications for registration of the Securities or exemption therefrom shall be
made in such states and jurisdictions as shall be reasonably requested by ICG,
provided that such states and jurisdictions do not require the Company to
qualify as a foreign corporation. In addition, the Company hereby agrees to pay
to ICG a non-accountable expense allowance equal to two percent (2%) of the
gross proceeds from the sale of the Units.
9. CONDITIONS OF THE CLOSINGS
Each Closing shall be held at the New York City offices of ICG's counsel.
The obligations of ICG hereunder shall be subject to the continuing accuracy of
the representations and warranties of the Company herein as of the date hereof
and as of each Closing with respect to the Company and the Subsidiary as if it
had been made on and as of each Closing; the accuracy on and as of each Closing
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of each Closing of its
covenants and obligations hereunder and to the following further conditions:
A. At each Closing, ICG shall receive the opinion of Olle, Macaulay &
Zorrilla, P.A., counsel to the Company, dated as of the date of such Closing,
which opinion shall be in form and substance reasonably satisfactory to counsel
for ICG, to the effect that:
18
(i) The execution, delivery and performance of each of this
Agreement, the Escrow Agreement and the Subscription Agreements has been
duly and validly authorized by the Company and such agreement is valid and
binding agreement of the Company, enforceable in accordance with its terms.
The Notes constitute valid and binding obligations of the Company to issue
and sell, upon conversion thereof in accordance with their terms, the number
and type of securities of the Company called for thereby. The Securities to
be issued and sold by the Company in connection with the Memorandum, this
Agreement, the Subscription Agreements and the Notes (as the case may be)
have been duly authorized and, when issued and paid for in accordance with
the Memorandum, this Agreement, the Subscription Agreements and the Notes
(as the case may be), the certificates representing each of the Securities,
will be validly issued, fully paid and non-assessable; the holders thereof
are not and will not be subject to personal liability to third parties
solely by reason of being such holders; such securities are not and will not
be subject to the preemptive rights of any shareholder of the Company; and
all corporate action required to be taken for the authorization, issuance
and sale of such securities has been duly and validly taken by the Company.
The Securities conform in all material respects to the description thereof
contained in the Memorandum and the Subscription Agreements. No transfer tax
is payable by or on behalf of ICG or the Company in connection with the
issuance and sale of any of the Securities or the consummation of the
Company's obligations under this Agreement.
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Nevada. The
Subsidiary has been duly organized and is validly existing as a corporation
in good standing under the laws of the State of Colorado. Each of the
Company and the Subsidiary is duly qualified or licensed and in good
standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing. Each of the Company and the
Subsidiary has all requisite corporate power and authority, all
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental regulatory officials and bodies to own or lease its
properties and conduct its business (or proposed business) as described in
the Memorandum and, assuming that the Company and the Subsidiary are
conducting business as described in the Memorandum, the Company and the
Subsidiary are doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates and permits and all federal, state
and local laws, rules and regulations concerning the business in which the
Company is engaged.
(iii) All issued and outstanding securities of each of the Company and
the Subsidiary have been duly authorized and validly issued and are fully
paid and non-assessable; the holders thereof have no rights of rescission or
preemptive rights with respect thereto and are not subject to personal
liability solely by reason of being securityholders; and none of such
securities was issued in violation of the preemptive rights of any holders
of any security of the Company or the Subsidiary. The Company has the
respective number of (a) authorized and (b) issued and outstanding shares of
capital stock as set forth in the Memorandum.
19
(iv) There is no material litigation or governmental proceeding
pending or, to the best of the such counsel's knowledge, threatened against,
or involving the properties or businesses of the Company or the Subsidiary,
except as disclosed in the Memorandum.
(v) To the best of such counsel's knowledge, neither the Company nor
the Subsidiary is in breach of, or in default under, any term or provision
of any indenture, mortgage, deed of trust, lease, 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 it is a party
or by which it or any of its properties may be bound or affected. Neither
the Company nor the Subsidiary is in violation of any provision of its
charter or Bylaws or in violation of any franchise, license, permit,
judgment, decree or order, or in violation of any statute, rule or
regulation. Neither the execution and delivery of this Agreement, the Escrow
Agreement or the Subscription Agreements, nor the issuance and sale or
delivery of the Securities, nor the consummation of any of the transactions
contemplated herein or in the Subscription Agreements, nor the compliance by
the Company with the terms and provisions hereof or thereof, has conflicted
with or will conflict with, or has resulted in or will result in a breach
of, any of the terms and provisions of, or has constituted or will
constitute a default under, or has resulted in or will result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or the Subsidiary or pursuant to the terms of any
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 or the Subsidiary
may be bound or to which any of the property or assets of either of the
Company or the Subsidiary is subject, except, in each case, for which a
waiver has been obtained and delivered by the Company or the Subsidiary, as
the case may be, to ICG or liens created in favor of the holders of the
Notes; nor will such action result in any violation of the provisions of the
charter or the Bylaws of the Company or the Subsidiary or, assuming the due
performance by ICG of its obligations hereunder, any statute or any order,
rule or regulation applicable to the Company or the Subsidiary of any court
or of any foreign, federal, state or other regulatory authority or other
government body having jurisdiction over the Company or the Subsidiary.
(vi) Assuming that each U.S. Person that purchases Units is an
Accredited Investor and that each other purchaser of Units is a not a U.S.
person, that the representations made by the Company and ICG in this
Agreement are true and correct at all times during the Offering Period and
at the time of each Closing, that ICG has complied with the provisions of
this Agreement, Regulation S and of Section 502(C) of Regulation D and that
a Form D will be filed in accordance with the provisions of Section 503 of
Regulation D, no registration under the Securities Act is required in
connection with the sale and issuance of any of the Securities. The offering
and sale of the Securities in the manner contemplated by this Agreement, the
Subscription Agreement and the Memorandum will not be integrated with any
offering made before the offer and sale of such securities in a manner that
would render unavailable any exemption from registration under the
Securities Act.
20
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to ICG's counsel) of other
counsel acceptable to ICG's counsel, familiar with the applicable laws; (B) as
to matters of fact, to the extent they deem proper, on certificates and written
statements of responsible officers of the Company or the Subsidiary and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company or the Subsidiary, provided that copies of any such
statements or certificates shall be delivered to ICG's counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that ICG and they are
justified in relying thereon. Such opinion shall not state that it is to be
governed or qualified by, or that it is otherwise subject to, any treatise,
written policy or other document relating to legal opinions, including without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991)
or any comparable state accord.
Such counsel shall state that it has participated in conferences with
officers and other representatives of the Company during which the contents
of the Memorandum were discussed. Although such counsel is not passing upon,
and does not assume any responsibility for, the accuracy, completeness or
fairness of any statements contained in the Memorandum, such counsel shall
state that, on the basis of the foregoing, nothing has come to such counsel's
attention to lead them to believe that the Memorandum, as of the date thereof
and the date of such opinion, contained or 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, in the light of the
circumstances under which they were made, not misleading (except for the
financial statements, notes thereto and other statistical and financial
information included therein or omitted therefrom, as to which such counsel
need express no opinion).
B. At or prior to each Closing, counsel for ICG shall have been furnished
such documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in this
Agreement and the Memorandum, or in order to evidence the accuracy, completeness
or satisfaction of any of the representations, warranties or conditions herein
contained.
C. At and prior to each Closing, (i) there shall have been no material
adverse change nor development involving a prospective change in the condition
or prospects or the business activities, financial or otherwise, of the Company
or the Subsidiary from the latest dates as of which such respective condition is
set forth in the Memorandum; (ii) there shall have been no transaction, not in
the ordinary course of business, entered into by the Company or the Subsidiary
which has not been disclosed in the Memorandum or to ICG in writing; (iii)
neither the Company nor the Subsidiary shall be in default under any provision
of any instrument relating to any outstanding indebtedness for which a waiver or
extension has not been otherwise received; (iv) neither the Company nor the
Subsidiary shall have issued any securities (other than those set forth in the
Memorandum) or declared or paid any dividend or made any distribution of
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its capital stock of any class and there shall not have been any material change
in the respective indebtedness (long or short term) or liabilities or
obligations of either of the Company or the Subsidiary (contingent or
otherwise), except as contemplated by the Memorandum; (v) no material amount of
the assets of the Company or the Subsidiary shall have been pledged or
mortgaged, except as indicated or contemplated in the Memorandum or otherwise in
the ordinary course of business; and (vi) no material action, suit or
proceeding, at law or in equity, against the Company or the Subsidiary or
affecting any of their respective properties or businesses shall be pending or
threatened before or by any court or federal or state commission, board or other
administrative agency, domestic or foreign, wherein an unfavorable decision,
ruling or finding could materially adversely affect the business, prospects or
financial condition or income of either the Company or the Subsidiary.
D. At each Closing, ICG shall have received a certificate of the Company and
the Subsidiary signed by their respective president and chief financial officer,
dated as of the date of such Closing, to the effect that the conditions set
forth in the preceding paragraph have been satisfied and that, as of the date of
such Closing, the representations and warranties of the Company set forth herein
are true and correct.
E. At or prior to the first Closing, the Company or the Subsidiary, as the
case may be, shall have received written consents or waivers for the issuance of
the Notes from any third parties from which such consents are required.
F. At each Closing, the Company shall have duly executed and delivered to
ICG's counsel, as agent for the respective holders thereof, the appropriate
securities underlying the Units in the names and denominations specified by ICG.
G. At each Closing, the Company shall have duly executed and delivered to
ICG, or its designees, the Placement Agent Shares in the names and denominations
specified by ICG.
10. TERMINATION.
This Agreement shall terminate if a Closing does not take place on or before
seven (7) business days following the Termination Date or as soon thereafter as
the funds received from subscriptions have cleared the banking system in the
normal course of business. Either ICG or the Company may terminate the Offering
in its sole discretion prior to any Closing hereunder. In the event that the
Company determines to terminate the Offering from and after the date hereof
through the end of the Offering Period for any reason other than ICG's breach of
the terms of this Agreement, and ICG is willing to proceed, then the Company
shall pay to ICG a fee as compensation for services and as liquidated damages,
in lieu of any and all other damages, in the amount of one hundred thousand
dollars ($100,000) together with reasonable documented expenses which shall be
reimbursed as otherwise contemplated hereunder, which amount the parties view as
a reasonable estimate of ICG's compensation for damages which might otherwise be
difficult to ascertain. Upon such termination, all Subscription Agreements and
payments for Units not previously delivered to the purchasers thereof, shall be
returned to the respective subscribers, without interest thereon or
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deduction therefrom, ICG shall have no further obligation to the Company, and
the Company shall have no obligation to ICG, except in each case as otherwise
provided herein.
11. MISCELLANEOUS.
A. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all which shall be deemed to be one
and the same instrument.
B. Any notice required or permitted to be given hereunder shall be given in
writing and shall be deemed effective when deposited in the United States mail,
postage prepaid, or when received if personally delivered or faxed, addressed as
follows:
To ICG:
International Capital Growth, Ltd.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Senior Vice President
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Esq.
To the Company:
First American Railways, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
President
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with a copy to:
Olle, Macaulay & Zorrilla, P.A.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
or to such other address of which written notice is given to the others.
C. This Agreement shall be governed by and construed in all respects under
the laws of the State of New York, without reference to its conflict of laws
rules or principles. Any suit, action, proceeding or litigation arising out of
or relating to this Agreement or the transaction contemplated hereby shall be
brought and prosecuted in such federal or state court or courts located within
the State of New York as provided by law. The parties hereby irrevocably and
unconditionally consent to the jurisdiction of each such court or courts located
within the State of New York and to service of process by registered or
certified mail, return receipt requested, or by any other manner provided by
applicable law, and hereby irrevocably and unconditionally waive any right to
claim that any suit, action, proceeding or litigation so commenced has been
commenced in an inconvenient forum.
D. This Agreement and the other agreements referenced herein contain the
entire understanding between the parties hereto and may not be modified or
amended except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought.
E. If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
FIRST AMERICAN RAILWAYS, INC.
By:_____________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
President
INTERNATIONAL CAPITAL GROWTH, LTD.
By:__________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Senior Vice President
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