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Page 23 of 81 Pages
Warrants, the Fund Escrow Agreement and the Subscription Agreements has been
duly and validly authorized, executed and delivered by the Company, and is the
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, subject to any applicable bankruptcy, insolvency or
other laws affecting the rights of creditors generally and to general equitable
principles;
(C) to the best of such counsel's knowledge: (i) the
authorized, issued and outstanding capital stock of the Company as of the date
hereof (before giving effect to the transactions contemplated by this Agreement)
is as set forth in the Offering Documents and there are no commitments pursuant
to which the Company is, or may become, obligated to issue any shares of its
capital stock or other securities of the Company other than as set forth in the
Offering Documents; (ii) all of the issued shares of capital stock of the
Company issued in connection with and subsequent to the reverse merger in
January1998 have been duly and validly authorized and issued, are fully paid and
non-assessable (with the exception of certain shares currently held in escrow to
satisfy certain obligations upon conversion of outstanding debentures and
exercise of outstanding warrants, which shares will not be fully paid and
non-assessable until such conversion or exercise); and (iii) no securities have
been issued in violation of the preemptive rights of any securityholder of the
Company. The offers and sales of such securities were either registered under
the Securities Act and applicable state securities laws or exempt from such
registration requirements;
(D) assuming (i) the accuracy of the information
provided by the Subscribers in the Subscription Documents, (ii) that the
Placement Agent has complied with the requirements of section 4(2) of the
Securities Act (and the provisions of Regulation D promulgated thereunder),
(iii) that there has been no public solicitation, (iv) each Subscriber has
received the Offering Documents, (v) that the Offering Documents do not contain
any material misstatements or omissions, and (vi) that a Notice on Form D is
timely and accurately filed, the issuance and sale of the Units is exempt from
registration under the Securities Act and Regulation D promulgated thereunder;
(E) neither the execution and delivery of this Agreement
or the Subscription Agreement, nor compliance with the terms hereof or thereof,
nor the consummation of the transactions herein or therein contemplated, nor the
issuance of the Notes, the Warrants or the Agent's Warrants, has, nor will,
conflict with, result in a breach of, or constitute a default under the Articles
of Incorporation or By-laws of the Company, or, to the best of such counsel's
knowledge, any material contract, instrument or document to which the Company is
a party, or by which it or any of its properties is bound or, to the best of
such counsel's knowledge, violate any applicable law, rule, regulation,
judgment, order or decree known to us of any governmental agency or court having
jurisdiction over the Company or any of its properties or business;
(F) to the best of such counsel's knowledge, there are
no claims, actions, suits, investigations or proceedings before or by any
arbitrator, court, governmental authority or instrumentality pending or, to such
counsel's knowledge, threatened against or affecting the Company or involving
the properties of the Company which might materially and adversely affect the
business, properties or financial condition of the Company or which might
materially adversely affect the transactions or other acts contemplated by this
Agreement or the validity or enforceability of this Agreement, except as set
forth in or contemplated by the Offering Documents; and
(G) such counsel has reviewed the Offering Documents and
nothing
Page 24 of 81 Pages
has come to the attention of such counsel to cause them to believe that the
Offering Documents contain any untrue statement of a material fact required to
be stated therein or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading (except for
the financial statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need express no
opinion).
(H) to the best of such counsel's knowledge, there have
been no claims asserted against the Company relating to the potential
infringement of or conflict with any patents, trademarks, copyrights or trade
secrets of others.
(vi) Officers' Certificate. The Placement Agent shall receive
a certificate of the Company, signed by the Chief Executive Officer and Chief
Financial Officer thereof, that the representations and warranties contained in
Section 2 hereof are true and accurate in all material respects at such Closing
with the same effect as though expressly made at such Closing.
(vii) Fund Escrow Agreement. On or prior to the Initial
Closing Date, the Placement Agent shall receive a copy of a duly executed escrow
agreement with United States Trust Company of New York in the form previously
delivered to you regarding the deposit of funds pending the Closing(s) (the
"Fund Escrow Agreement").
(c) Blue Sky. A summary blue sky survey shall be prepared by counsel
to the Placement Agent stating the extent to which and the conditions upon which
offers and sales of the Units may be made in certain jurisdictions. It is
understood that such survey may be based on or rely upon (i) the representations
of each Subscriber set forth in the Subscription Agreement delivered by such
Subscriber, (ii) the representations, warranties and agreements of the Company
set forth in Section 2 of this Agreement, (iii) the representations and
warranties of the Placement Agent, and (iv) the representations of the Company
set forth in the certificate to be delivered at the Closing pursuant to
paragraph (vi) of Section 3(b).
(d) Placement Fee and Expenses. Simultaneously with payment for and
delivery of the Units at each Closing as provided in paragraph 3(a) above, the
Company shall at such Closing pay to the Placement Agent (i) a commission equal
to 9% of the gross proceeds from the sale of the Units; (ii) reimbursement of up
to $50,000 of accountable expenses (exclusive of up to $12,000 for blue sky fees
disbursements and up to $20,000 of Placement Agent's counsel fees which shall
also be reimbursable by the Company; and (iii) warrants to purchase that number
of shares of Common Stock as equals 10% of the Warrant Shares issuable upon
exercise of the Warrants sold in the Offering (the Agent's Warrants). The
Agent's Warrants will be substantially identical to the Warrants included in the
Units except that they will not be subject to redemption by the Company. The
Company shall also pay all expenses in connection with the qualification of the
Units under the securities or Blue Sky laws of the states which the Placement
Agent shall designate, including legal fees and filing fees (not to exceed
$12,000). The Agent's Warrants will be issue to you or your designees (which may
include any Selected Dealer or any officer of the Placement Agent or a Selected
Dealer).
(e) Bring-Down Opinions and Certificates. If there is more than one
Closing, then at each such Closing there shall be delivered to the Placement
Agent updated opinion and certificate as described in subsections (v) and (vi)
of Section 3(b) above, respectively.
Page 25 of 81 Pages
(f) No Adverse Changes. There shall not have occurred, at any time
prior to the Closing or, if applicable, any additional Closing, (i) any domestic
or international event, act or occurrence which has materially disrupted, or in
the Placement Agent's opinion will in the immediate future materially disrupt,
the securities markets; (ii) a general suspension of, or a general limitation on
prices for, trading in securities on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market; (iii) any outbreak of major
hostilities or other national or international calamity; (iv) any banking
moratorium declared by a state or federal authority; (v) any moratorium declared
in foreign exchange trading by major international banks or other persons; (vi)
any material interruption in the mail service or other means of communication
within the United States; (vii) any material adverse change in the business,
properties, assets, results of operations, or financial condition of the
Company; or (viii) any change in the market for securities in general or in
political, financial, or economic conditions which, in the Placement Agent's
reasonable judgment, makes it inadvisable to proceed with the offering, sale,
and delivery of the Units.
4. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering will be used
by the Company substantially as set forth in the Term Sheet. The Company shall
not use any of the proceeds from the Offering to repay any indebtedness of the
Company (other than trade payables in the ordinary course), including but not
limited to indebtedness to any current executive officers, directors or
principal stockholders of the Company.
(b) Expenses of Offering. The Company shall be responsible for, and
shall bear all expenses directly incurred in connection with, the proposed
Offering including, but not limited to, (i) legal fees of the Company's counsel
relating to the costs of preparing the Offering Documents and all amendments,
supplements and exhibits thereto; (ii) blue sky filing fees and the fees and
disbursements of Placement Agent's counsel in connection with blue sky matters
(up to $12,000 in the aggregate) (the "Company Expenses"). Such expenses shall
not include the cost of the Placement Agent's mailing, telephone, telegraph,
travel, due diligence meetings, or other similar expenses (the "Placement Agent
expenses") which are reimbursable by the Company up to $50,000 (exclusive of
fees and expenses of counsel to the Placement Agent unrelated to blue sky
matters which are also reimbursable by the Company up to $20,000).
If the Company determines not to proceed with the Offering for any
reason prior to the Termination Date and terminates the Letter of Intent dated
June 16, 1999 (the "LOI") and within one year from the termination of the LOI
obtains any similar financing from any third party, the Company shall be
obligated to pay the Placement Agent a break-up fee as follows:
(1) If the Company elects to terminate the LOI prior to the
distribution of the Term Sheet to prospective investors, the break-up fee
shall be $200,000;
(2) If the Company elects to terminate the LOI after the
distribution of the Term Sheet to prospective investors but prior to the
closing of the Minimum Offering and Commonwealth could have reasonably
been expected to sell the Minimum Offering by July 31, 1999, the break-up
fee shall be $400,000;
(3) If the Company elects to terminate the LOI after closing of not
less than the
Page 26 of 81 Pages
Minimum Offering but prior to the closing of the Maximum Offering and
Commonwealth could have reasonably been expected to sell the Maximum
Offering by August 31, 1999, the break-up fee shall be $600,000;
which break-up fee represents liquidated damages and represents the total
liability of the Company to the Placement Agent to the date of early
termination. Any amounts previously paid to the Placement Agent as compensation
under the LOI or this Agreement will be credited towards the break-up fee.
The Placement Agent shall have no liability to the Company for any reason
should the Placement Agent choose not to proceed with the Offering contemplated
hereby.
(c) Notification. The Company shall notify the Placement Agent
immediately, and in writing, (A) when any event shall have occurred during the
period commencing on the date hereof and ending on the later of the last Closing
or the Termination Date as a result of which the Offering Documents would
include 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
not misleading, and (B) of the receipt of any notification with respect to the
modification, rescission, withdrawal or suspension of the qualification or
registration of the Units, or of any exemption from such registration or
qualification, in any jurisdiction. The Company will use its best efforts to
prevent the issuance of any such modification, rescission, withdrawal or
suspension and, if any such modification, rescission, withdrawal or suspension
is issued and you so request, to obtain the lifting thereof as promptly as
possible.
(d) Blue Sky. The Company will use its best efforts to qualify or
register the Units for offering and sale under, or establish an exemption from
such qualification or registration under, the securities or "blue sky" laws of
such jurisdictions as you may reasonably request; provided however, that the
Company will not be obligated to qualify as a dealer in securities in any
jurisdiction in which it is not so qualified. The Company will not consummate
any sale of Units in any jurisdiction in which it is not so qualified or in any
manner in which such sale may not be lawfully made.
(e) Form D Filing. The Company shall file five copies of a Notice of
Sales of Securities on Form D with the Securities and Exchange Commission (the
"Commission") no later than 15 days after the first sale of the Units. The
Company shall file promptly such amendments to such Notices on Form D as shall
become necessary and shall also comply with any filing requirement imposed by
the laws of any state or jurisdiction in which offers and sales are made. The
Company shall furnish the Placement Agent with copies of all such filings.
(f) Press Releases, etc. The Company shall not, during the period
commencing on the date hereof and ending on the later of the last Closing and
the Termination Date, issue any press release or other communication, or hold
any press conference with respect to the Company, its financial condition,
results of operations, business, properties, assets, or liabilities, or the
Offering, without the prior consent of the Placement Agent, which consent shall
not be unreasonably withheld.
(g) Executive Compensation. The compensation of the executive
officers of the Company shall not increase until repayment of the Notes, without
the unanimous approval of the Compensation Committee of the Board of Directors
(the "Compensation Committee"). In addition, |
