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EXHIBIT 4.0
VIDEO NETWORK COMMUNICATIONS, INC.
AGENCY AGREEMENT
As of ______ __, 2000
EarlyBirdCapital, Inc.
One State Street Plaza
24th Floor
New York, New York 10004
Ladies and Gentlemen:
Video Network Communications, Inc., a Delaware corporation ("Company"),
proposes to offer for sale ("Offering") 1,760,000 Units ("Units") at a purchase
price of $1.50 per Unit, each Unit consisting of (i) one share ("Share(s)") of
the Company's common stock ("Common Stock") and (ii) one warrant ("Warrant(s)").
The Warrants shall be identical to the Warrants of the Company currently trading
on Nasdaq under the symbol "VNCIW" and the Company's Warrant agreement with
Continental Stock Transfer & Trust Company shall be amended at the Closing (as
hereinafter defined) to include the Warrants issued in the Offering (such
warrant agreement, as amended, is hereinafter referred to as the "Warrant
Agreement"). Notwithstanding the foregoing, (i) each investor in the Offering
("Subscriber") will agree that the Warrants sold in this Offering may not be
exercised until the six-month anniversary of the closing of the Offering
("Closing"); and (ii) the Company will agree not to redeem the Warrants (even if
the conditions to redemption set forth in the Warrant Agreement have been
satisfied) until (a) the six-month anniversary of the Closing and (b) the
Warrants and the shares of Common Stock included in the Units and underlying the
Warrants are then the subject of an effective registration statement filed with
the Securities and Exchange Commission ("Commission").
The Units will be offered on a "best efforts, all or none" basis in
accordance with Section 4(2) of the Securities Act of 1933, as amended
("Securities Act"), and Regulation D ("Reg D") promulgated thereunder, only to
"accredited investors," as defined in Reg D. The minimum subscription amount
will be $37,500 (25,000 Units), although subscriptions for amounts less than
$37,500 may be accepted at the discretion of the Placement Agent (as hereinafter
defined) with the Company's consent.
The Units, Shares and Warrants have the terms and conditions reflected
in the Company's Confidential Private Placement Memorandum dated ______ __, 2000
to be delivered to each purchaser of the Units ("Memorandum"). The Memorandum,
together with all exhibits thereto, will be referred to herein as the "Offering
Documents."
1. Appointment of Placement Agent; The Offering Period.
1.1 Appointment of Placement Agent. EarlyBirdCapital, Inc. ("EBC"
or "Placement Agent") is hereby appointed exclusive Placement Agent of the
Company during the offering period herein specified ("Offering Period") for the
purpose of assisting the Company in placing the Units with purchasers who are
qualified accredited investors ("Subscribers"). The Placement Agent hereby
accepts such agency and agrees to assist the Company in placing the Units with
the Subscribers. The Placement Agent's agency hereunder is not terminable by the
Company except upon
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termination of the Offering, a breach by the Placement Agent of its material
obligations hereunder or as otherwise provided in Section 7 hereon.
1.2 Offering Period. The Offering Period shall commence on the day
the Offering Documents, in a form ready for distribution to prospective
investors, are first made available to the Placement Agent by the Company and
shall continue for a period of 45 days thereafter; provided, however, that the
Offering Period may be extended for up to an additional period of forty-five
(45) days by the mutual decision of the Placement Agent and the Company without
notice to any Subscriber (the last day of the Offering Period, as it may be
extended, is referred to as the "Termination Date"). If, at any time during the
Offering Period, subscriptions for 1,760,000 of the Units have been received and
accepted by you and the Company (and funds in payment therefor have cleared),
then, upon the mutual consent of the Company and the Placement Agent, the
Closing shall take place with respect to such accepted subscriptions and the
Offering shall terminate. If subscriptions for at least 1,760,000 of the Units
are not received and accepted (and funds in payment therefor cleared) by the
Termination Date, then the Offering will be terminated and all funds received
from Subscribers will be returned, without interest and without any deduction.
1.3 Placement Agent's Option. The Company hereby agrees to issue
and sell to the Placement Agent (and/or its designees) at the Closing, for an
aggregate purchase price of $100.00, an option ("Placement Agent's Option") to
purchase 264,000 Units at a price per Unit equal to the greater of (i) $1.625 or
(ii) $0.125 above the closing sales price of a share of the Company's Common
Stock on the last trading day prior to the Closing ("Placement Agent's Units"
and together with the securities underlying the Placement Agent's Units,
"Placement Agent Securities"). The Placement Agent's Option shall entitle the
holder thereof to purchase securities that are identical to the securities sold
pursuant to the Offering. The Placement Agent's Option is exercisable for a
period of 54 months commencing on the six month anniversary of the Closing. The
Placement Agent's Option shall contain registration rights with respect to the
Placement Agent Option and securities underlying the Placement Agent's Option
identical to the registration rights granted to the Subscribers in the Offering.
The form of Placement Agent's Option is annexed as Exhibit A hereto.
1.4 Offering Documents. The Company will provide the Placement
Agent with a sufficient number of copies of the Offering Documents, including
the form of Subscription Agreement/ Investor Information Statement
("Subscription Agreement") and NASD Questionnaire to be executed by each
Subscriber for delivery to potential Subscribers and such other information,
documents and instruments that the Placement Agent deems reasonably necessary to
act as Placement Agent hereunder and to comply with the rules, regulations and
judicial and administrative interpretations respecting compliance with
applicable state and federal statutes related to the Offering.
1.5 Escrow of Funds. Each Subscriber for the Units shall tender to
the Placement Agent a check or wire transfer to "CST&T AAF -- VNCI" ("Account")
in the amount of the investment subscribed for, which funds shall be held in a
non-interest bearing escrow account, maintained by Continental Stock Transfer &
Trust Company, as escrow agent.
1.6 No Firm Commitment. The Company understands and acknowledges
that the undertaking by the Placement Agent pursuant to this Agreement is not a
"firm commitment" offering and that the Placement Agent is not obligated in any
way to purchase or sell the Units offered hereby.
1.7 Participation by Selected Dealers. The Placement Agent may
engage other persons that are members of the National Association of Securities
Dealers, Inc. ("NASD") or registered representatives of such members to assist
the Placement Agent in the Offering (each such person being hereinafter referred
to as a "Selected Dealer") and the Placement Agent may allow such persons such
part of the compensation and payment of expenses payable to the Placement Agent
hereunder as the Placement Agent shall determine.
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2. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Placement Agent and the Selected Dealers upon the
execution of this Agreement and again at each Closing as follows:
2.1 Due Incorporation and Qualification. The Company has been duly
incorporated, is validly existing and is in good standing under the laws of its
state of incorporation and is duly qualified as a foreign corporation for the
transaction of business and is in good standing in each jurisdiction in which
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to so qualify would not
have a material adverse effect on the business, operations, assets, financial
condition or prospects of the Company ("Material Adverse Effect"). The Company
has all requisite corporate power and authority necessary to own or hold its
properties and conduct its business as described in the Offering Documents.
2.2 Authorized Capital; Outstanding Securities. As of the date
hereof, the Company's capitalization, consisting of its authorized, issued and
outstanding shares of common stock, par value $.01 per share ("Common Stock")
and convertible securities (including all options and warrants), is as described
on SCHEDULE 2.2 attached hereto. Except as set forth on SCHEDULE 2.2, the
Company does not have outstanding any option, warrant, convertible security, or
other right permitting or requiring it to issue, or otherwise to purchase or
convert any obligation into, shares of Common Stock or other securities of the
Company and the Company has not agreed to issue or sell any shares of Common
Stock or other securities of the Company. As of the date of Closing, there will
be no other securities of the Company outstanding, except for (i) the securities
issued in the Offering, (ii) stock options granted to employees since the date
hereof in the ordinary course with exercise prices no less than fair market
value on the date of grant, and (iii) additional Common Stock issued upon
conversion or exercise of such outstanding options, warrants and convertible
securities. All of the issued and outstanding securities of the Company have
been duly and validly authorized and issued and are fully paid and
non-assessable. None of the holders of such outstanding securities is subject to
personal liability solely by reason of being such a holder. The offers and sales
of all securities of the Company within the last three years were at all
relevant times either registered under the Securities Act and the applicable
state securities or Blue Sky laws or exempt from such registration.
2.3 Registration Rights. Except as set forth on SCHEDULE 2.3, no
holder of any of the Company's securities has any "piggyback" or demand
registration rights with respect to which the Company has not already registered
such securities. The Company represents that other than the securities to be
issued to the Subscribers in the Offering, fewer than 263,145 shares of Common
Stock have rights to be included on the Registration Statement which the Company
covenants to file with the SEC and NASD to register the securities sold in the
Offering ("Registration Statement"). The Company has reserved for issuance a
sufficient number of shares of Common Stock to be issued to the Subscribers upon
the issuance of the Units, the exercise of the Warrants, upon the exercise of
the Placement Agent's Option, the exercise of the Warrants underlying the
Placement Agent's Option and upon the exercise of any Extra Warrants (as
hereinafter defined).
2.4 Financial Statements. The financial statements of the Company,
including the notes thereto, included in the Offering Documents ("Financials")
fairly present, in all material respects, the financial position and results of
operations of the Company at the dates thereof and for the periods covered
thereby, subject, in the case of interim periods, to year-end adjustments and
normal recurring accruals and to the extent that such Financials may not include
footnotes. Such Financials have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the periods
involved except as may otherwise be stated therein and except that the notes in
the interim financial statements may be abbreviated and do not contain all of
the information in the notes to the audited financial statements. The Company
has no material liabilities or obligations, contingent, direct, indirect or
otherwise except (i) as set forth in the latest balance sheet included in the
Financials or the footnotes thereto (the date of such balance sheet being
referred to as the
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"Balance Sheet Date"), and (ii) those incurred in the ordinary course of
business since the Balance Sheet Date. The financial data set forth in the
Memorandum under the captions "Recent Summary Financial Data" and
"Capitalization" fairly present in all material respects the information set
forth therein and have been compiled on a basis consistent with that of the
audited financial statements contained in the Offering Documents. Except as may
be disclosed in the Financials, there are no amounts due to any officers,
directors or 5% or greater stockholders of the Company, or to any of their
respective affiliates, other than salary and other compensation disclosed in the
Offering Documents and expense reimbursements.
2.5 No Material Adverse Changes. Except as otherwise stated on
SCHEDULE 2.5 hereof, since the Balance Sheet Date, there has not been any
material adverse change in the condition, financial or otherwise, of the
Company.
2.6 Subsidiaries. The Company has no subsidiaries and has no
interest in shares of capital stock of or right to acquire an interest in or
shares of capital stock of any other corporation, limited liability company,
partnership or other entity.
2.7 Taxes. The Company has filed all federal tax returns and all
state and municipal and local tax returns (whether relating to income, sales,
franchise, withholding, real or personal property or other types of taxes)
required to be filed under the laws of the United States and applicable states,
and has paid in full all taxes that have become due pursuant to such returns or
claimed to be due by any taxing authority; provided, however, that the Company
has not paid any tax, assessment, charge, levy or license fee that it is
contesting in good faith and by proper proceedings and adequate reserves for the
accrual of same are maintained if required by generally accepted accounting
principles. The Company has withheld, collected and paid all levies,
assessments, license fees and taxes to the extent required. As used herein,
"tax" or "taxes" include all taxes, charges, fees, levies or other assessments
imposed by any Federal, state, local, or foreign taxing authority, including,
without limitation, income, premium, recapture, credit, excise, property, sales,
use, occupation, service, service use, leasing, leasing use, value added,
transfer, payroll, employment, license, stamp, franchise or similar taxes
(including any interest earned thereon or penalties or additions attributable
thereto).
2.8 Finder's Fees; Other Broker/Dealers. The Company is not
obligated to pay a finder's fee to anyone in connection with the introduction of
the Company to the Placement Agent or the consummation of the Offering
contemplated hereunder. Since June 1999, the Company has not paid or issued any
monies, securities or other compensation to any member of the NASD or to any
affiliate or associate of such a member, or to any other person in consideration
for such person raising funds for the Company or providing financial consulting
services to the Company, except as set forth on SCHEDULE 2.8. The Company does
not owe any monies or other obligations to any NASD member, affiliate or
associate other than as may be owed to the Placement Agent under this Agreement.
2.9 No Pending Actions. There are no actions, suits, proceedings,
claims or hearings of any kind or nature existing or pending or, to the best
knowledge of the Company, threatened and, to the best knowledge of the Company,
no investigations or inquiries, before or by any court, or other governmental
authority, tribunal or instrumentality (or, to the Company's best knowledge, any
state of facts that would give rise thereto), pending or threatened against the
Company, or involving the properties of the Company, that, as to any matter
covered by this Section 2.9, are reasonably likely to result in any Material
Adverse Effect or that might adversely affect the transactions or other acts
contemplated by this Agreement or the validity or enforceability of this
Agreement.
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2.10 Private Offering Exemption; Offering Documents. The Offering
Documents taken as a whole do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The Units, Shares, Warrants and "Extra Warrants"
(as defined in the Subscription Agreement and the Placement Agent's Option)
("Extra Warrants"), if any, and the Placement Agent's Option, conform in all
material respects to the descriptions thereof contained in the Offering
Documents. Assuming that (i) a proper Form D is filed in accordance with Rule
503 of Reg D, (ii) the offer and the sale of the Units by the Placement Agent
was made in compliance with Rule 502(c) of Reg D and/or Section 4(2) of the
Securities Act, and (iii) the representations of the Subscribers in the
Subscription Agreements signed by them are true and correct (which facts will
not be independently verified by the Company), the sale of Units in the Offering
is exempt from registration under the Securities Act and is in compliance with
Reg D.
2.11 Due Authorization. The Company has full right, power and
authority to enter into this Agreement, the Subscription Agreements, the
Warrants, Extra Warrants, if any, and the Placement Agent's Option, to issue the
Units, Shares, Warrants, Extra Warrants, if any, the Placement Agent's Option
and the Placement Agent Securities and to perform all of its obligations
hereunder and thereunder. This Agreement has been, and the Subscription
Agreements, Warrants, Extra Warrants, if any, and the Placement Agent's Option,
when executed and delivered, will have been, duly authorized by all necessary
corporate action and no further corporate action or approval is or will be
required for their respective execution, delivery and performance. This
Agreement constitutes, and the Subscription Agreements, Warrants, Extra
Warrants, if any, and the Placement Agent's Option, upon execution and delivery
will constitute, valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as the enforceability thereof
may be limited by bankruptcy, fraudulent conveyance, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally, (ii) that
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceedings therefor may be brought, and (iii) that the
enforceability of the indemnification and contribution provisions of the
respective agreements may be limited by the federal and state securities laws
and public policy.
2.12 Non-Contravention; Consents. The Company's execution and
delivery of this Agreement, the Subscription Agreements, the Warrants, Extra
Warrants, if any, and the Placement Agent's Option, and the incurrence of the
obligations herein and therein set forth, and the consummation of the
transactions contemplated herein and therein will not (i) result in a breach of,
or conflict with any of the terms and provisions of, or constitute a default
under, or result in the creation, modification, termination or imposition of any
lien, charge or encumbrance upon any property or assets of the Company 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 is a
party or by which the Company may be bound or to which any of the property or
assets of the Company is subject, except where such breach, conflict, default,
creation, modification, termination or imposition, singly or in the aggregate,
would not have a Material Adverse Effect; (ii) result in any violation of the
provisions of the Fourth Amended and Restated Certificate of Incorporation of
the Company as currently in effect ("Certificate of Incorporation") or the
bylaws of the Company as currently in effect ("Bylaws"); (iii) violate any
existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or any of its properties or business (collectively, "Laws"), except
where such violation(s) would not, singly or in the aggregate, result in a
Material Adverse Effect; or (iv) have any effect on any permit, certification,
registration, approval, consent, license or franchise (collectively, "Permits")
necessary for the Company to own or lease and operate any of its properties or
to conduct its business, except for such effects as would not, singly or in the
aggregate, have a Material Adverse Effect. No consent, Permit, approval,
authorization, order of, or filing with, any court or governmental authority or
any other third party is required to consummate the transactions contemplated by
this Agreement, the Subscription Agreements, Warrants, Extra Warrants, if any,
and the Placement Agent's Option,
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and the issuance of the Shares, Warrants, Extra Warrants, if any, and the
Placement Agent Securities, except that the offer and sale of such securities in
certain jurisdictions may be subject to the provisions of the securities or Blue
Sky laws of such jurisdictions.
2.13 Valid Issuances. The Warrants included in the Units and
underlying the Placement Agent's Option and the Extra Warrants, if any, when
issued and delivered in accordance with the terms of the Subscription Agreement,
the Placement Agent's Option and this Agreement, will be duly and validly
issued. The Shares included in the Units and underlying the Placement Agent's
Option and underlying the Warrants and Extra Warrants, if any, have been duly
and validly authorized and, when issued and delivered in accordance with the
terms of this Agreement, Warrants, Extra Warrants and the Placement Agent's
Option will be duly and validly issued, fully paid and non-assessable. The
holders of the Shares will not be subject to personal liability by reason of
being such holders and will not be subject to the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company.
2.14 No Right to Receive or Purchase. Except as set forth on
SCHEDULE 2.14 hereof, the issuance of the Units or underlying Shares and
Warrants in the Offering and upon exercise of the Placement Agent's Option or
exercise of the Warrants will not give any holder of any of the Company's
outstanding shares of Common Stock, options, warrants or other convertible
securities or rights to purchase securities of the Company (i) the right to
receive or purchase any additional shares of Common Stock or any other
securities of the Company, or (ii) the right to receive or purchase any
securities at a price below $15.00 per share of Common Stock.
2.15 No Regulatory Problems. The Company (i) has not filed a
registration statement that is the subject of any pending proceeding or
examination under Section 8 of the Securities Act, and is not and has not been
the subject of any refusal order or stop order thereunder; (ii) is not subject
to any pending proceeding under Rule 258 of the Securities Act or any similar
rule adopted under Section 3(b) of the Securities Act, or to an order entered
thereunder; (iii) has not been convicted of any felony or misdemeanor in
connection with the purchase or sale of any security or involving the making of
any false filing with the Commission; (iv) is not subject to any order,
judgment, or decree of any court of competent jurisdiction temporarily or
preliminarily restraining or enjoining, or any order, judgment, or decree of any
court of competent jurisdiction permanently restraining or enjoining, the
Company from engaging in or continuing any conduct or practice in connection
with the purchase or sale of any security or involving the making of any false
filing with the Commission; and (v) is not subject to a United States Postal
Service false representation order entered under Section 3005 of Title 39,
United States Code or a temporary restraining order or preliminary injunction
entered under Section 3007 of Title 39, United States Code, with respect to
conduct alleged to have violated Section 3005 of Title 39, United States Code.
To the Company's knowledge, none of the Company's directors, officers, or
beneficial owners of 10 percent or more of any class of its equity securities
(i) has been convicted of any felony or misdemeanor in connection with the
purchase or sale of any security, involving the making of a false filing with
the Commission, or arising out of the conduct of the business of an underwriter,
broker, dealer, municipal securities dealer, or investment advisor; (ii) is
subject to any order, judgment or decree of any court of competent jurisdiction
temporarily or preliminarily enjoining or restraining, or is subject to any
order, judgment or decree of any court of competent jurisdiction permanently
enjoining or restraining, such person from engaging in or continuing any conduct
or practice in connection with the purchase or sale of any security, or
involving the making of a false filing with the Commission, or arising out of
the conduct of the business of an underwriter, broker, dealer, municipal
securities dealer, or investment adviser; (iii) is subject to an order of the
Commission entered pursuant to Section 15(b), 15B(a) or 15B(c) of the Exchange
Act, or is subject to an order of the Commission entered pursuant to Section
203(e) or (f) of the Investment Advisers Act of 1940; (iv) is suspended or
expelled from membership in, or suspended or barred from association with a
member of, an exchange registered as a national securities exchange pursuant to
Section 6 of the Exchange Act, an association registered as a national
securities association under Section 15A of the Exchange Act, or a Canadian
securities exchange or association for any act or omission to act constituting
<PAGE> 7
conduct inconsistent with just and equitable principles of trade; or (v) is
subject to a United States Postal Service false representation order entered
under Section 3005 of Title 39, United States Code, or is subject to a
restraining order or preliminary injunction entered under Section 3007 of Title
39, United States Code, with respect to conduct alleged to have violated Section
3005 of Title 39, United States Code.
2.16 Material Contracts; No Defaults. The exhibit index set forth
in the Company's annual report on Form 10-K for the year ended December 31, 1999
("Form 10-K"), as it may have been updated with subsequent filings by the
Company with the SEC, contains a true and complete list of all material
contracts, agreements, instruments, indentures, mortgages, loans, leases,
licenses, arrangements or undertakings of any nature, of the Company that are
required to be filed with the Commission (collectively, "Contracts"). Except in
instances which singly or in the aggregate would not cause a Material Adverse
Effect and as set forth on SCHEDULE 2.16, each of the Contracts is in full force
and effect, the Company has performed in all material respects all of its
obligations thereunder and is not in default thereunder, and no party to a
Contract has made a claim to the effect that the Company has failed to perform
any obligations thereunder. To the knowledge of the Company, there is no plan,
intention, or indication of any contracting party to a Contract to cause
termination, cancellation or modification of such Contract or to reduce or
otherwise change its activity thereunder so as to adversely affect in any
material respect the benefits derived or expected to be derived therefrom by the
Company, except where such termination, cancellation or modification of such
Contract or reduction or other change would not have a Material Adverse Effect.
The Company does not know of the occurrence of any event or the existence of any
state of facts that with notice or the passage of time or both could cause it to
be in default under any Contract which could result in a Material Adverse
Effect. The Company is not in violation of any term or provision of (i) its
Certificate of Incorporation or Bylaws or (ii) any Permit, or applicable Law,
except, in the case of (ii), where such violation, singly or in the aggregate,
would not have a Material Adverse Effect.
2.17 Conduct of Business; Compliance with Law. The Company has all
requisite corporate power and authority, and has all necessary Permits, to own
or lease its properties and conduct its business as described in the Offering
Documents, except where the failure to have such Permits would not have a
Material Adverse Effect. The Company has been operating its business in
compliance with all such Permits, except where such noncompliance would not have
a Material Adverse Effect. The disclosures in the Offering Documents concerning
the effects of federal, state and local regulation on the Company's business as
currently conducted and contemplated are correct in all material respects and do
not omit to state a material fact. The Company is in compliance with all Laws
except where noncompliance, singly or in the aggregate, would not have a
Material Adverse Effect.
2.18 Title to Property; Insurance. The Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property (tangible and intangible) owned or leased by it, free
and clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, except (a) as reflected in the
Financials and (b) such as would not, singly or in the aggregate, have a
Material Adverse Effect. The Company has adequately insured its properties
against loss or damage by fire or other casualty and maintains such insurance in
adequate amounts.
2.19 Intangibles. The Company owns, licenses or possesses the
requisite licenses or rights to use all trademarks, service marks, service
names, trade names, patents, patent applications, and copyrights used and to be
used by the Company in its business (collectively, "Intangibles"). All of the
Company's Intangibles are set forth on SCHEDULE 2.19 hereto. The Intangibles
that have been registered in the United States Patent and Trademark Office and
the United States Copyright Office and have been fully maintained and are in
full force and effect. There is no claim or action by any person pertaining to,
or proceeding pending or, to the Company's knowledge, threatened and the Company
has not received any notice of conflict with, the asserted
<PAGE> 8
rights of others that challenges the exclusive right of the Company with respect
to any Intangibles used in the conduct of the Company's business except in
instances which would not cause a Material Adverse Effect. To the best of the
Company's knowledge, the Intangibles and the Company's products, services and
processes do not infringe on any intangibles held by any third party. To the
best of the Company's knowledge, no others have infringed upon the Intangibles
of the Company, except in instances which would not cause a Material Adverse
Effect. The Company has in place all confidentiality agreements with its
employees, consultants and third parties as are reasonably necessary to protect
the Company's Intangibles.
2.20 Employee Matters. The Company has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto, except where noncompliance,
singly or in the aggregate, would not have a Material Adverse Effect. There are
no pending investigations involving the Company by any government Department of
Labor or any other governmental agency responsible for the enforcement of
employment laws and regulations. There is no unfair labor practice charge or
complaint against the Company pending before a Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or, to the
best of the Company's knowledge, threatened against or involving the Company or
any predecessor entity and none has ever occurred. No questions concerning
representation exist respecting the employees of the Company and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company. No grievance or arbitration proceeding is pending under any expired
or existing collective bargaining agreements of the Company, if any. The Company
is not liable for any severance pay or other payments to any employee or former
employee arising from the termination of employment, other than payments, singly
or in the aggregate, that would not have a Material Adverse Effect.
Other than as set forth in the Company neither maintains, sponsors nor
contributes to, nor is it required to contribute to, any program or arrangement
that is an "employee pension benefit plan," an "employee welfare benefit plan,"
or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute
to, and has at no time maintained or contributed to, a defined benefit plan, as
defined in Section 3(35) of ERISA. If the Company does maintain or contribute to
a defined benefit plan, any termination of the plan on the date hereof would not
give rise to liability under Title IV of ERISA. No ERISA Plan (or any trust
created thereunder) has engaged in a "prohibited transaction" within the meaning
of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended ("Code"), that could subject the Company to any tax penalty for
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan that is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
The Company has never completely or partially withdrawn from a "multi-employer
plan."
2.21 Litigation; Governmental Proceedings. There is no action,
suit, proceeding, inquiry, arbitration, investigation, litigation or
governmental proceeding pending or, to the Company's knowledge, threatened
against, or involving the properties or business of, the Company that might, if
determined adversely, have a Material Adverse Effect, or that questions the
validity of the capital stock of the Company or this Agreement or of any action
taken or to be taken by the Company pursuant to, or in connection with, this
Agreement. There are no outstanding orders, judgments or decrees of any court,
governmental agency or other tribunal, domestic or foreign, naming the Company
and enjoining the Company from taking, or requiring the Company to take, any
action, or to which the Company, its properties or business is bound or subject,
except as set forth on SCHEDULE 2.2 or such as would not singly or in the
aggregate, have a Material Adverse Effect.
<PAGE> 9
2.22 Use of Proceeds. Except as set forth on SCHEDULE 2.22, or as
specifically authorized herein, none of the net proceeds of the Offering will be
paid by the Company (i) to any NASD member or any affiliate or associate of any
NASD member, (ii) for any debt for borrowed funds or (iii) for any debt or
obligation owed to any Insider (as hereinafter defined).
2.23 Insiders' NASD Affiliation. Except as set forth on
SCHEDULE 2.23, to the Company's knowledge, no officer or director of the Company
or owner of any of the Company's unregistered securities has any direct or
indirect affiliation or association with any NASD member. The Company will
advise the Placement Agent and the NASD if it becomes aware that any officer,
director or stockholder of the Company is or becomes an affiliate or associated
person of an NASD member participating in the Offering.
2.24 No Nasdaq Notice. The Company has not received any
correspondence from Nasdaq regarding delisting the Company's Common Stock from
Nasdaq or any other correspondence which could have a Material Adverse Effect on
the Company.
2.25 Exchange Act Reports. The Company is subject to the reporting
requirements of the Securities Act and Exchange Act and has timely filed all
reports and statements required under the Securities Act and Exchange Act on a
timely basis, and each report and statement was true and complete in all
material respects when filed and does not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
2.26 Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3. Representations, Warranties and Certain Covenants of the Placement
Agent and Selected Dealers. The Placement Agent and each Selected Dealer that
the Placement Agent may from time to time appoint, severally represents and
warrants as follows:
3.1 Due Incorporation. The Placement Agent is validly existing and
is in good standing under the laws of its state of incorporation.
3.2 Broker/Dealer Registration. Such Placement Agent or Selected
Dealer is registered as a broker-dealer under Section 15 of the Exchange Act.
3.3 Good Standing. Such Placement Agent or Selected Dealer is a
member in good standing of the NASD.
3.4 Sale In Certain Jurisdictions. Sales of Units by the Placement
Agent or Selected Dealer will be made only in such jurisdictions in which (i)
the Placement Agent or its Selected Dealer is a registered broker-dealer or
where an applicable exemption from such registration exists and (ii) the
offering and sale of the Units is registered under, or is exempt from,
applicable registration requirements.
3.5 Due Authorization. The Placement Agent has full right, power
and authority to enter into this Agreement and to perform all of its obligations
hereunder.
<PAGE> 10
3.6 Compliance with Laws. Offers and sales of the Units by the
Placement Agent or Selected Dealer will be made in compliance with the
provisions of Rule 502(c) of Reg D and Section 4(2) of the Securities Act, and
the Placement Agent or Selected Dealer will furnish to each investor a copy of
the Offering Documents prior to accepting any payments for the Units.
4. Closing.
4.1 Closing. The Closing shall take place at the offices of
Graubard Mollen & Miller ("GM&M"), 600 Third Avenue, New York, New York or such
other location as may be agreed upon by the parties at any time prior to the
Termination Date and after the sale of 1,760,000 Units and the clearance of the
funds representing the sale of such Units, upon the mutual consent of the
Company and the Placement Agent. At the Closing, payment for the Units issued
and sold by the Company (by certified check or wire transfer payable to the
order of the Company), less the amount deductible by the Placement Agent
pursuant to Section 4.4 hereof, shall be made against delivery of certificates
representing Shares and Warrants comprising the Units.
4.2 Deliveries at Closing. At the Closing, and as a condition to
the Closing, the Company shall deliver or cause to be delivered to the Placement
Agent:
4.2.1 Opinion of Counsel. The opinion of Shaw Pittman,
counsel to the company, dated as of the date of the Closing to the effect that:
(1) The Company is a corporation validly
existing and in good standing under the laws of the State of Delaware. The
Company is duly qualified and in good standing in the State of New Hampshire.
(2) The Company has all corporate power and
authority to enter into this Agreement, the Placement Agent's Option, the
Subscription Agreements and the Warrant Agreement (as hereinafter defined) and
to carry out its obligations hereunder and thereunder. No consents, approvals,
authorizations or orders of, and no filings with, any court or governmental
agency or body, are required for the Company to execute, deliver and perform its
obligations under this Agreement, or to authorize, issue, sell and deliver the
Securities, and to consummate the transactions and agreements contemplated by
this Agreement, the Placement Agent's Option, the Subscription Agreements and
the Warrant Agreement, except for those authorizations, approvals, consents,
orders and filings as have been made or obtained and are in full force and
effect and except for such authorizations, approvals, consents, orders and
filings under the Act and the Blue Sky laws of any state or jurisdiction in the
United States in which the Securities may be offered, as to which we express no
opinion.
(3) All issued and outstanding shares of Common
Stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable. The authorized, issued and outstanding capital stock of
the Company is as set forth on SCHEDULE 2.2 to the Agency Agreement. The Company
has no options, warrants or other convertible securities outstanding other than
as set forth on SCHEDULE 2.2 annexed to the Agency Agreement. To such counsel's
knowledge, all of the issued and outstanding securities were issued in
compliance with the registration requirements of the Securities Act and the
rules and regulations promulgated thereunder or pursuant to an exemption from
such registration requirements. To the knowledge of such counsel, all issued and
outstanding securities of the Company, other then options for which no payment
was required, have been duly authorized and validly issued and are fully paid
and non-assessable. None of the holders of the Common Stock are subject to
personal liability under the Certificate of Incorporation or Bylaws of the
Company or the General Corporation Law of the State of Delaware solely by reason
of being such a holder. None of the issued and outstanding shares of Common
Stock were issued in violation of statutory preemptive rights of any holders of
such securities of the Company or, to such counsel's knowledge, were issued in
violation of similar contractual rights granted by the Company. All of the
issued and outstanding options and warrants to purchase shares
<PAGE> 11
of Common Stock were validly authorized by the Board of Directors and constitute
valid and binding obligations of the Company enforceable in accordance with
their respective terms, subject to bankruptcy, insolvency, reorganization,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity.
(4) The Units, Shares, Warrants, Extra Warrants
(as hereinafter defined), Shares underlying the Warrants and Extra Warrants and
the Placement Agent Securities (collectively referred to hereinafter as the
"Securities") have been duly authorized for issuance and sale by the Company by
all requisite corporate action by the Company. When issued and delivered by the
Company in accordance with the terms of the Agency Agreement, the Placement
Agent's Option and the Subscription Agreements, against payment of the
consideration set forth herein, the Securities will be duly and validly issued,
fully paid and non-assessable. The holders of the Securities will not be subject
to personal liability under the Certificate of Incorporation or Bylaws of the
Company or the General Corporation Law of the State of Delaware solely by reason
of being such holders. The Securities are not and will not be subject to the
preemptive rights of any holders of any security of the Company or, to the best
of such counsel's knowledge after due inquiry, similar contractual rights
granted by the Company. The forms of certificate used to evidence the Common
Stock, Warrants, Extra Warrants, if any, and Placement Agent Securities comply
with the applicable requirements of the Certificate of Incorporation and Bylaws
of the Company and the General Corporation Law of the State of Delaware. The
Company has currently reserved for issuance a number of shares of Common Stock
sufficient for issuance of all of the shares of Common Stock issuable upon
exercise or conversion of the Securities.
(5) To the best of such counsel's knowledge,
after due inquiry, except as set forth on SCHEDULE 2.3 to the Agency Agreement,
no holders of any securities of the Company or of any options, warrants or other
securities of the Company exercisable for or convertible or exchangeable into
securities of the Company (i) have the right to require the Company to register
any such securities of the Company under the Securities Act or to include any
such securities in a registration statement filed by the Company, or (ii) have
rights to have the exercise or conversion prices of their securities lowered
and/or the number of securities that they may purchase increased as a result of
the issuance by the Company of securities for a price less than such exercise or
conversion price or for a price less than $15.00 per share of Common Stock. To
the best of such counsel's knowledge, other than the Securities to be issued to
Subscribers in the Offering, fewer than 263,145 shares of Common Stock have
rights to be included on the Registration Statement.
(6) Assuming that (a) a proper Form D is filed
in accordance with Rule 503 of Reg D, (b) that the offer and the sale of the
Securities by the Placement Agent was made in compliance with Rule 502(c) of Reg
D and (c) that the representations of the Subscribers in the Subscription
Agreements signed by them are true and correct (which facts will not be
independently verified by such counsel), the sale by the Company of the
Securities in the Offering is exempt from registration under the Securities Act
and is in compliance with Reg D.
(7) This Agreement, the Subscription Agreements,
the Placement Agent's Option and the Warrant Agreement have each been duly and
validly authorized and, when executed and delivered by the Company, will
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, subject to, in each case: (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance and other laws of
general applicability relating to or affecting creditors' rights and to general
principles of equity, (ii) the fact that the indemnification and contribution
provisions set forth in this Agreement, the Placement Agent's Option and the
Warrant Agreement may be limited under federal and applicable state securities
laws and by public policy, and (iii) the fact that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
<PAGE> 12
(8) The execution, delivery and performance by
the Company of the Agency Agreement, the Placement Agent's Option and the
Warrant Agreement, the issuance and sale of the Securities, the performance by
the Company of its obligations hereunder and thereunder (other than the
performance by the Company of its obligations under the indemnification and
contribution provisions of this Agreement, the Placement Agent's Option and the
Warrant Agreement, as to which no opinion need be rendered), do not and will
not, (a) result in any violation of the provisions of the Certificate of
Incorporation or the Bylaws of the Company, (b) to such counsel's knowledge,
will not constitute a breach of, or a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to any material contracts, agreements, instruments, leases
or licenses of the Company, or (c) to such counsel's knowledge, will not result
in any violation of any law, administrative regulation or administrative or
court decree applicable to the Company (other than the Blue Sky or securities
laws or regulations of the various states, as to which counsel need not express
any opinion).
(9) The statements in the Offering Documents
have been reviewed by such counsel and, insofar as they refer to statements of
law, descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
(10) To such counsel's knowledge, the Company is
not (i) in violation of its Certificate of Incorporation or Bylaws or any law
applicable to the Company, or any administrative regulation or administrative or
court decree known to such counsel and applicable to the Company, or (ii) except
as described in the Memorandum, in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any material
contracts, agreements, instruments, leases and licenses to which the Company is
a party or by which the Company or any of its properties or assets may be bound,
except in each such case for such violations or defaults as would not, singly or
in the aggregate, result in a Material Adverse Effect.
(11) To such counsel's knowledge, there are no
claims, actions, suits, hearings, investigations, inquiries or proceedings of
any kind or nature, before or by any court, governmental authority, tribunal or
instrumentality pending or threatened against or affecting the Company or
involving any of its property might reasonably be expected to have a Material
Adverse Effect, or which might adversely affect the transactions or other acts
contemplated by this Agreement or the validity or enforceability of this
Agreement.
(12) To such counsel's knowledge, the Company
owns or possesses the licenses, trademarks, copyrights, service marks, service
names and trade names set forth on SCHEDULE 2.19 to the Agency Agreement. To the
best of such counsel's knowledge, there is no claim or action by any person
pertaining to, or proceeding, pending or threatened that challenges the rights
of the Company with respect to any of the Intangibles. The Intangibles that have
been registered in the United States Patent and Trademark Office and United
States Copyright Office are in full force and effect.
Counsel to the Company will also deliver the following statement to the
Placement Agent with the foregoing opinion: On the basis of such counsel's
participation, as counsel to the Company, with representatives of the Company in
preparation of the Offering Documents and such counsel's participation with
representatives of the Company and the Placement Agent at meetings in which the
contents of the Offering Documents and related matters were discussed and the
examination by such counsel of such corporate records, statutes, documents and
questions of law as such counsel deemed necessary, but without independent
verification by such counsel of the accuracy, completeness and fairness of the
statements contained in the Offering Documents except as specifically set forth
in such counsel's opinion, and without commenting as to the financial statements
and the notes thereto and the schedules and other financial data included or
incorporated by reference therein, nothing has come to such counsel's attention
that would lead such counsel to believe that the Offering Documents (except for
the financial statements and the notes thereto and the schedules and other
financial data included or incorporated by reference therein or
<PAGE> 13
omitted therefrom, as to which no statement need be rendered), as of its date
and as of the date of Closing, contained or contains any untrue statement of
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
4.2.2 Officers' Certificate. A certificate of the Company, signed by
two executive officers thereof, stating (a) that the representations and
warranties contained in Section 2 hereof are true and accurate at the Closing as
applied to the Company with the same effect as though expressly made at the
Closing, and (b) that the Company has complied with all covenants and agreements
required to be complied with as of the Closing.
4.2.3 Subscription Agreements. Subscription Agreements signed by the
Company and each of the Subscribers.
4.2.4 Certificates. The certificates representing the Shares and the
Warrants.
4.2.5 Placement Agent's Option. The Placement Agent's Option in the
names and denominations designated by the Placement Agent.
4.2.6 Lock-Up Agreements. The Lock-Up Agreements referred to in
Section 5.8 hereof executed by all officers or directors of the Company other
than Steven A. Rogers (collectively, the "Insiders"). The Company shall also
have obtained a "lock-up" or other arrangements with Steven A. Rogers which is
satisfactory to the Placement Agent.
4.2.7 Waivers. [WAIVER OF ANTI-DILUTION RIGHTS, REGISTRATION
RIGHTS].
4.2.8 Nasdaq Additional Listing. The Company shall have filed an
additional listing application with Nasdaq regarding the Shares and Warrants
underlying the Units and the Placement Agent's Option, the Extra Warrants, if
any, and the Shares underlying all of the foregoing.
4.2.9 Other Documents. Such other closing documents as shall be
reasonably requested by the Placement Agent or its counsel.
4.3 Conditions.
4.3.1 Conditions to the Placement Agent's Obligations. The
obligations of the Placement Agent under this Agreement shall be subject to the
following conditions:
(1) All representations and warranties of the
Company set forth in this Agreement shall be true and accurate as of the Closing
with the same effect as though expressly made at the Closing;
(2) The Company has complied with all covenants
and agreements required to be complied with as of the date of the Closing;
(3) The Company has obtained all consents of
third parties required to be obtained in connection with this Offering;
(4) There shall be no action, lawsuit,
administrative or other proceeding pending or threatened that seeks to enjoin
the transactions contemplated by this Agreement;
(5) The Company's Warrant Agreement with its
warrant agent shall have been amended to include the Warrants and Extra
Warrants, if any, included in the Units and Placement Agent's Option (as
amended, hereinafter referred to as the "Warrant Agreement");
<PAGE> 14
(6) The Company shall have entered into a
repayment arrangement with each of Sanmina and Shaw Pittman which is reasonably
satisfactory to the Placement Agent and shall have restructured its trade
payables in a manner reasonably satisfactory to the Placement Agent; and
(7) The Company shall have entered into a
lock-up agreement or other arrangement with Steve A. Rogers, in a form
reasonably satisfactory to the Placement Agent, with respect to the disposition
of his securities.
(8) The Nasdaq additional listing application
referenced in subsection 4.2.8 above shall have been filed with Nasdaq as
certified by an officer of the Company and Nasdaq shall not have issued any
comment letter with respect thereto.
4.3.2 Conditions to Company's Obligations. The obligations of the
Company under this Agreement shall be subject to the conditions that:
(1) The representations and warranties of the
Placement Agent set forth in this Agreement are true and accurate as of the
Closing with the same effect as though expressly made at the Closing;
(2) The Placement Agent has complied with all
covenants and agreements required to be complied with as of the Closing; and
(3) There shall be no action, lawsuit,
administrative or other proceeding pending or threatened that seeks to enjoin
the transactions contemplated by this Agreement.
4.4 Placement Agent's Fees and Expenses. At Closing, the Company
hall pay to the Placement Agent a cash commission equal to 8% of the gross
proceeds of the sale of the Units, a nonaccountable expense allowance equal to
2% of the gross proceeds of the sale of the Units less the $25,000 deposit paid
by the Company upon the execution of the Letter of Intent dated July 26, 2000.
At the Closing, the Company also shall reimburse the Placement Agent for the
expenses described in Section 5.3 hereof. All the foregoing amounts and any
other expenses to be paid pursuant to Section 5.3 are payable at the Placement
Agent's direction directly to the parties who are owed same by deduction from
the aggregate purchase price of the Units sold.
4.5 Issuance of Placement Agent's Option. At the Closing, the
Company shall issue to the Placement Agent and/or its designees for an aggregate
of $100, the Placement Agent's Option.
5. Covenants. The Company covenants and agrees that:
5.1 Amendments to Offering Documents. Until the Offering has been
completed or terminated, if there shall occur any event relating to or
affecting, among other things, the Company or any affiliate, or the proposed
operations of the Company as described in the Offering Documents, as a result of
which it is necessary, in the reasonable opinion of counsel for the Company or
counsel for the Placement Agent, to amend or supplement the Offering Documents
in order that the Offering Documents will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, the Company shall immediately prepare and furnish to the
Placement Agent a reasonable number of copies of an appropriate amendment of or
supplement to the Offering Documents, in form and substance satisfactory to
counsel for the Placement Agent.
5.2 Use of Proceeds. The proceeds of the Offering will be used for
such purposes as described in the Memorandum and no proceeds will be used to pay
(i) any debt for borrowed funds, (ii) any debt or obligation owed to any Insider
or (iii) any NASD member or any affiliate or associate
<PAGE> 15
of any NASD member, without the Placement Agent's prior written consent, which
consent will not be unreasonably withheld with respect to the repayment of debt
owed to Sanmina or Shaw Pittman.
5.3 Expenses of Offering and Other Expenses. The Company shall be
responsible for, and shall pay, all fees, disbursements and expenses incurred in
connection with the Offering, including, but not limited to, the costs of
conducting an "Internet roadshow" and posting the Memorandum on the Placement
Agent's and other websites, the costs of one Internet interview for the first
quarter after the Offering (including a video broadcast), the Company's legal
and accounting fees and disbursements, the costs of preparing, printing, mailing
and delivering, and filing, where necessary, the Offering Documents and all
amendments and supplements thereto (all in such quantities as the Placement
Agent may reasonably require), preparing and printing the certificates for the
Shares and Warrants, and Extra Warrants, if any, preparation of transaction
"bibles" in such reasonable quantities as requested by the Placement Agent, the
reasonable costs of any "due diligence" meetings held by the Company, filing
fees, costs and expenses as incurred (including fees and disbursements of
Graubard Mollen & Miller, blue sky counsel as provided in Section 5.4) incurred
in qualifying the Offering under the "blue sky" laws of the states reasonably
specified by the Placement Agent, the substantiated costs of (up to $10,000)
"tombstone" and other advertisements in various publications selected by the
Placement Agent, as well as transfer taxes, transfer and warrant agent and
registrar fees. The Company shall also prepay an on-account retainer to
Placement Agent's counsel of $10,000 for legal fees (ultimately, no more than
$15,000) in connection with their engagement as special counsel for the
Investors under the Subscription Agreement in connection with the preparation of
the Registration Statement provided for therein, which amount shall be an
"on-account" retainer from which any amounts in excess of actual time (at
regular hourly rates) and disbursements expended shall be refunded to the
Company.
5.4 Blue Sky Requirements. The Company shall "Blue Sky" the
Offering in such states as the Placement Agent shall reasonably request and
shall pay for all blue sky filing fees and costs and expenses of any necessary
blue sky registration or qualification or notice filings associated with an
exemption from registration or qualification, including the fees and
disbursements of counsel. All blue sky work shall be undertaken by counsel
designated by the Placement Agent. Upon the commencement of blue sky filings
(which shall be at or prior to the Commencement Date), the Company shall pay
$2,500 to such counsel for such professional services (plus the filing fees to
be paid to the various states), with the balance due for professional services
of $2,500, plus counsel's other out-of-pocket disbursements, due at the Closing.
5.5 Board of Directors. For a period of three years from the
Effective Date, the Company will use its best efforts to cause one person
designated by the Placement Agent to be elected to the Board of Directors of the
Company. Such best efforts shall include but are not limited to the immediate
expansion of the Board of Directors by the Directors and the appointment by the
Board of Directors of the Placement Agent designee to the Board of Directors
and, thereafter, the recommendation of the Placement Agent designee as a nominee
for election as a director of the Company at each annual meeting of stockholders
of the Company during such three year period at which such designee is subject
to election or re-election. Alternatively, the Placement Agent shall have the
right to send a representative (who need not be the same individual from meeting
to meeting) to observe each meeting of the Board of Directors. Such designee or
representative, as the case may be, shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings, including, but not
limited to, food, lodging and transportation. The Company agrees to give the
Placement Agent written notice of each such meeting and to provide the Placement
Agent with an agenda and minutes of the meeting no later than it gives such
notice and provides such items to the other directors. To the extent permitted
by law, the Company will agree to indemnify the Placement Agent and its designee
for the actions of such designee as a director of the Company. In the event the
Company maintains a liability insurance policy affording coverage for the acts
of its officers and directors, it will, if possible, include each of the
Placement Agent and its designee as an insured under such policy.
<PAGE> 16
5.6 Right of First Refusal. The Company hereby grants the
Placement Agent a right of first refusal to manage or co-manage any underwriting
or private placement of debt or equity securities of the Company or any
subsidiary or successor of the Company for which the Company engages the
services of an investment banker during the period commencing on the date of the
Closing and terminating on the three-year anniversary of the Closing. If the
Placement Agent fails to accept in writing any such proposal for such public or
private sale within 30 days after receipt of a written notice from the Company
containing such proposal, then the Placement Agent shall have no claim or right
with respect to any such sale contained in any such notice. If, thereafter, such
proposal is modified in any material respect, the Company shall adopt the same
procedure as with respect to the original proposed public or private sale.
5.7 Transfer Sheets. Upon Placement Agent's reasonable request,
the Company shall provide Placement Agent with copies of the Company's daily
stock transfer sheets and lists of the beneficial and record holders of the
Company's securities from the Company's transfer agent and the Weekly Position
Listings from the Depository Trust Company, at the Company's sole cost and
expense.
5.8 Transfer Restrictions. The Company agrees not to permit or
cause a private or public sale or private or public offering of any securities
of the Company (in any manner, including pursuant to Rule 144 under the Act)
that are owned or to be owned of record, or beneficially by the Insiders or by
any family members or affiliate of such persons for a period commencing on July
26, 2000 and terminating twelve months after the Effective Date (as defined in
the Subscription Agreement) without obtaining the prior written approval of the
Placement Agent. The Company shall cause the Insiders to execute an agreement
("Lock-Up Agreement") with the Placement Agent regarding such restrictions. The
Lock-Up Agreements shall also provide that each Insider agrees, that during such
twelve month period, the Placement Agent shall have the right to purchase for
the Placement Agent's own account or to sell for the account of such selling
Insider or by any family member or affiliate of such persons, any securities of
the Company sold by such persons. Such Insider will consult with the Placement
Agent with regard to any such sales and will offer the Placement Agent the
exclusive opportunity to purchase or sell such securities on terms at least as
favorable to the selling Insider, family member or affiliate as he, she or it
can secure elsewhere. If the Placement Agent fails to accept in writing any such
proposal for such public or private sale within 10 days after receipt of a
written notice from such Insider containing such proposal, then the Placement
Agent shall have no claim or right with respect to any such sale contained in
any such notice. If, thereafter, such proposal is modified in any material
respect, the Insider shall adopt the same procedure as with respect to the
original proposed public or private sale.
5.9 Further Assurances. The Company will take such actions as may
be reasonably required or desirable to carry out the provisions of this
Agreement and the transactions contemplated hereby.
5.10 Accuracy of Representations and Warranties. The Company hereby
agrees that, prior to the Termination Date or the Closing, as the case may be,
it will not enter into any transaction or take any action, and will use its best
efforts to prevent the occurrence of any event, that could result in any of its
representations, warranties or covenants contained in this Agreement or any of
the Offering Documents not to be true and correct, or not to be performed as
contemplated, at and as of the time immediately after the occurrence of such
transaction or event.
5.11 Reservation of Shares. If the Company becomes obligated to
issue any Extra Warrants, it will promptly reserve with its transfer agent and
register the number of shares of Common Stock issuable upon exercise thereof.
5.12 Registration Statements. During the period commencing on the
Closing and terminating on the twelve-month anniversary of the date the
Registration Statement registering the securities being sold in the Offering is
declared effective by the Commission ("Effective Date"), the
<PAGE> 17
Company will not, without the Placement Agent's consent, (i) allow any
registration statement (other than those on Forms S-4 or S-8 and post effective
amendments) to be declared effective or (ii) consummate any offering of its
equity securities under Regulation D or Regulation S with respect to which the
Company becomes obligated to file a registration statement within 12 months of
the Effective Date; provided, however, that this restriction shall not apply to
registration statements or private offerings in connection with a strategic
partnership, joint venture or similar arrangement.
5.13 Press Release. Commencing on July 26, 2000 and continuing
until five days after the Closing, the Company will not issue a press release or
engage in any other publicity without the Placement Agent's prior written
consent, which shall not be unreasonably withheld. The Placement Agent agrees to
respond to the Company within 24 hours of receipt of any proposed press release.
5.14 Registration Rights. As additional consideration for the
Agreement and the transactions contemplated hereby and as set forth in each
subscriber's Subscription Agreement and the Placement Agent's Option, the
Company agrees with the Placement Agent and will agree with each subscriber to
grant such persons the registration rights set forth in the Placement Agent's
Option and the Subscription Agreements.
5.15 Internet Accessibility. The Company will cooperate with the
Placement Agent and afford it an Internet interview per quarter after the
Offering (including a video broadcast) in form and at the reasonable request of
the Placement Agent other than if such Internet interview would violate
applicable securities laws in the opinion of counsel to the Placement Agent and
the Company.
5.16 Listing Requirements. The Company hereby agrees that, within
six months following the Closing, the Company will take all actions necessary to
list all of the securities that have not been listed on Nasdaq Stock Market
Notification Form for Listing of Additional Shares, filed with Nasdaq on July
26, 2000.
6. Indemnification and Contribution.
6.1 Indemnification of the Placement Agent by the Company. The
Company agrees to indemnify and hold harmless the Placement Agent and each
person, if any, who controls the Placement Agent within the meaning of the
Securities Act and/or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such Placement Agent or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in the Offering Documents, or (B) in
any blue sky application or other document executed by the Company specifically
for blue sky purposes or based upon any other written information furnished by
the Company or on its behalf to any state or other jurisdiction in order to
qualify any or all of the Shares under the securities laws thereof (any such
application, document or information being hereinafter called a "Blue Sky
Application"), (ii) any breach by the Company of any of its representations,
warranties or covenants contained herein or in any of the Offering Documents, or
(iii) the omission or alleged omission by the Company to state in the Offering
Documents or in any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and will reimburse the
Placement Agent and each such controlling person for any legal or other expenses
reasonably incurred by the Placement Agent or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action, whether arising out of an action between the Placement
Agent and the Company or the Placement Agent and a third party; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon (i) an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information regarding the
Placement Agent that is furnished to the Company by the Placement Agent
specifically for inclusion in the Offering Documents or any such Blue Sky
Application or (ii) any breach by the Placement Agent of the
<PAGE> 18
representations, warranties or covenants contained herein (together, (i) and
(ii) above are referred to as the "Placement Agent Non-Indemnity Events"), or
(iii) a Selected Dealer Non-Indemnity Event, as defined below.
6.2 Indemnification of the Company by the Placement Agent. The
Placement Agent agrees to indemnify and hold harmless the Company and each
person, if any, who controls the Company within the meaning of the Securities
Act and/or the Exchange Act against any losses, claims, damages or liabilities,
joint or several, to which the Company or such controlling person may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any Placement Agent Non-Indemnity Event; and will reimburse the Company and
each such controlling person for any legal or other expenses reasonably incurred
by the Company or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action, provided that such
loss, claim, damage or liability is found ultimately to arise out of or be based
upon any Placement Agent Non-Indemnity Event.
6.3 Indemnification of the Selected Dealers by the Company. The
Company agrees to indemnify and hold harmless each Selected Dealer and each
person, if any, who controls a Selected Dealer within the meaning of the
Securities Act and/or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such Selected Dealer or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in the Offering Documents, or (B) in any Blue Sky
Application, (ii) any breach by the Company of any of its representations,
warranties or covenants contained herein or in any of the Offering Documents, or
(iii) the omission or alleged omission by the Company to state in the Offering
Documents or in any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and will reimburse
each Selected Dealer and each such controlling person for any legal or other
expenses reasonably incurred by such Selected Dealer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action, whether arising out of an action between such Selected
Dealer and the Company or such Selected Dealer and a third party; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon (i) an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information regarding such
Selected Dealer specifically for inclusion in the Offering Documents or any such
Blue Sky Application or (ii) any breach by such Selected Dealer of the
representations, warranties or covenants contained herein together, (i) and (ii)
above are referred to as the "Selected Dealer Non-Indemnity Events") or (iii) a
Placement Agent Non-Indemnity Event.
6.4 Indemnification of the Company by the Selected Dealers. The
Selected Dealers, severally and not jointly, agree to indemnify and hold
harmless the Company and each person, if any, who controls the Company within
the meaning of the Securities Act and/or the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
controlling person may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any Selected Dealer Non-Indemnity Event;
and will reimburse the Company and each such controlling person for any legal or
other expenses reasonably incurred by the Company or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action provided that such loss, claim, damage or liability is found
ultimately to arise out of or be based upon any Selected Dealer Non-Indemnity
Event.
6.5 Procedure. Promptly after receipt by an indemnified party
under this Section 6 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 6, notify in writing the indemnifying
party of the commencement thereof; and the omission so to notify the
indemnifying
<PAGE> 19
party will relieve the indemnifying party from any liability under this Section
6 as to the particular item for which indemnification is then being sought, but
not from any other liability that it may have to any indemnified party. In case
any such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent that it may wish, jointly
with any other indemnifying party, similarly notified, to assume the defense
thereof, with counsel who shall be to the reasonable satisfaction of such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. Any such indemnifying party shall not be liable to any
such indemnified party on account of any settlement of any claim or action
effected without the consent of such indemnifying party.
6.6 Contribution. If the indemnification provided for in this
Section 6 is unavailable to any indemnified party (other than as a result of the
failure to notify the indemnifying party as provided in Section 6.5 hereof) in
respect to any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, will contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand, and the Placement Agent or Selected Dealer, on the
other hand, from the Offering, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above, but
also the relative fault of the Company, on the one hand, and of the Placement
Agent or Selected Dealer, on the other hand, in connection with the statements
or omissions that resulted in such losses, claims, damages, liabilities or
expenses as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand, and the Placement Agent or
Selected Dealer, on the other hand, shall be deemed to be in the same proportion
as the total proceeds from the Offering (net of sales commissions and the
nonaccountable expense allowance, but before deducting other expenses) received
by the Company bear to the commissions and nonaccountable expense allowance
received by the Placement Agent or Selected Dealer. The relative fault of the
Company, on the one hand, and the Placement Agent or Selected Dealer, on the
other hand, will be determined with reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the Company, on the one
hand, and the Placement Agent or Selected Dealer, on the other hand, and their
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
6.7 Equitable Considerations. The Company, the Placement Agent and
each Selected Dealer agree that it would not be just and equitable if
contribution pursuant to this Section 6 were determined by pro rata allocation
or by any other method of allocation that does not take into account the
equitable considerations referred to in the immediately preceding paragraph.
6.8 Attorneys' Fees. The amount payable by a party under this
Section 6 as a result of the losses, claims, damages, liabilities or expenses
referred to above will be deemed to include any reasonable legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending any action or claim (including, without limitation, fees and
disbursements of counsel incurred by an indemnified party in any action or
proceeding between the indemnifying party and indemnified party or between the
indemnified party and any third party or otherwise).
7. Termination. Placement Agent reserves the right not to proceed with the
Offering for any reason, including if: (i) material adverse information known to
management and not previously disclosed to Placement Agent by the Company comes
to the Placement Agent's attention relating to the Company, its management or
its position in the industry which would preclude a successful Offering; (ii) a
material adverse change not yet reported in the Company's public filings has
occurred
<PAGE> 20
in the financial condition, business or prospects of the Company; or (iii) the
Company has breached any of its material representations, warranties or
obligations hereunder, or failed to expeditiously proceed with the Offering. If
Placement Agent elects not to proceed with the Offering as a result of the
conditions enumerated in either of clauses (i) or (iii) above, or (except as
provided in the next sentence) if the Company elects not to proceed with the
Offering for any reason, then the Company, in full satisfaction of its
obligations to Placement Agent hereunder (other than with respect to the payment
of "Source Fees," described below), shall reimburse Placement Agent in full for
its reasonable out-of-pocket expenses (including, without limitation, its legal
fees and disbursements), against which the Deposit shall be applied as a credit
and, in addition, pay to Placement Agent a fee of $150,000 ("Break-up Fee").
Notwithstanding anything contained herein to the contrary, if (a) the Closing
does not occur within 90 days of the Commencement Date through no fault of the
Company (it being deemed to be the Company's "fault" if it refuses to accept
subscriptions from qualified investors sufficient to have a Closing), or (b) the
Offering requires stockholder approval under NASD Marketplace Rule 4310, then
the Company may elect to abandon the Offering. In such event, or in the event
Placement Agent elects not to proceed with the Offering other than as a result
of the condition enumerated in clauses (i) or (iii) above, Placement Agent shall
be entitled to be reimbursed for its expenses, including legal fees and
disbursements, and shall apply the Deposit against such expenses to the extent
provided in Section 4.4 hereof (non-accountable), but the Company shall not be
liable to Placement Agent for any other expenses or the Break-up Fee.
Notwithstanding anything contained herein to the contrary, whether or not the
Offering is consummated, the Company shall pay to Placement Agent the
commissions referenced herein ("Source Fees") with respect to, and based on, any
investment in the Company by any "Source" (as defined below) made at any time
within 24 months after July 26, 2000. A Source shall be any person whose name
had not been first provided to the Placement Agent in writing by the Company and
who shall have received a copy of the Memorandum from Placement Agent in
connection with the Offering.
8. Notices. Any notice hereunder shall be in writing and shall be
effective when delivered in person or by facsimile transmission or mailed by
certified mail, postage prepaid, return receipt requested, to the appropriate
party or parties, at the following addresses: if to the Placement Agent, to
EarlyBirdCapital, Inc., One State Street Plaza, New York, New York 10004,
Attention: Steven Levine (fax no. (212) 509-5186); with a copy to Graubard
Mollen & Miller, 600 Third Avenue, New York, New York 10016, Attention: David
Alan Miller, Esq. (Fax No. (212) 818-8881); if to the Company, to Video Network
Communications, Inc. 50 International Drive, Portsmouth, New Hampshire 03801,
Attention: Robert H. Emery, Chief Financial Officer and Vice President,
Administration; with a copy to Shaw Pittman, 1676 International Drive, McLean,
Virginia 22102, Attention: Ellen Canan Grady, Esq., (Fax No. (703) 790-7901);
or, in each case, to such other address as the parties may hereinafter designate
by like notice.
9. Parties. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns. Neither
party may assign this Agreement or its obligations hereunder without the prior
written consent of the other party. This Agreement is intended to be, and is,
for the sole and exclusive benefit of the parties hereto and the persons
described in Sections 6.1 through 6.4 hereof and their respective successors and
assigns, and for the benefit of no other person, and no other person will have
any legal or equitable right, remedy or claim under, or in respect of this
Agreement.
10. Amendment and/or Modification. Neither this Agreement, nor any term or
provision hereof, may be changed, waived, discharged, amended, modified or
terminated orally, or in any manner other than by an instrument in writing
signed by each of the parties hereto.
11. Further Assurances. Each party to this Agreement will perform any and
all acts and execute any and all documents as may be necessary and proper under
the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
<PAGE> 21
12. Validity. In case any term of this Agreement will be held invalid,
illegal or unenforceable, in whole or in part, the validity of any of the other
terms of this Agreement will not in any way be affected thereby.
13. Waiver of Breach. The failure of any party hereto to insist upon strict
performance of any of the covenants and agreements herein contained, or to
exercise any option or right herein conferred in any one or more instances, will
not be construed to be a waiver or relinquishment of any such option or right,
or of any other covenants or agreements, and the same will be and remain in full
force and effect.
14. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof, and
there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied in this Agreement. Any and all prior discussions,
negotiations, commitments and understanding relating to the subject matter of
this Agreement are superseded by this Agreement.
15. Counterparts. This Agreement may be executed in counterparts and each
of such counterparts will for all purposes be deemed to be an original, and such
counterparts will together constitute one and the same instrument.
16. Law. Pursuant to Section 5-401 of the New York General Obligation Law,
this Agreement will be governed as to validity, interpretation, construction,
effect and in all other respects by the internal law of the State of New York.
The Company and the Placement Agent each (i) agree that any legal suit, action
or proceeding arising out of or relating to this Agreement shall be instituted
exclusively in the New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (ii) waives
any objection to the venue of any such suit, action or proceeding, and the right
to assert that such forum is an inconvenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. The Company and the Placement Agent
further agree to accept and acknowledge service of any and all process that may
be served in any such suit, action or proceeding in the New York State Supreme
Court, County of New York, or in the United States District Court for the
Southern District of New York and agree that service of process upon either of
them mailed by certified mail to their respective addresses shall be deemed in
every respect effective service of process in any such suit, action or
proceeding.
17. Representations, Warranties and Covenants to Survive Delivery. The
respective representations, indemnities, agreements, covenants, warranties and
other statements of the Company and the Placement Agent shall survive execution
of this Agreement and delivery of the Units and/or the termination of this
Agreement prior thereto.
<PAGE> 22
If you find the foregoing is in accordance with our understanding,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between us.
Very truly yours,
VIDEO NETWORK COMMUNICATIONS, INC.
By:
-------------------------------------------
Robert H. Emery, Chief Financial Officer,
Vice President, Administration
AGREED:
EARLYBIRDCAPITAL, INC.
By:
-----------------------------------------
Steve Levine, Vice President
<PAGE> 23
EXHIBIT A
FORM OF PURCHASE OPTION
