Exhibit 10.9
Pembroke Financial Partners, LLC
0000 Xxxx Xxx Xxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Tel: 713/000-0000; Fax: 713/000-0000
Member NASD
July 9, 2001
Mr. Xxxx Xxxxxxx
President
Protalex, Inc.
X.X. Xxx 00000
Xxxxxxxxxxx, XX 00000
PERSONAL AND CONFIDENTIAL
RE: Letter Agreement
Dear Xxxx,
We are pleased to submit this Letter Agreement, which is based upon current
market conditions, information provided about Protalex, Inc. (the Company) and
other considerations, pursuant to which Pembroke Financial Partners, LLC (the
"Placement Agent" or "Pembroke"), proposes to effect a "best efforts" private
distribution of Common Stock of the Company ("the Offering") for a minimum of
$675,000 to a maximum of $1,125,000. The Offering shall be made only to
"Accredited Investors" as same is defined pursuant to Rule 501 of Regulation D
of the SEC Act of 1933.
This letter is to set forth mutual understandings of the Placement Agent and the
Company (the "parties") with regard to the proposed offering so that the parties
may proceed in good faith with the completion of the necessary disclosure
materials, such as private placement offering, business and financial plan and
related documents.
1. Amount of Private Offering: Approximately $675,000 to $1,125,000.
2. Term of the Offering: Unless the Offering is extended pursuant to SEC Rule
10b-9 and the offering documents are stickered accordingly to reflect the
new termination date of the Offering, the Offering shall terminate 90 days
from the date it initially becomes effective. The Company further agrees to
be in compliance with SEC Rule 10b-9 in the event the terms of the offering
are changed or otherwise amended; further, the Company shall take all
reasonable steps appropriate in order for the Placement Agent to reasonably
insure the Company's compliance with SEC Rule 10b-9.
3. Pre-Offering Capitalization: The Offering is a "best efforts" private
placement and is based on the understanding that no more than 10,846,935
shares of Common Stock of the Company are issued with 10,608,435
outstanding (calculated on a fully diluted basis) along with an additional
238,500 shares of Common Stock of the Company held in the treasury as of
the effective date of this proposed Offering; subject to the changes that
are approved in advance by the Placement Agent.
4. The Offering Price: Subject to market and other conditions at the time of
the private offering, we estimate that the shares will be offered at a
price per share of $1.15 to $1.50, or such other price as is agreed to by
the parties.
5. Registration Rights: The Company agrees to file with the SEC and use
reasonable best efforts to cause to become effective a registration
statement registering for resale the shares included in this Offering
within 90 days of the closing of this Offering.
6. Escrow Account: All investor funds received pursuant to the proposed
Offering shall be made payable to the Escrow Account. All investor funds
(checks or bank wire) received by the Company or Placement Agent pursuant
to the proposed Offering shall immediately be delivered to an Escrow
Account at Xxxxx Fargo Bank New Mexico in Albuquerque, New Mexico
established exclusively for this Offering. Any checks made payable to the
Company shall be immediately endorsed by the Company direct to the
appropriate Escrow Account and forward same to the appropriate Escrow
Account for Deposit. In the case of a bank wire made payable to the company
instead of to the appropriate Escrow Account, such transaction shall be
returned to sender with correct wire transfer instructions. The Placement
Agent on behalf of the Company shall notice any prospective investor, or
customer of the error in payment on the check and direct the
investor/customer to make all payments to the appropriate Escrow Account.
Pursuant to SEC Rule 15c2-4, all investor funds held in the Escrow
Account received in accordance with the proposed Offering shall be
released to the Company only after all contingencies specified in the
proposed Offering have been met. Further, all investor funds will be
promptly returned to the purchasers in the event the minimum offering
is not reached by the termination date of the Offering. The Offering
shall be terminated in accordance with the provisions of SEC Rule
10b-9, unless the Offering is otherwise extended, prior to the
termination date, by express written consent of all purchasers as of
the date of termination. Further, any requests for permission to
extend which shall be given to purchasers, shall also include the
ability for the investor to terminate his/her purchase of the Offering
and to receive a refund of his/her investment.
7. Placement Agent's Compensation: Placement Agent discounts and commissions
(the "spread") shall be zero percent (0%) of the aggregate Offering Price.
Thus none of the proceeds of the Offering shall be payable to Placement
Agent as a commission or fee. However, the Company shall pay the Placement
Agent for all out of pocket expenses incurred in connect with this
Offering. The Company's obligation to reimburse all reasonable out of
pocket expenses is due on demand by the Placement Agent without regard to
the success or failure of the closing of the Offering. In no case shall
these expenses exceed $15,000 without prior approval of the Company; such
approval will not be unreasonably withheld.
8. Placement Agent's Warrants: The Company shall deliver to the Placement
Agent at both the initial and final closing of the Offering (the
"Closings"), warrants ("Placement Agent Warrants") to purchase Common Stock
of the Company in an amount equal to ten percent (10%) of the Shares in the
Offering. The Placement Agent's Warrants shall be exercisable for a period
of ten years commencing on the date of the final closing of the Offering
(the "Effective Date") and shall be exercisable at a price equal to the
offering price of the Shares. Such Placement Agent's Warrants shall contain
customary anti-dilution provisions satisfactory to the Placement Agent,
including capital structure and price protection anti-dilution for issuance
of Common Stock or Common Stock equivalents at a price per share less than
the offering price (excluding common stock and stock options currently
outstanding or issued, and an agreed upon number of Employee Stock Option
Plans shares). The Placement Agent's Warrants shall be transferable to the
extent permitted by the NASD (National Association of Securities Dealers)
and applicable State Law. Subject to SEC (Securities and Exchange
Commission) and NASD approval, if required, the Placement Agent's Warrants
shall include a net exercise provision (the "Net Exercise Provision")
permitting the holder(s) to pay the exercise price by cancellation of a
number of shares with a fair market value equal to the exercise price. At
such time the Company shall file a new Registration Statement, it shall
afford the holders of the Placement Agent's Warrants and the underlying
Common Stock an opportunity to include the underlying Common Stock in any
such registration statement or amendments, unless all of such underlying
Common Stock held by the holder(s) can be sold under Rule 144 during a
three-month period without registration through the use of the Net Exercise
Provision. In addition, at any time after the Effective Date and within the
following ten year period, the holders of a majority of the Placement
Agent's Warrants shall have the right to require the Company at the
Company's expense, including expenses in connection with blue sky
qualifications, to prepare and file one registration statement so as to
permit the public offering of the Common Stock underlying the Placement
Agent's Warrants, unless all of such underlying Common Stock can be sold
under Rule 144 during a three month period without Registration through the
use of the Net Exercise Provision. The Company shall keep such registration
statement current until at least the earlier of (a) the date that all
Common stock underlying the Placement Agent's Warrants and included in the
registration statement has been sold, or (b) expiration of one hundred and
twenty (120) days from the effective date of the registration statement.
9. Expenses: The Company shall pay directly: (i) all expenses (including
listing fees, if necessary, filing fees to the National Association of
Securities Dealers, transfer taxes, if any, and fees of its counsel) in
connection with the delivery to the Placement Agent of the offering
documents in connection with the Offering; (ii) all expenses in connection
with the preparation, printing, filing, delivering and shipping of the
Offering and Disclosure Statement and any amendments or supplements
thereto, (including all exhibits thereto), each preliminary and the final
Offering and Disclosure Statement and any amendments or supplements
thereto, and any Placement Agent related documents, if any; and (iii)
filing fees and expenses including counsel fees, incurred by the Placement
Agent in connection with the qualification of the Common Stock for offering
and sale by the Placement Agent or by dealers under the securities of Blue
Sky Laws of the states which the Placement Agent shall designate. Such
expenses as incurred and set forth above shall be paid by the Company
irrespective of the closing of the Offering.
10. Conditions Representations and Covenants: The Company represents, warrants
and further covenants that:
a) The Company represents that it has filed an audited 10-KSB for the fiscal
year ended May 31, 2000 and the latest quarterly or other interim financial
statements as may be required pursuant to SEC rules. The Financial
statements fairly reflect the financial condition of the Company and the
results of its operations at a time and for the periods covered by such
financial statements in accordance with GAAP and SEC rules, and such
statements will be substantially as heretofore represented to the Placement
Agent.
b) The Company does not know of any facts adversely affecting its earnings or
prospects, which have not been fully disclosed to the Placement Agent as of
initial filing or delivery and up to the effective date of the Offering and
Disclosure Statement.
c) The Company shall prepare, execute and file where required a mutually
agreed upon Offering and Disclosure Statement for the private placement of
shares to accredited investors only.
d) The Company has prepared and delivered to the Placement Agent its most
recent financial statements and projections constituting its best estimate
of revenues, loss and cash flow and agrees to update those estimates on a
monthly basis to the date of the Offering and Disclosure Statement,
identifying uses of the proceeds to be received in the Offering reasonably
acceptable to the Placement Agent.
e) Prior to the effective date of the Offering and Disclosure Statement,
except as approved by the Placement Agent, the Company will not incur any
material obligations or transactions other than in the ordinary course of
business and that shall not be any material adverse changes in condition,
business, prospects or management of the Company.
f) The Company agrees to provide Pembroke with the right of first refusal on
any subsequent private and or public offering of securities for a period of
5 years subsequent to the Effective Date of the Offering. Any such Private
or Public Secondary Offerings will be pursuant to an underwriting agreement
consistent with those typically employed by major bracket underwriters, and
the transaction fee will, be consistent with the gross spreads charged by
major bracket underwriters for recent similar Public and Private Offerings.
g) The Company at the recommendation of the Placement Agent will hire the
appropriate legal and financial counsel that will assist the Company in the
normal preparation of the required documents for the underwriting, as
deemed necessary. Said counsel must have a track record of having done
numerous underwritings and have sufficient support staff to support the
underwriting.
h) In the event that the Company becomes party to another transaction arising
out of or in connection with the Placement Agent as financial advisor, the
Company agrees to pay the Placement Agent a fee consistent with the market
for such services as provided by nationally recognized investment banking
firms.
i) The Company will make best efforts to meet the agreed upon operational
goals as outlined in the Offering and Disclosure Statement.
11. Legally Binding: In addition to the provision of Paragraphs 4 and 6, the
Company and the Placement Agent agree that the following provisions shall
be legally binding on the Company.
a) The Company acknowledges its responsibility for the specified expense items
set for the in the enumerated paragraphs 7 and 9 above without regards to
the closing of the Offering.
b) In the event that the contemplated Offering is abandoned by the Company, or
if there is a material adverse change in the Company's business, financial
condition, results of operations or prospects, or if the Placement Agent
discovers, in the course of its due diligence, material facts or
circumstances which render the contemplated Offering impracticable, then in
any of such events, the Company shall reimburse the Placement Agent for all
its out-of-pocket expenses incurred in connection with this Offering,
including but not limited to, the fees of Placement Agent's Counsel.
c) In addition, if prior to the Effective Date of the Offering, the Company is
acquired, merges, sells all or substantially all of its assets or otherwise
effects a corporate reorganization with any other entity that as a result,
the Offering contemplated hereby is abandoned by the Company, the Placement
Agent shall be entitled to receive from the Company a cash fee upon
completion of such transaction of $50,000; such cash fee shall be in
addition to payment for expenses and fees as discussed in paragraphs 7 and
9 above. In addition, the Placement Agent shall also be entitled to all
Placement Agent Warrants that would have been delivered as discussed in
paragraph 8 above.
d) Following execution of this letter, the parties will cause their officers,
employees, counsel, agents, accounts, and other representatives working on
the Offering to cooperate with each other with respect to the Offering
until the Offering is consummated or negotiations with respect thereto are
terminated.
e) Following execution of this document, until the Offering is consummated or
negotiations with respect thereto are terminated, the Company will afford
to the offerees, employees, counsel, agents, and accounts of the Placement
Agent working on the Offering free and full access to its plants,
properties, books and records, will permit them to make extracts from and
make copies of such books and records, and will from time to time furnish
that with such additional financial operating data and other information as
to its financial condition, results of operations, business, properties,
assets, liabilities or future prospects as they from time to time may
request. The Company will cause its independent certified public accounts
to make available to the Placement Agent the work papers relating to any
audit of its financial statements in the last two years.
If the foregoing correctly sets forth our understanding, kindly sign at the
place indicated below and return an executed copy of this Letter Agreement.
Sincerely,
BY: PEMBROKE FINANCIAL PARTNERS, LTD
Xxxxxxx X. Xxxxxxxxx Xxxxx Xxxx Xxxxxxxx
-------------------- -------------------
Xxxxxxx X. Xxxxxxxxx Xxxxx Xxxx Xxxxxxxx
Managing Partner Managing Partner
ACCEPTED AND AGREED TO:
By: Protalex, Inc.
Xxxx X. Xxxxxxx
---------------
Xxxx X. Xxxxxxx, President
