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January 13, 2002
Path 1 Network Technologies, Inc.
0000 Xxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Attention: Xx. Xxxxxxxxx X. Xxxx, President and Chief Executive Officer
Re:Private Placement of up to $5,000,000 in Unregistered Securities and Warrants
Gentlemen:
This letter sets forth the terms pursuant to which Xxxxxxx Global Securities,
Inc. ("Xxxxxxx" or the "Agent") is pleased to act as exclusive financial advisor
and placement agent (other than XX Xxxxx) to Path 1 Network Technologies, Inc.,
(the "Company") in connection with the sale of Units consisting of one share of
Company's Common Shares par value $0.001 (each a "Share" and collectively the
"Shares") and one detachable Purchase Warrant (the "Warrant") of the Company
pursuant to the Private Placement (as hereinafter defined) from the date of this
letter agreement (the "Agreement") through the end of the Engagement Period (as
hereinafter defined). In such capacity Xxxxxxx shall act as an independent
contractor, and any duties of Xxxxxxx arising out of its engagement pursuant to
this Agreement shall be owed solely to the Company.
The Company expressly acknowledges and agrees that Xxxxxxx'x obligations
hereunder are not on a firm commitment basis and that the execution of this
Agreement does not constitute a commitment by Xxxxxxx to purchase any securities
of the Company (including, without limitation, the Units, the Shares, the
Warrants, the Placement Agent Warrants and any other shares issuable pursuant to
same (the "Issuable Shares," all sometimes collectively referred to as the
"Securities"), and does not ensure the successful placement of the Units or any
portion thereof. Further, Xxxxxxx'x obligation to use its best efforts to assist
the Company in the Private Placement is subject to the completion of a due
diligence review of the Company, and Xxxxxxx'x assessment of the prevailing
conditions of the Company's business, the evaluation of its products and
services, the market for its securities, and market, economic and business
conditions generally.
Attached hereto as Exhibit B, is a list representing Principals or
representatives thereof and not other placement agents (other than XX Xxxxx)
(individually, an "Excluded Party" and collectively, the "Excluded Parties")
from whom Company has and may continue to have a financial advisory and
transactional relationship without obligation to Xxxxxxx, other than as set
forth herein. Further, Placement Agent Fees due to Xxxxxxx hereunder shall be
limited as provided on Exhibit B for purchases by Excluded Parties under the
Private Placement.
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1. The Engagement Period
a. The "Engagement Period" shall mean that period commencing on the date hereof
and continuing through the date of the final closing of the Private Placement
(which shall, in any case, be no greater than 75 days from the date of the
Memorandum to the initial closing and where the Minimum Offering has been
placed, an additional 60 days thereafter) unless terminated at an earlier date
pursuant the terms of this Agreement.
b. The Company agrees that during the term of Xxxxxxx'x agency hereunder,
neither the Company nor any person authorized to act on the Company's behalf
(other than XX Xxxxx) will offer the Units, for sale to, or solicit any offers
to purchase the Units from, or except as Xxxxxxx may specifically request,
otherwise approach or negotiate in respect thereof with, any other person or
persons. Neither the Company nor any person authorized to act on the Company's
behalf will, directly or indirectly, take any action that would prevent the
offering and sale of the Units from complying with the requirements of all
applicable securities laws or render unavailable any exemption from the
registration provisions of the Securities Act of 1933, as amended (the
"Securities Act") relied upon in making any offer or sale of the Units, or the
state securities or "blue sky" laws of jurisdictions in which the Units will be
offered.
x. Xxxxxxx'x engagement hereunder may not be terminated by the Company, except
for cause. This Agreement may be terminated by Xxxxxxx at any time upon 30 days'
notice. The provisions of paragraphs 4, 8, 9, 10, 11, 13, 14, 15 and the
representations and warranties of the parties shall survive any termination or
expiration of this Agreement
2. The Private Placement
a. Description of Units and Private Placement. It is contemplated that the
Company will issue a minimum aggregate principal amount of $3,000,000 and a
maximum aggregate principal amount of $5,000,000 of units (the "Units")
consisting of one share of Company's Common Shares par value $0.001 (each a
"Share" and collectively the "Shares") and one detachable Purchase Warrant (the
"Warrant"). The Units will be offered on a "best efforts" basis at an offering
price per Unit calculated as provided below in a transaction (the "Private
Placement") that is intended to be exempt from registration under Section 4(2)
of the Securities Act and Rule 506 of Regulation D promulgated thereunder, and
otherwise to comply with the applicable laws and regulations of any
jurisdictions in which the Units are offered or sold to be reflected in a
Confidential Private Placement Memorandum (as supplemented and amended from time
to time, being hereinafter referred to as the "Memorandum")
b. Best Efforts. In acting as the placement agent for the Private Placement,
Xxxxxxx will seek to complete the financing of the first $3,000,000 of Units on
a "best efforts all or none" basis (the "Minimum Offering") and the remaining
$2,000,000 of Units on a "best efforts" basis (the "Maximum Offering"), acting
as the Company's agent and not as a principal in the sale and placement of the
Units. The Company and Xxxxxxx shall have the right to increase the Maximum
Offering, solely at their discretion and without notice to investors. Xxxxxxx
may separately engage, at its own expense and with prior approval of the
Company, such sub-agents or consultants as it may deem reasonably necessary or
appropriate.
c. Covered Security Restrictions. The Company and Xxxxxxx each will reasonably
believe at the time of any sale of the Units as part of the Private Placement
that each other purchaser of Units is an "accredited investor," as such term is
defined in Rule 501(a) of Regulation D under the Securities Act, and has, either
alone, or with its, his or her "purchaser representative," as defined in
Regulation D, the knowledge and experience to evaluate the merits and risks of
the investment. The Company and Xxxxxxx shall have the right to reject any
proposed purchaser of Units.
d. Exclusions. It is understood by the Parties that the Company has previously
had initial discussions with the banking firm of XX Xxxxx regarding the sale of
up to $1,500,000 of the Units. Xxxxxxx agrees that XX Xxxxx may act as
sub-placement agent with respect to that offering amount, and to cooperate with
the Company and XX Xxxxx in conjunction therewith. Xxxxxxx acknowledges that it
will not receive any fees for amounts placed by XX Xxxxx.
(1) Additionally, the Company has entered into an equity agreement with Jesup &
Xxxxxx and such agreement may continue to be in place without regard to this
contract with the following restrictions. Company shall not draw down any funds
thereunder from the date hereof through 45 days from the date of the Memorandum.
If the initial closing of the Private Placement has taken place prior to the
expiration of that period, the limitation shall continue through a date 60 days
after the registration of the Shares contemplated hereby.
(2) Company agrees that it will not solicit any potential investor other than as
is specifically set forth in Exhibit B.
3. Pricing of Securities
a. The price of each Unit shall be fixed as of the date of issuance of the
Memorandum at the lower of $4.50 or 75% of Market Price. Market Price for this
purpose shall be calculated as the average of the Market Prices for each of the
five (5) trading days preceding the date of issuance of the Memorandum.
b. The Exercise Price of each Warrant issued as part of a Unit shall be fixed as
of the date of issuance of the Memorandum at 110% of Market Price. Market Price
for this purpose shall be calculated as the average of the Market Prices for
each of the five (5) trading days preceding the date of issuance of the
Memorandum.
4. Break Up Fee. If for any reason, whatsoever (other than for cause), the
Company terminates this Agreement, or acts so as to prevent the completion of
the Private Placement prior to the date of the final closing of the Private
Placement, the Company shall pay to Xxxxxxx a break-up fee in the amount of
$150,000. Such payment shall be due and payable immediately upon termination.
However, if Xxxxxxx terminates this Agreement and the Company has performed all
of its covenants, obligations, agreements, conditions and terms of or under this
agreement and the representations and warranties of the Company hereunder are
true and continue to be true and continue to be complete and accurate in all
material respects, then the Company shall not be obligated to pay to Xxxxxxx a
break-up fee.
5. Information to be Supplied
a. The Company will furnish or cause to be furnished to Xxxxxxx such information
as Xxxxxxx reasonably believes appropriate to its assignment or necessary in
connection with its assistance in the preparation of, or inclusion in, the
Memorandum to the extent such information can be obtained without unreasonable
effort or expense (all such information so furnished being hereinafter referred
to as the "Information"). It is also understood that the Company may make
available to offerees of the Securities additional material, data or other
information relating to the Company (the "Company Data"). The Company recognizes
and confirms that (a) in performing the services contemplated by this Agreement,
Xxxxxxx will use and rely primarily on the Memorandum, the Information and
Company Data made available to Xxxxxxx and on other information available from
generally recognized public sources without having independently verified the
same; (b) the contents of the Memorandum, the Information and the Company Data
are the sole responsibility of the Company, and Xxxxxxx does not assume any
responsibility for the accuracy or completeness of the Memorandum, the
Information or the Company Data, and will not undertake to verify independently
any of their accuracy or completeness; and (c) Xxxxxxx will not make an
appraisal of any of the assets owned or managed by the Company and expressly is
relying on the Company's representations and warranties; the Company and Xxxxxxx
agree that the pre-money valuation of the Company will be determined by good
faith discussions between the parties. Xxxxxxx will furnish a copy of the
Memorandum, and each supplement or amendment thereto, to each purchaser of the
Units, and in offering the Units, Xxxxxxx will not employ any written material
other than the Memorandum, each supplement and amendment thereto, the
Information and the Company Data.
b. The Company represents and warrants that the Information and the information
contained in the Confidential Offering Memorandum referred to below will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
in light of the circumstances under which they were made not misleading.
6. Preparation of Confidential Offering Memorandum
a. The Company shall prepare or cause to be prepared the Memorandum, and/or
other appropriate offering documents in form and substance reasonably
satisfactory to Xxxxxxx, containing information concerning, among other things,
the terms of the Private Placement and the Units offered thereby, the intended
uses of the proceeds thereof, the risks attendant to an investment in the
Securities, information concerning the business and finances of the Company and
its subsidiaries and other relevant matters. Xxxxxxx and its counsel shall have
the opportunity to make such review and investigation of the information
contained in the Confidential Offering Memorandum as it deems appropriate. The
Company authorizes and directs Xxxxxxx to furnish to prospective purchasers of
the Securities, the Memorandum, as the same may be amended or supplemented, and
agrees to provide Xxxxxxx with such number of copies thereof as Xxxxxxx may
reasonably request. If any event relating to or affecting the Company shall
occur as a result of which it is necessary or advisable to amend or supplement
the Memorandum in order to make the statements contained therein not misleading
in light of the circumstances existing at the time it is delivered to
prospective purchasers or in order to comply with any applicable federal or
state securities or "blue sky" laws, the Company shall forthwith prepare and
furnish to Xxxxxxx a reasonable number of copies of an amendment or amendments
of or a supplement or supplements to the Memorandum (in form and substance
satisfactory to Xxxxxxx) which will amend or supplement the Memorandum so that
as amended or supplemented it will not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances existing at the time the
Memorandum is delivered to prospective purchasers, not misleading and it will
comply with any applicable federal or state securities or "blue sky" laws. The
Company shall advise Xxxxxxx of the happening of any such event known to it,
shall advise Xxxxxxx promptly after it receives knowledge or notice thereof of
any communication with the Securities and Exchange Commission or any state
securities commissioner concerning the initiation of any proceeding concerning
the Private Placement, and shall advise Xxxxxxx promptly after it receives
knowledge or notice thereof of the commencement of any lawsuit or proceeding
relating to the Private Placement.
b. The Company shall also prepare or cause to be prepared such purchaser
agreements, other documentation (including, without limitation, investor
agreements, subscription documents, warrants, escrow agreements and
certificates), all of which shall be in form and substance satisfactory to
Xxxxxxx, as Xxxxxxx may reasonably request in connection with the Private
Placement.
c. As a condition to the closing of the Private Placement, the Company shall
also deliver to Xxxxxxx and the purchasers of the Units, such instruments,
documents and certificates and opinions as Xxxxxxx may request in order to
evidence the truth, accuracy and completeness of the Information and the
information contained in the Memorandum, the Company's authority to make the
Private Placement, the validity, legality and enforceability of the Securities
and the various instruments, documents and agreements executed in connection
with the Private Placement and such other matters as Xxxxxxx may reasonably
request. The Memorandum and all other documents prepared by the Company in
connection with the Private Placement and the closing of the Private Placement
are hereinafter referred to as the "Offering Documents".
d. Prior to the commencement of the Private Placement, the Company will have
retained an independent public accounting firm of national reputation.
Currently, the Company has employed the services of Ernst & Young, which firm
meets the criteria set forth herein.
7. Covenants, Representations and Warranties
a. Joint Covenants, Representations and Warranties.
In connection with the Private Placement, the Company and Xxxxxxx
each represent, warrant and agree as follows:
i. The Units will be offered and sold pursuant to the registration exemption
provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder as a transaction not involving a public offering and will
otherwise comply with the applicable laws and regulations of any jurisdictions
in which the Units are offered or sold. Neither the offer, sale or delivery of
the Units in conformity with the terms hereof will violate Section 5 of the
Securities Act, as presently in effect. Neither the Company nor Xxxxxxx has
taken nor will either party take any action which conflicts with the conditions
and requirements of, or which would make unavailable with respect to the Private
Placement, the exemptions from registration available pursuant to Regulation D
or Section 4(2) of the Securities Act and neither the Company nor Xxxxxxx knows
of any reason why any such exemption would be otherwise unavailable to it.
b. Covenants, Representations and Warranties of Company.
In connection with the Private Placement, the Company will provide
representations and warranties substantially as follows:
i. None of the Company, its predecessors or its subsidiaries or affiliates has
been subject to any order, judgement or decree of any court of competent
jurisdiction temporarily, preliminary or permanently enjoining such person for
failing to comply with Section 503 of Regulation D;
ii. At all times from their respective dates, the Memorandum (including, without
limitation, any amendment or supplement thereto), the Information and the
Company Data are furnished or made available by the Company to Xxxxxxx or,
either directly or through Xxxxxxx, to offerees of the Securities or any of
their representatives, such Memorandum, (including, without limitation, any
amendment or supplement thereto), the Information and Company Data will not,
taken separately or in any combination as provided to Xxxxxxx, any offeree or
its representatives, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading;
iii. The Company will furnish Xxxxxxx from time to time, such number of copies
of the Memorandum, any exhibits thereto and agreements and documents referred to
therein, as Xxxxxxx may reasonably request;
iv. If any event shall occur or condition exist as a result of which it is
necessary or advisable, in the opinion of the Company or Xxxxxxx, to amend or
supplement the Memorandum in order that the Memorandum will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading in light of the
circumstances existing at the time it is delivered to prospective purchasers,
the Company will forthwith prepare and furnish to Xxxxxxx such number of copies
as Xxxxxxx may reasonably request of an amendment or supplement to the
Memorandum (in form and substance reasonably satisfactory to Xxxxxxx and its
counsel) that will ensure that the Memorandum does not contain any misstatements
or omissions and is not in any respect misleading;
v. The Company will advise Xxxxxxx promptly of (i) the occurrence of any event
or the existence of any condition known to the Company referred to in Subsection
6(d) hereof; (ii) such other information concerning the business and financial
condition of the Company as Xxxxxxx may from time to time reasonably request;
(iii) the receipt by the Company of any communication from the Securities and
Exchange Commission (the "SEC"), any state securities commissioner or any other
domestic or foreign securities or financial regulatory authority concerning the
offering of the Securities; and (iv) the commencement of any lawsuit or
proceeding to which the Company is a party relating to the Securities;
vi. The Company will (i) make available to each offeree of the Securities such
Information and Company Data (in addition to that contained in the Memorandum)
concerning the offering of the Securities, the Company and any other relevant
matters as the Company possesses or can acquire without unreasonable effort or
expense; and (ii) provide each offeree the opportunity to ask questions of, and
receive answers from, the officers and employees of the Company concerning the
terms and conditions of the Private Placement and to obtain any other additional
information about the Company and the Securities to the extent the officers and
employees of the Company possess the same or can acquire it without unreasonable
effort or expense;
vii. The Company is not in default in the performance or observance of any
material obligation (i) under its charter or its by-laws or any indenture,
mortgage, contract, purchase order or other agreement or instrument to which the
Company is a party or by which it or any of its property is bound or affected;
or (ii) with respect to any order, writ, injunction or decree of any court of
any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, and there exists
no condition, event or act which constitutes, nor which after notice, the lapse
of time or both, could constitute a default under any of the foregoing, which in
either case would have a Material Adverse Effect (as hereinafter defined) on the
business of the Company;
viii. The Company has full right, power and authority to execute and deliver
this Agreement and any document, certificate or instrument required hereunder or
to be executed or delivered at any Closing (collectively, the "Documents"), and
to perform all of its obligations hereunder and thereunder or contemplated
hereby or thereby.
ix. The Documents have been, or will be, duly executed and delivered by the
Company and the execution and delivery by the Company of the Documents and the
performance of all of its obligations have been duly authorized by all requisite
corporate action by the Company, and each Document executed and delivered and
obligation performed constitutes, or will constitute, the legal, valid and
binding obligation of the Company enforceable in accordance with its respective
terms;
x. The (A) authorization, execution, delivery and performance of the Documents;
and (B) authorization, issuance, sale and delivery of the Securities, Warrants
the Placement Agent Warrants and the shares of Securities issuable upon exercise
of the Warrants (the "Issuable Shares") will not (i) violate any provision of
law or statute or any order of any court or other governmental agency; or (ii)
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute, with due notice or lapse of time or both, a
default under, or result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of the Company under its
charter or by-laws, or any indenture, mortgage, lease agreement or other
agreement or instrument to which the Company is a party or by which it or any of
its property is bound or affected in any material respect;
xi. The Company has all requisite corporate power and authority to issue, sell
and deliver the Units, the Shares, the Warrants, the Placement Agent Warrants
and any other shares issuable pursuant to same (the "Issuable Shares," all
sometimes collectively referred to as the "Securities") and such issuances,
sales and deliveries have been duly authorized by all requisite corporate action
of the Company and when so issued, sold and delivered (i) the Units purchased by
each investor in the Private Placement, to Xxxxxxx and the Issuable Shares each
will be duly and validly issued and outstanding, fully paid and non-assessable
with no personal liability attaching to the ownership thereof and will be free
and clear of all liens, charges, claims, encumbrances, restrictions or
preemptive or any other similar rights imposed by or through the Company, except
as waived prior to the initial closing or as disclosed herein and as shall be
disclosed in the Memorandum, and the Company shall have paid all taxes, if any,
in respect of the issuance thereof; and (ii) Warrants will be duly executed and
delivered, binding obligations of the Company, validly issued and outstanding.
xii. Prior to the initial closing of the Private Placement the Issuable Shares
have been duly and validly reserved for issuance upon the exercise of any of the
Warrants. The Company shall use its best efforts to obtain any authorization,
consent or approval or other action by or make any filing with any court or
administrative body that may be required under the applicable state securities
laws in connection with the exercise of any of the Warrants. The Issuable Shares
will be issued in compliance with all applicable Federal, state and foreign
securities laws;
xiii. No permit, consent, approval, authorization, order of, or filing with, any
court or governmental authority is required in connection with the execution and
delivery by the Company of this Agreement or to consummate the Private
Placement, except that the offer and sale of the Securities in certain
jurisdictions may be subject to the provisions of the securities or "blue sky"
laws of such jurisdictions;
xiv. There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of the Company, threatened, against or affecting the Company, or any
of its properties, which would reasonably be anticipated to result in any
material adverse change in the condition (financial or otherwise) or in the
earnings, business affairs, business prospects, properties or assets of the
Company and its subsidiaries, taken as a whole (a "Material Adverse Effect");
xv. The Company has: (i) duly and timely filed all tax returns required to be
filed by the Company under applicable law that include or relate to the Company,
its income, assets, payroll, operations or business, which tax returns, to the
best of the Company's knowledge, are true, correct and complete in all material
respects; and (ii) duly and timely paid, in full, all taxes which are currently
due and payable and for which the Company is liable, except, in each case, where
the failure to do so is not reasonably anticipated to result in a Material
Adverse Effect. The Company shall make available to Xxxxxxx, immediately upon
Xxxxxxx'x request, copies of all such tax returns and evidence of payment of all
taxes due and payable in connection therewith;
xvi. The Company is not in default under any material agreement, lease, license,
contract or commitment, whether oral or written, including, without limitation,
those with employees and consultants ("Material Agreements") to which the
Company is a party or by which any of its material assets are bound, and there
is no event known to the Company that, with notice, or lapse of time, or both,
would constitute a default by any party to any Material Agreement or give them
any right to terminate or modify any of the same and it has not received notice
that any party to any Material Agreement intends to cancel or terminate any
Material Agreement or to exercise or not to exercise any renewal or extension
options under any Material Agreement;
xvii. The Company holds, and is in compliance with, all permits, licenses,
registrations, and authorizations required by it in connection with the conduct
of the business of the Company under all Federal, state and local laws, rules
and regulations (the "Permits"), except where the failure to be in compliance
has not had, and is not reasonably expected to have, a Material Adverse Effect;
xviii. The Company's audited financial statements which will be included in the
Memorandum, are true and correct and fairly present, in all material respects,
the financial condition of the Company as of the dates set forth therein.
xix. The Company has conducted its business in the ordinary course and has not
suffered any Material Adverse Effect. The Company does not have any liabilities
or obligations (whether actual or accrued, accruing or contingent, or otherwise)
which, individually or in the aggregate, would be deemed material, other than
those set forth in the balance sheet included within the unaudited financial
statements and those incurred, in the ordinary course of its business.
xx. At the final closing of the Private Placement, the Company will deliver, or
cause to be delivered, to Xxxxxxx, in each case in form and substance reasonably
satisfactory to Xxxxxxx and its counsel: (i) a certificate of the Company signed
by the Chief Executive Officer and the Chief Financial Officer thereof
certifying (A) that the representations and warranties of the Company contained
in this Agreement are true and accurate in all material respects as of each
Closing date; and (B) representing and warranting to Xxxxxxx that the
representations and warranties of the Company contained in each purchase,
subscription or other similar agreement entered into with a prospective
purchaser of the Units are true and correct in all material respects as of the
date of such letter, except to the extent any such representation or warranty
was expressly made as of any other date, in which case such representation and
warranty was true and correct in all material respects as of such other date;
and (ii) copies of all certificates and other documents (other than the
Securities) delivered to each prospective purchaser at such Closing. The Company
further agrees that it will not consummate the sale of the Securities unless it
delivers or causes to be delivered the items described in this subsection to
Xxxxxxx at the final Closing;
xxi. The Company will be responsible for and comply with all applicable
notification and fee requirements to qualify the Units for offering and sale
under the state securities or "blue sky" laws of such jurisdictions in which any
sales of the Securities may be transacted and as may otherwise be required or as
requested by Xxxxxxx provided that, in connection therewith, the Company shall
not be required to qualify as a foreign corporation.
xxii. Nothing contained in this Agreement will require the Company to accept the
terms of any transaction other than as contemplated by the Private Placement, as
the Company has the right in its sole and absolute discretion to reject any
transaction.
c. Covenants, Representations and Warranties of Xxxxxxx.
----------------------------------------------------
i. As an expert in transactions of these types, Xxxxxxx will use reasonable care
in accordance with the standards of the investment banking profession in the
scope of its engagement hereunder.
ii. Xxxxxxx shall have no authority whatsoever to bind the Company with any
third party.
iii. Xxxxxxx agrees that it and its agents will not make any representations
about the Company other than those set forth in the Memorandum and the
Information.
8. Fees and Expenses
a. Company's Costs. The Company shall pay all fees, charges, expenses and
disbursements relating to the Private Placement, as incurred, including, without
limitation, all fees, charges, expenses and disbursements in connection with (a)
the preparation, printing, filing, distribution and mailing of the Memorandum
and any supplement and amendment thereto and all other documents relating to the
Private Placement and the purchase, sale and delivery of the Units, including
the cost of all copies thereof and the cost of counsel to the Placement Agent in
the amount of $35,000 payable $15,000 upon the signing of this Agreement and
$20,000 upon the initial closing of the Private Placement; (b) the issuance,
sale, transfer and delivery of the Units, including any transfer or other taxes
payable thereon; (c) the registration or qualification of the Units for offer
and sale under the securities laws of such states and other jurisdictions as
Xxxxxxx may designate (including, without limitation, all filing and
registration fees and the reasonable "blue sky" fees and disbursements of
Xxxxxxx'x counsel); and (d) printing, mailing, travel and lodging expenses and
other out-of-pocket expenses incurred by Xxxxxxx in connection with this Private
Placement not to exceed $35,000, in the aggregate, with respect to expenses
under this subsection (d) in addition to the $35,000 Expense Allowance specified
below.
b. Expense Allowance. The Company will pay Xxxxxxx a non-accountable,
non-refundable expense allowance of $35,000, upon the signing of this Agreement
to defray a portion of the due diligence and professional expenses related to
the Private Placement. It is understood that Xxxxxxx, at its own expense, may
engage certain experts for analysis of the Company's operations, management, and
business plan, and that such analyses may be material to the decision of the
Xxxxxxx as to the feasibility of the proposed Private Placement.
c. Placement Agent Fees, Agent Shares and Agent Warrants
i. For acting as private placement agent in connection with the Private
Placement, Xxxxxxx shall be entitled to receive a cash commission equal to 10%
of the aggregate purchase price of the Units sold in the Private Placement (the
"Placement Agent Fee") excluding for calculation purposes up to $1,500,000
actually sold or placed by XX Xxxxx and as may be limited by Exhibit B. The
Placement Agent Fee shall be payable at each closing of the Private Placement,
and shall be paid by certified or official bank check, or by wire transfer in
immediately available funds to the bank account(s) designated by Xxxxxxx.
ii. For acting as private placement agent in connection with the Private
Placement, Xxxxxxx shall also be entitled to receive and the Company hereby
agrees to issue to Xxxxxxx upon consummation of the financing, a number of Units
(the "Agent Units" or "Agent Shares" or "Agent Warrants" as the case may be)
equal to 6% of the Units sold in the Private Placement. The Shares and Warrants
underlying the Agent Units shall be issued to such persons and in such amounts
as Xxxxxxx shall direct, and shall be delivered at the final closing of the
Private Placement
(1) The Agent Warrants will expire five years after the final closing of the
Private Placement. The Agent Warrants will be detachable and exercisable at the
Exercise Price specified in Exhibit A. The Agent Warrants shall have customary
proportional anti-dilution provisions for stock dividends, splits, mergers,
recapitalization and for other unusual events.
(2) In lieu of any cash payment required by Xxxxxxx in connection with the
exercise of the Agent Warrants, the holder(s) of the Agent Warrants shall have
the right at any time and from time to time to exercise the Agent Warrants in
full or in part by surrendering the Warrant Certificate as payment of the
aggregated Exercise Price. The number of shares of Common Stock underlying the
Agent Warrant to be issued upon exercise shall be determined by multiplying the
number of the shares of Common Stock within the Agent Warrant to be exercised by
an amount equal to the Market Price per share less the Exercise Price, and then
dividing the product thereof by the Market Price per share. Solely for the
purposes of this paragraph, Market Price shall be calculated as the average of
the Market Prices for each of the five (5) trading days preceding the date
notice is given that the holder(s) intends to exercise the Agent Warrant.
iii. The Company also agrees to grant to Xxxxxxx the right to demand
registration of the Agent Shares and the Common Stock issuable upon exercise of
the Agent Warrant referred to above, on up to two (2) occasions with all
expenses of the first registration to be borne by the Company and all expenses
of the second registration to be borne by Xxxxxxx.
iv. In addition, the Company shall grant "piggy back" registration rights to
include the Agent Shares and the shares of Common Stock issuable upon exercise
of the Agent Warrant in any registration statement filed by the Company under
the Securities Act relating to an underwriting of the sale of Securities or
other security of the Company. In the event that the Company grants piggy back
registration rights to any other stockholder on terms and conditions Xxxxxxx
deems to be more favorable than these granted hereunder, the Company agrees to
grant the same rights to Xxxxxxx.
9. Exclusive Rights
a. The Company agrees that if at least $3,500,000 of the Units are sold in the
Private Placement, within 60 days of the date of the Memorandum (the date of
such closing being the "Exclusivity Date"), Xxxxxxx shall have the exclusive
right (the "Exclusive Right") for a period of 180 days from the Exclusivity Date
(the "Exclusive Period"), to present proposals to the Company for additional
offerings of securities of the Company, or any subsidiary, successor provided
that Xxxxxxx shall agree, in the event of a public offering, not to solicit or
contact in excess of three prospective underwriters who are intended to serve as
managing or co-managing underwriter with respect to such public offering without
the Company's prior written consent. Neither the Company, nor any of its
officers, directors, agents or representatives, shall negotiate, solicit or
accept any proposal for a securities offering during the Exclusive Period,
without the express written consent of Xxxxxxx. All proposals for such offering
received by the Company during the Exclusive Period shall be promptly forwarded
to Xxxxxxx for consideration.
b. After the expiration of the first 60 days of the Exclusive Period, the
Company shall be entitled to terminate the Exclusive Right in the event Xxxxxxx
fails to achieve "meaningful progress" in obtaining a letter of intent for a
private or public offering of Company's securities within such period.
Meaningful Progress shall include substantive negotiations with a potential
underwriter reasonably acceptable to the Company and willing to act as lead or
co-managing underwriter for a public offering. In the event the Company desires
to terminate the Exclusive Right pursuant to this paragraph (b), it shall first
furnish written notice to Xxxxxxx five (5) days in advance of the proposed
termination date during which Xxxxxxx shall have the right to advise the Company
of actions constituting Meaningful Progress. In the event Xxxxxxx fails to
advise the Company to its satisfaction of actions constituting Meaningful
Progress, the Exclusive Right shall terminate on the proposed termination date.
c. The Company covenants and agrees that it will cooperate with, and take all
reasonable actions reasonably requested by Xxxxxxx in furtherance of Xxxxxxx'x
efforts under paragraph (a), including, but not limited to, negotiating in good
faith with Xxxxxxx and any potential underwriter or placement agent referred by
Xxxxxxx which is acceptable to the Company, and using its best efforts to
respond to any proposal within five (5) business days of receipt.
10. Other Capital. If, upon cancellation, termination or expiration of this
Agreement (the "Termination") the Company is a party to an executed letter of
intent or an agreement relating to a business combination identified by Xxxxxxx
in writing which leads to a consummated transaction within 18 months from the
Termination (i) involving the raising of capital through debt instruments and/or
equity securities, Xxxxxxx shall receive a fee of ten percent (10%) of the
"gross transaction amount" (The gross transaction amount is defined as the total
value of the amount of each draw down against a new line of credit and/or any
amount paid to the Company as equity and/or debt.); or (ii) resulting in the
purchase or merger of net assets or stock, Xxxxxxx shall receive a fee of three
(3%) percent of the first $10,000,000 and one and one-half (1-1/2%) percent of
the amount over $10,000,000 of the gross transaction amount, paid or received by
the Company (or by any subsidiary or affiliated entity of the Company)
(hereinafter, a "Transaction"), notwithstanding that the consummation occurs any
time within 12 months subsequent to Termination. If at Termination no letter of
intent or other agreement is outstanding, Xxxxxxx shall furnish the Company with
a final list (the "Final List") of all potential candidates it participated in
discussions with about the Private Placement (other than Excluded Parties) prior
to the Termination. If a business combination is concluded within twelve (12)
months from the Termination with a candidate set forth on said Final List,
Xxxxxxx shall be entitled to the same fees outlined in this paragraph as if the
business combination had been consummated during the term of this Agreement. The
Company shall furnish to Xxxxxxx the names of all parties with which the Company
has had discussions prior to the date hereof concerning the Private Placement.
11. Indemnification, Contribution and Limit on Liability
a. The Company, agrees to indemnify and hold harmless Xxxxxxx its officers,
directors, partners, employees, agents, and counsel, and each person, if any,
who controls Xxxxxxx within the meaning of Section l5 of the Act or Section
20(a) of the Securities Exchange Act of l934, as amended (the "Exchange Act"),
against any and all losses, claims, damages, obligations, penalties, judgments,
settlements, awards, liabilities, costs, expenses and disbursements (and any and
all actions, suits, proceedings and investigations in respect thereof and any
and all reasonable legal and other costs, expenses and disbursements in giving
testimony or furnishing documents in response to a subpoena or otherwise),
including, without limitation, the reasonable costs, expenses and disbursements,
as and when reasonably incurred, of investigating, preparing or defending any
such action, suit, proceeding or investigation (whether or not in connection
with litigation in which Xxxxxxx is a party), directly or indirectly, caused by,
relating to, based upon, arising out of, or in connection with (a) any untrue
statement or alleged untrue statement of a material fact contained in, or
omissions from the Offering Documents, including any amendment thereof or
supplement thereto, or similar statements or omissions in or from any other
information furnished by the Company to Xxxxxxx or any prospective purchaser of
the Units; (b) violations or breaches of any representation, warranty, covenant
or agreement contained or incorporated in the Agreement or in any instrument,
document, agreement or certificate delivered by the Company to Xxxxxxx or any
prospective purchaser of the Units; (c) Xxxxxxx'x acting for the Company,
including, without limitation, any act or omission by Xxxxxxx in connection with
its acceptance of or the performance or non-performance of its obligations under
the Agreement (not including Xxxxxxx'x {or its agents} violation of law, gross
negligence or willful misconduct); and (d) the Private Placement. The Company
also agrees that Xxxxxxx shall not have any liability (whether direct or
indirect, in contract or tort or otherwise) to the Company for or in connection
with the engagement of Xxxxxxx (i) except as provided below with respect to
Xxxxxxx'x obligations to indemnify to the Company; and (ii) where such loss has
been judicially determined to be primarily due to Xxxxxxx'x xxxxx negligence or
willful misconduct.
b. These indemnification provisions shall be in addition to any liability which
the Company may otherwise have to Xxxxxxx or the persons indemnified below in
this sentence and shall extend to the following: Xxxxxxx its affiliated
entities, partners, employees, legal counsel, agents and controlling persons
(within the meaning of the federal securities laws), and the officers,
directors, employees, legal counsel, agents and controlling persons of any of
them. All references to Xxxxxxx in these indemnification provisions shall be
understood to include any and all of the foregoing.
c. If any action, suit, proceeding or investigation is commenced, as to which
Xxxxxxx proposes to demand indemnification, it shall notify the Company with
reasonable promptness (provided, however, that any failure by Xxxxxxx to notify
the Company shall not relieve the Company from its obligations hereunder)
unless, and to the extent, such failure compromises or prevents the Company's
defense of such action, suit, proceeding or investigation), and the Company
shall have the right to assume the defense of such action. Xxxxxxx shall have
the right to retain counsel of its own choice to represent it, but the fees and
expenses of such counsel shall be at its expense unless the employment of such
counsel shall have been authorized in writing by the Company in connection with
the defense of such action or the Company shall not have promptly employed
counsel reasonably satisfactory to Xxxxxxx to have charge of the defense of such
action or Xxxxxxx shall have reasonably concluded that there may be one or more
legal defenses available to it which are different from or additional to those
available to the Company, in any of which events such fees and expenses shall be
borne by the Company. Any such counsel of Xxxxxxx shall, to the extent
consistent with its professional responsibilities, cooperate with the Company
and any counsel designated by the Company. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition to
any local counsel) separate from their own counsel for all indemnified parties
in connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. The Company shall not, without the prior written consent of
Xxxxxxx settle or compromise any claim, or permit a default or consent to the
entry of any judgment in respect thereof, unless such settlement, compromise or
consent includes, as a unconditional term thereof, the giving by the claimant to
Xxxxxxx of an unconditional release from all liability in respect of such claim.
Anything in this paragraph to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided however, that such consent was not
unreasonably withheld.
x. Xxxxxxx agrees to indemnify and hold harmless the Company, its officers,
directors, partners, employees, agents, and counsel, and each person, if any,
who control the Company within the meaning of Section l5 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company to Xxxxxxx but only with respect to statements, if any, made in the
Memorandum, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by Xxxxxxx
concerning Xxxxxxx expressly for inclusion in the Memorandum, or any amendment
or supplement thereto and violations or breaches of any representation,
warranty, covenant or agreement contained or incorporated in the Agreement,
provided, however, that Xxxxxxx'x obligations to provide indemnification
hereunder shall be limited to the fees actually received by Xxxxxxx pursuant to
this Agreement. If any action shall be brought against the Company in respect of
which indemnification may be sought against Xxxxxxx pursuant hereto, Xxxxxxx
shall have the rights and duties given to the Company above, and the Company
shall have the rights and duties so given to Xxxxxxx.
e. In order to provide for just and equitable contribution, if a claim for
indemnification pursuant to these indemnification provisions is made but it is
found in a final judgment by a court of competent jurisdiction (not subject to
further appeal) that such indemnification may not be enforced in such case, even
though the express provisions hereof provide for indemnification in such case,
then the Company, on the one hand, and Xxxxxxx on the other hand, shall
contribute to the losses, claims, damages, obligations, penalties, judgments,
awards, liabilities, costs, expenses and disbursements to which the indemnified
persons may be subject in accordance with the relative benefits received by the
Company, on the one hand, Xxxxxxx on the other hand, and also the relative fault
of the Company, on the one hand, and Xxxxxxx on the other hand, in connection
with the statements, acts or omissions which resulted in such losses, claims,
damages, obligations, penalties, judgments, awards, liabilities, costs, expenses
or disbursements and the relevant equitable considerations shall also be
considered. No person found liable for a fraudulent misrepresentation shall be
entitled to contribution from any person who is not also found liable for such
fraudulent misrepresentation. Notwithstanding the foregoing, Xxxxxxx shall not
be obligated to contribute any amount hereunder that exceeds the amount of fees
previously received by Xxxxxxx pursuant to the Agreement.
f. Neither termination nor completion of the engagement of Xxxxxxx referred to
above shall affect these indemnification provisions which shall remain operative
and in full force and effect.
12. Board Seat. For a period of thirty-six (36) months from the initial closing
of the Private Placement, Xxxxxxx shall have the option to appoint an advisor to
the Company's Board of Director's. Where the Maximum Offering amount is sold,
such party shall be appointed a member of the Company s Board of Directors,
subject, if required under the By Laws and Certificate of Incorporation of
Company, to shareholder approval which, in no instance, can be guaranteed by the
Company. In the event Xxxxxxx elects to appoint a Director, such Director shall
have full voting rights and such other rights as the Company's other Directors,
without limitation. Such Director shall receive the same reimbursement and
compensation as the Company's other Directors, and the Company's Officers and
Directors insurance policy shall specifically cover such Director. The Company
shall hold at least four (4) meetings of its Board of Directors per year.
13. Notices
a. All communication hereunder shall be in writing and shall be mailed or
delivered
(a) to the Company, at its offices Attention: Xxxxxxxxx X. Xxxx and
(b) to Xxxxxxx, at its offices, Attention: Xxxxx Xxxxx, President.
b. All communications hereunder, except as may be otherwise specifically
provided herein, shall be in writing and shall be mailed, hand delivered, or
faxed with confirmation by letter, to the party to whom it is addressed at the
address set forth above. All notices hereunder shall be effective upon receipt
by the party to which it is addressed.
c. The Company agrees to give Xxxxxxx notice of, and an opportunity to attend
periodic meetings with shareholders, including annual informational meetings and
advisory committee or similar types of meetings.
14. No Restriction on Xxxxxxx Providing Other Services. The Company recognizes
that Xxxxxxx now renders and may continue to render financial consulting,
management, investment banking and other services to other companies that may or
may not conduct business and activities similar to those of the Company. Xxxxxxx
shall be free to render such advice and other services and the Company hereby
consents thereto. Xxxxxxx shall not be required to devote its full time and
attention to the performance of its duties under this Agreement, but shall
devote only so much of its time and attention as it deems reasonable or
necessary for such purposes, in its sole discretion.
15. No Public Disclosure.
a. Any advice, either oral or written, provided to the Company by Xxxxxxx
hereunder shall not be publicly disclosed or made available to third parties
without the prior written consent of Xxxxxxx. In addition, Xxxxxxx may not be
otherwise publicly referred to without its prior consent.
b. Except to the extent authorized by the Company or required by any federal or
state law, rule or regulation or any decision or order of any court or
regulatory authority, Xxxxxxx agrees that it will refrain from disclosing to any
person, other than to any agents, attorneys, accountants, employees, officers,
and directors of Xxxxxxx (collectively "Agents") who need to know such
information in connection with Xxxxxxx'x engagement hereunder and who agree to
be bound by the provisions of this Agreement, any non-public information
relating to the Company that Xxxxxxx receives from the Company or its agents,
attorneys or accountants in connection with the services rendered hereunder.
Xxxxxxx will use such information solely in connection with its services
hereunder. In the event that Xxxxxxx or its Agents are required by federal or
state law, rule or regulation or any decision or order of any court or
regulatory authority to release such information, it shall give the Company
sufficient prior notice so that the Company may seek a stay or other release or
waiver from disclosing such information. Any advice offered by Xxxxxxx hereunder
shall not be disclosed publicly in any manner without the Company's prior
written approval and will be treated by the Company and Xxxxxxx as confidential.
16. Mutually Binding and Non-Assignability. The benefits of this Agreement shall
inure to the respective successors and assigns of the parties hereto and of the
indemnified parties hereunder and their successors and assigns and
representatives, and the obligations and liabilities assumed in this Agreement
by the parties hereto shall be binding upon their respective successors and
assigns; provided, that the rights and obligations of either party under this
Agreement may not be assigned without the prior written consent of the other
party hereto and any other purported assignment shall be null and void.
17. No Brokers. Other than with respect to the Excluded Parties or as otherwise
contemplated in this Agreement, the Company represents and warrants to Xxxxxxx
that there are no brokers, representatives or other persons who have an interest
in compensation due to Xxxxxxx from any transaction contemplated herein.
18. Miscellaneous
a. This Agreement contains the entire agreement and understanding between the
parties with respect to its subject matter and supersedes all prior discussions,
agreements and understandings between them with respect thereto. This Agreement
may not be modified except in writing signed by the parties. The validity and
interpretation of this Agreement shall be governed by the laws of the State of
New York applicable to agreements made and to be fully performed therein.
b. This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
If the foregoing correctly sets forth our agreement, please sign two copies of
this letter in the space provided below and return same to us. Upon execution of
this agreement the Parties will meet to discuss the terms of the placement.
Very truly yours,
XXXXXXX GLOBAL SECURITIES, INC.
By:________________________________
Name: Xxxxx Xxxxx
Title: Managing Director - Investment Banking
Confirmed and Agreed to
this ___ day of January, 2002
PATH 1 NETWORK TECHNOLOGIES, INC.
By:_____________________________
Name: Xxxxxxxxx X. Xxxx
Title: President and Chief Executive Officer
THIS AGREEMENT WILL NOT BE VALID UNLESS EXECUTED BY ALL PARTIES AND COMPLETELY
EXECUTED COPIES DELIVERED TO BOTH PARTIES BY FACSIMILE TRANSMISSION.
EXHIBIT A
Securities in the Proposed Private Placement
Units A minimum of $3,000,000 and a maximum of $5,000,000 in Units consisting of
one share of Common Stock (the "Share") and one detachable Common Stock Purchase
Warrant (the "Warrant"). The first $3,000,000 of Units on a "best efforts all or
none" basis (the "Minimum Offering") and the remaining $2,000,000 of Units on a
"best efforts" basis (the "Maximum Offering"). The price of each Unit shall be
fixed as of the date of issuance of the Confidential Offering Memorandum in the
Private Placement at the lower of $4.50 or 75% of Market Price. Market Price for
this purpose shall be calculated as the average of the Market Prices for each of
the five (5) trading days preceding the date of issuance of the Memorandum.
Amount $3,000,000 to $5,000,000
Registration The Company will use its reasonable best efforts to register the
shares of Common Stock underlying the Units within 90 days from the effective
closing date of the Private Placement ("Closing Date"). Registration shall
remain effective for no less than 18 months.
Terms of the Warrants
Exercise Term Each Warrant will entitle the holder to purchase one share of
Common Stock (the "Warrant Share") during the period commencing on the date of
issuance and terminating five years after the issuance.
Exercise Price 110% of Market Price. Market Price for this purpose shall be
calculated as the average of the Market Prices for each of the five (5) trading
days preceding the date of issuance of the Memorandum, subject to adjustment as
described in the engagement letter.
Registration Rights The Company will agree to notify the holders of the Shares
and the Warrant Shares prior to the filing of any registration statement under
the Act, except for a registration statement on Forms S-4 or S-8, and the
Company shall include the Shares and Warrant Shares in such Registration
Statement.
EXHIBIT B
Xxxxxxx will only be entitled to a Placement Agent Fee of 5% and no Agent
Shares or Agent Warrants for Units acquired in the Private Placement by any of
the following companies:
Granite Financial
WS Capital (VC firm)
SAIC
British Telecom
Hyperion Partners
Avruch Investment Company, LLC
Scientific Atlanta
Cisco
Thomson/Multimedia
Xxxxxxx will not be entitled to any Placement Agent Fee, Agent Shares or Agent
Warrants for Units purchased by the following companies in the Private
Placement,
Xxxxxx Technology Corporation
XX Xxxxx (up to $1,5000,000 in Units as stated in the Agreement)
Jesup & Xxxxxx (outside of the Private Placement)
