XXXXX INDUSTRIES INCORPORATED
PLACEMENT AGENCY AGREEMENT
Dated as of September 26, 2005
GunnAllen Financial Inc.
0000 X. Xxxxxx Xxx
Xxxxx, Xxxxxxx 00000
Re: Private Placement Offering
Ladies and Gentlemen:
Xxxxx Industries Incorporated, a Delaware corporation (the "Company"
or "GI") proposes to offer (the "Offering") for sale in a private offering
pursuant to Section 4(2) and/or Regulation D promulgated under the Securities
Act of 1933, as amended (the "Act"), an aggregate of up to $9,000,000 of units
("Units"), each Unit comprised of (i) ten (10) shares of Series A convertible
preferred stock, par value $.0001 per share ("Preferred Stock") of the Company.
The shares of Preferred Stock and Units are sometimes referred to as the
"Offering Securities". Sales of the Offering Securities shall be made solely to
"Accredited Investors" as defined in Rule 501 promulgated by the Securities and
Exchange Commission ("SEC"). This letter agreement shall confirm our agreement
concerning GunnAllen Financial, Inc. acting as our exclusive placement agent
(the "Placement Agent" or "GAF") in connection with the offer and sale of the
Offering Securities in the Offering.
The Company shall prepare and deliver to the Placement Agent copies
of a confidential offering memorandum ("Offering Memorandum"), relating to,
among other things, the Company, the Offering and the Offering Securities. The
Offering Memorandum, including all exhibits and appendices thereto (including,
without limitation, the Subscription Agreement and Investor Questionnaire,
referred to sometimes as "Subscription Documents" ) and documents delivered
therewith, are referred to herein as the "Disclosure Statement" and shall
include any supplements or amendments required thereto in accordance with this
Agreement.
l. Appointment of Placement Agent.
On the basis of the representations and warranties contained herein, and
subject to the terms and conditions set forth herein, the Company hereby
appoints GunnAllen Financial, Inc. as its exclusive Placement Agent and grants
to you the exclusive right to offer, as its agent, the Units and the Bridge
Offering (as defined in Section 2(h) below) pursuant to the terms of this
Agreement. On the basis of such representations and warranties, and subject to
such conditions, you hereby accept such appointment and agree to use your
reasonable best efforts to secure subscriptions to purchase up to $9,000,000 of
Units in the Offering and the Bridge Offering. The Company understands that, in
soliciting purchasers of Units and the Bridge Offering and in assuming its other
obligations hereunder, the Placement Agent will be acting solely as agent for
the Company, and not as principal, and that the Placement Agent's responsibility
is limited to acting on a "reasonable best efforts" basis under the
circumstances in attempting to arrange the sale of Units, with no understanding,
expressed or implied, of a commitment on the Placement Agent's part to
underwrite or purchase the Units or the Bridge Offering.
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2. Terms of the Offering and Bridge Offering.
(a) The Offering shall consist of up to 90 Units of the Company
comprised of an aggregate of 900 shares of Preferred Stock. The Offering shall
be made on a "best efforts - all or none" basis as to $6,500,000 of Units (the
"Minimum Offering") and on a "best efforts" basis as to an additional $1,500,000
of Units (the "Maximum Offering"). In addition, the Offering may be expanded at
the option of the Placement Agent and the Company by an additional $1,000,000 of
Units. Unless the Minimum Offering is sold, no Units will be sold prior to the
expiration of the Offering Period and all subscriptions will be returned to
subscribers without interest or deduction.
(b) The terms of the Preferred Stock shall be in form and substance
acceptable to the Placement Agent, and shall be substantially in accordance with
the terms and conditions contained in Exhibit A annexed hereto.
(c) The Offering shall commence on the date that the Company
delivers the Disclosure Statement, in form and substance satisfactory to the
Placement Agent and shall expire at 3:00 p.m., New York time, on October 31,
2005 and may be extended for up to one additional 45 day period at the
discretion of the Placement Agent; provided, however, the Minimum Offering must
be subscribed for prior to 3:00 pm on October 31, 2005. Such period, as same may
be so extended, shall hereinafter be referred to as the "Offering Period."
(d) Each prospective investor ("Prospective Investor") who desires
to purchase Units shall deliver to the Placement Agent one copy of the
Subscription Documents and immediately available funds in the amount necessary
to purchase the number of Units such Prospective Investor desires to purchase.
The minimum amount of Units purchased by each Prospective Investor shall equal
$100,000 unless lesser subscriptions are accepted mutually by the Placement
Agent and the Company. The Placement Agent shall not have any obligation to
independently verify the accuracy or completeness of any information contained
in any Disclosure Statement or the authenticity, sufficiency, or validity of any
check delivered by any Prospective Investor in payment for Units.
(e) The Placement Agent and the Company shall establish a
non-interest bearing escrow account (the "Escrow Account") with Signature Bank
of New York (the "Escrow Agent"), at the cost of the Company. The Placement
Agent shall deliver each check (or cause each wire of funds or funds transfers)
received from a Prospective Investor to the Escrow Agent for deposit in the
Escrow Account in accordance with applicable rules of the National Association
of Securities Dealers, Inc. ("NASD") and shall deliver the executed copies of
the Subscription Documents received from such Prospective Investor to the
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Company. The Company shall notify the Placement Agent promptly of the acceptance
or rejection or any subscription. In the event that the Company determines to
reject a subscription, it shall have a valid business or legal purpose in
rejecting such subscription. No funds shall be released from the escrow account
except upon written authorization of both parties.
(f) If subscriptions for the Minimum Offering are not received from
Prospective Investors prior to October 31, 2005 and accepted by the Company and
the Placement Agent, the Offering shall be canceled, all funds received and held
in the Escrow Account shall be refunded in full to te Prospective Investors
without interest or deduction. Assuming that the Minimum Offering is completed
on or before October 31, 2005, then additional subscriptions shall be accepted
into escrow up to the Maximum Offering (and any additional over subscriptions up
to $1,000,000) and additional closings shall be held from time to time.
(g) You may engage other persons selected by you to assist you in
the Offering (each such broker/dealers being hereinafter referred to as a
"Selling Group Member") and you may allow such Selling Group Member such part of
the compensation and payment of expenses payable to you under Section 6 hereof
as you shall determine. Any such Selling Group Member shall be a member firm in
good standing as a broker-dealer under the rules of the NASD. The Company hereby
makes such representations and warranties to, and covenants and agreements with,
any Selling Group Member (including an agreement to indemnify such Selling Group
Member on terms substantially similar to Section 17 hereof) as provided herein
and each Selling Group Member shall make representations, warranties and
covenants to the Company identical to those made by the Placement Agent to the
Company in Section 4 hereof and shall agree to indemnify the Company in the
manner set forth in Section 17 hereof. The Placement Agent shall indemnify and
hold harmless the Company from any and all claims of any selling group member
for fees or other compensation. In addition to the foregoing, the Placement
Agent hereby agrees that, at no additional cost to the Company, Atlas Capital
Services, LLC ("Atlas Capital") (subject to negotiation between GAF and Atlas
Capital of a mutually acceptable selling agent agreement) shall have the right
to participate as a selling agent in the Offering with respect to obtaining
subscriptions for gross proceeds of up to $3,000,000 and, in the event that the
Placement Agent is unable to secure subscriptions for at least $6,500,000 in
gross proceeds (excluding subscriptions secured by Atlas Capital) on or prior to
a date which is 45 days from the date of delivery of the final Disclosure
Statement to GAF, Atlas Capital shall have the right to participate as a selling
agent in the Offering with respect to such further amount equal to the
difference between $6,500,000 and the amount of subscriptions secured by GAF as
of such 45th day.
(h) The Company hereby grants GAF the right to obtain subscribers
for an offering of promissory notes and warrants prior to the commencment of the
Offering ("Bridge Offering") in order to provide the Company with operating
funds pending the initial Closing of the Offering. The principal amount of the
notes shall not exceed $105,000, and the notes shall be repayable in full upon
the earlier of (i) one year from the date of issuance or (ii) within five (5)
days of the initial Closing of the Offering. The notes shall be convertible at
the option of the holder into shares of Common Stock at a conversion price equal
to $0.22. In addition, the investors in the Bridge Offering shall have the
right, at their option, to subscribe in the Offering by utilizing the principal
amount of the notes for the subscription price in the Offering. The warrants to
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be issued to the Bridge Offering investor shall have an exercise price of $0.22
per share, and shall be exercisable for a period of five years from the date of
issue, and shall provide for piggyback registration rights for any registration
statement filed by the Company as contemplated for investors in the Offering.
GAF shall be entitled to receive compensation for the Bridge Offering in an
amount and of the same nature as provided in Section 5 below, which amounts
shall be paid at closing of the Bridge Offering.
3. Interim Closings/Final Closing
(a) Subject to the conditions set forth in Section 8 hereof, if
subscriptions for the Minimum Offering have been received in escrow prior to the
expiration of the Offering Period and accepted by the Company, a closing under
this Agreement (the "Initial Closing") shall be held at the offices of counsel
to the Placement Agent, or such other place as the parties may agree, as soon as
practicable following the date upon which the Placement Agent and the Company
confirm in writing to each other that subscriptions for the Minimum Offering
have been accepted or at such other place, time, or date as the Company and you
shall agree upon. The date upon which the Initial Closing is held shall
hereinafter be referred to as the "Initial Closing Date."
(b) At any time prior to the expiration of the Offering Period
following the Initial Closing and after receipt in escrow and acceptance by the
Company of subscriptions for the sale of additional Units in increments of at
least $500,000 ("Interim Closing Amount") or such other amounts as may be agreed
upon from time to time up to the Maximum Offering, one or more closings (each an
"Interim Closing") shall take place in the manner herein set forth with respect
to the Initial Closing. In the event that the Offering Period expires prior to
receipt in escrow and acceptance by the Company of an Interim Closing Amount, a
final closing shall be held at such time regardless of the amount then held in
escrow. The final Interim Closing to be held in accordance herewith shall be
deemed the "Final Closing" and the date thereof shall be the "Final Closing
Date". References herein to a "Closing" shall mean the Initial Closing, any
Interim Closing or the Final Closing, as the context requires, and the date
thereof shall be referred to as a "Closing Date."
4. Representation, Warranties and Covenants of the Placement Agent
The Placement Agent represent, warrants and covenants to the Company
as follows:
(a) The Placement Agent is duly formed and validly existing and in
good standing under the laws of its State of formation.
(b) The Placement Agent is, and at the time of each Closing will be,
a member in good standing of the NASD.
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(c) Sales of Units by the Placement Agent will only be made in such
jurisdictions in which the Placement Agent or a Selling Group Member is a
registered broker-dealer or where an applicable exemption from such registration
exists.
(d) Offers and sales of Units by the Placement Agent will be made
only in accordance with this Placement Agreement and in compliance with the
provisions of Regulation D an/or Section 4(2) of the Securities Act (it being
understood and agreed that the Placement Agent shall be entitled to rely upon
the information and statements provided by the Prospective Investor in the
Subscription Documents), and the Placement Agent will furnish to each
Prospective Investor a copy of the Disclosure Statement prior to accepting any
subscription for the Units.
5. Compensation
(a) If subscriptions for the Minimum Offering are received in escrow
prior to the expiration of the Offering Period and accepted by the Company, you
shall be entitled, on each Closing Date, as compensation for your services as
Placement Agent under this Agreement, to selling commissions equal to 6 % and a
management fee of 4% of the gross proceeds received by the Company from the sale
of the Units effected at each Closing. In addition, the Placement Agent will
receive a non-accountable expense allowance equal to 2% of the gross proceeds of
the Offering. Such amounts may be deducted by GAF out of the funds received from
the sale of the Units and deposited in the Escrow Account, on each Closing Date.
(b) In addition to the cash compensation payable pursuant to clause
(a) above, the Placement Agent shall be entitled to receive common stock
purchase warrants to purchase an aggregate of 10% ("Agent Warrants") of the
shares underlying the Preferred Stock sold in the Offering. The exercise price
shall be equal to $0.22 per share. The Agent Warrants shall include provisions
for "cashless exercise", be exercisable for term five years from the final
closing date of the Offering and contain registration rights similar to those
granted to investors in the Offering. The Agent Warrants shall otherwise be in
form and substance acceptable to the Placement Agent.
6. Representations and Warranties of the Company
(a) The Company represents and warrants to, and agrees with, the
Placement Agent that:
(i) Assuming the accuracy of the representations and
warranties of the Prospective Investors set forth in the Subscription Documents
and the representations and warranties of the Placement Agent set forth herein,
the Disclosure Statement (a) contains, and at all times during the period from
the date hereof to and including each Closing Date, will contain all information
required to be contained therein, if any, pursuant to Regulation D and all
applicable federal and/or state securities and "blue sky" laws, and (b) does
not, and during such period 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 made
therein not misleading. Each contract, agreement, instrument, lease, license, or
other document required to be described in the Disclosure Statement shall be,
and have been, accurately described therein.
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(ii) No information provided by the Company to Prospective
Investors in addition to the Disclosure Statement shall 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
circumstances made therein not misleading.
(iii) All offers and sales by the Company of any of its
Securities prior to the date hereof have been in compliance with all federal and
state securities laws.
(iv) The Company is, and at all times during the period from
the date hereof to and including each Closing Date will be, a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, with full corporate power and authority, and has obtained all
necessary consents, authorizations, approvals, orders, licenses, certificates,
and permits and declarations of and from, and has made filings with, all
foreign, federal, state and local authorities, to own, lease, license, and use
its properties and assets and to conduct its business as presently conducted as
described in the Disclosure Statement and/or in any such case where the failure
to have any of the foregoing would not have a material adverse effect on the
Company's presently conducted business. As of the date hereof, the Company is,
and at all times during the period from the date hereof to and including each
Closing Date, duly qualified to do business and is in good standing in every
jurisdiction in which its ownership, leasing, licensing, or use of property and
assets or the conduct of its business makes such qualification necessary except
where the failure to be so qualified would not have a material adverse effect on
the Company's business.
(v) The Company shall have at each Closing an authorized
capitalization consisting of (A) 100,000,000 shares of Common Stock, $.0001 par
value and (ii) 1,000,000 shares of preferred stock, par value $.0001 per share,
1,000 of which have been designated as Series A, and none of which are issued
and outstanding as of the date hereof). Each issued and outstanding share of
Common Stock and preferred stock is duly authorized, validly issued, fully paid,
and non-assessable, without any personal liability attaching to the ownership
thereof solely by being such a holder, and has not been issued and is not owned
or held in violation of any preemptive rights of stockholders. Other than as
described in the Disclosure Statement, there is no commitment, plan, or
arrangement to issue, and no outstanding option, warrant, or other right calling
for the issuance of, any share of capital stock of the Company or any security
or other instrument which by its terms is convertible into, exercisable for, or
exchangeable for capital stock of the Company. There is outstanding no security
or other instrument which by its terms is convertible into or exchangeable for
any class of capital stock of the Company, except as may be properly described
in the Disclosure Statement.
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(vi) As of the date hereof there is no, and as of each Closing
Date shall not be any, litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending or to the Company's
knowledge threatened, with respect to the Company, or its respective operations,
businesses, properties, or assets, except as properly described in the
Disclosure Statement or such as individually or in the aggregate do not now have
and will not in the future have a material adverse effect upon the operations,
business, properties, or assets of the Company. The Company is not, nor as of
each Closing Date shall be, in violation of, or in default with respect to, any
law, rule, regulation, order, judgment, or decree, except as properly described
in the Disclosure Statement or such as individually or in the aggregate do not
have and will not in the future have a material adverse effect upon the
operations, business, properties, or assets of the Company; nor is the Company
required to take any action in order to avoid any such violation or default.
(vii) As of the date hereof, the Company has, and at all times
during the period from the date hereof to and including the Final Closing Date,
shall have, good and marketable title in fee simple absolute to all real
properties and good title to all other properties and assets which the
Disclosure Statement indicate are owned by it, free and clear of all liens other
than liens for taxes not yet due and payable, charges, pledges, mortgages,
security interests, and encumbrances, except as may be properly described in the
Disclosure Statement or such as in the aggregate do not now have and will not in
the future have a material adverse effect (individually or in aggregate) upon
the financial condition, results of operations, business, properties, or assets
of the Company.
(viii) As of the date hereof, the Company is not, and at all
times during the period from the date hereof to and including the Final Closing
Date, shall not be, in violation or breach of, or in default with respect to
complying with any material provision of any material contract, agreement,
instrument, lease, license, arrangement, other than any such violation or breach
which would not have, individually or in the aggregate, a material adverse
effect on the Company's business, and each such contract, agreement, instrument,
lease, license, arrangement, and understanding is in full force and effect and
is the legal, valid, and binding obligation of the parties thereto enforceable
as to them in accordance with its terms. The Company enjoys peaceful and
undisturbed possession under all leases and licenses under which it is operating
as of the date hereof. Except as disclosed in the Disclosure Statement or as
contemplated under Section 7(i) hereof, as of the date hereof, the Company is
not a party to or bound by any contract, agreement, instrument, lease, license,
arrangement, or understanding, or subject to any charter or other restriction,
which has had or may in the future have a material adverse effect on the
financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company. The Company is not in violation
or breach of, or in default with respect to, any term of its Certificate of
Incorporation or By-Laws.
(ix) There is no right under any patent, patent application,
trademark, trademark application, trade name, service xxxx, copyright,
franchise, or other intangible property or asset (all of the foregoing being
herein called "Intangibles") necessary to the business of the Company as
presently conducted, except as disclosed in the Disclosure Statement. To the
knowledge of the Company, there is no Intangible of others which has had or may
in the future have a materially adverse effect on the financial condition,
results of operations, business, properties, assets, liabilities, or future
prospects of the Company.
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(x) To its best knowledge, the Company has not infringed, is
infringing, or has received notice of infringement with respect to asserted
Intangibles of others. To the best knowledge of the Company, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
the Company, materially infringe upon any like right of any other person or
entity. The Company (i) owns or has the right to use, free and clear of all
liens, charges, claims, encumbrances, pledges, security interests, defects or
other restrictions of any kind whatsoever, sufficient patents, trademarks,
service marks, trade names, copyrights, licenses and right with respect to the
foregoing, to conduct its business as presently conducted except as set forth in
the Disclosure Statement, and (ii) except as set forth in the Disclosure
Statement, is not obligated or under any liability whatsoever to make any
payments by way of royalties, fees or otherwise to any owner or licensee of, or
other claimant to, any patent, trademark, service xxxx, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business as now conducted or otherwise.
The Company has direct ownership of title to all its intellectual property
(including all United States and foreign patent applications and patents), other
proprietary rights, confidential information and know-how; owns all the rights
to its Intangibles as are currently used in or have potential for use in its
business.
(xi) The Company has all requisite corporate power and
authority to execute, deliver, and perform this Agreement and to consummate the
transactions contemplated hereby. All necessary corporate proceedings of the
Company have been duly taken to authorize the execution, delivery, and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement has been duly authorized,
executed, and delivered by the Company, is a legal, valid, and binding
obligation of the Company, and is enforceable as to the Company in accordance
with its terms. Assuming the accuracy of the representations and warranties of
the Prospective Investors set forth in the Offering Memorandums and Subscription
Documents and the representations and warranties of the Placement Agent set
forth herein, no consent, authorization, approval, order, license, certificate,
or permit of or from, or registration, qualification, declaration, or filing
with, any federal, state, local, foreign, or other governmental authority or any
court or other tribunal is required by the Company for the execution, delivery,
or performance by the Company of this Agreement, the consummation of the
transactions contemplated hereby and thereby, and such consents, authorizations,
approvals, registrations, and qualifications as may be required under all
applicable federal and/or securities or "blue sky" laws in connection with the
issuance, sale, and delivery of the Units pursuant to this Agreement.
(xii) No consent of any party to any material contract,
agreement, instrument, lease, license, arrangement, or understanding to which
the Company is a party, or to which any of its properties or assets are subject,
is required for the execution, delivery, or performance of this Agreement, and
the consummation of the transactions contemplated hereby and thereby, and such
execution, delivery and performance will not violate, result in a breach of,
conflict with, or (with or without the giving of notice or the passage of time
or both) entitle any party to terminate or call a default under any such
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contract, agreement, instrument, lease, license, arrangement, or understanding,
violate or result in a breach of any term of the certificate of incorporation or
by-laws of the Company, or assuming the accuracy of the representations and
warranties of the Prospective Investors set forth in the Disclosure Statement
and the representations and warranties of the Placement Agent set forth herein,
violate, result in a breach of, or conflict with any law, rule, regulation,
order, judgment, or decree binding on the Company or to which any of its
operations, businesses, properties, or assets are subject.
(xiii) The Offering Securities shall conform to all statements
relating thereto as contained in the Disclosure Statement. The Securities, when
issued and delivered to the Prospective Investor pursuant to the terms of this
Agreement, shall be duly authorized, validly issued, fully paid and
nonassessable, without any personal liability attaching to the ownership thereof
solely by being such holder and shall not have been issued in violation of any
preemptive rights of stockholders.
(xiv) Except and to the extent described in or referred to in
the Disclosure Statement (i) no holders of any securities of the Company or of
any options, warrants or other convertible or exchangeable securities of the
Company have the right to include any securities issued by the Company on any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Securities Act of 1933, as amended, and
(ii) no person or entity holds any anti-dilution or pre-emptive rights with
respect to any securities of the Company.
(xv) During the period commencing on the date hereof and
ending on the Final Closing Date, the Company shall not, without prior notice to
and consent of the Placement Agent: (A) issue any securities or incur any
liability or obligation, primary or contingent, for borrowed money; (B) except
as described under Section 7(i) hereof, enter into any transaction not in the
ordinary course of business; or (C) declare or pay any dividend on its capital
stock.
(xvi) Neither the Company nor any of its officers, directors,
or affiliates, has engaged or will engage, directly or indirectly, in any act or
activity that may jeopardize the status of the offering and sale of the Units as
an exempt transaction under the Act or under all applicable federal and/or state
securities or "blue sky" laws of any jurisdiction in which the Units may be
offered or sold.
(xvii) All contracts, agreements, licenses and leases
described in the Disclosure Statement have been accurately described and all
material terms are contained in such description.
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(xviii) 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.
(xix) Subsequent to the dates as of which information is given in
the Offering Memorandum through the Closing Date, and except as may otherwise be
properly described in the Offering Documents, (A) the Company has not, except in
the ordinary course of business, incurred any liability or obligation, primary
or contingent, for borrowed money, (B) there has not been any material change in
the capital stock short-term debt or long-term debt of the Company, (C) the
Company has not purchased any of its outstanding capital stock nor declared or
paid any dividend or distribution of any kind on its capital stock, (D) the
Company has not sustained any material loss or interference with its businesses
or properties from fire, floor, hurricane, accident or other calamity, whether
or not covered by insurance, or from any labor dispute or any legal or
governmental proceeding, and (E) there has not been any material adverse change
or any development which the Company reasonably believes could result in a
prospective material adverse change, in the financial condition results of
operations, business, properties, assets, liabilities or future prospects of the
Company.
(xx) To the knowledge of the Company after reasonable investigation,
during the past five years, none of the current officers or directors of the
Company have been:
(a) The subject of a petition under the federal bankruptcy
laws or any state insolvency law filed by or against them, or by a receiver,
fiscal agent or similar officer appointed by a court for their business or
property, or any partnership in which any or them was a general partner at or
within two years before the time of such filing, or any corporation or business
association of which any of them was an executive officer at or within two years
before the time of such filing;
(b) Convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(c) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining any of them from, or
otherwise limiting, any of the following activities:
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the foregoing, or
as an investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with any such activity;
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(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of federal or state securities law or federal commodity laws.
(d) the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or state authority
barring, suspending or otherwise limiting for more than sixty (60) days their
right to engage in any activity described in paragraph (c)(i) above, or be
associated with persons engaged in any such activity;
(e) found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have violated any federal
or state securities law, and the judgment in such civil action or finding by the
Commission has not been subsequently reversed, suspended or vacated; or
(f) found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated any
federal commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
(g) found by a court or an administrative agency to have or is
alleged to have violated any foreign securities laws.
(xxi) Except as disclosed in the Disclosure Documents, there are no
claims, payments, issuances, arrangements or understandings, whether oral or
written, for services in the nature of a consultant's, finder's or origination
fee with respect to the sale of the Securities other than to GAF or a selling
agent retained by GAF.
(xxii) All prior offerings of the Company's securities complied in
all respects with the Securities Act and the rules and regulations promulgated
thereunder and all applicable Blue Sky laws. To its knowledge, no person owning
securities of the Company is entitled to a right to require rescission of the
securities held by such person. The Company has not, directly or indirectly,
solicited any offer to buy or offered to sell any Securities or any other
securities of the Company during the twelve-month period ending on the date
hereof which offer to buy or offer to sell would be integrated with the Offering
contemplated hereunder.
7. Covenants of the Company
The Company covenants that it will:
11
(a) Notify you immediately, and confirm such notice in writing, (i)
when any event shall have occurred during the period commencing on the date
hereof and ending on the Final Closing Date, as a result of which the Disclosure
Statement would include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (ii) of the receipt of any notification with respect to the
modification, rescission, withdrawal, or suspension of the qualification or
registration of the Units, or of an exemption from such registration or
qualification, in any jurisdiction. The Company will use its best efforts to
prevent the issuance of any such modification, rescission, withdrawal, or
suspension and if you so request, to obtain the lifting thereof as promptly as
possible.
(b) Not make any supplement or amendment to the Disclosure Statement
unless such supplement or amendment complies with the requirements of the Act
and Regulation D and the applicable federal and/or state securities and "blue
sky" laws and unless you shall have approved of such supplement or amendment in
writing. If, at any time during the period commencing on the date hereof and
ending on the Final Closing Date, any event shall have occurred as a result of
which the Disclosure Statement contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, or if, in the opinion of counsel
to the Company or counsel to the Placement Agent, it is necessary at any time to
supplement or amend the Disclosure Statement to comply with the Act, Regulation
D, or any applicable securities or "blue sky" laws, the Company will promptly
prepare an appropriate supplement or amendment (in form and substance
satisfactory to you) which will correct such statement or omission or which will
effect such compliance.
(c) Deliver without charge to the Placement Agent such number of
copies of the Disclosure Statement and any supplement or amendment thereto as
may reasonably be requested by the Placement Agent.
(d) Cooperate with counsel to the Placement agent to qualify the
offer and sale of the Securities for an exemption from registration under the
securities or "blue sky" laws of such jurisdictions as GAF may reasonably
request; provided, however, that the Company will not be obligated to qualify to
do business as a dealer in securities in any jurisdiction in which it is not so
qualified. The Company will not consummate any sale of its securities in any
jurisdiction or in any manner in which such sale may not be lawfully made; in
this regard the Company shall be entitled to rely on the representations of
Prospective Investors in the Subscription Documents.
(e) At all times during the period commencing on the date hereof and
ending on the Final Closing Date, provide to each Prospective Investor or his
Purchaser Representative (as defined in Regulation 501), if any, on request,
such information (in addition to that contained in the Disclosure Statement)
concerning the Offering, the Company and any other relevant matters, as it
possesses or can acquire without unreasonable effort or expense, and to extend
to each Prospective Investor or his Purchaser Representative, if any, the
opportunity to ask questions of, and receive answers from executives of the
Company concerning the terms and conditions of the Offering and the business of
12
the Company and to obtain any other additional information, to the extent it
possesses the same or can acquire it without reasonable effort or expense, as
such Prospective Investor or Purchaser Representative may consider necessary in
making an informed investment decision or in order to verify the accuracy of the
information furnished to such Prospective Investor or Purchaser Representative,
as the case may be.
(f) Disclose to each Prospective Investor, in writing, any material
relationship between such Prospective Investor's Purchaser Representative, if
any, or its affiliates, on the one hand, and the Company or its affiliates, on
the other hand, which, to the knowledge of the Company, then exists or is
understood to be contemplated or has existed at any time during the previous two
years and any compensation received or to be received as a result of such
relationship.
(g) Apply the net proceeds from the sale of the Units as set forth
in the Disclosure Statement.
(h) Not, during the period commencing on the date hereof and ending
on the Final Closing Date, issue any press release or other communication, or
hold any press conference with respect to the Company, its financial condition,
results of operations, business, properties, assets, or liabilities, or the
Offering, without the Placement Agent's prior written consent, except as
required by applicable securities laws.
(i) During the period commencing on the date hereof and ending on
the Initial Closing Date, provide the Placement Agent and the Prospective
Investors with all material information and/or changes ("Updated Information")
regarding the terms of (i) the acquisition ("AIM Acquisition") of Air Industries
Machining Corp. ("AIM") as set forth in Stock Purchase Agreement dated as of
July 25, 2005 among the Company, AIM and the other parties thereto (ii) the
execution and delivery of an agreement providing for the merger ("Shell Merger")
of the Company with a reporting company under the Securities and Exchange Act of
1934, as amended and the subsequent consummation of the Shell Merger as
contemplated under Section 9(f) hereof, and (iii) any credit facility obtained
by the Company to provided financing for the AIM Acquisition and related
transactions. Prior to the Initial Closing, the Company shall provide each
Prospective Investor with a supplement to the Disclosure Statement setting forth
in reasonable detail, satisfactory to the Placement Agent and its counsel, the
Updated Information.
8. Payment of Expenses
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The Company hereby agrees to pay all fees, charges, and expenses
incident to the performance by the Company of its obligations hereunder,
including, without limitation, all fees, charges, and expenses in connection
with: (i) the preparation, printing, filing, distribution, and mailing of the
Disclosure Statement and all other documents relating to the Offering, and any
supplements or amendments thereto, including the cost of all copies thereof;
(ii) the issuance, sale, transfer, and delivery of the Securities, including any
transfer or other taxes payable thereon and the fees of any transfer agent or
registrar; (iii) the registration or qualification of the or the securing of an
exemption therefrom under state or foreign "blue sky" or securities laws,
including without limitation, filing fees payable in the jurisdictions in which
such registration or qualification or exemption therefrom is sought and
disbursements in connection therewith; (iv) filing fees payable to the SEC, if
any; (v) the retention of the Escrow Agent, including the fees and expenses of
the Escrow Agent for serving as such and the fees and expenses of its counsel,
if any; (vi) the costs and expenses of an independent party to complete a
credit, criminal and other background due diligence search on the Company's
executive officers, which costs and expenses shall not exceed the sum of
approximately $1,500, in the event that the Placement Agent determines such
search is necessary and (vi) fees of Placement Agent's counsel in the amount of
$45,000, of which $5,000 has previously been paid and the remainder shall be
paid at the initial closing.
9. Conditions of Placement Agent's Obligations.
The obligations of the Placement Agent pursuant to this Agreement
shall be subject, in its discretion, to the continuing accuracy of the
representations and warranties of the Company contained herein and in each
certificate and document contemplated under this Agreement to be delivered to
the Placement Agent, as of the date hereof and as of each Closing Date, with
respect to the performance by the Company of its obligations hereunder, and to
the following conditions:
(a) At each Closing, the Placement Agent shall have received the
favorable opinion of Xxxxx & Xxx Xxxxxx LLP, counsel for the Company, dated each
Closing Date, addressed to the Placement Agent, and in form and scope
satisfactory to counsel for the Placement Agent, to the effect that:
(i) the Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, with
full corporate power and authority to own, lease, license, and use its
properties and assets and to conduct its business in the manner described in the
Disclosure Statement and is duly qualified to do business and is in good
standing as a foreign corporation in all jurisdictions where registered,
licensing or use of property and assets or the conduct of its business makes
such qualification necessary (except where the failure to so qualify would not
have a material adverse effect upon the Company or its business);
(ii) the Company has, as of the date hereof, an authorized,
and, to such counsel's knowledge, outstanding capitalization as set forth in the
Disclosure Statement. No owner of securities of the Company is entitled as a
result of the Offering, to pre-emptive rights to acquire securities of the
Company under either the general corporation laws of the State of Delaware or
14
the Certificate of Incorporation of the Company. To the best knowledge of such
counsel, there is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance of, any
share of capital stock of the Company or any security or other instrument which
by its terms is convertible into, exercisable for, or exchangeable for capital
stock of the Company, except as may be properly described in the Disclosure
Statement or in this Agreement. To the best knowledge of such counsel, there is
outstanding no security or other instrument which by its terms is convertible
into or exchangeable for capital stock of the Company, except as may be properly
described in the Disclosure Statement;
(iii) to the best knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending or threatened with respect to the Company or
any of its operations, businesses, properties, or assets except as may be
properly described in the Disclosure Statement, in this Agreement or such as
individually or in the aggregate do not now have and will not in the future have
a material adverse effect upon the operations, business, properties, or assets
of the Company or which could materially adversely affect the transactions or
other acts contemplated by this Agreement or the validity or enforceability of
this Agreement;
(iv) counsel has not received written notice, nor oral
communications, that the Company is in violation or breach of, or in default
with respect to, complying with any provision of any contract, agreement,
instrument, lease, license, arrangement, or understanding known to such counsel
and which is material to the business of the Company;
(v) the Company has all requisite corporate power and
authority to execute, deliver, and perform this Agreement, and to consummate the
transactions contemplated hereby. All necessary corporate proceedings of the
Company have been taken to authorize the execution, delivery, and performance by
the Company of this Agreement, and the consummation of the transactions
contemplated hereby. This Agreement has been duly authorized, executed, and
delivered by the Company, is the legal, valid, and binding obligation of the
Company, and is enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application now
or hereafter in effect relating to or affecting the enforcement of creditors'
right generally and the application of general equitable principles in any
action, legal or equitable and then except, as to those provisions relating to
indemnity or contribution, such opinion shall be limited as effected by any
Federal or state securities laws regarding indemnity and/or contribution;
(vi) the Preferred Stock conform to all statements relating
thereto contained in the Disclosure Statement. The Preferred Stock shall be
validly authorized, validly issued, fully paid, and nonassessable, with no
personal liability attaching to the ownership thereof and to such counsel's
knowledge shall not have been issued in violation of any preemptive rights of
stockholders;
15
(vii) assuming the accuracy of the representations and
warranties of the Proposed Investors set forth in the Subscription Agreement and
Investor Questionnaires and the representations and warranties of the Placement
Agent set forth herein, the Disclosure Statement (except that no opinion need be
expressed as to the financial statements, related schedules, or other financial
data contained therein) comply as to form (specifically excluding content and
substance) in all material respects with requirements of the Act and the
regulations thereunder;
(viii) counsel has not received any written notice, or oral
communication, of any modification, rescission, suspension, or withdrawal of
registration or qualification of the Units, or of an exemption from such
registration or qualification, has been issued and no proceedings for that
purpose have been instituted or threatened;
(ix) assuming that (i) the offer and the sale of the Units by
the Placement Agent was made in compliance with Regulation D and that the
Placement Agent's representations and warranties set forth herein are true and
correct, and (ii) that the representations of the Prospective Investors in the
Subscription Agreement and Investor Questionnaires signed by them are true and
correct (which facts will not be independently verified by such counsel), the
sale of Offering Securities in the Offering is exempt from registration under
the Securities Act of 1933 and is in compliance with Regulation D and/or Section
4(2) of the Securities Act of 1933;
(x) neither the execution and delivery of this Agreement, the
issuance of the Securities, nor compliance with the terms hereof or thereof will
(i) conflict with, result in a breach of, or constitute a default under the
Articles or Certificate of Incorporation or By-Laws of the Company, or, to the
best of such counsel's knowledge, any material contract, instrument, agreement
or document to which the Company is a party, or by which the assets or
properties of the Company are bound; or (ii) to the best knowledge of such
counsel, have any material adverse effect on any permit, certification,
registration, approval, consent, license or franchise necessary for the Company
to own or lease and operate any of its properties and to conduct its business or
the ability of the Company to make use thereof as described in the Disclosure
Statement.
In rendering such opinion, counsel for the Company may rely (A) as to matters of
fact, to the extent they deem proper, on certificates of responsible officers of
the Company; and (B) to the extent they deem proper, upon written statements or
certificates of officers of departments of various jurisdictions having custody
of documents respecting the corporate existence or good standing of the Company,
provided that copies of any such statements or certificates shall be delivered
to counsel for the Placement Agent.
(b) On or prior to the Initial Closing Date the Placement Agent
shall have been furnished such information, documents, certificates, and
opinions as it may reasonably require for the purpose of enabling it to review
the matters referred to in Section 7, and in order to evidence the accuracy,
completeness, or satisfaction of any of the representations, warranties,
covenants, agreements, or conditions herein contained, or as it may otherwise
reasonably request.
16
(c) At each Closing, the Placement Agent shall have received (i) a
certificate of the chief executive officer and of the chief financial officer of
the Company, dated the applicable Closing Date to the effect that, as of the
date of this Agreement and as of the applicable Closing Date the representations
and warranties of the Company contained herein were and are accurate, and that
as of the Closing Date the obligations to be performed by the Company hereunder
on or prior thereto have been fully performed; (ii) such other certificates or
documents as are usual and customary for Offerings; and (iii) a certificate
stating that the conditions for closing of the AIM Acquisition and Shell Merger
have been completed other than payment of the purchase price with respect to
each trasnaction.
(d) All proceedings taken in connection with the issuance, sale, and
delivery of the Preferred Stock shall be satisfactory in form and substance to
GAF and its counsel.
(e) There shall not have occurred after the date hereof, at any time
prior to each Closing: (A) any domestic or international event, act, or
occurrence which has materially disrupted, or in your opinion will in the
immediate future materially disrupt the securities markets; (B) a general
suspension of, or a general limitation on prices for, trading in securities on
the Nasdaq Stock Market or the over-the-counter market; (C) any banking
moratorium declared by a state or federal authority; (D) any material
interruption in the mail service or other means of communication within the
United States; (E) any material adverse change in the business, properties,
assets, results of operations, or financial condition of the Company; or (F) any
change in the market for securities in general or in political, financial, or
economic conditions which, in your judgment, makes it inadvisable to proceed
with the offering, sale, and delivery of the Units.
Any certificate or other document signed by any officer of the Company and
delivered to you or to your counsel at a Closing shall be deemed a
representation and warranty by the Company hereunder as to the statements made
therein. If any condition to your obligations hereunder has not been fulfilled
as and when required to be so fulfilled, you may terminate this Agreement or, if
you so elect, in writing waive any such conditions which have not been fulfilled
or extend the time for their fulfillment. In the event that you elect to
terminate this Agreement, you shall notify the Company of such election in
writing. Upon such termination, neither party shall have any further liability
or obligation to the other except as provided in Section 11 hereof.
(f) Prior to or concurrent with the Initial Closing Date, the
Company shall (i) consummate the AIM Acquisition of AIR Industries Machining
Corp., a New York corporation, upon terms acceptable to the Placement Agent and
the Prospective Investors; (ii) obtain a credit facility providing for loans in
the amount of not less than $8,000,000 and (iii) consummate the Shell Merger
upon terms acceptable to the Placement Agent and the Prospective Investors.
17
(g) Prior to or concurrent with the Initial Closing Date, the
Company shall have obtained the written agreement from all of the holders of
bridge notes (as described in the Offering Documents) (other than Atlas)
amending their notes to provide for repayment by the Company within five days of
the Initial Closing, subject to the right of the holder to convert such notes
into Common Stock of the Company at $0.22 per share.
10. Termination
The agency created hereby shall remain in effect until (i) the
completion of the Offering, or (ii) the earlier termination as herein provided.
If no Units are sold pursuant to the Offering prior to a date which is 60 days
following delivery of the Disclosure Statement, either party may terminate the
agency created hereby for any reason upon written notice to the Company. In
either case, neither party shall have any liability or continuing obligation to
the other except that, regardless of which party elects to terminate, (i) the
Company agrees to reimburse GAF for, or otherwise pay and bear, the expenses and
fees to be paid and borne by the Company as provided for in paragraph 5 above
and to reimburse GAF for the full amount of its actual out-of-pocket expenses
(which shall include, without limitation, the reasonable fees and disbursements
of GAF's counsel, travel and lodging expenses, mailing, printing and
reproduction expenses, and any expenses reasonably incurred by GAF in conducting
its due diligence) less amounts previously paid to GAF in reimbursement for such
expenses and the advance against the non-accountable expense allowance delivered
upon the execution of this Agreement, and (ii) the indemnification provisions in
paragraph 12 shall remain in full force and effect.
11. Solicitation Prohibition.
The Company agrees that, for a period of two years from the date
hereof, it shall not solicit any offer to buy from or offer to sell to any
person introduced to the Company by GAF in connection with the Offering,
directly or indirectly, any securities of the Company or of any other entity, or
provide the name of any such person to any other securities broker or dealer or
selling agent. In the event that the Company or any of its affiliates, directly
or indirectly, solicits, offers to buy from or offers to sell to any such person
any such securities, or provides the name of any such person to any other
securities broker or dealer or selling agent, and such person purchases such
securities or purchases securities from any other securities broker or dealer or
selling agent, the Company shall pay to GAF an amount in cash equal to 10% of
the aggregate purchase price of the securities so purchased by such person,
excluding the exercise of warrants issued as a result of the Offering.
12. Indemnification and Contribution
18
(a) The Company agrees to indemnify and hold harmless the Placement
Agent, its officers, directors, partners, employees, agents, and counsel, and
each person, if any, who controls the Placement Agent within the meaning of
Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), against any and all loss, liability, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 12, but not be limited to, attorneys' fees and any and all expense
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation) as and when incurred
arising out of, based upon, or in connection with (i) any untrue statement or
alleged untrue statement of a material fact contained in the Disclosure
Statement or in any document delivered or written statement made pursuant to
Section 7(g), or (B) in any application or other document or communication (it
being understood that neither the Company nor any officer, director or employee
shall provide any infomation to any Prospective Investor which is not contained
in the Disclosure Statement) (in this Section 12 collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to register or qualify the Units under the "blue sky" or securities
laws thereof or in order to secure an exemption from such registration or
qualification or filed with the Commission; or any omission or alleged omission
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company as stated in Section 12(b) with respect to the Placement Agent expressly
for inclusion in the Disclosure Statement or in any application, as the case may
be; or (ii) any breach of any representation, warranty, covenant, or agreement
of the Company contained in this Agreement. The foregoing agreement to indemnify
shall be in addition to any liability the Company may otherwise have, including
liabilities arising under this Agreement.
If any action is brought against the Placement Agent or any of its
officers, directors, partners, employees, agent, or counsel, or any controlling
persons of the Placement Agent (an "indemnified party"), in respect of which
indemnify may be sought against the Company pursuant to the foregoing paragraph,
such indemnified party or parties shall promptly notify the Company (the
"Indemnifying party") in writing of the institution of such action (but the
failure so to notify shall not relieve the indemnifying party from any liability
it may have other than pursuant to this Section 12(a)) and the indemnifying
party shall promptly assume the defense of such action, including the employment
of counsel (reasonably satisfactory to such indemnified party or parties) and
payment of expenses. Such indemnified party shall have the right to employ its
own counsel in any such case, but the fees and expense of such counsel shall be
at the expense of such indemnified party unless the employment of such counsel
shall have been authorized in writing by the indemnifying party in connection
with the defense of such action or the indemnifying party shall not have
promptly employed counsel satisfactory to such indemnified party or parties to
have charge of the defense of such action or such indemnified party or parties
shall have reasonably concluded that there may be one or more legal defenses
available to it or them or to other indemnified parties which are different from
or additional to those available to one or more of the indemnifying parties, in
any of which events such fees and expenses of one such counsel shall be borne by
the indemnifying party and the indemnifying party shall not have the right to
direct the defense of such action on behalf of the indemnified party or parties.
Anything in this paragraph to the contrary notwithstanding, the indemnifying
party shall not be liable for any settlement of any such claim or action
effected without its written consent. The Company agrees promptly to notify the
Placement Agent of the commencement of any litigation or proceedings against the
Company or any of its officers or directors in connection with the sale of the
Units, the Disclosure Statement, or any application.
19
(b) The Placement Agent agrees to indemnify and hold harmless the
Company, its officers, directors, employees, agents, and counsel, and each other
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing
indemnity from the Company to the Placement Agent in Section 15(a), with respect
to any and all loss, liability, claim, damage, and expense whatsoever (which
shall include, for all purposes of this Section 12, but not be limited to,
attorneys' fees and any and all expense whatsoever incurred in investigating,
preparing, or defending against any litigation, commenced or threatened, or any
claim whatsoever and any and all amounts paid in settlement of any claim or
litigation) as and when incurred arising out of, based upon, or in connection
with (i) statements or omissions, if any, made in the Disclosure Statement in
reliance upon and in conformity with written infomation furnished to the Company
as stated in this Section 12(b) with respect to the Placement Agent expressly
for inclusion in the Disclosure Statement, and (ii) the failure of the Placement
Agent to comply with the provisions of Section 2(c) hereof or with the "blue
sky" or securities laws of the jurisdictions in which the Placement Agent
solicits offers to buy or offers to sell any Units or any breach of any
representation, warranty, covenant or agreement of the Placement Agent contained
in this Agreement. If any action shall be brought against the Company or any
other person so indemnified based on the Disclosure Statement and in respect of
which indemnity may be sought against the Placement Agent pursuant to this
Section 12(b), the Placement Agent shall have the rights and duties given to the
indemnifying party, and the Company and each other person so indemnified shall
have the rights and duties given to the indemnified parties, by the provisions
of Section 12(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 12(a) or
12(b) but it is found in a final judicial determination, not subject to further
appeal, that such indemnification may not be enforced in such case, even though
this Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including for this purpose any contribution
made by or on behalf of any officer, director, employee, agent, or counsel of
the Company, or any controlling person of the Company), on the one hand, and the
Placement Agent (including for this purpose any contribution by or on behalf of
an indemnified party), on the other hand, shall contribute to the losses,
liabilities, claims, damages, and expenses whatsoever to which any of them may
be subject, in such proportions as are appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Placement Agent, on
the other hand; provided, however, that if applicable law does not permit such
allocation, then other relevant equitable considerations such as the relative
fault of the Company and the Placement Agent in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall also
be considered. The relative benefits received by the Company, on the one hand,
and the Placement Agent, on the other hand, shall be deemed to be in the same
proportion as (x) the total proceeds from the Offering (net of compensation
payable to the Placement Agent pursuant to Section 5(a) hereof but before
deducting expenses) received by the Company, and (y) the compensation received
by the Placement Agent pursuant to Section 5(a) hereof.
20
The relative fault, in the case of an untrue statement, alleged
untrue statement, omission, or alleged omission, shall be determined by, among
other things, whether such statement, alleged statement, omission, or alleged
omission relates to information supplied by the Company or by the Placement
Agent, and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement, alleged statement, omission,
or alleged omission. The Company and the Placement Agent agree that it would be
unjust and inequitable if the respective obligations of the Company and the
Placement Agent for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages, and expenses
or by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 12(c). In no case shall the Placement
Agent by responsible for a portion of the contribution obligation in excess of
the compensation received by it pursuant to Section 5(a) hereof. No person
guilty of a fraudulent misrepresentation shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section l42c), each person, if any, who controls the Placement Agent
within the meaning of Section l5 of the Act or Section 20(a) of the Exchange Act
and each officer, director, partners, employee, agent, and counsel of the
Placement Agent, shall have the same rights to contribution as the Placement
Agent, and each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and each officer,
director, employee, agent, and counsel of the Company, shall have the same
rights to contribution as the Company, subject in each case to the provisions of
this Section 12(c). Anything in this Section 12(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 12(c) is intended to supersede any right to contribution under the Act,
the Exchange Act, or otherwise.
13. Board of Directors.
Upon completion of the Minimum Proceeds and for a period of two
years from the final closing, GAF shall have the option to have one person
attend meetings of the Board of Directors as a non-voting observer. As a
condition to such person participating in GI meetings or otherwise obtaining
access to confidential information, such person shall execute a nondisclosure
agreement and an agreement to comply with applicable securities laws, which
agreement shall be in a form reasonably requested by GI.
14. Right of First Refusal.
21
The Company agrees that if the Minimum Proceeds are received in the
Offering, GAF shall have an irrevocable preferential right for a period of two
years from the date the Offering is completed to purchase for its account or to
sell for the account of the Company, or any subsidiary of or successor to the
Company, any securities of the Company or any such subsidiary or successor which
the Company, any such subsidiary or successor may seek to sell through itself,
through an underwriter, placement agent or broker-dealer, and whether pursuant
to registration under the Act or otherwise. The Company, any such subsidiary or
successor will consult GAF with regard to any such offering and will offer GAF
the opportunity to purchase or sell any such securities on terms not more
favorable to the Company, any such subsidiary or successor than it or they can
secure elsewhere. If GAF fails to accept such offer within five(5) business days
after the mailing of a notice containing such offer by registered mail addressed
to GAF (48 hours in the event the offer covers a sale under Rule 144), then GAF
shall have no further claim or right with respect to the financing proposal
contained in such notice. If, however, the terms of such proposal are
subsequently modified in any material respect, the preferential right referred
to herein shall apply to such modified proposal as if the original proposal had
not been made. GAF's failure to exercise its preferential right with respect to
any particular proposal shall not affect its preferential rights relative to
future proposals.
14. Consulting Agreement.
Upon completion of the Minimum Proceeds, GI shall enter into a
financial consulting agreement ("Advisory Agreement") with GAF which agreement
shall have a term of 18 months and provide for a monthly fee of $7,500 per month
plus out-of pocket expenses which have been approved by the Company. The
Advisory Agreement shall provide for early termination of the agreement after
the initial six (6) months by the Company upon 30 days written notice. Pursuant
to the Advisory Agreement, GAF shall provide advice to the Company with respect
to, among other things, business opportunities such as strategic mergers and
acquisitions and capital restructuring, if any. GAF shall be entitled, pursuant
to the Advisory Agreement, to such fees as may be negotiated by the parties in
consideration of services rendered for advising the Company in connection with
any particular mergers or acquisition transaction.
15. Representations and Agreements to Survive Delivery
All representations, warranties, covenants, and agreements contained
in this Agreement shall be deemed to be representations, warranties, covenants,
and agreements at the Closing Date and, such representations, warranties,
covenants, and agreements, including the indemnification and contribution
agreements contained in Section 12, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Placement
Agent or any indemnified person, or by or on behalf of the Company or any person
or entity which is entitled to be indemnified under Section 12(b), and shall
survive termination of this Agreement or the issuance, sale, and delivery of the
Units. In addition, notwithstanding any election hereunder or any termination of
this Agreement, and whether or not the terms of this Agreement are otherwise
carried out, the provisions of Sections 11, 12, 13 and 14 shall survive
termination of this Agreement and shall not be affected in any way by such
election or termination or failure to carry out the terms of this Agreement or
any part thereof.
22
16. Notices
All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, shall be mailed,
delivered by hand, or sent by overnight courier service, to GunnAllen Financial,
Inc. at the address set forth above with a copy to Xxxxxxxxx Xxxxxxx LLP 00
Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 Attention: Xxxxx X. Xxxxxxxx,
Esq.; or if sent to the Company, shall be mailed, delivered or telexed and
confirmed by letter, to Xxxxx Industries, Inc. 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000 Attention: Xxxxxxx X. Xxxxx, Executive Chairman with a
copy to Xxxxx & Xxx Xxxxxx LLP, 0 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 Attn:
Xxxxxxx X. XxXxxx, Esq. All notices hereunder shall be effective upon delivery
to the address above.
17. Parties
This Agreement shall inure solely to the benefit of, and shall be
binding upon, the Placement Agent and the Company and the persons and entities
referred to in Section l8 who are entitled to indemnification or contribution,
and their respective successors, legal representatives, and assigns (which shall
not include any purchaser, as such, of Units), and no other person shall have or
be construed to have any legal or equitable right remedy, or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
18. Governing Law/Consent to Jurisdiction
(a) This Agreement shall be construed in accordance with the laws of
the State of New York, without giving effect to conflict of laws.
(b) The Company (a) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (b) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (c) 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
procedure. Each of the Company and the Placement Agent further agrees to accept
and acknowledge service of any and all process which may be served in any suit,
action or proceeding in the New York State Supreme Court for the Southern
District of New York, and agrees that service of process upon the Company mailed
by certified mail to the Company's address shall be deemed in every respect
effective service of process upon the company in any such suit, action or
proceeding. In the event of litigation between the parties arising hereunder,
the prevailing party shall be entitled to costs and reasonable attorney's fees.
[signature page is next]
23
19. Counterparts
This Agreement may be executed in counterparts, each of which shall
constitute an original and all of which, when taken together, shall constitute
one agreement.
If the foregoing correctly sets forth the understanding between us,
please so indicate in the space provided below for that purpose, whereupon this
letter shall constitute a binding agreement among us.
Very truly yours,
XXXXX INDUSTRIES INCORPORTED
By: /s/ Xxxxxxx X. Xxxxx
------------------------
Name: Xxxxxxx X. Xxxxx
Title: Executive Chairman
Accepted as of the date
first above written:
GUNNALLEN FINANCIAL, INC.
By:
-------------------------
Name:
Title:
24
Amendment No. 1 to Placement Agency Agreement
This Amendment No. 1 to Placement Agency Agreement is dated as of October
25, 2005 by and between Xxxxx Industries Incorporated, a Delaware corporation
(the "Company" or "GI") and GunnAllen Financial, Inc. ("Placement Agent" or
"GAF").
Reference is made to the Placement Agency Agreement dated as of September
26, 2005 ("Original Agreement"). The parties hereto desire to amend the Original
Agreement upon the terms and conditions contained herein. All terms not
otherwise defined herein shall have the meaning ascribed to such term in the
Original Agreement.
1. Section 2(c) of the Original Agreement is hereby restated in its
entirety to read as follows:
(c) The Offering shall commence on the date that the Company delivers the
Disclosure Statement, in form and substance satisfactory to the Placement Agent
and shall expire at 3:00 p.m., New York time, on November 14, 2005 and may be
extended for up to one additional 45 day period at the discretion of the
Placement Agent; provided, however, the Minimum Offering must be subscribed for
prior to 3:00 pm on November 14, 2005. Such period, as same may be so extended,
shall hereinafter be referred to as the "Offering Period."
2. Section 2(f) of the Original Agreement is hereby restated in its
entirety to read as follows:
(f) If subscriptions for the Minimum Offering are not received from
Prospective Investors prior to November 14, 2005 and accepted by the Company and
the Placement Agent, the Offering shall be canceled, all funds received and held
in the Escrow Account shall be refunded in full to the Prospective Investors
without interest or deduction. Assuming that the Minimum Offering is completed
on or before November 14, 2005, then additional subscriptions shall be accepted
into escrow up to the Maximum Offering (and any additional over subscriptions up
to $1,000,000) and additional closings shall be held from time to time.
3. Section 2(g) of the Original Agreement is hereby restated in its
entirety to read as follows:
(g) You may engage other persons selected by you to assist you in the
Offering (each such broker/dealers being hereinafter referred to as a "Selling
Group Member") and you may allow such Selling Group Member such part of the
compensation and payment of expenses payable to you under Section 6 hereof as
you shall determine. Any such Selling Group Member shall be a member firm in
good standing as a broker-dealer under the rules of the NASD. The Company hereby
makes such representations and warranties to, and covenants and agreements with,
any Selling Group Member (including an agreement to indemnify such Selling Group
Member on terms substantially similar to Section 17 hereof) as provided herein
and each Selling Group Member shall make representations, warranties and
covenants to the Company identical to those made by the Placement Agent to the
Company in Section 4 hereof and shall agree to indemnify the Company in the
manner set forth in Section 17 hereof. The Placement Agent shall indemnify and
hold harmless the Company from any and all claims of any selling group member
for fees or other compensation.
1
4. The Company shall prepare a supplement, in form and substance
satisfactory to GAF and their respective counsel, to reflect the terms of this
Amendment No.1 to the Original Agreement, and such other matters as the parties
shall determine.
5. All other terms and conditions of the Original Agreement shall remain
in full force and effect.
This Agreement may be executed in counterparts, each of which shall
constitute an original and all of which, when taken together, shall constitute
one agreement.
XXXXX INDUSTRIES INCORPORATED
By: /s/ Xxxxxxx X. Xxxxx
-------------------------
Name: Xxxxxxx X. Xxxxx
Title: Executive Chairman
GUNNALLEN FINANCIAL, INC.
By:
-------------------------
Name:
Title:
2
Amendment No. 2 to Placement Agency Agreement
This Amendment No. 2 to Placement Agency Agreement is dated as of November
10, 2005 by and between Xxxxx Industries Incorporated, a Delaware corporation
(the "Company" or "GI") and GunnAllen Financial, Inc. ("Placement Agent" or
"GAF").
Reference is made to the Placement Agency Agreement dated as of September
26, 2005, as previously amended ("Original Agreement"). The parties hereto
desire to amend the Original Agreement upon the terms and conditions contained
herein. All terms not otherwise defined herein shall have the meaning ascribed
to such term in the Original Agreement.
1. Section 2(c) of the Original Agreement is hereby restated in its
entirety to read as follows:
(c) The Offering shall commence on the date that the Company delivers the
Disclosure Statement, in form and substance satisfactory to the Placement Agent
and shall expire at 3:00 p.m., New York time, on November 18, 2005 unless
extended to November 30, 2005; provided, however, the Minimum Offering must be
subscribed for prior to 3:00 pm on November 18, 2005. Such period, as same may
be so extended, shall hereinafter be referred to as the "Offering Period."
2. Section 2(f) of the Original Agreement is hereby restated in its
entirety to read as follows:
(f) If subscriptions for the Minimum Offering are not received from
Prospective Investors prior to November 18, 2005 and accepted by the Company and
the Placement Agent, the Offering shall be canceled, all funds received and held
in the Escrow Account shall be refunded in full to the Prospective Investors
without interest or deduction. Assuming that the Minimum Offering is completed
on or before November 18, 2005, then additional subscriptions shall be accepted
into escrow up to the Maximum Offering (and any additional over subscriptions up
to $1,000,000) and additional closings shall be held from time to time.
3. The Company shall prepare a supplement, in form and substance
satisfactory to GAF and their respective counsel, to reflect the terms of this
Amendment No. 2 to the Original Agreement, and such other matters as the parties
shall determine.
4. All other terms and conditions of the Original Agreement shall remain
in full force and effect.
This Agreement may be executed in counterparts, each of which shall
constitute an original and all of which, when taken together, shall constitute
one agreement.
XXXXX INDUSTRIES INCORPORATED GUNNALLEN FINANCIAL, INC.
By: /s/ Xxxxxxx X. Xxxxx By:
--------------------------- ---------------------------
Name: Xxxxxxx X. Xxxxx Name:
Title: Executive Chairman Title:
