XXXXXXX.XXX, INC.
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PLACEMENT AGENT AGREEMENT
Dated: August 1, 2000
Connecticut Capital Markets, LLC
0 Xxxxx Xxxx Xxxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
Ladies and Gentlemen:
The undersigned, XxxXxxx.xxx, Inc. (the "Company"), proposes to issue and
sell a minimum of ten (10) investment units and an aggregate maximum of one
hundred fifty (150) investment units (individually, a "Unit") at a price of
$100,000 per Unit (or any fractional portion of a Unit not less than $25,000 as
you (the "Placement Agent") agree, in your sole discretion, to sell), each such
Unit consisting of (i) $100,000 principal amount of a ten percent (10%)
convertible secured debenture from the Company, maturing three (3) years from
the Issuance Date (the "Debentures") and (ii) a five (5) year warrant (the
"Warrant") to purchase an aggregate of 200,000 shares of common stock, par value
$.001 per share, of the Company (the "Common Stock"), at an exercise price of
one dollar ($1.00) per share (the "Warrant Shares"). The Debentures shall be
secured by a first priority security interest in all assets of the Company,
provided, however, that the Debentures shall not have any security interest in
(x) those assets set forth on Schedule A hereto, (y) accounts receivable
factored with third party institutional financial lenders with assets of $400
million or more and regularly making such loans in their ordinary course of
business ("Institutional Lender") and (z) assets (including stock) acquired in
transactions without the use of the proceeds of this Offering (as hereinafter
defined), but only if such assets are subject to a security interest granted by
the Company to an Institutional Lender providing debt financing to acquire such
assets. Further, the principal and interest on the Debentures shall be (x)
subordinate in right of payment and priority to (i) the Company's currently
outstanding 10% Subordinated Convertible Promissory Notes due October, 2003 in
the aggregate principal amount of $200,000 and (ii) all collateralized loans
(having no equity features other than securities or equity of the Company having
minimal value as against the value of the indebtedness and which is incidental
to the loan and serves as compensation to the lender in exchange for making such
loan) received from Institutional Lenders and (y) subordinate in priority of
lien with respect to assets securing indebtedness incurred from
non-Institutional Lenders to acquire assets (including stock) in transactions
consummated without the use of the proceeds of this Offering (as hereinafter
defined). Notwithstanding anything to the contrary contained herein, in the
event any small business investment company ("SBIC") participates in the
Offering (as hereinafter defined), the Debentures granted to SBIC shall, at the
option of each SBIC, mature five (5) years from their respective Issuance Date
(as hereinafter defined). The Debenture Shares (as hereinafter defined) and
Warrant Shares, in addition to any Clawback Shares (as hereinafter defined) are
referred to collectively herein as the "Shares." The Units, Debentures, Warrants
and Shares are referred to collectively herein as the "Securities."
The principal amount of, and accrued interest on, the Debentures may be
convertible in whole or in part, at any time from the date of issuance, into
shares of Common Stock ("Debenture
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Shares") at a conversion rate of $.50 per Share, at the option of the holder of
such Debenture. The Company shall also have the right to redeem the Debentures
upon 30 days' written notice to each Debenture holder, during which such 30 day
period the Debenture holders may elect to convert their respective Debentures
into Debenture Shares in accordance with the terms and conditions of the
Debenture ("Redemption"); provided, however, that if the closing bid price for
the Common Stock as reported by the National Association of Securities' Dealers
automated quotation system for any twenty-two (22) consecutive trading day
period within the thirty (30) day period immediately prior to Redemption does
not exceed $2.00 per share, as such price may be adjusted to reflect stock
splits, stock dividends, recapitalizations and the like, at any time within six
(6) months following any Redemption former holders of the Debentures shall have
the right (the "Clawback Right") to purchase shares of Common Stock ("Clawback
Shares") in an amount equal to the amount of principal so converted at a price
of $0.50 per share, as such price may be adjusted to reflect stock splits, stock
dividends, recapitalizations and the like. Additionally, the Company shall have
the right to require conversion ("Company Conversion") of all or any portion of
the principal and interest on the Debentures into Debenture Shares at a
conversion rate of $.50 per share, as such price may be adjusted to reflect
stock splits, stock dividends, recapitalizations and the like, so long as (i)
the closing bid price for the Common Stock as reported by the National
Association of Securities' Dealers automated quotation system for any twenty-two
(22) consecutive trading day period within the thirty (30) day period
immediately prior to the time of such conversion exceeds $2.00 per share and
(ii) the Shares and Placement Agent Shares (as hereinafter defined) have been
Registered (as defined below) (collectively, the "Trigger Events").
The Company will, at all times until all Debentures have been redeemed or
converted, reserve from the proceeds of the Offering (as hereinafter defined) an
amount equal to three (3) months' interest due on each Debenture, to the extent
then outstanding. Interest on the Debentures shall accrue at the rate of ten
percent (10%) per annum and shall be first due and payable one year from the
date of issuance and semiannually thereafter in cash or, at the option of the
Company, in shares of Common Stock (the "Interest Shares"); provided that such
Interest Shares have been registered for re-sale pursuant to the Securities Act
of 1933, as amended, and are freely tradable without restriction or legend
("Registered") and are valued at the closing bid price of the Common Stock for
the previous ten (10) trading days prior to the required date of issuance and
delivery of such Interest Shares. As used herein, "closing bid price" means, in
each case at the close of trading hours (not including extended trading hours),
(i) if the Common Stock is listed on the New York Stock Exchange ("NYSE") or the
American Stock Exchange ("AMEX"), the last reported sale price or (ii) if the
Common Stock is listed on the Nasdaq National Market System, SmallCap Market or
over-the-counter bulletin board, the closing bid price for the Common Stock as
reported by the Nasdaq National Market System, SmallCap Market or
over-the-counter bulletin board, as applicable, or (iii) if the Common Stock is
not listed or admitted for trading on any national securities exchange and is
not reported by NYSE, AMEX, Nasdaq National Market System, SmallCap Market or
over-the-counter bulletin board, or if the Common Stock is traded in the
over-the-counter market but bid quotations are not published on Nasdaq, the
closing bid price for the Common Stock as furnished by a broker-dealer which
regularly furnishes price quotations for the Common Stock; or (iv) if no such
quotations are available, as determined in good faith by the Board of Directors
of the Company.
At any time that any Debenture, Warrant or Placement Agent Warrant (as
hereinafter defined) shall remain outstanding, or at any time that the Clawback
Right may become exercisable, if the Company shall effect or set a record date
to effect a reverse split of the Common Stock in a ratio greater than five (5)
shares of Common Stock for every post reverse split new share of Common Stock,
then the adjustment to the conversion and exercise prices of the Debentures,
Warrants and Placement Agent Warrants shall be as if the reverse split had been
effected in a ratio of one share of Common Stock for every five shares of Common
Stock. As an example, if the
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Company effects a 1-for-6 reverse stock split, the adjustment to the Debentures,
Warrants and Placement Agent Warrants shall assume that the Company effected a
1-for-5 reverse stock split. The provision of this paragraph limiting the
reverse split shall apply to any cumulative multiple reverse splits should they
occur.
The Debentures, Warrants and Placement Agent Warrants (as hereinafter
defined) shall have weighted-average anti-dilution rights with respect to shares
of Common Stock issued (or deemed issued) below $0.50 per share and otherwise in
connection with stock splits, stock dividends, recapitalizations, mergers and
the like until such time as the Common Stock is listed for quotation by the
Nasdaq National Market or Nasdaq SmallCap Market (but not including the NASDAQ
Bulletin Board) or traded on the New York Stock Exchange, the American Stock
Exchange, the London Stock Exchange or the Neuer Markt, and actually trading
thereon ("Listed").
The Warrants are redeemable by the Company upon thirty (30) days' written
notice to all holders thereof at a price of $.05 per Warrant, if all the Trigger
Events have occurred.
This offering by the Company through the Placement Agent of Units in the
Company (the "Offering") is being conducted on a "best efforts-all or none"
basis with respect to the initial 10 Units and on a "best efforts" basis with
respect to the remaining 140 Units. Fractional Units may be sold in the
discretion of the Placement Agent. As used herein, including with respect to the
representations and warranties contained herein, unless the context otherwise
requires, the term "Company" shall include the Company together with all direct
and indirect affiliates and subsidiaries, and all representations and warranties
of the Company herein shall also be deemed made on behalf of and with respect to
each subsidiary of the Company, which such subsidiaries are signatories hereto.
The Offering will not be registered with the Securities and Exchange
Commission nor with any state securities authority, but rather will be offered
as a private placement pursuant to an exemption from registration under
Regulation D ("Regulation D") promulgated under Section 4(2) and Rule 506 of the
Securities Act of 1933, as amended (the "Securities Act"), and available state
securities laws exemptions.
The Units are to be sold only to accredited investors ("Accredited
Investors"), as that term is defined in Regulation D, pursuant to a disclosure
document to be prepared by the Company (the "Memorandum").
This is to confirm the arrangements with the Placement Agent with respect
to the sale of the Units by the Placement Agent as exclusive agent for the
Company and is intended to supercede the engagement agreement between the
parties dated July 11, 2000 (the "Engagement Letter").
SECTION 1. Description of Units. The Securities shall conform in all
material respects to the description thereof contained in the Memorandum and the
description above.
SECTION 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Placement Agent as follows:
(a) The date on which the offering of the Units contemplated by this
Placement Agent Agreement ("Agreement") is authorized by the Company to commence
is the date of the Memorandum and is herein called the "Commencement Date". The
time and date of each issuance of Units hereunder is herein called the "Issuance
Date" or the "Closing".
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(b) On the Commencement Date, and on each Issuance Date, the Memorandum
(as amended or as supplemented, if the same shall have been amended or
supplemented) will not knowingly contain an untrue statement of a material fact
and will not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(c) The Company is duly incorporated and at the Commencement Date and at
each Issuance Date, will be validly existing as a corporation in good standing
under the laws of the state of its incorporation, having corporate power and
authority to own its properties and conduct its business, and will have a
capitalization as described in the Memorandum. Prior to the first Issuance Date,
the Company shall have outstanding and of record not more than 14,483,589 shares
of Common Stock, warrants to purchase not more than 2,748,000 shares of Common
Stock and options to purchase not more than 5,000,000 shares of Common Stock.
Following the date of publication of the Memorandum and prior to the final
Issuance Date, the only additional securities issued in addition to those
described in the previous sentence shall be the Securities and the Placement
Agent Warrants. Except as set forth on Schedule A attached hereto or as
described, or referred to, in the Memorandum, no rights to acquire Common Stock
exist.
(d) The audited financial statements of the Company for the two years
ended December 31, 1999 and 1998, and the internally prepared, unaudited
financial statements of the Company for the three months ended March 31, 2000,
all of which have been delivered to Placement Agent (collectively, the
"Financial Statements"), fairly present the information purported to be shown
therein of the Company, at the respective dates to which they apply; and such
Financial Statements have been prepared in conformity with generally accepted
accounting principles consistently applied throughout the periods involved and
are in accordance in all material respects with the books and records of the
Company, except as to the unaudited portion of the Financial Statements with
respect to adjustments or accruals which are normally made at the end of the
Company's fiscal year and except as to the absence of notes to the unaudited
portion of the Financial Statements.
(e) The assets of the Company, as shown in the Financial Statements, are
owned by the Company with good and marketable title, free and clear of all
liens, encumbrances and equities of record or otherwise, except (i) those
specifically referred to in the Memorandum or the Financial Statements, (ii)
those which do not materially adversely affect the use or value of such assets
and (iii) the lien of current taxes not now due. The Company in all material
respects has the full right to maintain and operate its business and properties
as the same are now operated or proposed to be operated and is complying with
all laws, ordinances and regulations applicable thereto, except where the
failure to so comply would not have a material adverse effect on the Company.
(f) Except as set forth on Schedule A or in the Memorandum, there are no
material actions, suits or proceedings at law or in equity pending, or to the
Company's knowledge threatened, against the Company and there are no proceedings
pending, or to the knowledge of the Company threatened, against the Company
before or by any federal or state commission, regulatory body, administrative
agency or other governmental body wherein, either in any case or in the
aggregate, an unfavorable ruling, decision or finding will materially adversely
affect the business, franchise, licenses, permits, operations or financial
condition of the Company which are not disclosed in the Memorandum or the
Financial Statements.
(g) At each Closing, (i) the Securities will conform, in all material
respects, to all statements with regard thereto contained in the Memorandum,
(ii) the Securities shall have been duly and validly authorized by proper
corporate authority, (iii) each of the Securities, when issued and paid for in
accordance with its terms, will be validly issued, fully paid and nonassessable
and (iv) all
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Shares and Placement Agent Shares shall have been duly and validly reserved for
issuance. Upon issuance, all Shares and Placement Agent Shares shall be duly and
validly authorized, validly issued, fully paid and nonassessable. The Company
shall insure that all conversions properly requested by any investor in the
Offering shall be effected by the Company.
(h) The execution and delivery by the Company of this Agreement, the
consummation and performance of the transactions herein contemplated, and
compliance with the terms of this Agreement by the Company will not conflict
with, result in a breach of, or constitute a material default under, the
Articles of Incorporation or the bylaws, of the Company, in each case as
amended, or any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company is now a party or by which it or any of its
assets or properties is bound or any law, order, rule or regulation, writ,
injunction, judgment or decree of any government, governmental instrumentality
or court, domestic or foreign, having jurisdiction over the Company or any of
its business or properties, to the extent that such conflict, breach or default
might have a material adverse effect on the Company and its subsidiaries as a
whole, or their respective businesses, properties or financial condition on a
consolidated basis.
(i) Except as set forth in the Memorandum, all material leases, contracts
and agreements referred to in the Memorandum (including the Financial
Statements), along with all other material contracts to which the Company is a
party, are in full force and effect and neither the Company nor, to the
knowledge of the Company, any other party is in default thereunder, and to the
knowledge of the Company no event has occurred which with the passage of time or
the giving of notice, or both, would constitute a default thereunder except for
a default which would not have a material adverse effect on the Company.
(j) Except as described in the Memorandum, the Company has timely filed
all federal, state and local tax returns required to be filed, including without
limitation, all sales tax returns, or has obtained extensions thereof and has
paid, or is contesting in good faith, all taxes shown on such returns.
(k) The Company shall apply the proceeds from the sale of the Units as set
forth in the Memorandum.
(l) The Company has no subsidiaries other than those disclosed in the
Memorandum or as set forth in the Company's filings with the Securities and
Exchange Commission (the "SEC").
(m) Except as described in the Memorandum, all material licenses, permits,
approvals or governmental authorizations necessary to permit the Company to
conduct its business have been obtained and are valid and will be valid on the
Issuance Date, and the Company is in all material respects complying therewith.
There are no proceedings pending, or to the knowledge of the
Company threatened, seeking to cancel, terminate, suspend or limit such
licenses, approvals or permits.
(n) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999 sets forth a true and complete list of all material patents,
trademarks, trade names, copyright registrations and applications therefor now
or heretofore used or presently proposed to be used in the conduct of the
business of the Company. Except as set forth in the Company's Form 10-KSB for
the fiscal year ended December 31, 1999, the Company's Quarterly Report on Form
10-QSB for the fiscal quarter ended March 31, 2000 or as set forth on Schedule A
attached hereto; (i) the Company owns or possesses adequate licenses or other
valid rights to use all patents, patent
5
rights, trademarks, trademark rights, trade names, trade name rights, trade
secrets, copyright registrations, know-how and other proprietary information
(collectively, "Rights") necessary to the conduct of the business of the Company
as presently being conducted, except where the failure to have such Rights would
not, individually or in the aggregate, have a material adverse effect on the
business of the Company; (ii) the validity of such Rights and the title thereto
of the Company has not been questioned in any litigation to which the Company is
a party, nor, to the best knowledge of the Company, is any such litigation
threatened, other than as set forth on Schedule A attached hereto; (iii) to the
best knowledge of the Company, the conduct of the business of the Company as now
conducted does not and will not conflict with Rights of others in any way which
has or might reasonably be deemed to have a material adverse effect on the
Company; and (iv) no proceedings are pending against the Company nor, to the
best knowledge of the Company, are any proceedings threatened against the
Company alleging any violation of Rights of any third person. The Company does
not know of (x) any use that has heretofore been or is now being made of any
Rights owned by the Company, except by the Company or by a person duly licensed
by it to use the same under an agreement described in Schedule B or (y) any
material infringement of any Right owned by or licensed by or to the Company. To
the best knowledge of the Company, all Rights heretofore owned or held by any
agent, independent contractor, employee or officer of the Company or any
subsidiary thereof and used in the business of the Company in any manner have
been duly and effectively transferred to the Company. The consummation of the
transactions contemplated by this Agreement will not alter or impair the rights
and interests of the Company in any of the items listed on the Company's Form
10-KSB for the fiscal year ended December 31, 1999, or on Schedule A attached
hereto.
(o) All of the aforesaid representations, agreements and warranties shall
survive delivery of and payment for all or any part of the Units for a period of
two (2) years from the last Issuance Date.
SECTION 3. Issuance, Sale and Delivery of the Shares
(a) The Company hereby agrees to sell the Units directly through the
Placement Agent on a "best efforts all-or-none" basis with respect to the
minimum offering of ten (10) Units (the "Minimum Offering"), and thereafter on a
"best efforts" basis with respect to the remaining Units up to an aggregate
maximum offering of one hundred fifty (150) Units (the "Maximum Offering").
Pending the closing of the sale of the Minimum Offering, the proceeds of the
Offering will be deposited in escrow in a non-interest bearing account at Chase
Manhattan Bank. Unless the Minimum Offering of Units is sold on or before the
earlier to occur of (i) 90 days after the Commencement Date or (ii) November 30,
2000 (the "Initial Offering Period"), the offering will terminate and all funds
theretofore received from the sale of the Units will be promptly returned to the
subscribers without deduction therefrom or interest thereon. Moreover, during
the period of escrow, subscribers will not be entitled to a return of their
subscriptions, except as required by law. If the Minimum Offering is completed
within the Initial Offering Period, the remaining Units up to the amount of the
Maximum Offering will be offered (the "Continuing Offering Period") on a "best
efforts" basis until the first to occur of (i) the completion of the Maximum
Offering, (ii) 90 days after the end of the Initial Offering Period, or (iii)
the termination of the Offering by mutual agreement of the Placement Agent and
the Company. The Initial Offering Period and Continuing Offering Period are
referred to collectively herein as the "Offering Period."
(b) All checks for the purchase of Units shall be made payable to Chase
Manhattan Bank, as escrow agent ("Escrow Agent"), and shall be accompanied by a
duly executed Subscription Agreement and Statement of Accredited Investor in the
forms annexed to the Memorandum. Each such check and Subscription Agreement and
Statement of Accredited Investor signature page, when received by the Placement
Agent, shall be immediately delivered to such Escrow Agent, and in no
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event later than 12:00 noon of the business day following receipt by the
Placement Agent. Subscribers shall purchase Units for cash. Upon receipt thereof
or on such scheduled closing date as the Company and the Placement Agent may
agree after the Escrow Agent shall receive subscriptions for the Minimum
Offering, the Company shall issue the Units and, simultaneously with the
delivery of the Units, the Company, or its counsel, shall deliver to the
Placement Agent's counsel an opinion and such other documents and certificates
as provided for in Sections 7(f) and (g) of this Agreement. No funds shall be
disbursed from escrow in connection with any Closing without the written consent
of both the Company and the Placement Agent. Notwithstanding anything contained
herein to the contrary, the Placement Agent shall have the sole discretion to
return any amount, including interest, if any, to any potential investor
together with the appropriate cancellation of any signed subscription agreements
prior to consummation of such potential investors' purchase of Units. The
Company shall not have the right to reject any subscription from a potential
investor except with the consent of the Placement Agent, unless either (x) the
Company has a reasonable belief that such investor is unaccredited, is a direct
competitor of the Company or is a former director, executive officer, consultant
or employee of the Company or (y) in the event the condition in clause (x) of
this sentence is not met but the Company, nevertheless, chooses to reject such
investor (the "Rejected Investor"), the Placement Agent receives credit for
purposes of calculating Placement Agent's compensation hereunder as (1) having
raised such amount of money as the Rejected Investor had deposited with the
Escrow Agent and (2) having sold such number of Units as the Rejected Investor
proposed to purchase, as indicated by such Rejected Investor's executed
Subscription Agreement, which such number of Units shall be included in
determining the aggregate number of Units sold by the Placement Agent for
purposes of calculating Placement Agent's compensation hereunder.
(c) As its basic compensation (collectively, "Basic Compensation"), the
Placement Agent's commission shall be (i) cash compensation equal to ten percent
(10%) of the gross proceeds received by the Company from the sale of Units, as
commission, (ii) an amount equal to three percent (3%) of the gross proceeds
received by the Company from the sale of Units as a non-accountable expense
allowance, and (iii) additional compensation in the form of cashless exercise
warrants ("Placement Agent Warrants"), the form of which is attached hereto as
Exhibit A, to purchase Shares ("Placement Agent Shares"), computed on the basis
of 25,000 Placement Agent Warrants for each Unit sold or portion thereof,
exercisable at any time from the Issuance Date through December 31, 2005, at a
price per Placement Agent Share equal to $0.50. The Company shall also pay the
Placement Agent at the first Issuance Date a fee of $10,000 as reimbursement for
out-of-pocket costs incurred by the Placement Agent in connection with its due
diligence obligations. The Placement Agent Warrants shall have registration,
anti-dilution and other rights identical to the rights underlying the Debentures
and Warrants. As an example, at the closing of the Minimum Offering with gross
proceeds to the Company of $1,000,000, Placement Agent shall receive $100,000 in
cash as a commission, $30,000 as a non-accountable expense allowance, and
250,000 Placement Agent Warrants. It is acknowledged that the $10,000 retainer
paid to Placement Agent pursuant to the Engagement Letter is separate and
exclusive from the compensation described herein. All Basic Compensation shall
be paid in full on the applicable Issuance Date.
(d) In the event the Company receives any funds, capital or other
consideration to purchase any securities of the Company (whether in the form of
guarantees of indebtedness, irrevocable commitments to fund, securities or other
property or otherwise) from any entity or individual from the date of the
Engagement Letter through the date of publication of the Memorandum, regardless
of whether such funds are in the form of debt or equity financing for the
Company or otherwise ("Other Consideration"), the Placement Agent shall be
entitled to a fee equal to fifty percent (50%) of the Basic Compensation,
regardless of any prior termination of this Agreement; provided, however, that
the Placement Agent shall not be entitled to any compensation with respect to
inventory and
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accounts receivable financing received by the Company and/or indebtedness for
collateralized loans for borrowed money (having no equity features other than
securities or equity of the Company having minimal value as against the value of
indebtedness and which is incidental to the loan and which serves as
compensation to the lender in exchange for making such loan) received from
Institutional Lenders. If the Company receives Other Consideration at any time
from the date of publication of the Memorandum through the final Closing, such
Other Consideration shall be deemed part of the Offering and the Placement Agent
shall be entitled to 100% of the Basic Compensation with respect thereto.
Additionally, in the event the Company, at any time from the Commencement Date
through the end of the Offering Period, accepts equity or debt financing from
any entity or individual on terms more favorable than those set forth in the
Memorandum, notice of such financing and the terms and conditions thereof shall
be sent to each prior purchaser of a Unit, and each such purchaser of a Unit
shall have the right, within 30 days of receipt of notice from the Company, to
receive the benefit of such more favorable terms and conditions, and the
Memorandum shall be amended to provide future investors in the Offering with the
benefit of such more favorable terms and conditions. For purposes of this
Agreement, a "Source" shall include any and all individuals or entities directly
or indirectly first introduced to the Company by the Placement Agent, and any
affiliates thereof (as defined in the Securities Exchange Act of 1934, as
amended ("Exchange Act"), whether or not such Sources provide funds to the
Company pursuant to the Offering or otherwise. "Source" shall not be deemed to
include immediate family members of the executive officers of the Company, the
executive officers and directors of the Company and any current investor in the
Company. The Company hereby agrees that, for a period of three years from the
date of this Agreement, the Company will not solicit, discuss, negotiate with or
otherwise communicate with respect to the possible receipt of any kind of
consideration from any Source, without the Placement Agent's prior express
written consent and that such consent, once given by the Placement Agent, will
require the Company to request such consent for each subsequent communication.
In the event funds are received from any Source at any time within the three
year period from the date of this Agreement, the Placement Agent shall be
entitled to a fee equal to 100% of the Basic Compensation relating thereto. All
compensation, if any, to which the Placement Agent is entitled pursuant to this
Section 3(d) prior the first Issuance Date shall be paid to the Placement Agent
at the time of, and from the proceeds of, the first Closing. All compensation,
if any, to which the Placement Agent is entitled pursuant to this Section 3(d)
after the first Issuance Date but prior the final Issuance Date shall be paid to
the Placement Agent at the time of, and from the proceeds of, the Closing
immediately subsequent to the receipt of funds by the Company from such Source.
All compensation, if any, to which the Placement Agent is entitled pursuant to
this Section 3(d) after the final Issuance Date shall be paid to the Placement
Agent at the time of, and from the proceeds of, the closing at which funds from
such Source are transferred to the Company or, if non-cash consideration is
being provided, the Placement Agent shall be paid upon the providing of such
consideration to the Company. Notwithstanding anything to the contrary contained
herein, if no first Closing occurs due to the failure of the Placement Agent to
sell ten (10) Units, or if the Placement Agent terminates this Agreement
pursuant to Section 8 hereof, no compensation pursuant to this Section 3(d)
shall be due or payable to the Placement Agent.
In the event that any payment due to the Placement Agent shall not be made
when due, interest shall accrue on the unpaid balance of such overdue payments
at the rate of twelve percent (12%) per annum until paid.
(e) In the event that the Company has issued and sold at least 10 Units,
the Company shall engage the Placement Agent as its consultant and pay the
Placement Agent a consulting fee of
8
$1,500 per month for a period of three (3) years from such Issuance Date,
payable in advance on the first day of each month ("Consulting Fee"). In the
event that the Company has issued and sold at least 20 Units, the Company, at
its sole cost and expense, shall (i) increase the Consulting Fee to $3,000 per
month, (ii) purchase lucite cubes including the front page of the Memorandum in
a reasonable size and in such number as designated by the Placement Agent and
(iii) arrange for bound volumes in customary form to be prepared and delivered
to Placement Agent and its counsel. In the event that the Company has issued and
sold at least 50 Units, the Company, at its sole cost and expense within thirty
(30) days of the final Closing, shall place a one-quarter (1/4) page "tombstone"
advertisement in the New York edition of The Wall Street Journal, in form and
substance satisfactory to the Placement Agent, advertising the financing and
naming the Placement Agent as its investment banker.
(f) The parties hereto represent that at each Issuance Date, the
representations and warranties herein contained, and the statements contained in
all certificates theretofore or simultaneously delivered by any party to another
pursuant to this Agreement, shall in all material respects be true and correct.
SECTION 4. Covenants of the Company. The Company covenants and agrees with
the Placement Agent that:
(a) The Company will prepare promptly upon the reasonable request of the
Placement Agent, such amendments or supplements to the Memorandum, in form and
substance satisfactory to counsel of the Company as in the opinion of counsel to
the Placement Agent may be reasonably necessary or advisable in connection with
the offering of the Units. In addition, if at any time prior to the last date on
which Units shall be issued, (i) an event relating to or affecting the Company
shall have occurred which, in the judgment of the Company or in the opinion of
counsel for the Placement Agent, would cause the Memorandum as then in effect to
include an untrue statement of a material fact or to omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or (ii) it is otherwise necessary to amend or supplement the
Memorandum, the Company shall promptly notify the Placement Agent of the
occurrence and shall promptly prepare and deliver to the Placement Agent,
without charge, sufficient copies of an amended or supplemented Memorandum, and
shall use its reasonable best efforts to cause the appropriate state securities
authorities to take all required action with regard to any amendment as may be
necessary to permit the lawful use of the Memorandum in connection with the
offering of the Units.
(b) The Company will, when and as reasonably requested by the Placement
Agent, supply all necessary documents, exhibits and information and execute all
such applications, instruments and papers as may be required or desirable in the
opinion of the Placement Agent's counsel to qualify the Units for sale under the
state securities, or so-called blue sky laws and regulations (the "Blue Sky
Laws") of such jurisdictions as the Placement Agent shall designate, and to
continue such qualification in effect so long as required for the purposes of
the Offering; provided, however, that the Company shall not be required to
qualify as a foreign corporation or to file a consent to service of process in
any jurisdiction in any action other than one arising out of the offering or
sale of the Units. The Company shall pay the filing fees and all other expenses
in connection with any such qualification, including a payment of $350 per state
to Placement Agent's counsel, but a minimum in any event of $2,500, to prepare
and file any necessary filings under the Blue Sky Laws.
(c) The Company, at its own expense, will give and continue to give such
financial statements and other information to, and as may be required by, the
proper public bodies pursuant to the Exchange Act.
9
(d) The Company will pay all fees, taxes (excluding any taxes on the
income or revenue of the purchasers of the Units) and expenses incident to the
preparation and distribution of the Offering documents and the Memorandum, the
establishment of the escrow account (up to a maximum of $5,000) and the issuance
of the Units and the fees and expenses of counsel and accountants for the
Company. In addition, the Company agrees to pay all reasonable expenses relating
to preparing and printing the Memorandum, Subscription Agreement and related
documents. The Company also agrees to pay, at the first Issuance Date, a flat
fee of $25,000 (of which $5,000 has already been paid) to Xxxxxxx & Associates,
Placement Agent's counsel, as its fee in this matter (separate from its fees in
connection with Blue Sky matters), in addition to all reasonable and customary
disbursements of such counsel.
(e) After such time as the Company has issued and sold at least 10 Units,
the Company shall (i) use its best efforts to cause one (1) representative of
the Placement Agent to be appointed to the Board of Directors for the longer of
three (3) years from final Issuance Date or one (1) year after the Securities
are Listed, (ii) for a period of one (1) year, except for public offerings of
the Company's securities or private placements of equity or debt securities of
the Company with gross proceeds in excess of $25,000,000 ("Excepted
Transactions"), designate and accept the Placement Agent as its exclusive
investment banker to pursue equity and debt financings, and grant to the
Placement Agent the non-exclusive right to offer strategic alliances and merger
or acquisition opportunities to the Company, introduce technologies to the
Company which the Placement Agent feels is appropriate for licensing or
acquisition and introduce the Company to appropriate underwriters in connection
with any registration of the Common Stock or other equity securities of the
Company (collectively, "Investment Banker"). By their signatures below, Xxxx
Xxxxx and Xxxx Xxxxxx hereby agree to vote their respective shares of Common
Stock from time to time in favor of such nominee or nominees designated by the
Placement Agent. In the event the Placement Agent, at any time during the term
hereof, introduces to the Company a merger or acquisition candidate and a
transaction in completed within two (2) years of such introduction, regardless
of any termination of this Agreement, the Placement Agent shall be entitled to a
commission equal to eight percent (8%) of the first $2,000,000 value of such
transaction, six percent (6%) of the next $2,000,000 value of such transaction,
four percent (4%) of the next $2,000,000 value of such transaction and two
percent (2%) of the remaining value of such transaction. Such commission shall
be in the same kind and proportion and manner as the acquisition/merger
consideration is paid. In the event the Placement Agent, at any time during the
term hereof, introduces to the Company a client or joint venture and a
transaction in completed within two (2) years of such introduction, regardless
of any termination of this Agreement, the Placement Agent shall be entitled to a
commission equal to two percent (2%) of the gross proceeds to the Company for a
period of three years from the date when the Company first receives proceeds
from such transaction.
(f) After such time as the Company has issued and sold at least 20 Units,
the Company shall use its best efforts to cause two (2) designees of the
Placement Agent to be appointed to the Board of Directors for the longer of (i)
three (3) years from the final Issuance Date and (ii) one year after the
Securities are Listed. By their signatures below, Xxxx Xxxxx and Xxxx Xxxxxx
hereby agree to vote their respective shares of Common Stock from time to time
in favor of such nominee or nominees designated by the Placement Agent. Such
designees of the Placement Agent shall be paid the same compensation and
reimbursement of expenses as that provided to other outside directors of the
Company and shall be reimbursed for reasonable travel expenses to and from
meetings of the Board of Directors. The Company agrees, prior to the election of
such designees, to have in place directors' and officers' liability insurance
with such coverage and in such amounts as are reasonably
10
acceptable to the Placement Agent. In addition, the Placement Agent shall be
notified of, and entitled to send a representative to attend, all meetings of
the Board of Directors of the Company, and the Placement Agent shall receive a
copy of all correspondence between the Company and the members of the Board of
Directors contemporaneously with the receipt thereof by the members of the Board
of Directors. Additionally, after such time as the Company has issued and sold
at least 20 Units, except for Excepted Transactions, the Company shall designate
and accept the Placement Agent as Investment Banker until the Common Stock is
Listed. Additionally, within ninety (90) days after the Company has issued and
sold at least 20 Units, or within a forty-five (45) day extension thereof which
the Placement Agent, in its reasonable discretion, may grant to the Company upon
the Company's request, the Company shall use its reasonable best efforts to (i)
hire a chief financial officer reasonably acceptable to the independent auditors
for the Company and (ii) engage an investor relations company reasonably
satisfactory to the Placement Agent. The Placement Agent agrees not to divulge
to any third party, other than the Placement Agent's legal counsel and other
than as required by law, any information contained in all such correspondence
and documents provided to it by the Company to the extent the information is
nonpublic.
(g) The Company agrees to file a registration statement on proper form in
order to register with the SEC for resale all Warrant Shares, Debenture Shares,
Interest Shares and Placement Agent Shares within 60 days after the final
Issuance Date. The Company further agrees to use its best efforts to cause such
registration statement to become effective within 120 days after the final
Issuance Date ("Effectiveness"). If the Company fails to achieve Effectiveness
within such 120 day period, the then-outstanding Debentures shall be in default
and shall bear interest at the rate of fourteen percent (14%) per annum until
the earlier of such time as (x) such default is cured or (y) the Shares,
Placement Agent Shares and Interest Shares may otherwise be publicly sold
without volume restrictions applicable thereto. In the event any Debentures have
already been converted into unregistered Debenture Shares at the time of such
default, the holders of such Shares shall be entitled to receive, at the end of
each 30-day period following such default, additional shares of Common Stock,
which such shares must be Registered, in an amount equal to 10% of the number of
Debenture Shares owned by such holder on the date of default. As an example, if
a holder owns 10,000 Debenture Shares on the day of default, 90 days thereafter
he shall have received 3,000 additional shares of Common Stock. The Company
shall maintain the effectiveness of such registration statement for a period of
two (2) years from the later of the date of effectiveness and the date the
Common Stock is Listed.
(h) The form of Warrant and Debenture containing the registration rights
and anti-dilution protection are attached hereto as Exhibit B and Exhibit C,
respectively. The form of Security Agreement is attached hereto as Exhibit D.
(i) The Company shall not release any Offering documents or Memorandum
unless they are reasonably acceptable to Placement Agent.
(j) In the event the Company terminates this Agreement, or terminates the
Offering prior the end of the Offering Period, other than due to the material
breach, gross negligence or willful misconduct of the Placement Agent or
improper termination of this Agreement by the Placement Agent, the Company shall
immediately pay to the Placement Agent a fee of $250,000.
(k) At each Issuance Date, the Company shall not have failed to qualify to
do business as a foreign corporation in any jurisdiction where required, except
where failure to so qualify would not have a material adverse effect on the
Company (other than any qualification arising solely as a result of conducting
business over the Internet).
11
(l) Until the Common Stock is Listed, the Company agrees to provide the
Placement Agent with monthly statements of sales and accounts payable (together
with such other monthly figures as are compiled by the Company in the ordinary
course of business) and quarterly financial statements as reasonably requested
by the Placement Agent from time to time. The Placement Agent agrees that for
such time as the Company continues to be a reporting company and timely files
quarterly financial information pursuant to the Exchange Act, such timely
filings shall constitute delivery to the Placement Agent of the quarterly
financial statements required to be delivered to the Placement Agent under this
Section 4(l).
SECTION 5. Indemnification. (a) The Company hereby agrees to indemnify and
hold harmless the Placement Agent, its directors, officers, agents, employees,
members, affiliates, counsel and each other person or entity who controls the
Placement Agent within the meaning of Section 15 of the Securities Act
(collectively, the "Agent Indemnified Parties") from and against any and all
losses, claims, damages or liabilities (or actions in respect thereof), joint or
several, to which they or any of them may become subject under the Securities
Act or any other statute or at common law, and to reimburse such Agent
Indemnified Parties for any reasonable legal or other expense (including the
cost of any investigation and preparation) incurred by them in connection with
any litigation, whether or not resulting in any liability, but only insofar as
such losses, claims, liabilities and litigation arise out of or are based upon
(i) any untrue statement or alleged untrue statement of a material fact required
to be stated in the Memorandum or necessary to make the statement therein not
misleading, or omission to state therein a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading (including, but not limited to, any documents deemed to
be incorporated into the Memorandum by reference), unless such error or omission
has been corrected in a supplement timely given to the Placement Agent, in which
event the Placement Agent shall not be entitled to indemnification hereunder or
(ii) any breach by the Company of any representation, warranty or covenant
contained herein; provided, however, that the indemnity provisions contained in
this subsection (a) shall not apply to (x) amounts paid in settlement of any
such litigation if such settlement is effected without the consent of the
Company, or (y) the Placement Agent or any other Agent Indemnified Parties in
respect of any such losses, claims, damages, liabilities or actions (A) arising
out of, or based upon any such untrue statement or alleged untrue statement, or
any such omission or alleged omission, if such statement or omission was made in
reliance upon information furnished in writing to the Company by the Placement
Agent or such Agent Indemnified Parties specifically for use in connection with
the preparation of the Memorandum or any such amendment thereof or supplement
thereto or (B) arising from the willful misconduct or gross negligence of the
Placement Agent or any other Agent Indemnified Party.
The Company will reimburse all Agent Indemnified Parties for all
reasonable expenses (including, but not limited to, reasonable fees and
disbursements of one counsel for all Agent Indemnified Parties) incurred by any
such Agent Indemnified Parties in connection with investigating, preparing and
defending any such action or claim, whether or not in connection with pending or
threatened litigation in connection with the transaction to which an Agent
Indemnified Party is a party, as such expenses are incurred or paid. The
Placement Agent agrees to immediately notify the Company in writing of the
receipt of written notice of the commencement of any action against it or
against any other Agent Indemnified Parties, in respect of which indemnity may
be sought from the Company on account of the indemnity provisions contained in
this subsection (a). The omission of the Placement Agent to so notify the
Company of any such action shall relieve the Company from any liability which it
may have to the Placement Agent or any other Agent Indemnified Parties on
account of the indemnity provisions contained in this subsection (a), but shall
not relieve the Company from any other liability which it may have to the
Placement Agent or other Agent Indemnified Parties. In case any such action
shall be brought against the Placement Agent or
12
any other Agent Indemnified Parties and the Placement Agent shall notify the
Company of the commencement thereof, the Company shall be entitled to
participate in (and, to the extent that it shall wish, to direct) the defense
thereof at its own expense, but such defense shall be conducted by counsel
reasonably satisfactory to the Placement Agent or such other Agent Indemnified
Parties.
(b) The Placement Agent agrees, in the same manner and to the same extent
as set forth in subsection (a)(i) above, to indemnify and hold harmless the
Company, its directors, officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act (collectively,
the "Company Indemnified Parties"), with respect to (x) any statement in or
omission from the Memorandum (as amended or as supplemented, if amended or
supplemented as aforesaid), if such statement or omission was made in reliance
upon information furnished in writing to the Company by the Placement Agent on
its behalf, specifically for use in connection with the preparation of the
Memorandum or any such amendment thereof or supplement thereto and (y) matters
arising in respect of the Placement Agent's failure to comply with the
requirements of Rule 502(c) under Regulation D; provided, however, that the
indemnity provisions contained in this subsection (b) shall not apply to amounts
paid in settlement of any such litigation if such settlement is effected without
the consent of the Placement Agent. In case of commencement of any action in
respect of which indemnity may be sought from the Placement Agent on account of
the indemnity provisions contained in this subsection (b), each of the Company
Indemnified Parties shall have the same obligation to notify the Placement Agent
as the Placement Agent has toward the Company in subsection (a) above, subject
to the same loss of indemnity in the event such notice is not given, and the
Placement Agent shall have the same right to participate in (and, to the extent
that he shall wish, to direct) the defense of such action at its own expense,
but such defense shall be conducted by counsel reasonably satisfactory to the
Company. The Company agrees to notify the Placement Agent promptly of the
commencement of any litigation or proceeding against it or in connection with
the issuance and sale of any of its Units and to furnish to the Placement Agent,
at its request, copies of all pleadings therein and permit the Placement Agent
to be an observer therein and apprise the Placement Agent of all developments
therein, all at the Company's expense. The Placement Agent agrees to notify the
Company promptly of the commencement of any litigation or proceeding against it
or in connection with the issuance and sale of any Units and to furnish to the
Company, at its request, copies of all pleadings therein and permit the Company
to be an observer therein and apprise the Company of all developments therein,
all at the Placement Agent's expense. References to the Company in this Section
shall include any successor to the Company by merger or otherwise. In no event
will the amount of such indemnification exceed the amount of the compensation
paid to the Placement Agent pursuant to Section 3 (c)(i) and (ii) hereunder.
(c) The respective indemnity provisions between the Placement Agent and
the Company contained in subsections (a) and (b) above, and the representations
and warranties of the Company and the Placement Agent set forth in this
Agreement, shall, for a period of eighteen (18) months from the final Issuance
Date, remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Placement Agent or by or on behalf of
any of the Agent Indemnified Parties or the Company Indemnified Parties, subject
to the limitations contained herein, and shall survive the delivery of the Units
to be sold in the offering contemplated hereby, and any successor of the
Company, the Placement Agent or any other Agent Indemnified Parties or the
Company Indemnified Parties, as the case may be, shall be entitled to the
benefit of the respective indemnity provisions.
(d) In order to provide for just and equitable contribution under the
Securities Act in any case in which (i) any person entitled to indemnification
under this Section 5 makes claim for indemnification pursuant hereto but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
13
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 5 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of any such person in circumstances for which indemnification is provided
under this Section 5, then and in each such case, the Company and the Placement
Agent shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after any contribution from others) in such
proportion as is appropriate to reflect the relative fault of the Placement
Agent, on the one hand, and the Company on the other hand, and the relative
benefits to the Placement Agent, on the one hand, and the Company on the other
hand, arising out of the particular matter or transaction that gave rise to such
loss, claim, damage, liability or costs, and all other relevant equitable
considerations shall also be taken in to account; provided, however, that in no
event will the amount of Placement Agent's contribution exceed the amount of the
compensation paid to the Placement Agent pursuant to Section 3 (c)(i) and (ii)
hereunder, with the Company remaining responsible for the remaining portion; and
further provided that in any such case, no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Promptly after receipt by any party to this Agreement (or its
representative) of notice of the commencement of any action, suit or proceeding,
such party will, if a claim for contribution in respect thereof is to be made
against another party (the "Contributing Party"), notify the Contributing Party
in writing of the commencement thereof, but the omission to so notify the
Contributing Party will not relieve it from any liability which it may have to
any other party other than for contribution hereunder. In case any such action,
suit or proceeding is brought against any party and such party so notifies a
Contributing Party or his or its representative of the commencement thereof
within the aforesaid period, the Contributing Party will be entitled to
participate therein, with the notifying party and any other Contributing Party
similarly notified. Any such Contributing Party shall not be liable to any party
seeking contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution without the written
consent of such Contributing Party. The contribution provisions contained in
this Section 5 are in addition to any other rights or remedies which either
party hereto may have with respect to the other or hereunder.
SECTION 6. Effectiveness of Agreement. This Agreement shall become
effective as of the date hereof.
SECTION 7. Conditions of the Placement Agent's Obligations. The Placement
Agent's obligation to act as the agent of the Company hereunder, and the
Placement Agent's obligation to use its best efforts to find purchasers for the
Units, shall be subject to the accuracy, as of each Issuance Date, of the
representations and warranties on the part of the Company herein contained, to
the performance by the Company of all its agreements herein contained, to the
fulfillment of or compliance by the Company with all covenants and conditions
hereof, and to the following additional conditions:
(a) The Memorandum or any amendment or supplement thereto, shall not
contain an untrue statement of a fact which in the opinion of counsel to the
Placement Agent, is material or omit to state a fact which in the opinion of
such counsel, is material and is required to be stated therein or is necessary
to make the statements therein not misleading.
(b) Between the date hereof and each Issuance Date, the Company shall not
have sustained any loss on account of fire, explosion, flood, accident, calamity
or other cause, of such character as shall materially adversely affect its
business or property.
14
(c) Between the date hereof and each Issuance Date, there shall be no
litigation instituted, or to the knowledge of the Company threatened, against
the Company and there shall be no proceeding instituted or threatened against
the Company or before or by any federal or state commission, regulatory body or
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding would materially adversely affect the
business, franchises, licenses, permits, operations, prospects or financial
condition or income of the Company, taken as a whole.
(d) During the period subsequent to the Commencement Date and prior to
each Issuance Date, the Company (i) shall have conducted its business in the
usual and ordinary manner as the same was being conducted on the Commencement
Date or as expressly contemplated in the Memorandum and (ii) except in the
ordinary course of its business, or as expressly contemplated in the Memorandum,
the Company shall not have suffered or experienced any materially adverse change
in its financial condition or prospects.
(e) The authorization of the Securities, the Placement Agent Warrants,
Placement Agent Shares, the Memorandum and all corporate proceedings and other
legal matters incident thereto and to this Agreement shall be reasonably
satisfactory in all material respects to counsel to the Placement Agent.
(f) The Company shall have furnished to the Placement Agent the opinion of
its counsel, that:
(i) The Company is a validly existing corporation in good standing
under the laws of the state of its incorporation with full corporate power and
authority to own and operate its properties, and the Company is not required to
be qualified to do business as a foreign corporation in any jurisdiction except
where the failure to so qualify would have a material adverse effect on the
Company (other than any qualification arising solely as a result of conducting
business over the Internet).
(ii) Based on a certificate of the transfer agent for the Company
and a review of the minute books of the Company, the Company has an authorized
and outstanding capitalization as described in the Memorandum. The Units, the
certificates representing the Debentures and Warrants, and the Placement Agent
Warrants, are in due and proper form; and the Debentures, Warrants and the
Placement Agent Warrants conform in all material respects to the rights set
forth in the instruments defining the same.
(iii) The Debentures and Warrants have been duly and validly issued
and are fully paid and non-assessable and do not have any preemptive rights
applicable thereto; the Placement Agent Warrants have been duly and validly
authorized and upon issuance thereof in accordance with this Agreement, will be
duly and validly issued, fully paid and non-assessable and, to its knowledge,
will have no preemptive rights applicable thereto; and the Debenture Shares,
Warrant Shares, Clawback Shares and Placement Agent Shares have been duly
authorized, reserved for issuance and, upon payment therefor in accordance with
the terms of the applicable security, will be duly and validly issued, fully
paid and non-assessable and will have no pre-emptive rights applicable thereto.
(iv) This Agreement has been duly authorized, executed and delivered
by the Company and is a valid and binding obligation of the Company legally
enforceable against the Company in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors' rights
now or
15
hereafter in effect, and to general equitable principles, except that
enforceability of the Placement Agent's rights to indemnification or
contribution as set forth herein may be limited by applicable laws.
(v) Except as disclosed in the Memorandum, neither the execution,
delivery or performance of this Agreement nor the consummation of the
transactions herein contemplated, nor compliance with the terms hereof by the
Company do or will conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the articles of incorporation, as
amended, or the bylaws, as amended, of the Company; to counsel's knowledge, any
indenture, mortgage, deed of trust or other agreement or instrument which is
filed, or required to be filed, as an exhibit to (1) the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1999, (2) the Company's
Form 10-QSB for the fiscal quarter ended June 30, 2000 or (3) any exhibit that
would have been required to be annexed to a filing on Form 10-QSB if such form
were required to be filed as of the date of each Closing (as to item (3) in this
Section 7(f)(v), counsel shall be entitled to rely on a certificate of an
officer of the Company), and to which the Company is a party or by which it or
any of its assets or properties is bound, or to counsel's knowledge any law,
order, rule or regulation, judgment, writ, injunction, judgment or decree of any
government, governmental instrumentality or court, domestic or foreign, having
jurisdiction over the Company or its business or any of its properties, the
violation of which could prevent the Company from performing its obligations
hereunder or otherwise materially adversely affect the Company; and, to
counsel's knowledge, no consent, approvals, authorizations or orders of
agencies, officers or other regulatory authorities are necessary for the valid
authorization, issue or sale of the Securities and the Placement Agent Warrants
hereunder, and the performance by the Company of this Agreement and its
consummation of the transactions contemplated hereby, other than under state
securities or Blue Sky Laws, as to which no opinion need be expressed.
(vi) To the counsel's knowledge, there are no actions, suits or
proceedings at law or in equity pending or to such counsel's knowledge
threatened against the Company and there are no proceedings pending, or to such
counsel's knowledge threatened, against the Company before or by any federal or
state commission, regulatory body or administrative agency or other governmental
body wherein, either in any case or in the aggregate, an unfavorable ruling,
decision or finding might materially adversely affect the business, franchise,
licenses, permits, operations or financial condition or income of the Company
which are not disclosed in the Memorandum.
In rendering such opinion, counsel shall be entitled to rely, as to
matters of fact, on certificates of officers of the Company and public
officials.
(g) The Company shall have furnished to the Placement Agent a certificate
of the Chief Executive Officer and the Chief Operating Officer of the Company
dated as of the Issuance Date, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct in all material respects at and as of the
Issuance Date and the Company has complied in all material respects with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Issuance Date.
(ii) The Memorandum and any amendments and supplements thereto, and
all statements contained therein are true and correct, and neither the
Memorandum nor any amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact required to be stated
therein in the light of the circumstances in which they were made or necessary
to make the statements therein not misleading, and since the Commencement Date,
there
16
has occurred no event required to be set forth in an amended or supplemented
Memorandum which has not been so set forth.
(h) On or before the first Issuance Date, $50,000 of all of the debt of
the Company owed to each of Xxxx Xxxxx and Xxxx Xxxxxx as of June 30, 2000 shall
have been converted into Common Stock at a price of $.50 per share. The
remainder of all debt owed to each of Xxxx Xxxxx and Xxxx Xxxxxx, $41,977.67
each, shall be payable in equal monthly installments by the Company over a
24-month period with interest at the rate of 8% per annum. Since June 30, 2000,
the only increase in the amounts due to each of Xxxx Xxxxx and Suroff reflect
the accrual of interest on the indebtedness referred to in the preceeding
sentence.
(i) The Company shall have furnished to the Placement Agent a letter
addressed to the Placement Agent in form and substance satisfactory in all
respects to the Placement Agent, from the Company's accountants:
(i) Confirming that they are independent certified public
accountants with respect to the Company;
(ii) Stating that it is their opinion that the financial statements
required to be delivered to the Placement Agent prior to the first Closing
comply as to form in all material respects with generally accepted accounting
principles ("GAAP") and that the Placement Agent may rely upon such opinion with
respect to such financial statements;
(iii) Stating that, on the basis of a review of the most recent
unaudited interim financial statements of the Company, a reading of the latest
minutes of the stockholders and board of directors and the various committees of
the board of directors of the Company, consultations with officers and employees
of the Company responsible for financial and accounting matters and such other
inquiries and examinations as they deem necessary, nothing would come their
attention which would lead them to believe that (A) the financial statements and
supporting schedules of the Company do not comply as to form in all material
respects with GAAP or are not fairly presented in conformity with GAAP on a
basis substantially consistent with that of the audited financial statements of
the Company or (B) except as annexed to such letter, there has not been, within
the three (3) months prior to the date of such letter, any change in the capital
stock of the Company (other than with respect to the offering of securities as
contemplated by this Agreement).
All the opinions, letters, certificates and evidence mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel of the Placement Agent, whose approval shall not be unreasonably
withheld. The Placement Agent reserves the right to waive any of the conditions
herein set forth.
SECTION 8. Termination.
(a) This Agreement may be terminated by the Placement Agent by notice to
the Company in the event that the Company shall have failed or been unable to
comply in any material respect with any of the terms, conditions or provisions
of this Agreement on the part of the Company to be performed, complied with or
fulfilled within the respective times herein provided for, unless compliance
therewith or performance or satisfaction thereof shall have been expressly
waived by the Placement Agent in writing.
17
(b) This Agreement may be terminated by the Placement Agent by notice to
the Company at any time if, in the sole judgment of the Placement Agent, the
Offering or the sale or the payment for or the delivery of the Units is rendered
impracticable or inadvisable because (i) additional material governmental
restriction not in force and effect on the date hereof shall have been imposed
upon trading in securities generally, or minimum or maximum prices shall have
been generally established on the New York Stock Exchange, or trading in
securities generally on such exchange shall have been suspended or a general
banking moratorium shall have been established by federal or New York State
authorities or (ii) a war, major hostilities, act of God or other calamity shall
have occurred or (iii) of a material adverse change in the condition (financial
or otherwise) of the Company, its business or business prospects.
(c) This Agreement shall terminate upon expiration of the Initial Offering
Period in the event that the Minimum Offering is not sold, and all funds
theretofore received from the sale of the Units will be promptly returned to the
subscribers without deduction therefrom or interest thereon.
(d) This Agreement shall terminate upon expiration of the Continuing
Offering Period.
(e) Any termination of this Agreement pursuant to this Section shall be
without liability of any character (including, but not limited to, loss of
anticipated profits or consequential damages) on the part of any party hereto,
except that the Company shall remain obligated to pay the costs and expenses
provided to be paid by it specified in Section 4(d), and the Company on the one
hand and the Placement Agent on the other, shall be obligated to pay,
respectively, all losses, claims, damages or liabilities, joint or several,
under Section 5(a) in the case of the Company and Section 5(b) in the case of
the Placement Agent. Further, Placement Agent shall not be obligated to return
the $10,000 retainer paid to it pursuant to the Engagement Letter, which is
deemed earned as of the date hereof.
SECTION 9. Finders. The Company and the Placement Agent mutually represent
that they know of no person who rendered any service in connection with the
introduction of the Company to the Placement Agent and who is making a claim by
anyone for a "finder's fee" or similar type of fee in connection with the
offering which is the subject of this Agreement other than Xxxxxxx Xxxxx
Securities Incorporated, who will be compensated in accordance with a letter
agreement which is annexed to the Engagement Letter ("Xxxxxxx Letter"). By their
signatures below, Xxxx Xxxxx, Xxxx Xxxxxx and the Placement Agent agree to
comply with all the terms of the Xxxxxxx Letter applicable to them with respect
to the transfer of shares of Common Stock and the consideration payable by the
Placement Agent, as applicable. Other than with respect to Xxxxxxx Xxxxx
Securities Incorporated each party hereby indemnifies the other against any
claims by any person known to it and not known to the other parties hereto, who
shall claim to have rendered services in connection with the introduction of the
Company to the Placement Agent or to have such a claim and who shall make a
claim for a fee in connection therewith.
SECTION 10. Placement Agent's Representations and Warranties. The
Placement Agent represents and warrants to and agrees with the Company that:
(a) The Placement Agent is registered as a broker-dealer with the
Securities and Exchange Commission and is a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD").
(b) The Placement Agent will not effect sales of the Units in any
jurisdiction unless it or its representative is duly licensed, if necessary, to
effect sales in such jurisdiction and the offer and sale of the Units are
registered or exempt from registration in such jurisdiction.
18
(c) The Placement Agent is duly formed as a limited liability company and
is validly existing and in good standing under the laws of its state of
formation.
(d) Offers and sales of Units by the Placement Agent will be made solely
to those whom Placement Agent reasonably believes are accredited investors in
compliance with the provisions of Rule 502(c) of Regulation D and all applicable
provisions of state securities laws covering the same subject matter, and the
Placement Agent will furnish to each investor a copy of the Offering documents
prior to accepting any payments for Units. Sales of Units will be made solely to
those investors who represent in writing that they are accredited investors.
SECTION 11. Earnout Options. At each Issuance Date, the Company may grant
to Xxxx Xxxxx and Xxxx Xxxxxx an aggregate of 20,000 options to purchase shares
of Common Stock for each Unit sold on such Issuance Date, which options shall
have an exercise price of $1.00 per share and with a term of no more than 10
years from grant ("Earnout Options"). The Earnout Options will be delivered to
Rosenman & Colin LLP, the Company's counsel to hold in escrow (the "Option
Escrow Account") in accordance with the following provisions:
(a) Twenty percent (20%) of the Earnout Options will be released from
the Options Escrow Account following the date the Common Stock is
Listed and the Shares and Placement Agent Shares are Registered;
(b) Twenty percent (20%) of the Earnout Options will be released from
the Options Escrow Account if after the Shares and Placement Agent
Shares are Listed the Common Stock has achieved a closing price of
$2.00 or more for 22 consecutive trading days;
(c) Twenty percent (20%) of the Earnout Options will be released from
the Options Escrow Account if after the Shares and Placement Agent
Shares are Listed the Common Stock has achieved a closing price of
$4.00 or more for 22 consecutive trading days;
(d) Twenty percent (20%) of the Earnout Options will be released from
the Options Escrow Account if after the Shares and Placement Agent
Shares are Listed the Company's gross revenues and net income, as
reported in its Annual Report on Form 10-KSB (or successor or
comparable foreign form, or as reflected in the Company's audited
profit and loss statement if no such form is applicable) for any
full fiscal year which ends within three years following the final
Issuance Date, shall be at least $25,000,000 and $2,000,000,
respectively; and
(e) Twenty percent (20%) of the Earnout Options will be released from
the Options Escrow Account if after the Shares and Placement Agent
Shares are Listed, the Company's gross revenues and net income, as
reported in its Annual Report on Form 10-KSB (or successor or
comparable foreign form, or as reflected in the Company's audited
profit and loss statement if no such form is applicable) for any
full fiscal year which ends within three years following the final
Issuance Date, shall be at least $50,000,000 and $4,000,000,
respectively.
Notwithstanding the foregoing, (i) any Earnout Options remaining in the
Options Escrow Account on the fifth (5th) anniversary of the final Issuance Date
will be retired and returned to the Company's treasury, (ii) the Placement Agent
will at all times have the right, at any time from time to time, to release such
number of Earnout Options from the Options Escrow Account to the record
19
owner thereof as it, in its sole discretion, may determine, and (iii) all share
price amounts reflected in the foregoing shall be deemed adjusted to reflect
stock splits, stock dividends, recapitalizations and the like.
SECTION 12. Notice. Except as otherwise expressly provided in this
Agreement, (a) whenever notice is required by the provisions of this Agreement
to be given to the Company, such notice shall be given in writing, addressed to
the Company at the address set forth in the Memorandum, with a copy to Rosenman
& Colin LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxx
Xxxxxx, Esq. and (b) whenever notice is required by the provisions of this
Agreement to be given to the Placement Agent, such notice shall be in writing
addressed to the Placement Agent at the address set forth above with a copy to
Xxxxxxx & Associates, 00 Xxxx 00xx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000,
Attention: Xxxxx X. Xxxxxxx, Esq.
SECTION 13. Miscellaneous. This Agreement is made solely for the benefit
of the Placement Agent, the Company and any controlling person referred to in
Section 15 of the Securities Act, and their respective successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successor" or the term "successors and assigns" as used in
this Agreement shall not include any purchaser, as such, of any of the Units.
The validity, interpretation and construction of this Agreement, and of
each part hereof, will be governed by the laws of the State of New York without
reference to principles of conflicts of law.
The headings in this Agreement are for reference only and shall not limit
or otherwise affect any of the terms or provisions hereof.
This Agreement represents the entire agreement between the parties hereto
and supersedes any and all prior writings or oral communications, all of which
are merged into this Agreement.
The provisions of this Agreement shall be deemed severable, so that if any
provision hereof shall be declared unlawful or unenforceable, the remaining
provisions hereof shall not be affected thereby and shall remain in full force
and effect.
This Agreement shall be deemed to have been drafted jointly by the parties
hereto.
The Placement Agent shall have the right to associate itself with such
other members of the NASD and/or foreign investment firms duly licensed, if
required, in their respective locales offering the Units only offshore to the
United States as additional agents as the Placement Agent may elect, in its sole
discretion. The Placement Agent warrants and represents that such additional
agents have made the representations set forth in Sections 10(b) and 10(d)
herein to the Placement Agent. The Placement Agent shall have the right to share
any Basic Compensation payable pursuant to Section 3(c) with such additional
agents, and in such amounts as the Placement Agent deems fit, in its sole
judgment, with such amounts to be paid to such additional agents at the time of,
and from the proceeds of, each Closing in which such additional agents
participate. In addition, such additional agents shall be afforded, and shall
provide to the Company, the same indemnification by the Company as offered to
the Placement Agent, and by the Placement Agent to the Company, hereunder.
In the event of a dispute, the parties hereto agree to be bound by the
arbitration procedures of the American Arbitration Association, and that such
arbitration shall take place in the New York City metropolitan area.
20
This Agreement may be executed in counterparts, each of which shall be
deemed an original and all of which together will constitute one and the same
instrument.
21
Please confirm that the foregoing correctly sets forth the Agreement
between the Placement Agent and the Company.
XXXXXXX.XXX, INC.
By:/s/ Xxxx Xxxxx
_____________________________________
Xxxx Xxxxx
President
PEEPERS, INC.
By:/s/ Xxxx Xxxxx
_____________________________________
Xxxx Xxxxx
President
ERGOVISION, INC.
By:/s/ Xxxx Xxxxx
_____________________________________
Xxxx Xxxxx
President
FOGGLES, INC.
By:/s/ Xxxx Xxxxx
_____________________________________
Xxxx Xxxxx
President
GILEAD ENTERPRISES, INC.
By:/s/ Xxxx Xxxxx
_____________________________________
Xxxx Xxxxx
President
We hereby confirm as of the date hereof that the above letter sets forth
the agreement
22
between the Company and us.
CONNECTICUT CAPITAL MARKETS, LLC
By:/s/ Xxxxxxx X. Xxxxx
_____________________________________
Xxxxxxx X. Xxxxx
Chairman
Agreed to and accepted solely with respect to Sections 4(e), 4(f), 7(h) and 9:
/s/ Xxxx Xxxxx
___________________________________
Xxxx Xxxxx
/s/ Xxxx Xxxxxx
___________________________________
Xxxx Xxxxxx
23
SCHEDULE A
List of Assets Subject to Third Party Liens:
Rights to Acquire Shares of Common Stock:
Actions, suits or proceedings:
The Company is a party to an action captioned Xxxxxx Xxxxxxx v. Xxxxxxx.xxx,
Inc., Xxxx X. Xxxxx and Xxxx Xxxxxx, filed in the United States District Court
for the Southern District of New York.
See the Company's Form 10-KSB for the fiscal year ended December 31, 1999 and
the Company's Form 10-QSB for the quarter ended March 31, 2000.
24
