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EXHIBIT 10.3
Saliva Diagnostic Systems, Inc.
00000 XX 00xx Xx.
Xxxxxxxxx, Xxxxxxxxxx 00000
Gentlemen:
This letter will confirm our mutual agreement with respect to our
engagement as exclusive Placement Agent ("Placement Agent") to act on behalf of
Saliva Diagnostic Systems, Inc. (the "Company") in connection with the offer
and sale on a best efforts basis of up to $3,000,000 principal amount of the
Company's Preferred Stock, Series 1998-A and Series 1998-B pursuant to two
separate offerings under Regulation D promulgated under the Securities Act of
1933, as amended (the "Act"), subject to applicable regulations.
1. The engagement hereunder shall be for a term commencing upon the
execution of this letter by the Company and continuing until January 31, 1998.
You represent that no other offering is presently in progress by the Company
which has not been disclosed to us.
2. (a) The offerings will done in two offerings (the "First
Offering" and the "Second Offering," respectively) of $1,500,000 each. The
closing of the first offering (the "First Closing Date") will take place within
two trading days after the Securities Purchase Agreement ("Securities Purchase
Agreement"), in the form annexed hereto as Exhibit A, and other related
documents are signed by the Company and the Buyer, and the Company receives
good funds for the purchase price of that offering. The closing for the Second
Offering, if any, will be held on a date (the "Second Closing Date") selected
by the Buyer at any time within nine months after the First Closing Date.
If the closing bid price of the Common Stock as reported by the Nasdaq
Stock Market or Bloomberg L.P. (after adjusting for any stock splits, reverse
stock splits or stock dividends effected after the First Closing Date) for each
of five consecutive trading days is $.60 or more, then, for as long as such
adjusted closing bid price does not go below $.60, the Company may give the
Buyer notice that the option for the Second Offering will expire on a date set
by the Company at least 30 days from the date of such notice. Additionally, at
the option of the Company, the Buyer's option for the Second Offering will
expire upon notice to the Buyer that the Company is entering into a merger or
strategic alliance, and the Company within thirty (30) days will pay to the
Buyer $250,000 in cash or in freely tradeable common stock of the Company, and
provided that such merger or strategic alliance is actually consummated. If
such merger or strategic alliance is not consummated within thirty (30) days
of payment, then (i) the Buyer will, upon notice from the Company, return the
payment of $250,000 to the Company, and (ii) the Second Closing Date shall be
extended for sixty (60) days.
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(b) The Company will receive net proceeds of the sale of the Preferred
Stock after deducting the Fees (as defined below). The "Fees" are the Placement
Agent's cash fees of 7.5% of the aggregate principal amount of Preferred Stock
sold in each offering (the "Placement Agent's Fees"). The parties shall
jointly and in equal amounts pay the legal fees of Placement Agent's counsel of
1%. Other than the Fees, the Placement Agent shall not be entitled to any
additional compensation from the Company, nor shall Placement Agent be
reimbursed for its expenses.
(c) (i) The Preferred Stock issued in the First Offering shall be
convertible into Common Stock at the lesser of (a) 100% of the average closing
bid price of the Common Stock for the five (5) trading days prior to the First
Closing Date ("1st Market Price"), or (b) 80% of the average closing bid price
for the five (5) days prior to conversion, subject to the additional terms on
the annexed Exhibit A.
(ii) The Preferred Stock issued in the Second Offering s hall be
convertible into Common Stock at the lesser of (i) 80% of the average closing
bid price for the five trading days prior to conversion and (ii) the 1st Market
Price; provided, however, that at no time shall the Preferred Stock be
convertible at less than 65% of the average closing bid price for the five
trading days prior to conversion.
(d) The Buyer will, within two business days after acceptance by the
Company of a Securities Purchase Agreement, pay the purchase price for the
First Offering Preferred Stock to or at the direction of the Company, provided
that:
(i) the Company approves such Buyer and subscription documents
(in the form of an exhibit hereto) which have been submitted
and signed by the Buyer, and
(ii) the Company has caused to be delivered to or at the direction
of the Buyer, the First Offering Preferred Stock purchased by
such Xxxxx and the opinion of counsel attached as Xxxxx XXX
to the Securities Purchase Agreement.
(e) The Company shall have the right in its sole discretion to reject
any Subscription and to disapprove the Buyer and any person or entity which is
proposed by the Placement Agent to be a party to the Securities Purchase
Agreement.
3. The Company will cause the Preferred Stock purchased pursuant to such
Securities Purchase Agreement to be delivered to, or at the direction of the
Buyer, within a reasonable time after the conditions in Section 2(d) have been
met.
4. The terms set forth in Exhibit A attached hereto represent the further
understanding of the parties.
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5. The Placement Agent represents, warrants and agrees that
the Buyer will be qualified to purchase the Preferred Stock under the
laws of the jurisdiction in which such person resides and that the
offer and sale of the Preferred Stock will not violate the securities
or other laws of such jurisdiction. The Company agrees that with
respect to any offerees resident in the United States, the Company
will file, at the request of Placement Agent, such necessary
applications with any applicable securities regulatory authority,
relying solely on the Placement Agent's representations that all U.S.
offerees will be accredited investors.
6. The Placement Agent further agrees that:
(a) all offering materials and documents used in
connection with offers and sales of the Preferred Stock prior to the
expiration of the engagement period shall be approved in advance in
writing by the Company, and shall include statements to the effect
that the Preferred Stock have not been registered under the Act and
that neither the Buyer, nor any direct or indirect purchaser of the
Preferred Stock from such Buyer, may directly or indirectly offer or
sell the Preferred Stock in the United States or to U.S. persons
unless the Preferred Stock are registered under the Act, or an
exemption from the registration requirements of the Act is available;
(b) it will comply with all laws, rules and regulations of
the jurisdictions in which the Preferred Stock are offered and sold;
and
(c) Placement Agent has no authority to act on behalf of
the Company or otherwise bind the Company.
(d) Each Buyer will be an "accredited investor" as said
term is defined in Rule 501 under Regulation D promulgated under the
Act.
7. Placement Agent is an independent contractor, and is not
the agent of the Company. It is not authorized to bind the Company,
or to make any representations or warranties on behalf of the Company.
8. The Company represents, warrants, and agrees that, in
addition to the warranties to be made by the Company to the Buyer:
(a) The Company has timely filed all the material required
to be filed pursuant to Section 13(a) or 15(d) of the Exchange Act
for a period of at least twelve months preceding the date hereof, and
the Company will continue to file all such material on a timely basis.
(b) The Company is in full compliance, to the extent
applicable, with all reporting obligations under either Section
12(b), 12(g) or 15(d) of the Exchange Act. The Company has registered
its Common Stock pursuant to Section 12 of the Exchange Act and the
Common Stock is currently listed on The NASDAQ/SmallCap Market. The
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Company has received notice from NASDAQ of its delisting as of
January 27, 1998, subject to certain conditions as described in
Exhibit C annexed hereto.
(c) The Preferred Stock will be offered and sold in
compliance with the requirements for the exemption from registration
pursuant to Section 4(2) and Section 5 of the Act contained and
Regulation D under the Act, and with all other U.S. securities laws
and regulations; it being understood that this representation,
warranty and agreement is made relying exclusively on the
representations, warranties and agreements made by the Placement
Agent herein or in the applicable subscription documents. The
Company will, at its expense, make all filings required under the Act
and any applicable domestic securities exchange or trading market, if
any.
(d) All information furnished by the Company to purchasers
under Regulation D will not contain any untrue statement of material
fact or omit to state a material fact required to be stated or
necessary to make the statements therein not misleading; provided
however, that this representation and warranty does not extend to
written material furnished to the Company by Placement Agent relating
to Placement Agent or the distribution process.
(e) The Company has all requisite corporate power and
authority to execute and perform this agreement. All corporate
action necessary for the authorization, execution, delivery and
performance of this agreement and the transaction contemplated hereby
have been taken. This agreement constitutes a valid and binding
obligation of the Company.
(f) The execution and performance of this agreement by the
Company and the offer and sale of the Preferred Stock will not
violate any provision of the Articles of Incorporation or By-laws of
the Company or any material agreement or other instrument to which
the Company is party or by which it is bound, and which violation(s)
would have a material adverse effect on the business or financial
condition of the Company. Any material necessary approvals, U.S.
governmental and private, will be obtained by the Company prior to
the issuance of the Preferred Stock.
(g) The Company makes no other representation or warranty
with respect to the Company, its finances, assets, business or
prospects or otherwise, except as expressly set forth herein or in
the Securities Purchase Agreement. Placement Agent will advise the
Buyer of the foregoing, and that the Buyer is relying on its own
investigation with respect to all such matters, and that it will be
given reasonable access to any and all material publicly available
documents and Company personnel it may require for such
investigation.
(h) The Company will deliver to the Buyer, a Registration
Rights Agreement substantially in the form annexed hereto as Xxxxx XX
(the "Registration Rights Agreement").
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9. The Company will provide the Buyer with an opinion of
counsel substantially in the form attached as Xxxxx XXX to the
Securities Purchase Agreement.
10. As more fully described in Exhibit B hereto, which is
incorporated herein by reference, each party hereto will indemnify
and hold the other (including its partners, agents, employees, and
controlling persons within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act) harmless from and against certain
claims, liabilities, losses, damages and expenses incurred, including
fees and disbursements of counsel, related to or arising out of this
engagement. Exhibit B will be executed and delivered simultaneously
with this agreement.
11. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware. Each of the
parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non coveniens, to the bringing
of any such proceeding in such jurisdictions. A facsimile
transmission of this signed Agreement shall be legal and binding on
all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The
headings of this Agreement are for convenience of reference and shall
not form part of, or affect the interpretation of, this Agreement.
If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this
Agreement or the validity or enforceability of this Agreement in any
other jurisdiction. This Agreement may be amended only by an
instrument in writing signed by both parties. This Agreement
supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof. Any notices
required or permitted to be given under the terms of this Agreement
shall be sent by mail or delivered personally or by courier and shall
be effective five days after being placed in the mail, if mailed, or
upon receipt, if delivered personally or by courier, in each case
addressed to a party at such party's address shown in the
introductory paragraph or on the signature page of this Agreement or
such other address as a party shall have provided by notice to the
other party in accordance with this provision.
Dated: January 26, 1998 XXXXX TRADING, INC.
By: /s/ Xxxxxx Xxxxxx
---------------------
AGREED & ACCEPTED:
SALIVA DIAGNOSTIC SYSTEMS, INC.
By: /s/ Xxxxxxx X. XxXxxxxxx
---------------------------------------------
Its President and Chief Executive Officer
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EXHIBIT A
CONVERSION TERMS: The Preferred Stock are convertible into shares
of Common Stock according on the following schedule:
a. For each offering:
--25% of the Preferred Stock are convertible
beginning 90 days after issuance;
--an additional 25% of the Preferred Stock
(cumulative 50%) are convertible beginning 120
days after issuance;
--an additional 25% of the Preferred Stock
(cumulative 75%) are convertible beginning 150
days after issuance; and
--100% of the Preferred Stock are convertible
beginning 180 days after issuance provided that
if the Second Offering is issued within 120 days
of the First Offering, the Second Offering shall
be convertible commencing two hundred ten (210)
days after issuance of the First Offering.
The securities of each offering are convertible
up to two (2) years from such offering's closing
date. In the event that any securities remain
outstanding on the second anniversary of the
relevant closing date, all remaining securities
must be converted (subject to the ability of the
Company to issue shares in excess of 19.99% of
all issued and outstanding Common Stock in
compliance with NASDAQ regulatory requirements).
WARRANTS: The Buyer or its designee shall be issued transferable
divisible warrants to purchase 1,000,000 shares of Common Stock
with an exercise price equal to the average closing bid price of
the common stock for five (5) trading days ending on the trading
day prior to the First Closing Date. Warrants for 750,000 of
these shares will be exercisable immediately; the warrants for
the remaining shares will be exercisable commencing no earlier
than 10 days after the closing date of the Second Offering. No
additional warrants will be issued to the Buyer in connection
with the closing of the Second Offering. The common stock
underlying the Warrants will be registered pursuant to a
registration rights agreement. The Warrants will have a term of
five (5) years from the First Closing Date.
REGISTRATION
RIGHTS: The Company will agree to file one or more
registration statements or amendments to an existing
registration statement covering the
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Common Stock underlying the Preferred Stock of each Offering1 within
thirty (30) days after the each Closing Date and will cause such
registration statement to become effective no later than the
"Required Effective Date," which is ninety (90) days from the
First Closing Date and sixty (60) days from the Second Closing
Date.
LATE FILING OR
EFFECTIVENESS: If the Company does not file the registration
statement with SEC on timely basis or if the registration
statement is not declared effective by the Required Effective
Date, the Company will compensate the Buyer in an amount equal
to 2% per month of the principal amount of the Preferred Stock
acquired. Such payment will be made in cash on demand and will
continue to accrue until the registration statement is declared
effective.
AVAILABLE SHARES: The Company will always have reserved for
issuance to the Buyer at least 150% of the shares then
anticipated to be necessary for issuance upon conversion of all
outstanding Preferred Stock and all Warrants.
DELIVERY OF
CERTIFICATES: On conversion, the Company will direct the
transfer agent to deliver certificates for shares to Buyer
within 3 business days. If such request is made more than
5 days late, the Company will compensate Buyer at rate of
$100/day for first 10 days and $200/day thereafter for each
$10,000 of purchase price. Buyer will also have right to
rescind conversion notice. In addition, if, after 3rd
business day, the Company has not made its request of
transfer agent, if Xxxxx has sold shares of Common Stock,
the Company will compensate Buyer for extra costs incurred
to cover sale.
4.99% CONVERSION
LIMIT: The Buyer will agree not to convert Preferred
Stock if it would result in beneficial ownership of more
than 4.99% of the outstanding shares. This limit will not
apply (i) if the Company is in default under any of the
Transaction Agreements or (ii) in connection with any
mandatory conversion.
LIMITATIONS ON
COMPANY'S
ISSUANCE: If the Company is restricted from issuing shares
upon conversion of the Second Offering Preferred Stock because
of NASDAQ Regulatory Requirements, then the Company will take
all steps reasonably necessary to comply with such regulations
and be able to issue such shares. If the Company does not or
can not do so, the Buyer will have the right to require the
Company to redeem the outstanding unconvertible Preferred Stock
at a
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redemption price equal to (x) the unconvertible Preferred Stock plus
all accrued but unpaid interest thereon, divided by the then
applicable conversion price, multiplied by (y) the then market
price(2) of the Common Stock.
ADJUSTMENTS: Under certain circumstances (including, but not
necessarily limited to, recapitalizations, stock splits, reverse
stock splits) the conversion price and the warrant exercise
price will be adjusted. In the event the Company does "spin
off" transaction prior to conversion or warrant exercise,
additional provisions relating to adjustment in price and shares
of spun off entity will apply.
DILUTIVE EFFECT: The Company will acknowledge possible dilutive effect
of conversion and exercise terms, including possible price adjustment.
HEDGE FUND: The Company will acknowledge that Buyer may be
"hedge" fund and may engage in certain hedging transactions.
NO UNDISCLOSED LIABILITIES
OR EVENTS REQUIRING
DISCLOSURE: The Company will represent that (i) it has no
undisclosed liabilities other than in the ordinary course
of business (which individually or in the aggregate do not
have a material adverse effect on the condition of the
Company) and (ii) there are no events or circumstances
requiring public disclosure which have not been disclosed.
REGULATION D: The Company will represent that neither it nor
its affiliates have engaged in any sales or offers which
would eliminate the Regulation D exemption for this
transaction.
TRANSFER AGENT
AUTHORIZATION: The Company will authorize the transfer agent to
give public information relating to the Company directly to
Buyer or representatives.
OPINION: The Company counsel will provide an opinion to
Buyer substantially in form attached to Securities Purchase Agreement.
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EXHIBIT B
INDEMNIFICATION AGREEMENT
In consideration of the agreement of XXXXX TRADING, INC.
("Placement Agent") to act on behalf of Saliva Diagnostic Systems,
Inc. (the "Company") pursuant to the Placement Agent Agreement (the
"Agreement") dated January 26, 1998, the Company agrees to indemnify
and hold harmless Placement Agent, its affiliates, and each of their
respective partners, directors, officers, agents, consultants,
employees and controlling persons (within the meaning of the
Securities Act of 1933) (Placement Agent and each such other person
or entity are hereinafter referred to as an "Indemnified Person"),
from and against any losses, claims, damages, expenses and
liabilities or actions in respect thereof (collectively "Losses"), as
they may be incurred including all reasonable legal fees and other
expenses incurred in connection with investigating, preparing,
defending, paying, settling or compromising any Losses (whether or
not in connection with any pending or threatened litigation in which
any Indemnified Person is a named party) to which any of them may
become subject (including in any settlement effected with the
Company's consent) and which are related to or arise out of any act,
omission, transaction or event contemplated by the Agreement. The
Company will not, however, be responsible under the foregoing
provisions with respect to any Losses (a) to the extent that a court
of competent jurisdiction shall have determined by a final judgment
that such Losses resulted primarily from actions taken or omitted to
be taken by an Indemnified Person due to its gross negligence, bad
faith or willful misconduct, or (b) resulting solely from one or more
decreases in the market price of the Company's common stock.
If the indemnity referred to in this agreement should be, for
any reason whatsoever, unenforceable, unavailable or otherwise
insufficient to hold such Indemnified Person harmless, the Company
shall pay to or on behalf of each Indemnified Person contributions
for Losses so that each Indemnified Person ultimately bears only a
portion of such Losses as is appropriate (i) to reflect the relative
benefits received by each such Indemnified Person, respectively, on
the one hand and the Company on the other hand in connection with the
transaction, or (ii) if the allocation on that basis is not permitted
by applicable law, to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each such
Indemnified Person, respectively, and the Company as well as any
other relevant equitable considerations; provided, however, that in
no event shall the aggregate contribution of all Indemnified Persons
to all Losses in connection with any transaction exceed the value of
the consideration actually received by Placement Agent pursuant to
the Agreement. The respective relative benefits received by
Placement Agent and the Company in connection with any transaction
shall be deemed to be in the same proportion as the aggregate
consideration received by Placement Agent in connection
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with the transaction bears to the total consideration of the
transaction. The relative fault of each Indemnified Person and the
Company shall be determined by reference to, among other things,
whether the actions or omissions to act were by such Indemnified
Person or the Company, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action or omission to act.
The Company also agrees that no Indemnified Person shall have
any liability to the Company or its affiliates, directors, officers,
employees, agents or shareholders, directly or indirectly, related to
or arising out of the Agreement, except that each Indemnified Person
shall indemnify and hold harmless the Company, its directors,
officers, agents, consultants and controlled persons from and against
any Losses as they are incurred, which result primarily from actions
taken or omitted to be taken by such Indemnified Person due to its
gross negligence, bad faith or willful misconduct. In no event,
regardless of the legal theory advanced, shall the Company or any
Indemnified Person be liable for any consequential, indirect,
incidental or special damages of any nature.
If any action is brought against any Indemnified Person in
respect of which indemnity may be sought against the Company
hereunder, such Indemnified Person shall promptly notify the Company
in writing of such action and the Company shall be entitled to
participate therein and, to the extent the Company shall wish, assume
the defense thereof. Upon the request of an Indemnified Person, the
Company shall retain counsel reasonably satisfactory to such
Indemnified Person to represent such Indemnified Person and any
others the Company may designate in such action and shall pay the
reasonable fees and expenses of such counsel related thereto as they
are incurred. In any such action, an Indemnified Person shall have
the right to retain its own counsel at its own expense, except that
the Company shall pay as they are incurred the reasonable fees and
expenses of counsel retained by the indemnified party only in the
event that (i) the Company and such Indemnified Person shall have
mutually agreed to the retention of such counsel or (ii) the Company
has directed counsel to represent one or more parties in addition to
such Indemnified Person in such action and representation of both
such Indemnified Person and such other party or parties by the same
counsel would be inappropriate, in the reasonable opinion of such
Indemnified Person, due to actual or potential differing interests
between them, it being understood that the Company shall not be
liable for the reasonable fees and expenses of more than one separate
firm for all the Indemnified Persons. No indemnification provided
for herein shall be available to any Indemnified Person that fails to
give notice as provided above if the Company was unaware of the
action to which such notice would have related and was substantially
prejudiced by such failure or to any Indemnified Person that retains
its own counsel in accordance with the immediately preceding sentence
except in the circumstances set forth in clauses (i) and (ii)
thereof. The Company agrees that without Placement Agent's prior
written consent it shall not settle, compromise or consent to the
entry of any judgment in any pending or threatened claim, action,
suit or proceeding related to the Distribution Agreement unless the
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settlement, compromise or consent also includes an express
unconditional release of all Indemnified Persons from all liability
and obligations arising therefrom.
The respective obligations of the Company and the Indemnified
Persons referred to above shall be in addition to any rights that any
Indemnified Person or the Company, as the case may be, may otherwise
have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of any
Indemnified Person and the Company. It is understood that the
respective obligations of the Company and the Indemnified Persons
will remain operative regardless of any termination or completion of
Placement Agent's services pursuant to the Agreement.
