MASTER PRIVATE PLACEMENT
ENGAGEMENT LETTER
PERSONAL AND CONFIDENTIAL
August 31, 2004
Digital Lifestyles Group, Inc.
0000 X. Xxxxxxx xx Xxxxx Xxx.
Building 0, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xx. Xxxx Xxxxxx, Chairman and Chief Executive Officer
Dear Xxxx:
You have indicated that Digital Lifestyles Group, Inc. (the "COMPANY") desires
to obtain financing for general corporate purposes. The purpose of this letter
(this "AGREEMENT") is to set forth the agreement between the Company and Tejas
Securities Group, Inc. ("TEJAS") regarding the services to be performed by
Xxxxx.
In connection with the proposed private placement (the "FINANCING") by the
Company of not less than 9,400,000 units (the "SECURITIES"), each unit ("UNIT")
consisting of one share of the Company's Common Stock ("SHARE") and a warrant
(on the terms hereinafter described) ("WARRANT") to purchase one-half of a
Share, priced at the arithmetic mean of the average of the closing sales price
of one share of Common Stock on the Nasdaq OTC Market for the five trading days
ending on the trading date immediately preceding the date of the closing of the
sale of the Securities ("MARKET VALUE") multiplied by (ii) 0.8 per Unit (the
"PER UNIT PRICE"), and on such other terms and conditions to be established by
mutual agreement at the time of sale, the Company and Tejas agree. The Warrants
will be for a term of two (2) years and have an exercise price equal to 110% of
Market Value per Share, which will be subject to adjustment in order to protect
the holders thereof against dilution in certain events.
1. (a) Prior to the sale of the Securities to any offeree or any
person advising such offeree, they shall: (i) be furnished
information by the Company pertaining to the Securities and
the terms and conditions of the Financing, and (ii) be given
the opportunity by the Company to ask questions and receive
answers concerning the Company and the Securities and the
terms and conditions of the Financing.
(b) The final offering documents signed in connection with the
placement of the Securities, including, but not limited to,
any stock purchase agreement or any private placement
memorandum (the "OFFERING DOCUMENTS"), will not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make such information not
misleading.
(c) The Company covenants that it shall promptly notify Tejas if,
because of the occurrence of any event or condition, the
passing of time or otherwise, any of the
Offering Documents, shall, prior to final purchase of the
Securities, contain any untrue statement of a material fact or
omit to state a material fact necessary to make the
statements, in light of the circumstances under which they
were made, not misleading. The Offering Documents shall be
amended in form and substance so that after giving effect to
such amendment, the Offering Documents will not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements in light of the
circumstances under which they were made, not misleading.
(d) The Company shall furnish or make available to Tejas or its
authorized representatives any and all documentation and
information reasonably requested in connection with Tejas' due
diligence efforts regarding this placement.
(e) Except for the Securities and the issuance of stock options or
the underlying shares of common stock relating thereto
issuable pursuant to the Company Stock Option Plan or any
other shares of common stock underlying derivative securities
of the Company outstanding on the date hereof, the Company
shall not offer to sell any securities of the same class or
similar securities as the Securities from the date hereof
until after a period of six (6) months has elapsed after the
date of the last sale of the Securities unless the Company
shall have provided Tejas with a satisfactory opinion from the
Company's legal counsel as to whether the proposed offering
does not cause any violation of any securities laws, rules or
regulations.
2. The Company hereby appoints Tejas as its exclusive agent to attempt to
arrange the private placement of the Securities during the period
commencing on the date of execution of this letter by the Company and
ending on midnight, August 31, 2004 (the "OFFERING PERIOD"), which may
be extended by mutual written agreement of the parties hereto;
provided, however, that the Offering Period will automatically be
extended until midnight, September 8, 2004 upon notice from Tejas that
it has identified Investors interested in investing in the Securities
who require the additional time to complete any closing documents or
procedures (and any reference hereinafter to the Offering Period shall
mean the Offering Period as so extended). Subject to the terms and
conditions herein set forth, Xxxxx accepts such appointment and shall
endeavor to find purchasers (the "INVESTORS") for all of the Securities
who can satisfy the Company that they qualify as "accredited investors"
pursuant to Rule 501 promulgated under the Securities Act of 1933 (the
"1933 ACT"). Tejas makes no warranty or guaranty of its success in
placing the Securities and there is no express or implied warranty and
no liability to Tejas for failure to expend any particular level of
effort. Tejas' agency hereunder is coupled with an interest and such
agency shall continue until the termination of the Offering Period. The
Company shall have the right to reject any and all proposed purchasers
of the Securities for any reason the Company deems reasonable. This
paragraph 2 and paragraphs 4, 5 and 7 below shall survive any
termination of this Agreement. Notwithstanding the foregoing, in the
event that a potential purchaser of the Securities (the "OFFEREE") is
contacted by Xxxxx during the Offering Period and the Offeree purchases
Securities from the Company after the expiration of the Offering
Period, at any time during a period of twelve (12) months from the date
of this Agreement, Tejas shall be entitled to the same fees and
warrants provided for below with respect to such purchase had the
purchase occurred during the Offering Period.
3. During the Offering Period, the Company shall not, directly or
indirectly (except through Tejas), offer to sell, or attempt to offer
or sell, or solicit any offer to buy, or otherwise negotiate in respect
of, any of the Securities other than to existing stockholders,
employees of the Company and other non-institutional potential
purchasers contacted by the Company prior to the Offering Period (the
"Company Purchasers").
4. Upon the closing of the sale of Securities, the Company shall pay Tejas
a fee in cash at closing equal to four percent (4%) of the aggregate
proceeds from the sale of Securities to the Investors, which shall not
include up to $1.1 million in proceeds from the Company Purchasers. At
the end of the Offering Period (as the same may be extended), if the
Company and the Investors have agreed on the form of closing documents
and the Investors are ready and willing to purchase Securities with an
aggregate purchase price of at least $3.9 million, but the Company
Purchasers are not ready and willing to purchase Securities with an
aggregate purchase price of at least $1.1 million and there is no
closing of the sale of Securities, then the Company shall pay Tejas a
fee equal to $40,000 and the expense reimbursement described in the
following sentence. The Company also agrees to reimburse Tejas for all
documented reasonable out-of-pocket expenses incurred on this project
through the end of the Offering Period, subject to an aggregate limit
of $15,000 ($25,000 if the Offering Period is extended) without prior
written approval. Such expense reimbursement is not contingent upon the
successful completion of the transaction contemplated hereunder and
shall be payable upon the first to occur of the closing of the sale of
the Securities or 30 days after billed by Xxxxx. The Company shall be
responsible for, and shall make, all filings required with state
securities administrators in connection with the Financing and to pay
all costs and expenses (including legal and filing fees) in connection
therewith.
5. (a) The Company agrees, for a price of one hundred dollars
($100.00) to sell to Tejas, concurrently with, but subject to
and contingent on the consummation of the successful sale of
the Securities, Warrants exercisable into a number of Shares
equal to the sum of 1,000,000 and the number obtained by
dividing the gross proceeds from the sale of Securities in
excess of $5.0 Million by 5 (including for such purposes
Securities purchased by Company Purchasers). By way of
example, if Securities are sold resulting in aggregate
proceeds of $6,000,000, then Tejas will be entitled to a
warrant to purchase 1,200,000 Shares
(1,000,000+[1,000,000/5]). All Shares issuable upon the
exercise of such Warrants will be issuable out of the
authorized unissued shares of Common Stock of the Company.
Such Warrants will have a term of eight (8) years and may be
exercised as to all or any lesser number of Shares covered
thereby, commencing at the end of the Offering Period. Such
Warrants shall be transferable (subject to applicable
securities laws) and shall contain provisions that require
registration for re-sale of the underlying Common Stock, with
the registration to remain effective until all can be freely
sold without volume limitations under Rule 144(k), all
exercisable in whole or in part on a net cashless exercise
basis, with the exercise period extended for any period during
which the registration is lapsed.
(b) The exercise price of the Warrants to be received by Tejas
shall be equal to the exercise price for the Warrants sold to
Investors in this Offering and shall except as noted in
paragraph 5(a) above, otherwise have the same terms and
conditions.
(c) Additionally, the Company agrees that Tejas will have, for a
period of twelve (12) months from the date of the Agreement ,
the right to participate on the same terms and conditions as
any other managing underwriter or placement agent in any
public offerings, private placements or other equity or debt
financings that may be undertaken by the Company in which the
Company's Common Stock or securities convertible into or
exercisable for Common Stock (including, without limitation,
convertible debt) is to be sold at a price, or with a
conversion or exercise price, less than $0.416 or at a
discount of greater than 30% of the fair market value of such
security, in each case on terms and conditions customary for
similar transactions. Tejas shall exercise such right within
twenty-four (24) hours of receipt of written notification from
the Company describing in sufficient detail the terms of such
financing. In the event of a breach of this subparagraph 5(c),
then Tejas will be entitled to receive the same fee it is
receiving under the Agreement for any such financings.
6. Prior to the sale of any of the Securities, the Company shall make
customary representations and warranties to Tejas and the purchasers of
the Securities.
7. The Company agrees to indemnify Tejas as set forth in Schedule I
attached hereto, which is to be an integral part of this Agreement.
8. Any dispute, controversy or claim arising out of, relating to, or in
connection with, this Agreement or the breach, termination or validity
hereof shall be settled by submission to arbitration before the
National Association of Securities Dealers, Inc. ("NASD"), pursuant to
the Code of Arbitration Procedure of that organization. All parties
agree to the jurisdiction of the NASD for such purposes. If arbitration
before the NASD is not available, the parties shall arbitrate pursuant
to the rules of the American Arbitration Association.
9. Except where otherwise herein provided all notices, information,
consents and other communications required or permitted by the
provisions of this Agreement to be given, sent by any party, shall be
in writing and shall be deemed to be properly given when: (i) delivered
personally to any of the hereinafter designated addressees or the named
representatives thereof; (ii) mailed by prepaid certified or registered
mail, return receipt requested; or (iii) when sent by telephone
facsimile, telegram, cable or email; and in each instance addressed to
such party at the respective address as follows (in each such case
promptly confirmed with a copy thereof sent as in (ii)):
If to the Company: If to Tejas:
Digital Lifestyles Group, Inc. Tejas Securities Group, Inc.
0000 X. Xxxxxxx xx Xxxxx Xxx. 0000 Xxx Xxxxxxx, Xxxxx 000
Xxxxxxxx 0, Xxxxx 000 Xxxxxx, XX 00000
Xxxxxx, Xxxxx 00000
Attention: Xxxx Xxxxxx Attention: Xxxx X. Xxxxxx
Chairman and Chief Executive Officer Chairman
Either party may at any time change its respectively designated address above by
giving notice thereof to the other parties hereto.
10. The Company acknowledges that Xxxxx has been retained hereunder solely
as an adviser to the Company, and not as an adviser to or agent of any
other person, and that the Company's engagement of Tejas is as an
independent contractor and not in any other capacity including as a
fiduciary. Neither this engagement, nor the delivery of any advice in
connection with this engagement, is intended to confer rights upon any
persons not a party hereto (including security holders, employees or
creditors of the Company) as against Tejas or our affiliates or their
respective directors, officers, agents and employees.
11. This agreement is governed by the laws of the State of Texas, without
regard to conflicts of law principles, and will be binding upon and
inure to the benefit of the Company and Tejas and their respective
successors and assigns. This agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement. Neither this
Agreement nor any provisions hereof shall be modified except by an
instrument in writing, signed by both parties.
If the foregoing correctly sets forth our understanding, please so indicate by
signing and returning to us the enclosed copy.
Very truly yours,
Tejas Securities Group, Inc.
By: /s/ Xxxx X. Xxxxxx
----------------------------------------
Xxxx X. Xxxxxx
Chairman
Xxxxxx to and accepted this 31st day of August
Digital Lifestyles Group, Inc.
By: /s/ Xxxx X. Xxxxxx
----------------------------------
Xxxx X. Xxxxxx
Chief Executive Officer
SCHEDULE I
1. The person or entity (the "COMPANY") engaging the services of Tejas
Securities Group, Inc. ("TEJAS") pursuant to the attached agreement
(the "AGREEMENT") hereby agrees to indemnify and hold harmless Tejas
and its affiliates, the respective directors, officers, employees, and
agents of Tejas and its affiliates, and each other person or entity, if
any, controlling Tejas or any of its affiliates (Tejas and each of the
foregoing persons or entities being each referred to herein as an
"INDEMNIFIED PARTY") from and against any and all losses, claims,
damages and liabilities whatsoever, joint or several, and expenses
incurred by them (including, without limitation reasonable fees and
disbursements of counsel) to which any such Indemnified Party may
become subject which (a) are related to or arise out of (i) action
taken or omitted to be taken (including, without limitation, any untrue
statements made or any statements omitted to be made) by the Company,
or (ii) action taken or omitted to be taken by an Indemnified Party at
the Company's direction; or (b) are otherwise related to or arise out
of Tejas activities on the Company's behalf under the Agreement
(INCLUDING, WITHOUT LIMITATION, ANY LOSSES, CLAIMS, ACTIONS, DAMAGES,
LIABILITIES (WHETHER JOINT OR SEVERAL), AND EXPENSES ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONCURRENT NEGLIGENCE OF ANY INDEMNIFIED
PARTY), and will reimburse any Indemnified Party for all reasonable
expenses (including, without limitation, reasonable fees and
disbursements of counsel) as they are incurred in connection with the
investigation of, preparation for or defense of any pending or
threatened claim or any action or proceeding arising therefrom,
regardless of whether such Indemnified Party is a party and regardless
of whether such claim, action or proceeding is initiated or brought by
or on behalf of the Company. The Company will not be liable to any
Indemnified Party under the foregoing indemnification provisions to the
extent that any loss, claim, damage, liability or expense otherwise
subject to indemnification under clause (b) above is finally judicially
determined (after exhaustion of all appeals or rights to appeal) to
have resulted primarily and directly from the willful misconduct or
gross negligence of such Indemnified Party. The Company also agrees
that no Indemnified Party shall have any liability (WHETHER DIRECT OR
INDIRECT, IN CONTRACT OR TORT OR OTHERWISE, AND WHETHER ARISING OUT OF
OR RESULTING FROM THE SOLE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY
OR VICARIOUS LIABILITY OF SUCH INDEMNIFIED PARTY) to the Company or its
security holders or creditors related to or arising out of the
engagement of Tejas or its activities on behalf of the Company, except
to the extent that any loss, claim, damage, liability or expense is
finally judicially determined (after exhaustion of all appeals or
rights to appeal) to have resulted primarily from the Indemnified
Party's willful misconduct or gross negligence. The Company further
agrees that it will not, without the prior written consent of any
Indemnified Party in its sole discretion, settle or compromise or
consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not any Indemnified Party is an
active or potential party to such claim, action, suit or proceeding)
unless such settlement, compromise or consent (a) includes an
unconditional release of each affected Indemnified Party from all
liability arising out of such claim, action, suit or proceeding, and
(b) does not include a statement indicating, or an admission of, any
fault, culpability, or a failure to act by any affected Indemnified
Party.
2. Promptly after receipt by an Indemnified Party of notice of any claim
or complaint or the commencement of any action or proceeding with
respect to which indemnification may be
sought hereunder, such Indemnified Party shall notify the Company in
writing of such claim or complaint or of the commencement of such
action or proceeding, but the failure to so notify the Company will not
relieve the Company from any liability which it may have hereunder or
otherwise, except to the extent that such failure results in the
Company's forfeiture of material rights or defenses. If the Company so
elects or is requested by such Indemnified Party, the Company will
assume the defense of such action or proceeding, including without
limitation, the employment of counsel satisfactory to such Indemnified
Party in its sole discretion, and the payment of the fees and
disbursements of such counsel. Each Indemnified Party shall have the
right to employ separate counsel in any such action or proceeding and
to participate in the defense thereof, but the fees and expenses of
such separate counsel shall be at the expense of such Indemnified Party
unless (a) the employment thereof has been specifically authorized by
the Company; (b) the Company has failed to promptly assume or to
diligently conduct the defense and employ counsel acceptable to such
Indemnified Party in its sole discretion; or (c) the named parties, or
parties threatened to be named, to any such action or proceeding
(including, without limitation, any impleaded parties or parties
threatened to be impleaded) include both such Indemnified Party and the
Company, and such Indemnified Party shall have been advised by such
counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to the
Company (in each of which cases such Indemnified Party shall have the
right to employ its own counsel and in each of such cases any fees and
expenses of such counsel shall be paid by the Company). The Company
shall pay the fees and expenses of legal counsel engaged in accordance
with the foregoing provisions promptly after such fees and expenses are
invoiced.
3. In the event that an Indemnified Party is requested or required to
appear as a witness or otherwise participate (including, without
limitation, through deposition or other discovery) any action or
proceeding brought by or on behalf of, or against, the Company in which
such Indemnified Party is not named as a defendant, the Company agrees
to reimburse Tejas or the Indemnified Party, as the case may be, for
all reasonable expenses incurred by it, as incurred, in connection with
such Indemnified Party's appearing and preparing to appear as such a
witness, including, without limitation, the reasonable fees and
disbursements of its legal counsel, and to compensate Tejas or the
Indemnified Party, as the case may be, in an amount to be mutually
agreed upon.
4. If for any reason (other than as specified in the second sentence of
Paragraph 1 above) the benefits of the foregoing indemnification or
reimbursement provisions are unavailable to an Indemnified Party or
insufficient to hold any Indemnified Party harmless in respect of any
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) referred to herein, then the Company and Tejas shall
contribute to the amount paid or payable by any of the Indemnified
Parties as a result of such claim, damage, loss, liability or expense
in such proportion as is appropriate to reflect not only the relative
benefits received by the Company, on the one hand, and Tejas, on the
other hand, from Tejas engagement under the Agreement referred to
above, but also the relative fault of the Company, on the one hand, and
Tejas, on the other hand, as well as any other relevant equitable
considerations; provided, that Tejas obligation to make contribution
will not exceed under any circumstances the amount of fees actually
received by Xxxxx from the Company pursuant to the Agreement. The
relative benefits received by the Company, on the one hand, and Tejas,
on the other hand, shall be deemed to be in the same proportions as (i)
the total value paid or proposed to be paid or received or
proposed to be received by the Company or its stockholders pursuant to
the transaction, whether or not consummated, for which Xxxxx is engaged
to render financial advisory services, bears to (ii) the fees paid or
proposed to be paid to Tejas in connection with the Agreement. The
relative fault of the Company, on the one hand, and Tejas, on the other
hand, shall be determined by reference to, among other things, the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the alleged act, statement or
omission giving rise to such loss, claim, damage, liability or expense.
The Company and Xxxxx agree that it would not be just and equitable if
contribution were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this Paragraph 4. The amount paid
or payable by an Indemnified Party as a result of the losses, claims,
damages, liabilities or expense (or actions in respect thereof)
referred to above in this Paragraph 4 shall be deemed to include any
legal or other expenses incurred by such Indemnified Party in
connection with investigating or defending any such claim. No person or
entity guilty of fraudulent misrepresentation (within the meaning of
Section II(f) of the Securities Act) shall be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation. If indemnification and reimbursement is available
under the preceding Paragraphs of this Schedule I, that indemnification
and reimbursement (in accordance with its terms) shall apply without
regard to relative fault or other equitable considerations referred to
in this Paragraph 4.
5. The foregoing indemnification, reimbursement and contribution
obligations of the Company shall be (i) cumulative of and in addition
to any rights that any Indemnified Party may have at common law or
otherwise, and (ii) APPLICABLE, TO THE EXTENT SET FORTH ABOVE,
REGARDLESS OF WHETHER SOLE OR CONCURRENT NEGLIGENCE (OTHER THAN GROSS
NEGLIGENCE), STRICT LIABILITY OR VICARIOUS LIABILITY OF ANY INDEMNIFIED
PARTY IS ALLEGED OR PROVEN. No investigation or failure to investigate
by an Indemnified Party shall impair the foregoing indemnification,
reimbursement and contribution obligations of the Company or any right
an Indemnified Party may have. The Company acknowledges and agrees that
Xxxxx has been retained to provide certain services to the Company more
specifically described in the Agreement. In such capacity, Tejas shall
act as an independent contractor, and any duties of Tejas arising out
of its engagement pursuant to the Agreement shall be owed solely to the
Company.
6. The Company hereby consents to personal jurisdiction and service and
venue in any court in which any claim which is subject to the foregoing
indemnification, reimbursement and (if applicable) contribution
provisions is brought against any Indemnified Party.
7. It is understood that, in connection with Tejas above-mentioned
engagement, Xxxxx may also be engaged to act in one or more additional
capacities, and that the terms of the original engagement or any such
additional engagement may be embodied in one or more separate written
agreements. The foregoing indemnification, reimbursement and (if
applicable) contribution provisions shall apply to the original
engagement, any such additional engagement and any modification of the
original engagement or such additional engagement and shall survive, or
remain in full force and effect following, the completion or any
termination of Tejas' engagement(s).
