VirtGame Corp.
0000 Xxxxx Xxxxx Xx, #X
Xxx Xxxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
March 31, 2003
Lighthouse Financial Group, LLC
000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Xxxxx Securities Co., Inc.
00 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Gentlemen:
The undersigned, VirtGame Corp., a Delaware corporation (together with
any of its subsidiaries, affiliates, successors or assigns, the "Company"),
proposes to offer for sale to certain "accredited investors," through Lighthouse
Financial Group, LLC ("Lighthouse" or the "Managing Agent") and Xxxxx Securities
Co., Inc. ("Xxxxx"), as co-placement agents (collectively, the "Placement
Agents") in an "all-or-none" private placement, a minimum of $2,000,000 (the
"Minimum Amount") and a maximum of $3,000,000 (the "Maximum Amount") of units
(the "Units"), each consisting of twenty-five (25) shares of the Company's
$1,000 face amount zero dividend Series A convertible redeemable preferred
shares (the "Preferred Shares") and 35,000 five-year redeemable warrants as more
fully described on Schedule 1 hereto. The Securities (as hereinafter defined) to
be offered pursuant to the Offering Documents (as hereinafter defined) are
referred to as the "Financing" or the "Offering."
The closing (the "Closing") of the Financing shall not occur until the
Company has, in any combination, received and accepted subscriptions for the
purchase of Securities in amounts equal to the Minimum Amount.
The Securities will be offered pursuant to those terms and conditions
acceptable to you and your counsel as reflected in the final form of
Confidential Private Placement Memorandum of the Company (together with the
exhibits and any supplements thereto, the "Memorandum"). The Securities will be
offered pursuant to the Memorandum in accordance with Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
Each prospective investor subscribing to purchase Securities (the
"Subscriber") will be required to deliver, among other things, a subscription
agreement ("Subscription Agreement") and an accredited investor certification
("Certification") in the forms to be provided, representing and warranting,
among other things, that such Subscriber is an "accredited investor" as such
term is defined in Regulation D.
The Memorandum and the form of proposed Subscription Agreement between
the Company and each Subscriber and the exhibits which are part of the
Memorandum (including, without limitation, the Registration Rights Agreement
between the Company and each of the Subscribers with respect to certain
registration rights under the Securities Act (the "Registration Rights
Agreement")) and/or the Subscription Agreement are referred to herein
collectively as the "Offering Documents."
The Securities will be offered for minimum subscription amounts of
$25,000; on a "best efforts, all-or-none" basis, exclusively by the Placement
Agents; provided, however, that the Company and the Placement Agents may, in
their discretion, accept subscriptions for a lesser amount from a Subscriber.
The Company will prepare and deliver to the Placement Agents a
reasonable number of copies of the Offering Documents in form and substance
satisfactory to the Placement Agents and their respective counsel, which
Offering Documents shall include reviewed financial statements for such periods
as may be required.
Capitalized terms used herein, unless otherwise defined or unless the
context otherwise indicates, shall have the same meanings provided in the
Memorandum.
1. APPOINTMENT OF CO-PLACEMENT AGENTS. You are hereby appointed
exclusive Co-Placement Agents of the Company during the offering period herein
specified (the "Offering Period") for the purposes of assisting the Company on a
"best efforts" basis in finding qualified Subscribers for the purchase of
Securities. The Offering Period shall commence on the date of delivery and
acceptance by the Placement Agents of the Memorandum ("Commencement Date") and
shall continue until the earlier to occur of (i) the sale of the Minimum amount;
or (ii) May 15, 2003 (as the same may be extended by mutual consent of the
Placement Agents and the Company) to a date no later than June 30, 2003. If the
Minimum Amount is not sold prior to the end of the Offering Period, the Offering
will be terminated and all funds received from Subscribers and held in a special
non-interest bearing escrow account (the "Account") by Xxxxxxxxxx, as escrow
agent of the Company, in the Account at XX Xxxxxx Xxxxx, New York, New York (the
"Bank") will be returned, without deduction or accrued interest thereon. You
hereby accept such agency and agree to assist the Company in finding qualified
Subscribers for the purchase of Securities. Your agency hereunder is not
terminable by the Company except upon termination of the Offering.
As part of the Placement Agents' exclusive representation of the
Company with respect to the Offering, the Placement Agents shall assist the
Company in identifying potential investors as the Company may designate. In
addition, the Placement Agents shall assist the Company in structuring,
negotiating and effecting the Offering. The Company agrees that, during the
course of the engagement hereunder, neither it, nor any of its management, nor
any of its affiliates, shall initiate any discussions with third parties with
respect to the Offering and to the extent any of such persons receives an
inquiry from any third parties concerning the Offering or any other financing
related to the Company, they will promptly identify to the Placement Agents the
name of such person and the date of such initial contact. Placement Agents may
enter into selling agreements with other broker-dealers. Placement Agents will
be solely responsible for compensating any selling group members and the Company
shall have no liability for any additional compensation to any selling group
member who participates in the Offering; provided, however, the exclusive
appointment of the Co-Placement Agents shall not apply to XxXxxxx Securities
("XxXxxxx") if XxXxxxx does not become a party to this Agreement or enter into a
selling agreement with the Placement Agents. In addition, the exclusive
appointment shall not apply to those firms identified on Schedule 1A.
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Notwithstanding anything to the contrary contained in this Agreement,
the Managing Agent shall have the exclusive authority to represent the Placement
Agents and act on their behalf with respect to the exercise of all rights of the
Placement Agents under this Agreement, including, but not limited to, (i) the
waiver of any breach of the terms of this Agreement by the Company, (ii) the
giving or receiving of any and all notices, (iii) the receipt of any and all
payments of cash or stock compensation and the reimbursement of expenses, which
in all cases shall be paid or issued in the name of the Managing Agent, and (iv)
the exercise of any and all other rights of the Placement Agents hereunder,
including, but not limited to, the rights of first refusal in Section 5(d)(ii),
the transactional fee in Section 5(d)(iii) and the appointment of the board
representative in Section 5(f). Nothing in the foregoing sentence shall modify
or affect the liability of any Placement Agents for the representations,
warranties or agreements made by the Placement Agent in this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants as follows:
(a) The Company has reviewed the Offering Documents and will
review the documents to be used in connection with the Series A convertible
redeemable preferred shares (the "Preferred Shares") and the five year
redeemable warrants (the "Warrants") (collectively, the "Units" or the
"Securities"). The Offering Documents conform, and the Units, the Preferred
Shares, and the Warrants will conform, with applicable requirements of the
Securities Act of 1933, as amended (the "Act"), and the Rules and Regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, including Rule 506 of Regulation D. The Placement
Agents may sell the Units to an unlimited number of "Accredited" investors as
such term is defined in Regulation D. The Offering Documents are either in
compliance, or will be supplemented to be in compliance, with any applicable
securities laws. The Company will give the Placement Agents immediate notice of
any supplement or amendment of the Offering Documents.
(b) The Offering Documents do not as of the date of such
documents and will not as of each Closing Date (as later defined herein),
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(c) Neither the Commission nor any state securities agency has
issued any order preventing, or suspending, the use of the Offering Documents or
the sale of the Units.
(d) Subsequent to the date as of which information is given in
the Offering Documents with respect to each Closing Date, there has not been:
(i) except as provided in this Agreement, any
material change in the capital stock (other than securities issued pursuant to
the Offering) or long-term debt (including any capitalized lease obligation), or
material increase in the short-term debt of the Company;
(ii) except as provided in this Agreement, any
issuance of options, warrants, convertible securities or other rights to
purchase the capital stock of the Company;
(iii) any material adverse change, or any development
involving a material adverse change, in or affecting the business, business
prospects, properties, management, financial position, stockholders' equity,
results of operations or general condition of the Company;
(iv) any material transaction entered into by the
Company;
(v) any material obligation, direct or contingent,
incurred by the Company, except obligations incurred in the ordinary course of
business that, in the aggregate, are not material; or
(vi) any dividend or distribution of any kind
declared, paid or made on the Company's capital stock.
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(e) The Company has no subsidiaries, and is not affiliated
with any other company or business entity, except as explicitly stated in the
Offering Documents.
(f) The Company is not in violation of its organizational
documents, as currently in effect. The Company is not in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of indebtedness or in
any contract, indenture, mortgage, loan agreement, joint venture or other
agreement or instrument to which the Company is a party or by which the Company
or its properties are bound, which, individually or in the aggregate, could have
a material adverse effect on the Company. The Company is not in violation of any
law, order, rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court, domestic or foreign.
(g) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Offering Documents. The
Company is duly qualified to do business as a foreign corporation in good
standing in each jurisdiction in which the ownership or lease of its properties,
or the conduct of its business, requires such qualification and in which the
failure to be qualified or in good standing would have a material adverse effect
on the business of the Company. The Company has all necessary and material
authorizations, approvals and orders of and from all governmental regulatory
officials and bodies to own its properties and to conduct its business as
described in the Offering Documents, and is conducting its business in
substantial compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business. Except as described in the
Offering Documents, the Company holds all material licenses, certificates and
permits from state, federal and other regulatory authorities, including, but not
limited to, its gaming license from the Nevada Gaming Commission, necessary for
the conduct of its business as described in the Offering Documents, or has
obtained waivers from any such applicable requirements from the appropriate
state, federal or other regulatory authority.
(h) The Company has full requisite power and authority to
enter into this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of the
Company, enforceable in accordance with its terms, except as enforceability may
be limited by the application of bankruptcy, insolvency, moratorium or similar
laws affecting the rights of creditors generally and by judicial limitations on
the right of specific performance, and except as the enforceability of the
indemnification or contribution provisions hereof may be affected by applicable
federal or state securities laws. The performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
material breach or violation of any of the terms and provisions of, or
constitute a material default under:
(i) Any bond, debenture, note, contract, lease,
license, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company is a party, or by which it,or
any of its property, is bound;
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(ii) The Company's Certificate of Incorporation, as
amended, Bylaws and other governing documents; or
(iii) Any law, order, rule, regulation, writ,
injunction or decree of any government, governmental agency or court having
jurisdiction over the Company or any of its properties; and no consent,
approval, authorization or order of any court or governmental agency or body is
required for the consummation by the Company of the transactions contemplated by
this Agreement, except, as may be required under the Act or state securities or
Blue Sky laws in connection with the sale of the Securities by the Company.
(i) There are no actions, suits, or proceedings pending before
any court or before any governmental agency, authority, or body to which the
Company is a party or of which the business or property of the Company is the
subject which might result in any material adverse change in the condition
(financial or otherwise), business or prospects of the Company, materially and
adversely affect its properties or assets or prevent consummation of the
transactions contemplated by this Agreement and, to the best of the Company's
knowledge, no such actions, suits, or proceedings are threatened.
(j) The Units conform in substance to all statements relating
thereto contained in the Offering Documents. The Company will, as of each
Closing Date as it relates to the Offering Documents, have the duly authorized
and outstanding capitalization as set forth in the Offering Documents. At each
Closing, the Securities to be sold by the Company hereunder will have been duly
authorized and, when issued and delivered pursuant to this Agreement and the
subscription agreements to be entered into between the Company and purchasers of
the Securities (the "Subscription Agreements"), will constitute valid and
binding obligations of the Company in accordance with their terms, except as
enforceability may be limited by the application of bankruptcy, insolvency,
moratorium or similar laws affecting the rights of creditors generally and by
judicial limitations on the right of specific performance. The Warrant Shares
and the shares underlying the Preferred Shares have been duly authorized and
reserved for issuance, and when issued upon such exercise will be validly
issued, fully paid and nonassessable. No preemptive rights or similar rights of
any security holders of the Company exist with respect to the issuance and sale
of the Securities by the Company. Except as disclosed in the Offering Documents
or disclosed in writing to the Placement Agents, the Company has no agreement
with any security holder which gives such security holder the right to require
the Company to register under the Act any securities of any nature owned or held
by such person. Upon payment for and delivery of the Securities to be sold by
the Company pursuant to this Agreement and the Subscription Agreements, the
investors will acquire good and marketable title to such Securities, free and
clear of all liens, encumbrances or claims, except for restrictions under
applicable federal and state securities laws.
(k) The Placement Agents' Warrants, as defined in Section 4,
when issued and delivered, will constitute a valid and binding obligation of the
Company enforceable in accordance with its terms. Upon payment for and delivery
of the Placement Agents' Warrant Shares, as defined in Section 4, pursuant to
the Placement Agents' Warrant, the Placement Agents will acquire good and
marketable title to the Placement Agents' Warrant Shares, free and clear of all
liens, encumbrances or claims, except for restrictions under applicable federal
and state securities laws. The certificates evidencing the Shares will comply as
to form with all applicable provisions of applicable law. A sufficient number of
shares of Common Stock have been reserved for issuance by the Company upon
exercise of the Placement Agents' Warrants.
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(l) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by the Company
of the transactions contemplated by this Agreement, except as may be required
under the Act or Blue Sky Laws in connection with the sale of the Securities by
the Company.
(m) The financial statements of the Company, together with the
related notes, forming part of the Offering Documents, will fairly present the
financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply. All
financial statements included in the Offering Documents will be prepared in
accordance with generally accepted accounting principles ("GAAP"), consistently
applied throughout the periods involved, except as may be otherwise stated
therein and except as the financial statements for the interim periods are
subject to year-end adjustments.
(n) Except as is otherwise disclosed in the Offering
Documents, the Company has good and marketable title to all of the property,
real and personal, described in the Offering Documents as being owned by the
Company, free and clear of all liens, encumbrances, equities, charges or claims,
except as do not materially interfere with the uses made and to be made by the
Company of such property. Except as is otherwise disclosed in the Offering
Documents, the Company has valid and binding leases to the real and/or personal
property described in the Offering Documents as being under lease to the
Company.
(o) The Company has filed all necessary federal and state
income and franchise tax returns and paid all taxes shown as due thereon. The
Company has no knowledge of any tax deficiency which might be asserted against
it which would materially and adversely affect the Company's business or
properties.
(p) Except as disclosed in the Offering Documents:
(i) the Company owns or possesses the rights to use
all patents, copyrights, trademarks, trade secrets and proprietary rights or
information described in the Offering Documents as being reasonably necessary
for the conduct of its present or intended business and has not received any
notice of conflict with asserted rights of others;
(ii) there are no pending legal, governmental or
administrative proceedings relating to patents, copyrights, trademarks or
proprietary rights or information, to which the Company is a party or of which
any property of the Company is subject and no such proceedings are, to the
Company's knowledge, threatened or contemplated against the Company by any
governmental agency or authority or others;\
(iii) to the Company's knowledge the Company is not
using any confidential information or trade secrets of any third party without
the consent of such third party;
(iv) to the Company's knowledge the Company does not
infringe upon the right or claimed right of any person under, or with respect
to, any of the intangible rights listed above; and
(v) the Company is not obligated or under any
liability whatsoever to make any material payments by way of royalties, fees or
otherwise to any owner of, licensor of or other claimant to, any patent,
trademark, trade name, copyright or other intangible asset, with respect to the
use thereof or in connection with the conduct of its business or otherwise.
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(q) Except as disclosed in the Offering Documents, no person
is entitled, directly or indirectly, to compensation from the Company or the
Placement Agents for services as a finder in connection with the transactions
contemplated by this Agreement.
(r) Subject to the Placement Agents' compliance with their
representations and warranties in Section 3, the Company will conduct the
Offering in compliance with the requirements of Regulation D promulgated under
the Act. The Company is not disqualified from claiming exemption under
Regulation D by Rule 505(b)(2)(iii) of Regulation D and meets the other
requirements to claim exemption under Regulation D.
(s) No labor disturbance by the employees of the Company
exists or, to the Company's knowledge, is imminent which could reasonably be
expected to have a material adverse effect on the conduct of the business,
operations, financial condition or income of the Company.
(t) The Company has no defined benefit pension plan or other
plan promulgated pursuant to, or which is intended to comply with the provisions
of, the Employee Retirement Income Security Act of 1974, except as disclosed in
the Offering Documents.
(u) The Company has not sold any securities in violation of
the Act or any state securities laws.
(v) The Company maintains insurance, which is in full force
and effect, of the types and in the amounts adequate for its business and in
line with the insurance maintained by similar companies and businesses.
(w) The Company intends to apply the proceeds from the sale of
the Securities for the purposes and substantially in the manner set forth in the
Offering Documents.
3. REPRESENTATIONS AND WARRANTIES OF THE PLACEMENT AGENTS.
Each of the Placement Agents represents that:
(a) It is duly organized, validly existing and in good
standing under the laws of its respective jurisdiction with all requisite
corporate power to carry on its business as currently being conducted.
(b) It is, and any subagents will be, licensed as
broker-dealers, authorized to conduct offerings of the sort contemplated hereby
by the Commission and the blue sky authorities of each other state in which the
Company and Placement Agents have agreed to offer the Securities. It and
subagents are members in good standing of the National Association of Securities
Dealers, Inc. To the Placement Agents' knowledge, no proceedings are pending or
threatened to revoke or limit any such status of either Placement Agent.
(c) This Agreement has been duly authorized and executed by
the Placement Agents and is a legal, valid and binding agreement of the
Placement Agents.
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(d) The Placement Agents will:
(i) not offer, offer for sale or sell the Securities
by means of any form of general solicitation or general advertising as described
under Rule 502(c) of Regulation D;
(ii) provide each of its offerees of Securities a
copy of the Offering Documents at all times prior to the termination of the
Offering;
(iii) comply with the provisions of the Act and the
Rules and Regulations and the 1934 Act and the rules promulgated thereunder,
including but not limited Rules 10b-9 and 15c2-4 under the 1934 Act and Rule 506
of the Rules and Regulations, in the offer and sale of the Securities;
(iv) not utilize any sales materials other than the
Offering Documents or make any statements concerning the Company other than
information contained in the Offering Documents unless prior written approval is
obtained from, and a copy of the materials to be used is provided to, the
Company and its legal counsel; and
(v) use its best efforts to provide that any
subagents will comply with the provisions of (i) - (iv) above.
4. CLOSING: PLACEMENT AND FEES.
(a) CLOSING. The Closing of the Financing shall take place at
the offices of either of the Placement Agents at a time and date agreed upon
between the Placement Agents and the Company upon the receipt of Subscription
Agreements and related documents in form and substance satisfactory to the
Company and the Placement Agents which are equal to or are in excess of the
Minimum Amount. At the Closing, payment for the Securities shall be made against
delivery of certificates representing the Securities sold.
(b) PROCEDURES AT CLOSING. At the Closing:
(i) The Placement Agents on behalf of themselves and
the Subscribers shall receive the opinion of Xxxxxxx Xxxxx & Xxxxx LLP ("Company
Counsel"), dated the Closing date, to the effect that:
(A) the Company and each of its Subsidiaries
is duly organized and validly existing and in good standing under the laws of
its incorporation, has all requisite power and authority necessary to own or
hold its properties and conduct its business as described in the Ancillary
Documents and is duly qualified as a corporation for the transaction of business
and is in good standing in each jurisdiction where the failure to be so
qualified might have a material and adverse impact upon the Company or upon any
of its Subsidiaries;
(B) the Company has full right, power and
authority to enter into this Agreement and to perform all of its obligations
hereunder or contemplated hereby or by any of the Ancillary Documents; the
Company has full right, power and authority to issue, sell and deliver the
Securities; this Agreement and the Ancillary Documents have been duly
authorized, executed and delivered by the Company and are valid and legally
binding obligations of the Company, each enforceable in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors rights generally;
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(C) the authorized capital stock of the
Company as of the Closing (not giving effect to the transactions contemplated by
this Agreement) consists of the capital stock described in the Offering
Documents and that to the best of Company Counsel's knowledge, there are no
outstanding warrants, options, agreements, convertible securities, preemptive
rights or other commitments pursuant to which the Company is, or may become,
obligated to issue any shares of its Common Stock or any other capital stock or
other securities of the Company; all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued, are fully paid an
nonassessable;
(D) to Company Counsel's knowledge, the
Offering Documents (except as to the financial statements and other financial
information set forth in the Offering Documents or incorporated by reference
therein, as to which no opinion is expressed) and any amendment or supplement
thereto prior to the termination of the Offering, do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(E) to the best of Company Counsel's
knowledge, the Company has complied with the requirements of the Securities Act
and Regulation D promulgated thereunder and with the requirements of all other
published rules and regulations of the Commission currently in effect relating
to "private offerings" and/or "accredited investors" of the type made by the
Company and the issuance and sale of the Securities is exempt from registration
under the Securities Act;
(F) neither the execution and delivery of
this Agreement, nor compliance with the terms hereof, nor the consummation of
the transactions herein contemplated, has, nor will, conflict with, result in a
breach of, or constitute a default under the Charter or By-laws of the Company
or of any of its Subsidiaries, or, to Company Counsel's knowledge, any material
contract, instrument or document to which the Company or any of its Subsidiaries
is a party, or by which any of its properties is bound;
(G) no approval or consent of any court,
board or governmental agency, instrumentality or authority of the United States
or of any state having jurisdiction or authority over the Company or its
Subsidiaries not duly obtained is required for the valid authorization,m
issuance, sale and delivery of the Securities (or the Reserve Shares) and the
components thereof, other than that required under the United States state "blue
sky" laws;
(H) to the best of Company Counsel's
knowledge, there are no claims, actions, suits, investigations or proceedings
before or by any arbitrator, court, governmental authority or instrumentality
pending or, to Company Counsel's knowledge, threatened against or affecting the
Company or of any of its Subsidiaries or involving the Company's or any of its
Subsidiaries' properties which might adversely affect the business, properties
or financial condition of the Company or any of its Subsidiaries, or which might
adversely affect the transactions or other acts contemplated by this Agreement
of the validity or enforceability of this Agreement, except as set forth in or
contemplated by the Offering Documents; and
(I) the Company is subject to the reporting
requirements of the Securities Exchange Act of 1934, and to the best of Company
Counsel's knowledge, has timely filed all reports required to be filed with the
Securities and Exchange Commission, and will be in compliance with such filing
requirements as of the Closing Date.
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For purposes of the opinion of Company
Counsel, the phrase "to Company Counsel's knowledge" shall mean actual knowledge
with duty of inquiry limited to interviewing the Company's chief executive
officer and director, Xxxxx Xxxxxx, and the phrase "to the best of Company
Counsel's knowledge" shall mean actual knowledge after having conducted an
inquiry customary for purposes of providing opinions of such nature.
(ii) At the Closing, the Placement Agents will have
received a signed letter from the Company's auditors, confirming that such firm
is an independent public accountant within the meaning of the Securities Act and
stating that: (i) insofar as reported on by such firm, in their opinion, the
financial statements of the Company included in the Offering Documents
(including, without limitation, the Financial Statements) comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act; (ii) on the basis of procedures and inquiries (not constituting
an examination in accordance with generally accepted auditing standards)
consisting of a reading of the last available financial statements of the
Company, inquiries of officers of the Company responsible for financial and
accounting matters as to the transactions and events subsequent to the Balance
Sheet Date, and a reading of the minutes of meetings of the shareholders, the
board of Directors of the Company and any committees of the Board of Directors,
as set forth in the minute books of the Company, nothing has come to their
attention which, in their judgment, would indicate that (A) during the period
from the Balance Sheet Date to a specified date not more than five (5) business
days prior to the date of such letter, there have been any material decreases in
net current assets or net assets or any change in the capitalization or
long-term debt of the Company or of any of its Subsidiaries, except in all cases
as set forth in or contemplated by the Offering Documents; and (B) the unaudited
interim financial statements of the Company, if any, appearing in the Offering
Documents, are not presented in conformity with Generally Accepted Accounting
Principles and Practices on a basis substantially consistent with the audited
financial statements included in the Offering Documents; and (iii) they have
compared specific dollar amounts, numbers of shares, numerical data, percentages
of revenues and earnings, and other financial information pertaining to the
Company set forth in the Offering Documents (with respect to all dollar amounts,
numbers of shares, percentages and other financial information contained in the
Offering Documents, to the extent that such amounts, numbers, percentages and
information may be derived from the general accounting records of the Company,
and excluding any questions requiring an interpretation by legal counsel) with
the results obtained from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not constitute an examination
in accordance with generally accepted auditing standards) set forth in the
letter, and found them to be in agreement.
(iii) Counsel for the Placement Agents and Company
Counsel shall receive certificates from the Company, signed by the President or
Vice President thereof, certifying (A) that the representations and warranties
contained in Section 2 hereof are true and accurate at the Initial Closing with
the same effect as though expressly made at the Initial Closing; and (B) that
attached hereto is (1) a true and correct copy of resolutions adopted by the
Company's Board of Directors authorizing (i) the execution, delivery and
performance of this Agreement and the Ancillary Documents, and (ii) the issuance
of the Securities and the VirtGame Warrants and certifying that such resolutions
have not been modified, rescinded or amended and are in full force and effect;
and (2) a true and correct copy of a resolution adopted by the Company's Board
of Directors and by each of the Company's Subsidiaries, authorizing the
execution, delivery and performance of each document to which it is party, and
that such resolutions have not been modified, rescinded or amended and are in
full force and effect.
(iv) There shall be delivered on behalf of each
Subscriber one copy of the Subscription Agreement signed by each Subscriber and
one copy of the Certification signed by each Subscriber.
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(v) The Placement Agents shall have received
certificates of good standing of the Company, dated as of a recent date, from
the Secretary of State of the jurisdiction of its incorporation and certificates
of good standing of each of the Company's Subsidiaries, dated as of a recent
date, by the Secretary of State of the jurisdictions of incorporation of the
Subsidiaries.
(vi) At the Closing, the Placement Agents shall
instruct the Bank to pay to the Company out of the funds on deposit in the
Account, as such funds are received from Subscribers whose Subscriptions have
been accepted.
(c) BLUE SKY. Where appropriate, counsel for the Placement
Agents shall prepare a summary blue sky survey stating the extent to which and
the conditions upon which offers and sales of the Securities may be made in
certain jurisdictions. Blue Sky applications shall be made in such states and
jurisdictions as shall be requested by the Placement Agents. It is understood
that such survey may be based on or rely upon (i) the representations of each
Subscriber set forth in the Subscription Agreement delivered by such Subscriber;
(ii) the representations, warranties and agreements of the Company and of its
Subsidiaries set forth herein; (iii) the representations and warranties of the
Placement Agents set forth herein; and (iv) the representations of the Company
and its Subsidiaries set forth in the certificate to be delivered at the Closing
pursuant to paragraph 4(b)(iii) hereof.
(d) PLACEMENT FEE AND EXPENSES.
(i) At the Closing, the Company shall pay to the
Placement Agents a commission equal to eight percent (8%) of the aggregate
proceeds derived from the Financing. In addition, the Company shall pay the
Placement Agents a non-accountable and non-refundable expense allowance, equal
to Sixty-Five Thousand Dollars ($65,000) of the aggregate proceeds to be derived
from the Financing, Fifty Thousand Dollars ($50,000) of which is payable to
Lighthouse, with Thirty Thousand Dollars ($30,000) payable to Lighthouse upon
the execution hereof and the balance of Fifteen Thousand Dollars ($15,000) to
Xxxxx, and Twenty Thousand Dollars ($20,000) to Lighthouse upon the first
Closing.
(ii) The Company has granted to Lighthouse (and to
Xxxxx if the Minimum Offering is raised) a right of first refusal to underwrite
or place any future public sales or private sales of debt or equity securities
whatsoever of the Company or of any Subsidiary or successor thereof, (excluding
sales to employees of the Company or of its Subsidiaries or successors), or any
such sale by any of the principal shareholders of the Company, or of its
Subsidiaries and successors, for a period commencing on March 1, 2003 and
expiring on March 1, 2006. If any such proposed financing is offered to the
Placement Agents as aforesaid, the Placement Agents shall have 30 days in which
to determine whether or not to accept such offer and, if the Placement Agents
decline the offer, the right of first refusal shall be forfeited by the
Placement Agents, but only if such a financing is consummated with another
underwriter or placement agent upon the same terms and conditions as those
offered to the Placement Agents, and such financing is consummated within six
(6) months after the end of the 30 day period referred to above. If after a
declination by the Placement Agents the aforesaid conditions are not satisfied,
then the right of first refusal to the Placement Agents shall be reinstated.
-11-
(iii) The Company shall pay the Placement Agents a
transaction fee consisting of (i) three percent (3%) of all consideration paid
or payable and (ii) if mutually agreed upon by the parties, an equity
participation in the surviving entity, in the event that the Company or any of
its Subsidiaries is party to any merger, acquisition, joint venture or other
transaction or series of transactions during the eighteen (18) months from the
Closing of the Offering; provided, however, such fee shall be five percent (5%)
if the gross proceeds raised in this Offering are at least two million seven
hundred and fifty thousand seven hundred and fifty thousand dollars
($2,750,000).
(e) ISSUANCE OF VIRTGAME WARRANTS. Simultaneously with the
Closing as provided in paragraph 4(a) above, the Company shall issue to the
Placement Agents or their designee(s), non-redeemable warrants exercisable for
five (5) years to purchase ten percent (10%) of the number of Units sold at 120%
of the per Unit price paid by Subscribers.
(f) PLACEMENT AGENTS' DECISION NOT TO PROCEED, ETC. If the
Placement Agents decide not to proceed with the Offering because of a breach by
the Company or by its Subsidiaries of its/their representations, warranties, or
covenants in this Agreement, or as a result of adverse changes in the affairs of
the Company or of its Subsidiaries, the Company shall be obligated to pay the
Placement Agents Sixty-Five Thousand Dollars ($65,000) reimbursement for
expenses, including attorneys' fees.
5. COVENANTS OF THE COMPANY.
(a) AMENDMENTS AND SUPPLEMENTS. The Company covenants and
agrees that, until the Offering contemplated by the Offering Documents has been
completed or terminated, if there shall occur any event relating to or
affecting, among other things, the Company, any of its Subsidiaries, or the
proposed operations of the Company or any of its Subsidiaries as described in
the Offering Documents, as a result of which it is necessary, in the opinion of
the Placement Agents and their counsel or Company Counsel, to amend or
supplement the Offering Documents in order that the Offering Documents will not
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, the Company shall
immediately prepare and furnish to the Placement Agents a reasonable number of
copies of an appropriate amendment of or supplement to the Offering Documents,
in form and substance satisfactory to the Placement Agents and their counsel.
(b) USE OF PROCEEDS. The net proceeds of the Offering of the
Securities will be used by the Company, as more fully described in the Offering
Documents, for the purposes to be set forth in the Offering Documents.
(c) EXPENSES OF OFFERING. The Company shall be responsible
for, and shall bear all expenses directly and necessarily incurred in connection
with the proposed financing, including, but not limited to, the Offering
Documents, this Agreement, the Share certificates, blue sky fees, filing fees
and the fees and disbursements of the Company's Counsel and the other fees and
expenses set forth above; provided, however, the Company shall not be
responsible for the fees of the Placement Agents, including the Placement
Agents' legal fees (other than reasonable blue sky legal and filing fees) or
travel expenses.
(d) RESERVATION OF COMMON STOCK. The Company will reserve and
keep available the maximum number of its authorized but unissued Reserved Shares
which are issuable upon exercise of the Warrants, the Placement Agents'
warrants, and the conversion of the Preferred Shares.
(e) EARLY TERMINATION BY THE COMPANY. Anything contained
herein to the contrary notwithstanding, in the event that, following the date of
this Agreement until the termination of the Offering Period, the Company desires
to terminate this Agreement for any reason (which for purposes of this Agreement
shall include, but not be limited to, the Placement Agents being ready, willing
and able to go forward with the transactions contemplated hereunder, but the
Company being unwilling to proceed for any reason), the Placement Agents have
the right, but not the obligation, to agree to such early termination upon the
payment by the Company to the Placement Agents of a sum equal to three percent
(3%) of the total gross proceeds of the Minimum Offering had such Offering been
completed.
-12-
(f) PLACEMENT AGENTS' BOARD REPRESENTATIVE. Subject to the
occurrence of the Minimum Offering, the Placement Agents and their successors
shall have the right to designate one nominee for election, at their option but
subject to the approval of the Company's Board of Directors, which shall not be
unreasonably withheld, either as a member of or non-voting advisor to the Board
of Directors of the Company, and the Company will use its best efforts to cause
such nominee to be elected and continued in office as a director of the Company
or as such advisor so long as at least twenty-five percent (25%) of the
Preferred Shares sold in the Offering are outstanding; provided, however, the
right of Placement Agents to appoint a member to the Company's Board of
Directors shall be subject to the Company having approved or caused to be
elected a second member to the Company's Board of Directors and such person
shall be required to have been approved by the Nevada Gaming Commission and the
designee's execution of and compliance with, a reasonable nondisclosure
agreement. Following the election of such nominee as a director or advisor, such
person shall attend meetings of the Board and receive no more or less
compensation than is paid to other non-officer directors of the Company for
attendance at meetings of the Board of Directors of the Company and shall be
entitled to receive reimbursement for all reasonable costs incurred in attending
such meetings including, but not limited to, food, lodging and transportation.
The Company agrees to provide Placement Agents' designee with a written
indemnity agreement on terms and conditions at least as favorable as those
provided to any other director of the Company.
(g) PLACEMENT AGENTS SOURCES. For a period of two (2) years
from the date of this Agreement, the Placement Agents shall keep a list of the
names of all their sources of potential financing ("Placement Agents Sources")
for the Company, which list may be furnished to the Company and amended from
time to time by the Placement Agents at their discretion. The Company agrees, in
the event it directly or indirectly receives financing in any form or nature
whatsoever from any Source, that it will fully compensate the Placement Agents
under the terms and conditions of this Agreement to the same extent as if the
Placement Agents themselves had obtained such financing from such Placement
Agents Source.
(h) FINDER'S FEE. The Company agrees that it will pay at
Closing a finder's fee to Lighthouse equal to three percent (3%) of the
aggregate gross proceeds of the Financing. The Company represents and warrants
to the Placement Agents that, other than the finder's fee payable to Lighthouse,
it is not obligated to pay a finder's fee to anyone other than Lighthouse in
connection with the introduction of the Company to the Placement Agents.
(i) The Company agrees to use its "best efforts" to cause its
shares of Common Stock to be listed on the BBX at the earliest date such
securities may be listed.
(j) ESCROW ARRANGEMENTS. The Placement Agents will promptly
deposit funds received from Subscribers in the Account with the Bank and hold
the funds in accordance with the terms of this Agreement and hold the Offering
Documents for the benefit of the Subscribers and the Company. The Bank shall
release funds from such Account only upon receipt of instruction executed by
each of the Placement Agents and the Company. The fees incurred in opening and
maintaining the Account will be borne by the Company. If the Closing does not
take place before the termination of the Offering Period, the Placement Agents
will instruct the Bank to return the funds to the Subscribers without any
deduction or interest thereon.
-13-
6. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless
the Placement Agents and each person, if any, who controls the Placement Agents
within the meaning of Section 15 of the Act against any losses, claims, damages,
or liabilities, joint or several, to which the Placement Agents or each such
controlling person may become subject, under the Act, the Securities and
Exchange Act of 1934, as amended (the "1934 Act"), the common law, or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of, or are based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents or any
amendment or supplement thereof, or the omission or alleged omission to state in
the Offering Documents or any amendment or supplement thereof, a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; or (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any application or other statement executed by the Company or based upon written
information furnished by the Company filed in any jurisdiction in order to
obtain an exemption from registration for the Securities or the sale thereof
from the securities laws of such jurisdiction, or the omission or alleged
omission to state in such application or statement a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company will
reimburse the Placement Agents and each such controlling person for any legal or
other expenses reasonably incurred by the Placement Agents or controlling person
(subject to the limitation set forth in Section 6(c) hereof) in connection with
investigating or defending against any such loss, claim, damage, liability, or
action. The Company will not be liable in any such case to the extent that any
such loss, claim, damage, or liability arise out of, or is based upon, an untrue
statement, or alleged untrue statement, or omission, or alleged omission, made
in reliance upon and in conformity with written information furnished to the
Company by, or on behalf of, the Placement Agents specifically for use in the
preparation of the Offering Documents or in any application or other statement
executed by the Company or the Placement Agents filed in any jurisdiction in
order to exempt the Securities or the sale thereof from registration under the
securities laws of such jurisdiction. This indemnity agreement is in addition to
any liability which the Company may otherwise have. For purposes of this Section
8, information furnished to the Company by or on behalf of, the Placement Agents
shall be as agreed upon in writing by the parties at each Closing.
(b) The Placement Agents agree to indemnify and hold harmless
the Company, each of its directors and each person who controls the Company
within the meaning of Section 15 of the Act against any losses, claims, damages,
or liabilities to which the Company or any such director, or controlling person
may become subject, under the Act, the 1934 Act, the common law, or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of, or are based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents or the
omission or alleged omission to state in the Offering Documents or any amendment
or supplement thereof, a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
application or other statement executed by the Company or by the Placement
Agents and filed in any jurisdiction in order to obtain an exemption from
registration for the Securities or the sale thereof from the securities laws of
such jurisdiction, or the omission or alleged omission to state in such
application or statement a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; in each case in (i) or (ii) above to the
extent, but only the extent, that such untrue statement, or alleged untrue
statement, or omission, or alleged omission, was made in reliance upon and in
conformity with written information furnished to the Company by, or on behalf
of, the Placement Agents specifically for use in the preparation of the Offering
Documents or in any application or other statement executed by the Company or by
the Placement Agents and filed in any jurisdiction. The Placement Agents will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director or controlling person in connection with investigating or
defending against any such loss, claim, damage, liability, or action. This
indemnity agreement is in addition to any liability which the Placement Agents
may otherwise have.
-14-
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 6, notify in writing the indemnifying party of the
commencement thereof. The omission so to notify the indemnifying party will not
relieve it from any liability under this Section 6 as to the particular item for
which indemnification is then being sought. The party claiming indemnification
shall promptly notify the other party of such complaint, notice, claim, or
action, and such indemnifying party shall have the right to investigate and
defend any such loss, claim, damage, liability, or action. The party claiming
indemnification shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such separate counsel shall be borne by the party against whom indemnification
is sought. Any such indemnifying party shall not be liable to any indemnified
party on account of any settlement of any claim or action effected without the
consent of such indemnifying party.
(d) In order to provide for just and equitable contribution in
any case in which the Placement Agents or the Company (or any person who
controls the Placement Agents or the Company within the meaning of Section 15 of
the Act) makes claim for indemnification pursuant to this Section 6 but it is
judicially determined (by 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
last right of appeal) that such indemnification may not be enforced in such
case, notwithstanding the fact that the provisions of this Section 6 hereof
provide for indemnification in such case, then, and in each such case, (i) the
Company, and any persons controlling the Company and who may be liable for
contribution, in the aggregate, and (ii) the Placement Agents and any person
controlling the Placement Agents, shall contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after contribution
from all others) in such proportion so that the Placement Agents and its
controlling persons is responsible for the portion represented by the percentage
that the Placement Agents' Commission bears to the offering price, and the
Company and its controlling persons, in the aggregate is responsible for the
remaining portion; provided, however, that no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation and if such allocation is not permitted by applicable law then
the relative fault of the Company and the Placement Agents in connection with
the statements or omissions which resulted in such damages and other relative
equitable considerations shall also be considered. The Company and the Placement
Agents agree that it would not be just and equitable if the respective
obligations of the Company and the Placement Agents to contribute pursuant to
this Section 6 were to be determined by pro rata or per capita allocation of the
aggregate damages or by any other method of allocation that does not take
account of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 6, the Placement Agents and its controlling persons
shall not be required to contribute any amount in excess of the amount by which
the total price of the Securities purchased by investors from the Company
pursuant to this Agreement and the Subscription Agreements exceeds the amount of
any damages that the Placement Agents and its controlling persons has otherwise
been required to pay by reason of such untrue statement. The foregoing
contribution agreement shall in no way affect the liabilities for contribution
of any persons having liability under Section 11 of the Act other than the
Company, the Placement Agents and persons controlling the Company and the
Placement Agents.
-15-
(e) Promptly after receipt by a party to this Agreement of
notice of the commencement of any action, suit or proceeding, such person will,
if a claim for contribution in respect thereof is to be made against another
party (the "Contributing Party"), notify the Contributing Party of the
commencement thereof, but the omission so to notify the Contributing Party will
not relieve the Contributing Party from any liability which it may have to any
party other than under this Section 6. In case any such action, suit or
proceeding is brought against any party and such person notifies a Contributing
Party of the commencement thereof, the Contributing Party will be entitled to
participate therein with the notifying party and any other Contributing Party
similarly notified.
7. MISCELLANEOUS.
(a) GENERAL. The Company shall supply the Placement Agents
with such financial statements, contracts and other corporate records and
documents as may be requested of it. In addition, the Placement Agents shall be
fully informed by the Company of any events which might have a material affect
on the financial condition of the Company or any of its Subsidiaries. If, in the
opinion of the Placement Agents, the condition of the Company or the condition
of any of its Subsidiaries, financial or otherwise, and its/their prospects are
affected in a material and/or adverse manner and do no fulfill the expectation
of the Placement Agents, it shall have the sole discretion to review and
determine its continued interest in the Offering.
(b) SURVIVAL. Any termination of the Offering without
consummation thereof shall be without obligation on the part of any party except
that the provisions of Sections 4(d)(ii), (iii), 4(f), and 5(c) hereof and the
indemnification provisions provided in Section 6 hereof shall survive any
termination and shall survive each Closing. Notwithstanding anything provided
herein to the contrary, the provisions of Section 5(g) hereof shall survive the
termination of the Offering Period and shall remain in full force and effect
with respect to all Placement Agents Sources who invest, or commit to invest, in
the Company at any time during the 24-month period commencing the day that the
Offering Period terminates. Additionally, the Placement Agents shall be entitled
to also retain their non-accountable and non-refundable expense allowance to the
extent it has been paid prior to the date of termination.
(c) REPRESENTATIONS, WARRANTIES AND COVENANTS TO SURVIVE
DELIVERY. The respective representations, warranties, indemnities, agreements,
covenants and other statements of the Company and its Subsidiaries, and where
appropriate, its/their respective principal stockholders, shall survive
execution of this Agreement and delivery of the Securities and the termination
of this Agreement.
(d) NO OTHER BENEFICIARIES. This Agreement is intended for the
sole and exclusive benefit of the parties hereto and their respective successors
and controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(e) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of New York. The parties
hereby agree: (i) in any legal proceeding brought in connection with this
Agreement or the transactions contemplated hereby, to irrevocably submit to the
nonexclusive IN PERSONAM jurisdiction of (A) any state or federal court of
competent jurisdiction sitting in the State of New York, County of New York; or
(B) in the event that any party is a defendant in any legal proceeding in which
it seeks to join the other as a third party defendant, then, any state or
federal court in which such proceeding has properly been brought, and consents
to suit therein; and (ii) to waive any objection they may now or hereafter have
to the venue of such proceeding in any such court or that such proceeding was
brought in an inconvenient court.
-16-
(f) NOTICES. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when delivered
personally, receipt acknowledged, or five (5) days after being sent by
registered or certified mail, return receipt requested, postage prepaid. All
notices shall be made to the parties at the addresses designated above, or at
such other or different addresses which a party may subsequently provide with
notice thereof, and to their respective legal counsel, as follows:
(i) If to the Placement Agents, to:
Lighthouse Financial Group, LLC
000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xx. Xxxxxx X. Xxxxxxx
- and -
Xxxxx Securities Co., Inc.
00 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn:
- with a copy to -
Stursberg & Veith
000 Xxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000-0000
Attn: X. Xxxxxx Xxxxxxxxx, Xx., Esq.
- and -
Xxxxxx X. X'Xxxxx, Xx., Esq.
Xxxxx Securities Co., Inc.
00 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
or to such other person or address as the Placement Agents shall furnish the
Company in writing.
(ii) If to the Company, to:
VirtGame Corp.
0000 Xxxxx Xxxxx Xx
Xxxxx X
Xxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xx. Xxxxx Xxxxxx, President and Chief Financial
Officer
- with a copy to -
Xxxxxxx Xxxxx & Xxxxx LLP
0 Xxxx Xxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxx, Esq.
-17-
or to such other person or address as the Company shall furnish the Placement
Agents in writing.
(g) COUNTERPARTS. This Agreement may be signed in counterparts
with the same effect as if both parties had signed one and the same instrument.
(h) REIMBURSEMENT. Notwithstanding the non-occurrence of a
Closing, or any other condition, in no event shall the Placement Agents be
responsible for any of the Company's fees, costs or expenses; however, the
Company shall reimburse the Placement Agents for any out-of-pocket expenses
(including, but not limited to, reasonable counsel fees and expense) which the
Placement Agents may incur in connection with the enforcement of its rights
hereunder.
(i) FORM OF SIGNATURE. The parties hereto agree to accept a
facsimile transmission copy of their respective signatures as evidence of their
respective actual signatures to this Agreement; ; provided, however, that each
party who produces a facsimile signature agrees, by the express terms hereof, to
place, immediately after transmission of his or her signature by fax, a true and
correct original copy of his or her signature in overnight mail to the address
of the other party.
(j) MODIFICATION. This Agreement (i) may only be modified by a
written instrument which is executed by both parties thereto, (ii) constitutes
the entire agreement between the parties, and (iii) shall be binding upon and
inure to the benefit of both parties hereto and their respective successor and
assignees.
(k) NON-CIRCUMVENTION. Each of the Company and the Placement
Agents agree that no effort shall be made to circumvent the terms and conditions
of this Agreement or gain a fee, commission, remuneration, consideration or
benefit whatsoever. With respect to any attempt at circumvention of this
Agreement, the injured party is entitled to seek any and all legal remedies,
fees or compensation equal to those received or committed or agreed to be paid
pursuant to the terms of this Agreement as the same are due and payable to the
circumvented party under the terms of this Agreement.
(l) GOOD FAITH. Each of the Company and the Placement Agents
understand that this Agreement is a reciprocal and mutual one and both warrant,
covenant, and promise that it will act in good faith toward each other in the
performance of this Agreement and in other matters.
(m) FURTHER SERVICES. The Placement Agents shall, if requested
by the Company, testify in, and shall prepare and assist in the preparation of
testimony for, any judicial or administrative proceeding in respect of the
services performed by the Placement Agents hereunder. With respect thereto, the
Company shall pay, in addition to the fees and expenses payable to the Placement
Agents hereunder, for the time required to expend by the Placement Agents at its
standard hourly rates as then in effect, together with reasonable out-of-pocket
expenses, but not limited to, fees and expenses of its legal counsel.
-18-
(n) WAIVER OF BREACH. The waiver by either the Placement
Agents or the Company of any provision of this Agreement shall not be construed
as a waiver of any subsequent breach hereof.
If you find the foregoing is in accordance with our understanding,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between us.
Very truly yours,
VIRTGAME CORP.
By:
--------------------------------
Name:
Title:
Placement Agents
LIGHTHOUSE FINANCIAL GROUP, LLC
By:
--------------------------------------
Name:
Title:
XXXXX SECURITIES CO., INC.
By:
--------------------------------------
Name:
Title:
-19-
SCHEDULE 1
TERMS AND CONDITIONS
CONVERSION: a) "Common Stock Price Per Share" shall mean the average of
the closing bid price of the Company's common stock ("Common Stock") for the ten
successive trading days ending three days prior to the closing of the Offering.
b) Each share of the Series A convertible redeemable preferred
shares (the "Preferred Shares") shall be convertible into Common Stock and each
Warrant shall be exercisable at a price equal to 115% of the Common Stock Price
Per Share.
c) The Preferred Shares shall be entitled to a liquidation
preference of $1,000 per share and shall rank senior to all capital stock
hereafter issued by the Company.
d) The Preferred Shares shall be non-redeemable for a period
of two (2) years from the closing of the Financing. Thereafter, the Preferred
Shares shall be redeemable, in whole and not in part, upon sixty (60) days prior
written notice from and after that time when the closing bid of the Common Stock
equals or exceeds 300% of the Common Stock Price Per Share (adjusted for splits,
stock dividends, reorganizations, and the like) for any five (5) consecutive
trading days.
e) RESET: If, during the period of twenty-four (24) months
after the closing of the Financing, the Company raises additional capital by
selling Common Stock (or securities convertible into Common Stock) to an
investor or investors for a price less than the Common Stock Price Per Share
(adjusted for splits, stock dividends, reorganizations, and the like) (the "New
Price"), the investors in the Financing and the Placement Agents shall be
entitled to a reset adjustment calculated as follows:
(i) The conversion price of the Preferred Shares
and the exercise price of the Warrants shall
be adjusted to 115% of the New Price.
(ii) Placement Agents' Warrants " this security
shall be amended in form and content in a
manner equitably consistent with the
adjustment set forth above.
f) Prior to the closing of the Financing, there shall be not
more than forty (40) million shares of Common Stock outstanding, including
Common Stock underlying all existing options and Warrants.
g) From and after the closing of the Financing, until 75.1% of
the Placement Agents has ceased to exist, the Company shall not issue or grant
more than 750,000 Warrants and options in the aggregate during each successive
twelve month period. Any such issued or granted Warrants and options shall have
exercise prices per share not less than the higher of (i) 85% of fair market
value of the Common Stock on the date of issue or grant or (ii) the Common Stock
Price Per Share.
-20-
h) The Company is to extend a covenant to the investors in the
Offering to prepare and file a Registration Statement with the Securities and
Exchange Commission within four (4) months after the closing of the Offering to
register the Common Stock underlying the Preferred Shares, the Warrants, and the
Placement Agents' Warrants and, thereafter, to use its best efforts to have said
Registration Statement declared effective. A delay in filing said Form beyond
the aforesaid four month period shall obligate the Company to pay to each
investor in the Offering a Registration Delay Rebate of five percent (5%) of the
investor's investment in the Offering for each thirty (30) day period (or part
thereof) of delay.
i) The Warrants included in the Units shall be redeemable at
any time after the Closing, in whole or in part, at $.05 each upon 30 days'
prior written notice when the closing bid of the Common Stock equals or exceeds
350% of the Common Stock Price Per Share (adjusted for splits, stock dividends,
reorganizations, and the like) for any ten (10) consecutive trading days
provided such notice is given within twenty (20) days of such ten (10)
consecutive trading days.
-21-
