ProElite, Inc.
Dated
as
of: June 25, 2007
Hunter
World Markets, Inc.
0000
Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx
Xxxxx
Xxxxxxx
Xxxxx, XX 00000
Ladies
and Gentlemen:
This
placement agent agreement (this “Agreement”)
between the undersigned ProElite, Inc., a New Jersey corporation (the
“Company”),
and
the placement agent, Hunter World Markets, Inc. (“Hunter”),
sets
forth the agreement between the Company and Hunter as follows:
1. Placement.
The
Company hereby engages Hunter to act as its exclusive placement
agent
in a
transaction on a “commercially reasonable efforts” basis involving the issuance
and sale by the Company (the “Offering”)
of the
Company’s units (the “Units”,
and in
the singular a “Unit”),
at a
price of $7.00 per Unit. Each Unit consists of one share of the Company’s common
stock (a “Share”
and
in
the plural, the “Shares”)
and
one-half of a five-year warrant to purchase one Share at an exercise price
of
$7.00 per share, and shall contain provisions allowing for a cashless exercise
that will be determined against a referenced share price that is an average
taken over the five trading days prior to a notice of exercise, but in no event
to exceed $15 per Share (a “Warrant”
and
in
the plural, “Warrants”).
The
Offering shall be for a minimum amount of $25,000,000 (the “Minimum
Amount”)
and a
maximum of $60,000,000 (the “Maximum
Amount”).
One or
more closings may be held from time to time in the Company’s discretion.
Notwithstanding the foregoing, any funds raised by Hunter shall be subject
to
closing in Hunter’s sole discretion.
Ten
percent (10%) of the Units sold shall consist of: (1) one share of common stock
offered for sale by certain selling shareholders, and (2) a Warrant, provided
that the gross proceeds do not exceed $5,000,000. The shares of common stock
may
include shares underlying warrants and options held by such selling
shareholders. The consideration for these Units ($7.00 per Unit) shall be
deposited into the escrow account, which the Company shall then distribute
to
the selling shareholders after Closing, net of the 10% commission payable to
Hunter. The Company shall issue the Warrants to the investors in the Offering
in
consideration for the selling shareholders’ agreement to extend the period
during which the balance of their securities remain locked up, as described
below.
The
Company shall file an S-1 registration statement or such other form as may
be
appropriate (“Registration
Statement”)
no
later than forty-five (45) days following the earlier of (i) the date upon
which
the Minimum Amount of Units have been sold, or (ii) July 31, 2007, subject
to
extensions by the Company and the Placement Agent upon notice to the
then
-1-
subscribers
(the “Closing”)
pursuant to the terms of a registration rights agreement (the “Registration
Rights Agreement”).
The
Company will use its diligent best efforts to have the Registration Statement
declared effective no later than ninety (90) days after the Registration
Statement is initially filed. The securities to be included in the Registration
Statement are the Shares sold in the Offering and the Shares issuable pursuant
to the exercise of the Warrants and the Placement Agent Warrants, as defined
in
Section
2
of this
Agreement (the “Registrable
Securities”),
as
well as the securities issued to certain investors and the Placement Agent
in
connection with the Company’s last private placement offering on October 3, 2006
(the “Prior
Offering Shares”).
The
Registration Rights Agreement will set forth liquidated damage payments, and
not
as a penalty, an amount equal to 1% per month of the funds raised in the
Offering, if the Registration Statement is not timely filed or declared
effective or if it ceases to be effective within the time period set forth
in
this Agreement, except that no payment shall be due to the extent that the
failure to register is as a result of a cutback mandated by the Securities
Exchange Commission (the “SEC”)
in a
written comment to the Company pursuant to Rule 415 of the Securities Act of
1933, as amended (the “Securities
Act”),
and
the Company has made a good faith effort to convince the SEC to reduce or
eliminate the cutback. In the event of a cutback pursuant to Rule 415, the
Prior
Offering Shares shall have priority over the Registrable Securities issued
to
non-Strategic Investors and the Registrable Securities issued to non-Strategic
Investors shall have priority over any securities issued to Strategic Investors
as defined below. The liquidated damage(s) shall cease to accrue with respect
to
the Registrable Securities that may be sold under Rule 144 without regard to
volume limitations.
All
moneys raised in the Offering shall be placed in a non-interest bearing escrow
account until the Minimum Amount is deposited and released at the sole
discretion of Hunter. Once the Minimum Amount has been deposited into the escrow
account, all remaining moneys and funds raised in the Offering shall be
deposited directly into the Company’s bank account.
Hunter
shall not be obligated to sell any Units and this Offering by Hunter shall
be
solely on a “commercially reasonable efforts” basis.
The
initial term of this Agreement shall be for a period from the date of this
Agreement until July 31, 2007 unless terminated sooner by the mutual written
agreement of the Company and Hunter. The period commencing on the date of
execution of this Agreement and ending on July 31, 2007 is referred to herein
as
the “Placement
Term.”
The
Company shall prepare a private placement memorandum (“Private
Placement Memorandum”)
that
shall be complete, true and correct in all material respects. The Offering
shall
be conducted pursuant to Regulation D and Regulation S promulgated by the SEC
and shall be offered and sold only to “Accredited
Investors”
as
that
term is defined in Regulation D of the Securities Act or to persons that are
not
“U.S.
Persons”
as
that
term is defined in Regulation S of the Securities Act. The Offering is intended
to qualify as a transaction under Rule 506 of Regulation D of the Securities
Act
or under Rule 903 of Regulation S of the Securities Act. The purchase of the
Units shall be pursuant to the terms of a securities purchase agreement among
the purchasers of the Units (the “Purchasers”),
on
the one hand, and the Company, on the other hand, on terms and conditions
acceptable to Hunter (the “Purchase
Agreement”).
2. Compensation.
-2-
As
compensation for the Shares sold in the Offering, Hunter will receive the
following: (i) a
cash
commission equal to 10% of the total gross proceeds;
and
(ii) warrants to purchase a number of Shares equal to 100% of the Shares sold
in
the Offering (the “Placement
Agent Warrants”).
Furthermore, the Company will use its best efforts subject to agreements or
proposed agreements with sponsors (and without having to reduce the amount
otherwise payable thereunder) to provide prominent signage, at no cost to
Hunter, at three of the Company’s scheduled events per year for a two year
period commencing with the first full month following the Closing. The form
and
wording of any signage shall in all respects be satisfactory to
Hunter.
Except
as
set forth herein, the Placement Agent Warrants will receive registration rights
identical to the rights granted to the Purchasers, including the same cashless
exercise feature. The Placement Agent Warrants will expire
on
July 31, 2013 at 5:00 P.M.
Pacific
Daylight Time. The Placement Agent Warrants shall have a
per
share exercise price of $7.00.
3. Exclusivity.
During
the Placement Term, Hunter shall have the exclusive right to act as placement
agent, except that the exclusive nature of the engagement shall not apply to,
and no compensation shall be payable to Hunter for, investments by corporate
or
individual investors that, in addition to the investment they make in the
Company through the purchase of securities offered in the Offering, add value
to
the Company’s business and to the Company (the “Strategic
Investors”),
provided,
however,
that
such investments shall be made on terms no more favorable than those allowed
to
the Purchasers in the Offering, except that the additional warrants may be
issued to Strategic Investors with more favorable terms. In this connection,
the
Company may not solicit, engage or continue to work with any underwriters,
third
party finders, brokers, or other consultants, during the Placement Term, without
express written approval of Hunter, except that the Company may retain
consultants with respect to the Strategic Investors. During the Placement Term,
the Company shall provide Hunter with the name of and other pertinent
information on any potential investor. If
the
Company violates the provisions of this Section
3
and
proceeds with an alternative financing, the Company shall pay Hunter the sum
of
$100,000 and allow Hunter the right to purchase 1,500,000 shares of the
Company’s common stock at a price of $7.00 per share for a term of 72 months on
the same conditions as the Placement Agent Warrants.
4. Right
of First Refusal
The
Company shall not at any time prior to the expiration of the Covered Period,
described below, enter into any Transaction, as defined below, without first
giving written notice to Hunter (“Notice
of Proposed Transaction”)
of
substantially the same terms and conditions as any bona fide written offer,
term
sheet, letter of intent or agreement that the Company intends to accept. For
a
period of five (5) business days after the Company’s issuing the Notice of
Proposed Transaction and Hunter’s receipt thereof, Hunter shall have the right
to give written notice to the Company of Hunter’s exercise of its right to
engage in a Transaction, defined below. Thereafter, for a period not to exceed
ten (10) days following receipt of Notice of Proposed Transaction (the
“Offer
Period”),
the
Company and Hunter shall negotiate in good faith and seek to have prepared
definitive documents evidencing the Transaction. If the parties are unable
to
conclude an agreement within that ten (10) day period, the Company may seek
to
enter into the Transaction
-3-
on
the
same terms as set forth in the Notice of Proposed Transaction, provided that,
if
there is any material variance from the terms of the Notice of Proposed
Transaction or if the Transaction has not been completed by another party within
the time periods noted below, then Hunter’s right of refusal as to that
Transaction shall be reinstated.
The
obligations of the Company referred to herein constitute a right of first
refusal (the “Right
of First Refusal”)
granted to Hunter, provided that the Offering for the Minimum Amount is
completed, for any Transaction during the period beginning on the date the
first
Registration Statement by the Company to register shares in accordance with
a
Registration Rights Agreement becomes effective and ending twenty-four months
thereafter (the “Covered
Period”).
The
failure by the parties to reach an agreement in connection with any particular
Transaction or the waiver by Hunter of any right to participate in a financing
or other Transaction shall not affect the rights of Hunter to act as financial
adviser or investment banker to the Company in connection with any subsequent
Transaction during the Covered Period. The Right of First Refusal shall not
apply to any strategic partner financing whereby an investor brings qualitative
value in addition to money being invested.
For
purposes of this Section
4,
a
“Transaction” shall
mean any equity, convertible debt or debt financing entered into by the Company,
but shall not include any strategic partner financing whereby an investor brings
qualitative value in addition to money being invested or financing relating
to
any
consolidation or merger of the Company with or into any other corporation or
other entity or person, or any other binding share exchange or corporate
reorganization, in which the shareholders of the Company immediately prior
to
such consolidation, merger, binding share exchange or reorganization, own less
than fifty percent (50%) of the Company’s voting power immediately after such
consolidation, merger, binding share exchange or reorganization, or any
transaction or series of related transactions in which in excess of fifty
percent (50%) of the Company’s voting power is transferred.
5. Appointment
of Board Members.
Hunter
shall have a right to nominate up to two members to the Company’s Board of
Directors, which includes Hunter’s existing designee, Xxxx Xxxxxxxx, and the
Company shall cause the appointments to be made as designated by Hunter. Hunter
shall have the right to cause the replacement of such directors and to cause
the
appointment of substitute directors. At such time as the percentage of ownership
of the investors procured by Hunter in this Offering and the prior October
2006
offering falls below 10%, the total number of Hunter’s nominees shall be one.
The
Company shall have a Compensation Committee consisting of not less than two
independent directors who shall approve all employment terms of key management
including without limitation salaries, perquisites, bonuses and grants of
options and shares.
6. Representations,
Warranties and Covenants of Hunter.
Hunter
represents, warrants and covenants as follows:
-4-
(a) Hunter
has the necessary power to enter into this Agreement and to consummate the
transactions contemplated hereby.
(b) The
execution and delivery by Hunter of this Agreement and the consummation of
the
transactions contemplated herein will not result in any violation of, or be
in
conflict with, or constitute a default under, any agreement or instrument to
which Hunter is a party or by which Hunter or its properties are bound, or
any
judgment, decree, order or, to Hunter’s knowledge, any statute, rule or
regulation applicable to Hunter. This Agreement, when executed and delivered
by
Hunter, will constitute the legal, valid and binding obligations of Hunter,
enforceable in accordance with their respective terms, except to the extent
that
(i) the enforceability hereof or thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect and affecting the rights of creditors generally, (ii) the enforceability
hereof or thereof is subject to general principles of equity, or (iii) the
indemnification provisions hereof or thereof may be held to violate public
policy.
(c) Hunter
will not deliver any documents related to the Offering to any person it does
not
reasonably believe to be an Accredited Investor or not a U.S. Person based
upon
documentary evidence thereof, where appropriate.
(d) Hunter
will not intentionally take any action that it reasonably believes would cause
the Offering to violate the provisions of the Securities Act, the Securities
Exchange Act of 1934, as amended (the “Securities
Exchange Act”)
the
respective rules and regulations promulgated thereunder (the “Rules
and Regulations”)
or
applicable securities laws of any state or jurisdiction (“Blue
Sky Laws”).
(e) Hunter
shall use all reasonable efforts to determine (i) whether the Purchaser is
an
Accredited Investor or otherwise eligible for placement under Rule 903 of the
Securities Act and (ii) that any information furnished by the Investor is true
and accurate. Hunter shall have no obligation to insure that any check, note,
draft or other means of payment for the Units will be honored, paid or
enforceable against the Investor in accordance with its terms.
(f) Hunter
is
a member of the NASD, and is a broker-dealer registered as such under the
Securities Exchange Act and under the securities laws of the states in which
the
Shares will be offered or sold by Hunter, unless an exemption for such state
registration is available to Hunter. Hunter is in compliance with all material
rules and regulations applicable to Hunter generally and applicable to Hunter’s
participation in the Offering.
7. Representations
and Warranties of the Company.
The
Company represents and warrants as follows:
(a) The
execution, delivery and performance of this Agreement has been or will be duly
and validly authorized by the Company and will be, a valid and binding agreement
of the Company, enforceable in accordance with its respective terms, except
to
the extent that (i) the enforceability hereof or thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time
to
time in effect and affecting the rights of creditors generally, (ii) the
enforceability hereof or thereof is subject to general principles of equity
or
(iii)
-5-
the
indemnification provisions hereof or thereof may be held to violate public
policy. The securities to be issued pursuant to the transactions contemplated
by
this Agreement have been duly authorized and, when issued and paid for in
accordance with (x) this Agreement and (y) the certificates/instruments
representing such securities, will be valid and binding obligations of the
Company, enforceable in accordance with their respective terms, except to the
extent that (1) the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect and affecting the rights of creditors generally, (2) the enforceability
thereof is subject to general principles of equity, or (iii) the indemnification
provisions hereof or thereof may be held to violate public policy. All corporate
action required to be taken for the authorization, issuance and sale of the
securities has been duly and validly taken by the Company.
(b) The
outstanding capital stock of the Company has been duly authorized and issued
and
the Company has outstanding capitalization as will be set forth in the Private
Placement Memorandum. All issued and outstanding securities of the Company,
have
been duly authorized and validly issued and are fully paid and non-assessable;
the holders thereof have no rights of rescission or preemptive rights with
respect thereto and are not subject to personal liability solely by reason
of
being security holders; and none of such securities was issued in violation
of
the preemptive rights of any holders of any security of the Company.
(c) The
Shares being offered in the Offering by the Company and issuable upon exercise
of the Warrants and the Placement Agent Warrants will be duly authorized when
issued and paid for in accordance with this Agreement and proper exercise of
such warrants, respectively, and the certificates/instruments representing
such
Shares, will be validly issued, fully-paid and non-assessable; the holders
thereof will not be subject to personal liability solely by reason of being
such
holders; such securities are not and will not be subject to the preemptive
rights of any holder of any security of the Company.
(d) The
Company has good and marketable title to, or valid and enforceable leasehold
estates in, all items of real and personal property necessary to conduct its
business (including, without limitation any real or personal property to be
owned or leased by the Company).
(e) The
Company, is not aware of any federal or securities violations by any of its
current officers, directors or consultants, nor, does the Company believe that
any of its officers, directors or consultants is or was the subject of any
enforcement proceedings by the Securities Exchange Commission or the National
Association of Securities Dealers or any other state or federal regulatory
agency.
(f) The
Company has been duly organized and is validly existing as a corporation in
good
standing under the laws of the State of New Jersey. The Company is duly
qualified or licensed and in good standing in California and each other
jurisdiction in which the character of its operations requires such
qualification or licensing and where failure to so qualify would have a material
adverse effect on the Company. The Company has all requisite power and
authority, and all material and necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory
officials and bodies (domestic and foreign) to conduct its business (and
proposed business), and the Company is doing business in strict
-6-
compliance
with all such authorizations, approvals, orders, licenses, certificates and
permits and all foreign, federal, state and local laws, rules and regulations
concerning the business in which it is engaged. The Company has all power and
authority to enter into this Agreement, to carry out the provisions and
conditions hereof, and all consents, authorizations, approvals and orders
required in connection herewith have been obtained. No consent, authorization
or
order of, and no filing with, any court, government agency or other body is
required by the Company for the issuance of the securities except for applicable
federal and state securities laws. The Company has not incurred any liability
arising under or as a result of the application of any of the provisions of
the
Securities Act, the Securities Exchange Act or the Rules and Regulations or
pursuant to any other rule or regulation of any state or federal regulatory
agency.
(g) Real
Sport, Inc., XxxXxxxx.xxx, and EliteXC Live, each a California corporation
and
subsidiary of the Company (each a “Subsidiary”,
and
collectively, the “Subsidiaries”),
have
been duly organized and is validly existing as a corporation in good standing
under the laws of the State of California. Each Subsidiary is duly qualified
or
licensed and in good standing in each jurisdiction in which the character of
its
operations requires such qualification or licensing and where failure to so
qualify would have a material adverse effect on the Subsidiary. Each Subsidiary
has all requisite power and authority, and all material and necessary
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental regulatory officials and bodies (domestic and foreign)
to
conduct its business (and proposed business), and each Subsidiary is doing
business in strict compliance with all such authorizations, approvals, orders,
licenses, certificates and permits and all foreign, federal, state and local
laws, rules and regulations concerning the business in which it is engaged.
(h) The
Company is not in material breach of, or in default under, any term or provision
of any material indenture, mortgage, deed of trust, lease, note, loan or credit
agreement or any other material agreement or instrument evidencing an obligation
for borrowed money, or any other material agreement or instrument to which
it is
a party or by which it or any of its properties may be bound or affected. The
Company is not in violation of any provision of its charter or by-laws (other
than the obligation to hold annual meetings of its shareholders and related
matters) or in violation of any franchise, license, permit, judgment, decree
or
order, or in violation of any statute, rule or regulation. Neither the execution
and delivery of this Agreement, nor the issuance and sale or delivery of the
securities, nor the consummation of any of the transactions contemplated herein,
has conflicted with or will conflict with, or has resulted in or will result
in
a material breach of, any of the terms and provisions of, or has constituted
or
will constitute a default under, or has resulted in or will result in the
creation or imposition of any lien, charge or encumbrance upon any property
or
assets of the Company or pursuant to the terms of any indenture, mortgage,
deed
of trust, note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company may be bound or to which any of the property
or
assets of the Company is subject except: (i) where such default, lien, charge
or
encumbrance would not have a material adverse effect on the Company and (ii)
such action will not result in any violation of: (a) the provisions of the
charter or the by-laws of the Company or, (2) assuming the due performance
by
Hunter of its obligations hereunder, any statute or any order, rule or
regulation applicable to the Company of any court or of any foreign, federal,
state or other regulatory authority or other government body having jurisdiction
over the Company.
-7-
(i) The
representations of the Company in the Purchase Agreement shall be true and
correct as of the date of each of the Closings.
(j) There
are
no claims for services in the nature of a finder’s or origination fee with
respect to the sale of the Units, or the securities comprising a part thereof,
or any other arrangements, agreements or understandings that may affect Hunter's
compensation. The
Company further represents, warrants and covenants that it has no agreements
or
other similar arrangements to pay commissions or fees or otherwise compensate
anyone, and the Company covenants that it will at no time pay any such
commissions or fees, with respect to sales of Units that are made to Strategic
Investors, as term is defined or described within the Private Placement
Memorandum.
(k) The
Company owns or possesses, free and clear of all liens or encumbrances and
rights thereto or therein by third parties, the requisite licenses or other
rights to use all trademarks, service marks, copyrights, service names, trade
names, patents, patent applications and licenses necessary to conduct its
business and to the best of the Company’s knowledge there is no claim or action
by any person pertaining to, or proceeding, pending or threatened, which
challenges the exclusive rights of the Company with respect to any trademarks,
service marks, copyrights, service names, trade names, patents, patent
applications and licenses used in the conduct of the Company’s businesses except
any claim or action that would not have a material adverse effect on the
Company; to the best of the Company’s knowledge, the Company’s current products,
services or processes do not infringe or will not infringe on the patents
currently held by any third party.
(l) Except
in
the ordinary course of business, the Company is not under any obligation to
pay
royalties or fees of any kind whatsoever to any third party with respect to
any
trademarks, service marks, copyrights, service names, trade names, patents,
patent applications, licenses or technology it has developed, uses, employs
or
intends to use or employ, other than to their respective licensors.
(m) Subject
to the performance by Hunter of its obligations hereunder, the offer and sale
of
the Units by the Company will comply, in all material respects with the
requirements of Rule 506 of Regulation D or Rule 903 of Regulation S promulgated
by the SEC pursuant to the Securities Act and any other applicable federal
and
state laws, rules, regulations and executive orders. The Company will not cause
or knowingly permit any action to be taken in connection with the Offering
which
violates the Securities Act or any state securities laws.
(n) All
taxes
which are due and payable from the Company have been paid in full and the
Company does not have any tax deficiency or claim outstanding assessed or
proposed against it.
(o) None
of
the Company, its Subsidiaries nor to the best of the Company’s knowledge, any of
its, or any of its Subsidiaries, officers, directors, employees or agents,
or
any other person acting on behalf of the Company, has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official
or
employee of any governmental agency or instrumentality of any
government
-8-
(domestic
or foreign) or any political party or candidate for office (domestic or foreign)
or other person who is or may be in a position to help or hinder the business
of
the Company (or assist it in connection with any actual or proposed transaction)
which (i) might subject the Company to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, or (ii) if not given in
the
past, might have had a materially adverse effect on the assets, business or
operations of the Company as reflected in any of the financial statements,
or
(iii) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company in the future.
(p) All
information and statements provided by the Company to prospective investors
will
be true and correct in all material respects and do not omit any information
that might make that information or any of those statements
misleading.
(q) Any
written offering material prepared by the Company, including the Private
Placement Memorandum, will not be misleading or be in violation of the
anti-fraud provisions of the Securities Exchange Act or of any other rule or
regulation promulgated by any federal or state regulatory agency.
(r) The
Company’s financial statements are complete and correct, are consistent with the
books and records of the Company and present fairly the assets, liabilities,
financial condition and results of operations of the Company, as at the dates
and for the periods indicated, have been prepared in accordance with GAAP,
and
have been prepared in good faith by the Company’s management from the books and
records of the Company. The Company financial statements for the period ended
December 31, 2006 have been audited by Xxxxxxxx Xxxxxx Inc., an independent
registered accounting firm, and are accompanied by such firm’s audit report. The
books and records of the Company are true, accurate and complete in all material
respects.
(s) All
filings made by or on behalf of the Company with the SEC are true and
correct
in all material respects and do not omit any information that might make any
of
those filings misleading.
8. Certain
Covenants and Agreements of the Company.
The
Company covenants and agrees at its expense and without any expense to Hunter
as
follows:
(a) To
advise
Hunter of any material adverse change in the Company’s financial condition,
prospects or business or of any development materially affecting the Company
or
rendering untrue or misleading any material statement in the Purchase Agreement
occurring at any time prior to the closing of any Units as soon as the Company
is either informed or becomes aware thereof.
(b) The
Company shall at all times have sufficient shares authorized and unissued to
keep available out of its authorized common stock solely for the purpose of
issuance upon the exercise of all Warrants described in this Agreement such
number of shares of common stock as shall then be issuable upon the exercise
or
conversion thereof.
-9-
(c) During
the period commencing on the date of Closing and ending on the second
anniversary the effective date of the Registration Statement, the Company shall
not issue shares of Common Stock or securities which would entitle the holder(s)
thereof to acquire shares of Common Stock that, together with the shares of
Common Stock exceed an aggregate number of 200,000 shares at a price or exercise
price per share of Common Stock equal to or less than $7.00 (subject to
adjustment for splits, recapitalizations, reorganizations) for services rendered
in connection with a strategic transaction without the prior written approval
of
Hunter. For purposes of clarification, no such approval shall be required for
(i)
shares of Common Stock or options to employees, directors or consultants
issued at the then fair market value, not to exceed 5% of the shares then
outstanding; (ii) securities upon the exercise or conversion of derivative
securities outstanding or committed to (including pursuant to letters of intent)
as of June 20, 2007; (iii) securities issued pursuant to acquisitions, including
securities issued to employees in connection with such acquisitions; and (iv)
shares of Common Stock and securities issued at a price or exercise price per
share of Common Stock equal to more than $7.00, without regard to the number
of
securities issued.
(d) To
ensure
that any transactions between or among the Company and any of its officers,
directors and affiliates be on terms and conditions that are no less favorable
to the Company, than the terms and conditions that would be available in an
“arm’s length” transaction with an independent third party.
(e) To
cooperate with Hunter as to permit the Offering to be conducted in a manner
consistent with the applicable state and federal securities laws.
(f) To
not
cause or knowingly permit any action to be taken in connection with the
placement which violates the Securities Act or any Blue Sky Laws.
(g) To
not
file any S-8 registration statements, or other registration statements covering
securities issued or that may be issued to employees, directors, consultants
or
others for services, for a period of two years from Closing, without the prior
written consent of Hunter, which may only be withheld in its reasonable
discretion. Notwithstanding the foregoing, the Company may file S-8 registration
statements, or other registration statements covering: (i) warrant shares
issuable to Xxxx Xxxxxxx or JMBP, Inc. and (ii) the Company’s Stock Compensation
Plan, provided that all grantees thereunder have executed or will execute a
counterpart copy of the Lock-up Agreement with respect to any securities issued
to such grantee under such Plan.
(h) To
use
its best efforts as soon as practicable following the Closing to apply for
listing of its shares for trading on, and diligently attempt to be listed on,
the Nasdaq Stock Market or the American Stock Exchange.
9. Most
Favored Nations.
If, at
any time and from time to time during the period commencing on the date of
Closing and ending on the second anniversary the effective date of the
Registration Statement, the Company issues additional shares of Common Stock
or
securities which would entitle the holder(s) thereof to acquire at any time
shares of Common Stock that, together with the shares of Common Stock exceed
an
aggregate number of 200,000 shares (the “Additional
Shares”)
at a
price or exercise price per share of Common Stock equal to or less
than
-10-
$7.00
(subject to adjustment for splits, recapitalizations, reorganizations), then
the
Company shall: (a) issue additional Shares so that the effective purchase price
per Share shall be the same per share purchase price of the Additional Shares,
and (b) the exercise price of the Warrants shall be reduced to the price of
such
Additional Shares, but in no event shall the exercise price be reduced below
$2.00 per share (subject to the foregoing adjustments). Notwithstanding the
foregoing, no adjustment will be made in respect of (w)
shares of Common Stock or options to employees, directors or consultants
issued
at the then fair market value, not to exceed 5% of the shares then
outstanding;
(x)
securities upon the exercise or conversion of derivative securities outstanding
or committed to (including
pursuant to letters of intent) as
of
June
20,
2007; (y) securities issued pursuant to acquisitions;
or (z)
securities
issued in strategic transactions that entitle the holder thereof to acquire
at
any time shares of Common Stock at a price or exercise price per share that
is
more than $7.00 per share.
Additionally, Hunter hereby waives any claim for monetary damages ensuing from
any breach by the Company of its obligations subject to this Section
9
and it
being understood that the sole remedy of Hunter shall be specific
performance.
10. Indemnification.
(a) The
Company hereby agrees that it will indemnify and hold Hunter and each officer,
director, shareholder, employee, attorneys, accountants, agents or
representative of Hunter, and each person controlling, controlled by or under
common control with Hunter within the meaning of Section 15 of the Securities
Act or Section 20 of the Securities Exchange Act or the Rules and Regulations,
harmless from and against any and all loss, claim, damage, liability, cost
or
expense whatsoever (including, but not limited to, any and all reasonable legal
fees and other expenses and disbursements incurred in connection with
investigating, preparing to defend or defending any action, suit or proceeding,
including any inquiry or investigation, commenced or threatened, or any claim
whatsoever or in appearing or preparing for appearance as a witness in any
action, suit or proceeding, including any inquiry, investigation or pretrial
proceeding such as a deposition including attorneys’ fees in the event of a
breach of this representation and warranty) to which Hunter or such indemnified
person of Hunter may become subject under the Securities Act, the Securities
Exchange Act , the Rules and Regulations, or any other federal or state law
or
regulation, common law or otherwise, arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in (a) this
Agreement, (b) any written offering material prepared by the Company (except
those written statements relating to Hunter given by an indemnified person
for
inclusion therein), (c) any application or other document or written
communication executed by the Company or based upon written information
furnished by the Company filed in any jurisdiction in order to qualify the
Shares, the Warrants, and the Placement Agent Warrants under the securities
laws
thereof, or any state securities commission or agency; (ii) the omission or
alleged omission from documents described in clauses (a), (b) or (c) above
of a
material fact required to be stated therein or necessary to make the statements
therein not misleading; or (iii) the breach of any representation, warranty,
covenant or agreement made by the Company in this Agreement. The Company further
agrees that upon demand by an indemnified person, at any time or from time
to
time, it will promptly reimburse such indemnified person for any loss, claim,
damage, liability, cost or expense actually and reasonably paid by the
indemnified person as to which the Company has indemnified such person pursuant
hereto. Notwithstanding the foregoing provisions of this Section 10(a),
any
such payment or reimbursement by the Company of fees, expenses
or
-11-
disbursements
incurred by an indemnified person in any proceeding in which a final judgment
by
a court of competent jurisdiction (after all appeals or the expiration of time
to appeal) is entered against Hunter or such indemnified person as a direct
result of Hunter or such person’s gross negligence or willful misfeasance will
be promptly repaid to the Company.
(b) Hunter
hereby agrees that it will indemnify and hold the Company and each officer,
director, shareholder, employee or representative of the Company, and each
person controlling, controlled by or under common control with the Company
within the meaning of Section 15 of the Securities Act, Section 20 of the
Securities Exchange Act or the Rules and Regulations, harmless from and against
any and all loss, claim, damage, liability, cost or expense whatsoever
(including, but not limited to, any and all reasonable legal fees and other
expenses and disbursements incurred in connection with investigating, preparing
to defend or defending any action, suit or proceeding, including any inquiry
or
investigation, commenced or threatened, or any claim whatsoever or in appearing
or preparing for appearance as a witness in any action, suit or proceeding,
including any inquiry, investigation or pretrial proceeding such as a
deposition) to which the Company or such indemnified person of the Company
may
become subject under the Securities Act, the Securities Exchange Act, the Rules
and Regulations, or any other federal or state law or regulation, common law
or
otherwise, arising out of or based upon (i) the conduct of Hunter or its
officers, employees or representatives in acting as placement agent for the
Offering or (ii) the breach of any representation, warranty, covenant or
agreement made by Hunter in this Agreement; provided,
however,
that in
no event shall Hunter pay in the aggregate greater than $1,000,000 pursuant
to
this provision. Hunter further agrees that upon demand by an indemnified person,
at any time or from time to time, it will promptly reimburse such indemnified
person for any loss, claim, damage, liability, cost or expense actually and
reasonably paid by the indemnified person as to which Hunter has indemnified
such person pursuant hereto. Notwithstanding the foregoing provisions of this
Section 10(b),
any
such payment or reimbursement by Hunter of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final judgment
by
a court of competent jurisdiction (after all appeals or the expiration of time
to appeal) is entered against the Company or such indemnified person as a direct
result of the Company or such person’s gross negligence or willful misfeasance
will be promptly repaid to Hunter.
(c) Promptly
after receipt by an indemnified party of notice of commencement of any action
covered by either Section 10(a)
or
Section
10(b),
the
party to be indemnified shall within five (5) business days, notify the
indemnifying party of the commencement thereof, in accordance with Section
15
of this
Agreement; the omission by one indemnified party to so notify the indemnifying
party shall not relieve the indemnifying party of its obligation to indemnify
any other indemnified party that has given such notice and shall not relieve
the
indemnifying party of any liability outside of this indemnification if not
materially prejudiced thereby. In the event that any action is brought against
the indemnified party, the indemnifying party will be entitled to participate
therein and, to the extent it may desire, to assume and control the defense
thereof with counsel chosen by it which is reasonably acceptable to the
indemnified party. After notice from the indemnifying party to such indemnified
party of its election to so assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under such Section 10(a)
or
Section
10(b)
for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, but the indemnified party may, at its
own
expense, participate in such defense by counsel chosen by it,
-12-
without,
however, impairing the indemnifying party’s control of the defense. Subject to
the proviso of this sentence and notwithstanding any other statement to the
contrary contained herein, the indemnified party or parties shall have the
right
to choose its or their own counsel and control the defense of any action, all
at
the expense of the indemnifying party if, (i) the employment of such counsel
shall have been authorized in writing by the indemnifying party in connection
with the defense of such action at the expense of the indemnifying party, or
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action,
or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any
of
which events such fees and expenses of one additional counsel shall be borne
by
the indemnifying party; provided,
however,
that
the indemnifying party shall not, in connection with any one action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstance, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at
any
time for all such indemnified parties. No settlement of any action or proceeding
against an indemnified party shall be made without the consent of the
indemnifying party.
In
order
to provide for just and equitable contribution in circumstances in which the
indemnification provided for in Section 10(a)
or
Section
10(b)
is due
in accordance with its terms but is for any reason held by a court to be
unavailable on grounds of policy or otherwise, the Company and Hunter shall
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with the investigation
or defense of same) which the other may incur in such proportion so that Hunter
shall be responsible for such percent of the aggregate of such losses, claims,
damages and liabilities as shall equal the percentage of the gross proceeds
paid
to Hunter and the Company shall be responsible for the balance; provided,
however,
that no
person guilty of fraudulent misrepresentation within the meaning of
Section 11(f) of the Securities Act shall be entitled to contribution from
any person who was not found guilty
of
such fraudulent misrepresentation. For purposes of this Section 10(c),
any
person controlling, controlled by or under common control with Hunter, or any
partner, director, officer, employee, representative or any agent of any
thereof, shall have the same rights to contribution as Hunter and each person
controlling, controlled by or under common control with the Company within
the
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act and each officer of the Company and each director of the Company
shall have the same rights to contribution as the Company. Any party entitled
to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against the other party under this Section 10(c),
notify
such party from whom contribution may be sought, but the omission to so notify
such party shall not relieve the party from whom contribution may be sought
from
any obligation they may have hereunder or otherwise if the party from whom
contribution may be sought is not materially prejudiced thereby.
(d) The
indemnity and contribution agreements contained in this Section 10
shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any indemnified person or any termination of this
Agreement. Notwithstanding
-13-
anything
to the contrary in this Section 10,
no
party shall be liable for contribution with respect to the settlement of any
claim or action effected without its written consent.
11. Non-Circumvention.
Pursuant
to this Agreement, it is contemplated that Hunter shall supply to the Company
and its officers and directors a certified list (the “Certified
List”)
of
investors and customers that Hunter has contacted in connection with the
Offering. If, during the twelve-month period after the Placement Term, the
Company completes a Transaction (as defined below) with a person on the
Certified List, the Company shall pay Hunter concurrently with the closing
of
such Transaction the compensation due under Section
2
of this
Agreement.
“Transaction”
shall
be defined as any direct or indirect sale, transfer, conveyance, exchange,
financing, investment, trade, exchange or other change in legal or beneficial
ownership of any property, whether accomplished by an issuance or purchase
of
assets of securities, merger, consolidation, management contract, joint venture,
partnership, trade or exchange of assets or stock or otherwise.
12. Payment
of Expenses.
The
Company hereby agrees to bear all of its expenses in connection with the
Offering, including, but not limited to the following: filing fees, printing
and
duplicating costs, Company approved advertisements, road show costs and
expenses, one or more Tombstone ads not to exceed $50,000, postage and mailing
expenses with respect to the transmission of offering materials, registrar
and
transfer agent fees, escrow agent fees and expenses, fees of the Company’s
counsel, fees of counsel to Hunter subject to a minimum of $25,000, accountants,
and issue and transfer taxes, if any. No finder’s fees shall be payable with
respect to securities sold to any Strategic Investor.
13. Conditions
of Closing.
The
Closing shall be held at the offices of Company’s counsel or as otherwise
determined by Hunter and the Company. The obligations of Hunter hereunder shall
be subject to the continuing accuracy of the representations and warranties
of
the Company herein as of the date hereof and as of the closing date with respect
to the Company as if it had been made on and as of such closing date; the
accuracy on and as of the closing date of the statements of the officers of
the
Company made pursuant to the provisions hereof; and the performance by the
Company on and as of the closing of its covenants and obligations hereunder
and
to the following further conditions:
(a) At
or
prior to the Closing, counsel for Hunter shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
this
Agreement and the offering materials or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
(b) At
and
prior to the Closing, (i) there shall have been no material adverse change
in
the condition or prospects or the business activities, financial or otherwise,
of the
-14-
Company
from the latest dates as of which such condition is set forth in the offering
materials; (ii) there shall have been no transaction, not in the ordinary course
of business, entered into by the Company which has not been disclosed in the
offering materials or to Hunter in writing; (iii) except as set forth in the
offering materials, the Company shall not be in default under any provision
of
any instrument relating to any outstanding indebtedness for which a waiver
or
extension has not been otherwise received; (iv) except as set forth in the
offering materials, the Company shall not have issued any securities (other
than
those to be issued as provided in the offering materials) or declared or paid
any dividend or made any distribution of its capital stock of any class and
there shall not have been any change in the indebtedness (long or short term)
or
liabilities or obligations of the Company (contingent or otherwise); (v) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as indicated in the offering materials; and (vi) no action,
suit or proceeding, at law or in equity, against the Company or affecting any
of
its properties or businesses shall be pending or threatened before or by any
court or federal or state commission, board or other administrative agency,
domestic or foreign, wherein an unfavorable decision, ruling or finding could
materially adversely affect the businesses, prospects or financial condition
or
income of the Company, except as set forth in the offering
materials.
(c) At
the
Closing, Hunter shall have received a certificate of the Company signed by
its
chief executive officer, Xxxxxxx XxXxxx, dated as of the applicable closing
date, to the effect that the conditions set forth in subparagraph (b) above
have
been satisfied and that, as of the applicable closing date, the representations
and warranties of the Company set forth herein are true and
correct.
(d) There
shall be lock-up agreements executed by (i) the principal shareholders of the
Company, including Santa Xxxxxx Capital Partners II, LLC and its principals,
Showtime Networks, Inc., Lifelogger, LLC, a Delaware limited liability company
(an affiliate of Santa Xxxxxx Partners II, LLC), and other persons who may
be
identified by Hunter, and (ii) the Company’s officers and directors. Each person
listed in the foregoing sentence shall agree to not sell any shares owned
directly or indirectly by any of them for a period of 18 months from the
effective date of the Registration Statement (the “Lock-Up
Terms”).
Additionally, each person to whom the Company granted options prior to the
date
of this Agreement and during the period beginning on the date of this Agreement
and ending on the eighteen-month anniversary of the effective date of the
Registration Statement (the “Lock-Up
Period”),
shall
execute a lock-up agreement and agree to and be subject to the Lock-Up Terms.
Notwithstanding the foregoing, (i) in the discretion of Hunter, the persons
who
have executed a lock-up agreement with the Company dated October 3, 2006, may
be
released in whole or in part prior to the expiration of the Lock-Up Period,
(ii)
the Lock-Up Terms will not apply during the period that the sales price per
Share is at least $15.00, provided that (A) the Registration Statement has
been
declared effective, and (B) the Shares have been listed for trading on either
the Nasdaq Stock Market or the American Stock Exchange, and (iii) Lock-Up Terms
shall not apply in connection with private transactions where the transferee
agrees to be bound by the Lock-Up Terms.
14. Confidentiality.
Each
party hereto at all times will hold and cause its employees and advisors to
hold
in confidence all documents and information concerning the other parties hereto
which have been
-15-
or
will
be furnished in connection with the transactions contemplated hereby, except
as
may be necessary to facilitate negotiations or filings with any regulatory
agency or authority. If the Offering contemplated hereunder is not
consummated, such confidence will be maintained, except to the extent such
information (a) was previously known to the receiving party prior to disclosure
by the disclosing party, (b) is in the public domain through no fault of the
receiving party, (c) is lawfully acquired by the receiving party from a third
party under no obligation of confidence to the disclosing party or (d) is
required by law to be disclosed. Such documents and information will not
be used to the detriment of the disclosing party otherwise in any manner and
all
documents, materials and other written information provided by the disclosing
party to the receiving party, including all copies and extracts thereof, will
be
returned to the disclosing party promptly upon written request. The
parties agree that the provisions of this Section
14
shall be
binding on the parties and shall survive any termination of discussions or
the
contemplated transaction.
15. Miscellaneous.
(a) This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed to be an original, but all which shall be deemed to be one and the same
instrument.
(b) Any
notice required or permitted to be given hereunder shall be given in writing
and
shall be deemed effective when deposited in the United States mail, postage
prepaid, or when received if personally delivered or faxed, addressed as
follows:
|
To
Hunter:
|
|
Hunter
World Markets, Inc.
0000
Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx
Xxxxx
Xxxxxxx
Xxxxx, Xxxxxxxxxx 00000
Attention:
Xxxx Xxxxxx, President
Telephone:
(000) 000-0000
Fax:
(000) 000-0000
|
|
with
a copy to:
|
|
Law
Offices of Xxxxx X. Xxxxxxxx & Associates
0000
Xxxxxx Xxxxxxxxx
0xx
Xxxxx
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention:
Xxxxx X. Xxxxxxxx
Telephone:
(000) 000-0000
Fax:
(000) 000-0000
|
-16-
|
To
the Company:
|
|
00000
Xxxxxxxx Xxxxxxxxx, Xxxxx0000
Xxx
Xxxxxxx, XX 00000
Attention:
Xxxxxxx XxXxxx
Telephone:
(000) 000-0000
|
|
with
a copy to:
|
|
Xxxx
& Xxxxx PC
0000
Xxxxxxx Xxxx Xxxx, Xxxxx 0000
Xxx
Xxxxxxx, XX 00000
Attention:
Xxxxx X. Xxxxxxxx
Telephone:
(000) 000-0000
Fax:
(000) 000-0000
|
or
to
such other address of which written notice is given to the others.
(c) This
Agreement shall be construed pursuant to the laws of the State of California
without regard to conflicts of law principals thereof. Any controversy arising
hereunder shall be resolved by arbitration from the American Arbitration
Association or in accordance with the rules of the National Association of
Securities Dealers, Inc.
(d) This
Agreement contains the entire understanding between the parties hereto and
may
not be modified or amended except by a writing duly signed by the party against
whom enforcement of the modification or amendment is sought.
(e) If
any
provision of this Agreement shall be held to be invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provision of this
Agreement.
(f) In
the
event that the minimum funding is not obtained prior to the expiration of the
Placement Term, this Agreement shall immediately terminate without further
action on the part of the Company or Hunter.
[Signature
page to follow]
-17-
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date
first written above.
|
/s/
Xxxxxxx XxXxxx
|
||
|
By:
Xxxxxxx
XxXxxx
Its: Chief
Executive Officer
|
||
|
AGREED
AND ACCEPTED
|
||
|
HUNTER
WORLD MARKETS, INC.
|
||
| /s/ Xxxx Xxxxxx | ||
|
By:
Xxxx
Xxxxxx
Its:
President
and CEO
|
[Signature
Page to Placement Agent Agreement]
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