PLACEMENT AGENT AGREEMENT
April
3,
2008
000
Xxxx
Xxxxxxx
Xxxxxxx
Xxxxxx, XX 00000
| Attn: |
Xxxx
Xxxxxx, Chief Executive Officer
Xxxxxx Xxxxxxx, Chief Financial
Officer
|
Gentlemen:
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1.
|
Offering.
|
A. Smart
Energy Solutions, Inc., a Nevada corporation (the “Company”), hereby engages EKN
Financial Services, Inc. (“Placement Agent”) to act as its exclusive placement
agent (with permitted sub-placement agents) in connection with the issuance
and
sale by the Company (the “Offering”) of $4,000,000 (subject to an over-allotment
option of 25%) of its equity securities (the “Securities”), which will include
shares of the Company’s common stock (the “Common Stock”) and warrants. For the
purposes of this Agreement, the term Securities will not include certain
existing convertible promissory notes, in the aggregate principal amount of
$500,000 (the “Convertible Promissory Notes”), which the Company is converting
on the same terms as the Securities issued in the Offering at the closing of
Offering. The Offering will include Common Stock, which shall be sold at a
40%
discount to the average closing price of the Common Stock as quoted on the
over-the-counter market under the symbol “SMGY” for 15 consecutive trading days
prior to the closing, and warrants to purchase an additional amount of Common
Stock equal to 25% of the aggregate number
of
shares of Common Stock sold in the Financing, which warrants shall be
exercisable, for a period of five (5) years from the closing, at an exercise
price per share equal to 100% of the purchase price of the Common Stock sold
in
the Financing (the “Warrants”). For the purposes of this Placement Agent
Agreement the “Closing” shall be defined as such time when the Placement Agent
and the Company receive and approve executed Securities Purchase Agreements
and
subscription funds for a minimum of $4,000,000. Subject to the over-allotment
option of 25%, subsequent closings may take place up to $5,000,000. Placement
Agent is hereby authorized to engage, at Placement Agent’s option, the services
of other broker-dealers who are members in good standing of the Financial
Industry Regulatory Authority (“FINRA”) to assist Placement Agent in soliciting
subscribers and to share with such broker-dealers the commissions payable to
Placement Agent hereunder as Placement Agent shall determine in accordance
with
agreements entered into directly between Placement Agent and such other
broker-dealers. The Company shall not have any obligation or liability to pay
commissions, fees, other compensation, or expenses to any such other
broker-dealers. The Offering is subject to the terms and conditions set forth
in
the Company’s
Securities Purchase Agreement,
dated
April 3, 2008, the Registration Rights Agreement, dated April 3, 2008, the
Common Stock Purchase Warrant, dated April 3, 2008, and the Company’s filings
with the Securities and Exchange Commission (“SEC”) each inclusive of all
exhibits, all amendments, supplements and appendices thereto, if any
(collectively the “Transaction Documents”).
B. The
Company is offering through the Placement Agent $4,000,000 (subject to an
over-allotment option of 25%) of the Company’s Common Stock on a “best efforts”
basis. The Company will issue the certificates representing the Common Stock
and
Warrants at a closing after subscriptions for at least $4,000,000 have been
received and approved by the Company and the Placement Agent and when funds
from
investors have cleared the banking system in the normal course of business.
C. The
Offering commenced on January 25, 2008, it was suspended on March 13, 2008
and
resumed on April 1, 2008, and it shall terminate on the earliest of (i) the
date
on which $4,000,000 in Common Stock has been sold, or (iii) April 30, 2008,
unless
the Company and Placement Agent mutually agree to extend the Offering up and
through May 31, 2008 (the
“Offering Period”). If the Offering is not sold prior to the end of the Offering
Period, the Offering will be terminated and all funds received from investors
will be returned thereto, without interest thereon or deduction therefrom.
With
respect to any subscriptions that are received by Placement Agent or accepted
by
the Company subsequent to the Offering Period, all funds received from investors
will be returned thereto, without interest thereon or deduction therefrom.
The
Company reserves the right in its sole discretion to reject any subscription
agreements.
2. Compensation
to Placement Agent.
A. As
compensation for the services to be provided the Placement Agent hereunder,
the
Company agrees to pay to the Placement Agent: (i) a cash fee equal to 10% of
the
gross proceeds of the Offering; provided, however, that for the purposes of
this
Section 2A, the gross proceeds of the Offering shall not include any proceeds
resulting from the issuance of the Convertible Promissory Notes, and no fee
whatsoever shall be paid by the Company to the Placement Agent with respect
to
the Convertible Promissory Notes and, provided further, that for any person
or
entity making an investment of $250,000 or greater the Company shall pay a
cash
fee of 7% instead of 10%; and (ii) a warrant to the Placement Agent or its
designee(s) to purchase 15% of the Securities sold in the Offering (the
“Placement Agent Warrants”). The Placement Agent Warrants shall
be
exercisable, for a period of seven (7) years from the Closing,
at
an
exercise price per share equal to (100%) of the purchase price of the Securities
sold in the Offering,
shall
have unlimited piggyback registration rights, cashless exercise and
anti-dilution provisions and shall be evidenced by a registration rights
agreement in form and substance reasonably satisfactory to the Company and
the
Placement Agent. The Placement Agent Warrants shall be executed and delivered
at the Closing. If the Offering is consummated by means of more than one
closing, the Placement Agent shall be entitled to the fees provided herein
at
and with respect to each Closing.
B. The
Securities will be offered without registration under the Securities Act of
1933, as amended (the “Securities Act”). Purchasers of the Securities will be
granted certain registration rights with respect to the Common Stock and
Warrants as more fully set forth in the Registration Rights Agreement. Placement
Agent will be granted certain registration rights with respect to the shares
of
Common Stock issuable upon exercise of the Placement Agent Warrants, as more
fully set forth in the Placement Agent Warrants.
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3.
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Payment.
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A. The
Common Stock and Warrants shall have the terms set forth in and shall be offered
by the Company by means of the Transaction Documents. Payment for the Common
Stock shall be made by check, money order or wire transfer as more fully
described in the Securities Purchase Agreement. The minimum purchase by any
purchaser shall be $25,000, unless subscriptions for lesser amounts are accepted
at the discretion of the Company and Placement Agent. Placement Agent and the
Company agree that the Common Stock and Warrants will be offered and sold only
to “accredited investors” within the meaning of Rule 501 of Regulation D
(“Accredited Investors”) promulgated under the Securities Act and Rule 506 of
Regulation D under the Securities Act.
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B. All
Funds
received from subscriptions arranged by Placement Agent and its agents will
be
promptly transmitted to the escrow account set up by the Company and maintained
at Capital One Bank, 00-00X Xxxxxxxx Xxxxxx, Xxxx Xxxx, XX 00000 (the “Escrow
Agent”) and designated as “Capital
One Bank as Escrow Agent for Smart Energy Solutions, Inc” (the
“Escrow Account”). The Escrow Agent shall, upon the Closing of at least
$4,000,000 (or additional closings if there shall be more than one): (i) deliver
to the Company, by wire transfer of immediately available funds, the funds
deposited in the Escrow Account in payment for the Securities, less the amounts
payable to the Placement Agent pursuant to Section 2A above. The Placement
Agent
shall receive all cash compensation under this Placement Agent Agreement by
wire
transfer of immediately available funds directly from the Escrow Agent at the
time of the Closing.
In
addition, the Company will furnish to the Placement Agent copies of such
agreements, opinions, certificates and other documents delivered at the Closing
as the Placement Agent may reasonably request, including, without limitation,
an
opinion of Company counsel to the effect that the placement of the Securities
was exempt from registration under the Securities Act.
C. Company
and Placement Agent each reserve the right to reject any subscriber, in whole
or
in part, in their sole discretion. Funds received by the Company from any
subscriber whose subscription is rejected will be returned to such subscriber,
without deduction therefrom or interest thereon, but no sooner than such funds
have cleared the banking system in the normal course of business.
D. If,
at
any time after the end of the Offering Period and before the first anniversary
of the end of the Offering Period, the Company shall consummate a private equity
and/or debt financing transaction, including any variant of the Offering, with
any party contacted or identified by the Placement Agent in connection with
the
Offering, the Placement Agent will be entitled to payment in full of the
compensation described in paragraph 2 of this Agreement as to all such
parties.
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4.
|
Representations,
Warranties and Covenants of Placement Agent.
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Placement
Agent represents warrants and covenants as follows:
(i) Placement
Agent has the necessary power to enter into this Agreement and to consummate
the
transactions contemplated hereby.
(ii) The
execution and delivery by Placement Agent 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 Placement Agent is a party or by which Placement Agent is bound, or
any
judgment, decree, order or, to Placement Agent’s knowledge, any statute, rule or
regulation applicable to Placement Agent. This Agreement constitutes the legal,
valid and binding obligation of Placement Agent, enforceable against Placement
Agent in accordance with its terms, except to the extent that (a) the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect and affecting the rights
of creditors generally, (b) the enforceability hereof is subject to general
principles of equity, or (c) the provisions hereof may be held to be violative
of public policy.
(iii) Placement
Agent will deliver to each Accredited Investor, prior to any submission to
such
person of a written offer relating to the purchase of the Common Stock, a copy
of the Transaction Documents, as it may have been most recently amended or
supplemented by the Company. Placement Agent agrees not to engage in any
activities in connection with the Offering in any state (i) in which the
Offering is not qualified for sale or exempt from qualification under the
applicable securities or blue sky laws thereof; (ii) in which Placement Agent
or
its agents may not lawfully so engage, or (iii) in which it or its agents are
not a registered broker-dealer.
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(iv) Upon
receipt of all executed Transaction Documents, Placement Agent will promptly
forward copies of same to the Company.
(v) Placement
Agent will not deliver the Transaction Documents to any person it does not
reasonably believe to be an Accredited Investor, and will offer and sell the
Securities only to Accredited Investors as that term is defined if Rule 501
(a)
promulgated under the Securities Act. Further, Placement Agent will not make
any
representations on behalf of the Company to any prospective purchasers of any
material fact not contained in the Transaction Documents, and will provide
Company’s counsel with copies of all agreements with any of its broker-dealer
agents assisting Placement Agent in the Offering.
(vi) Placement
Agent will not take any action which it reasonably believes would cause the
Offering to violate the provisions of the Securities Act, the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or the respective rules
and regulations promulgated thereunder (the “Rules and
Regulations”).
(vii) Placement
Agent shall use all reasonable efforts to determine (a) whether any prospective
purchaser is an Accredited Investor; and (b) that any information furnished
by a
prospective investor is true and accurate, provided that for this purpose the
Placement Agent shall conclusively be entitled to rely upon an executed Investor
Questionnaire in the form accompanying the Securities Purchase Agreement by
a
subscriber. Placement Agent shall have no obligation to insure that any check,
note, draft or other means of payment for the Common Stock will be honored,
paid
or enforceable against the subscriber in accordance with its terms.
(viii) Placement
Agent and the other broker-dealers that Placement Agent elects to act as its
agents for this Placement are and at all times during the Offering Period will
remain members in good standing of FINRA and be and remain broker-dealers
registered as such under the Exchange Act and under the securities laws of
the
states in which the Securities will be offered or sold by Placement Agent and
its agents, unless an exemption for such state registration is available to
Placement Agent or its agents. Placement Agent and its agents are in compliance
with all material rules and regulations applicable to Placement Agent and its
agents generally and to Placement Agent’s and its agent’s participation in the
Offering.
(ix) Placement
Agent acknowledges that the Company is a public reporting issuer and, as such,
is subject to a broad range of U.S. federal securities laws including, without
limitation, prohibitions against selective disclosure of material, non-public
information pursuant to Regulation FD. Placement Agent understands and agrees
that the Company is relying on Placement Agent’s acknowledgement herein with
respect to the confidential treatment by Placement Agent and its agents of
the
Transaction Documents and all of the information set forth therein and which
Placement Agent otherwise may obtain from the Company and its affiliates,
employees, advisors and agents.
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5.
|
Representations,
Warranties and Covenants of the Company.
|
The
Company represents, warrants and covenants as follows:
4
(i) The
execution, delivery and performance of each of this Agreement, the Transaction
Documents and the Escrow Agreement has been or will be duly and validly
authorized by the Company and is, or with respect to the Securities Purchase
Agreement, will be, a valid and binding obligation of the Company, enforceable
in accordance with its respective terms, except to the extent that (a) 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, (b) the enforceability hereof
or
thereof is subject to general principles of equity; or (c) the indemnification
provisions hereof or thereof may be held to be violative of public policy.
The
issuance, sale and delivery by the Company of the Securities have been or will
be prior to the Closing duly authorized by all requisite corporate action of
the
Company and, when issued and paid for in accordance with this Agreement and
the
Transaction Documents, will be valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except to the extent
that
(a) 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; and (b) the enforceability thereof
is subject to general principles of equity.
(ii) All
issued and outstanding securities of the Company have been duly authorized
and
validly issued, fully paid and non-assessable and were issued in compliance
with
all applicable federal and state securities laws; 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. The Company as of March 27, 2008 has
500,000,000 shares of authorized Common Stock, 84,672,679 shares of which are
issued and outstanding, and 1,000,000 shares of authorized Preferred Stock,
none
of which are outstanding.
(iii) Except
as
set forth in the Transaction Documents, the Company’s SEC filings or Exhibit A
attached hereto, there are: (a) no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements pursuant to which
the
Company is or may become obligated to issue, sell or repurchase any securities
of the Company; (b) no restrictions on the transfer of the Company’s capital
stock imposed by the Company’s Certificate of Incorporation or By-laws or any
agreement to which the Company is a party, any order of any court or any
governmental agency to which the Company is subject or any statute other than
those imposed by relevant state and federal securities laws; (c) no cumulative
voting or preemptive rights for any of the Company’s capital stock; (d) no
registration rights under the Securities Act with respect to the Company’s
capital stock; (e) no anti-dilution adjustment provisions or similar rights
with
respect to the outstanding securities of the Company will be triggered by the
issuance of the Securities; (f) no voting trusts or agreements, shareholders
agreements, pledge agreements, buy-sell, rights of first offer, negotiation
or
refusal or proxies or similar arrangements relating to any securities of the
Company to which the Company is a party; and (g) to the best of the Company’s
knowledge, no options or other rights to purchase securities from its
shareholders granted by such shareholders. The Company has, or shall have at
the
time of issuance, good and marketable title to, all the Securities contemplated
in the Offering (including the Common Stock, Warrants and Placement Agent
Warrants) free and clear of all liens, encumbrances, claims, security interests
and defects of any nature whatsoever, except as may be specifically set forth
in
the Transaction Documents.
(iv) The
Securities and the Placement Agent Warrants, when issued in accordance with
the
terms of the Securities Purchase Agreement and the terms of this Agreement,
as
the case may be, will be validly issued, fully-paid and non-assessable. Upon
exercise of the Placement Agent Warrants in accordance with the terms thereof,
the shares of Common Stock underlying the Placement Agent Warrants will be
validly issued, fully-paid and non-assessable. Upon exercise of the Warrants
in
accordance with the terms thereof, the shares of Common Stock underlying the
Warrants will be validly issued, fully-paid and non-assessable. The holders
of
the Securities will not be subject to personal liability under the Company’s
Certificate of Incorporation or By-laws or the laws of the State of Nevada
solely by reason of being such holders; the Securities are not and will not
be
subject to the preemptive rights of any holder of any security of the
Company.
5
(v) There
is
no litigation or governmental proceeding pending or, to the best of the
Company’s knowledge, threatened against, or involving the Company or its
properties or business, except as set forth in the Transaction Documents or
the
Company’s SEC filings. The Company is not a party to any order, writ,
injunction, judgment or decree of any court.
(vi) The
Company is duly organized and validly exists as a corporation in good standing
under its respective jurisdiction of incorporation. Except as set forth in
the
Transaction Documents or the Company’s SEC filings, the Company does not own or
control, directly or indirectly, an interest in any other corporation,
partnership, trust, joint venture or other business entity. The Company is
duly
qualified or licensed and in good standing as a foreign corporation 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 Company. The Company has all requisite corporate 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 businesses (and
proposed business) as described in the Transaction Documents, and the Company
is
doing business in 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,
except where failure to so comply would not have a material adverse effect
on
the Company. Any disclosures in the Transaction Documents concerning the effects
of foreign, federal, state and local regulation on the Company’s business as
currently conducted and as contemplated are correct in all material respects
and
do not omit to state a material fact. The Company has all corporate power and
authority to enter into this Agreement, the Transaction Documents and all
agreements related to the Offering and to carry out the provisions and
conditions hereof and thereof and to issue, sell and deliver the Securities.
No
consents, authorizations, approvals, or orders of, or registration,
qualification, declaration or filing with, any federal, state or local
governmental authority on the part of the Company is required in connection
herewith and therewith or to issue, sell and deliver the Securities, other
than
registration or qualification, or taking such action to secure exemption from
such registration or qualification of the Securities under applicable state
or
federal securities laws, which actions have been taken by the Company or will
be
taken by the Company prior to the Closing.
(vii) There
has
been no material adverse change in the condition or prospects of the Company,
financial or otherwise, from that on the latest dates as of which such condition
or prospects, respectively, are set forth in the Transaction Documents and
the
most recent SEC filings, and the outstanding debt and the business of the
Company conforms in all material respects to the descriptions thereof contained
in the Transaction Documents and/or the Company’s SEC filings.
(viii) The
Company is not in breach of, or in default under, any term or provision of
any
indenture, mortgage, deed of trust, lease, 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 it is a party or by which it or
any
of its properties may be bound. The Company is not in violation of any provision
of its charter or Bylaws 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 and the Securities Purchase
Agreement, nor the issuance and sale or delivery of the Securities, nor the
consummation of any of the transactions contemplated herein or in the Securities
Purchase Agreement, nor the compliance by the Company with the terms and
provisions hereof or thereof, has conflicted with or will conflict with, or
has
resulted in or will result in a 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 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 where such default,
lien, charge or encumbrance would not have a material adverse effect on the
Company; nor will such action result in any violation of the provisions of
the
charter or the By-laws of the Company, any statute, 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.
6
(ix) The
Securities and the Securities Purchase Agreement conform in all material
respects to all statements in relation thereto contained in the Transaction
Documents and/or the Company’s SEC filings.
(x) Subsequent
to the dates as of which information is given in the Transaction Documents
and
the Company’s filings with the SEC, and except as may otherwise be indicated or
contemplated herein or therein, the Company has not (a) issued any securities
or
incurred any liability or obligation, direct or contingent, for borrowed money,
(b) entered into any transaction other than in the ordinary course of business
or (c) declared or paid any dividend or authorized or made any other
distribution on or in respect of its capital stock.
(xi) Neither
the Company nor any of its officers, directors, employees or stockholders has
employed any broker or finder in connection with the transactions contemplated
by this Agreement other than Placement Agent and there are no claims for
services in the nature of a finder’s or origination fee with respect to the sale
of the Securities.
(xii) The
Company owns or possess, 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
(including, without limitation, any such licenses or rights described in the
Transaction Documents and the Company’s filings with the SEC, as being owned or
possessed by the Company) and there is no claim or action by any person
pertaining to, or proceeding, pending or threatened, which challenges the 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 (including, without limitation, any such
licenses or rights described in the Transaction Documents and the Company’s
filings with the SEC as being owned or possessed by the Company) 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.
(xiii) 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.
(xiv) Subject
to the performance by Placement Agent of its obligations hereunder, and the
accuracy of the representations and warranties made by the respective investors
in the Securities Purchase Agreements, the Transaction Documents and the offer
and sale of the Securities comply, and will continue to comply, through the
Offering Period in all material respects with the requirements of Rule 506
of
Regulation D promulgated by the Commission pursuant to the Securities Act and
any other applicable federal and state laws, rules, regulations and executive
orders. Neither the Transaction Documents nor any amendment or supplement
thereto nor any other documents prepared by the Company in connection with
the
Offering (collectively, the “Offering Documents”) contain any untrue statement
of a material fact or omit to state any 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. All statements of
material facts in the Offering Documents are true and correct as of the date
of
the Offering Documents, or as of the respective dates of documents referred
to
therein, and will be true and correct in all material respects on the date
of
each Closing. If at any time prior to the completion of the Offering or other
termination of this Agreement any event shall occur as a result of which it
might become necessary to amend or supplement the Offering Documents so that
they do not include any untrue statement of any material fact or omit to state
any material fact necessary in order to make the statements therein, in light
of
the circumstances then existing, not misleading, the Company will promptly
notify Placement Agent and will supply Placement Agent with amendments or
supplements correcting such statement or omission.
7
(xv) 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, whether or not liquidated to a sum certain.
(xvi) The
financial information of the Company included in the Company’s filings with the
SEC accurately presents the financial position of the Company on the respective
dates thereof.
(xvii) Neither
the Company nor any of its respective officers, directors, employees or agents,
nor 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
(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 (A) might subject the Company to any damage or penalty in
any
civil, criminal or governmental litigation or proceeding, or (B) 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
contained in the Company’s filings with the SEC, or (C) if not continued in the
future, might adversely affect the assets, business, operations or prospects
of
the Company in the future.
(xviii) Assuming
(i) the accuracy of the information provided by the respective investors in
the
Securities Purchase Agreements and (ii) that the Placement Agent has complied
in
all material respects with its obligations under this Agreement and the
provisions of Regulation D promulgated under the Securities Act, the offer
and
sale of the Common Stock pursuant to the terms of the Transaction Documents
are
exempt from the registration requirements of the Securities Act and the rules
and regulations promulgated thereunder.
(xix) When
the
Common Stock, Warrants and Placement Agent Warrants shall have been duly
delivered to each acquiring person or entity (including the Placement Agent)
and
payment shall have been made therefor, the acquiring person or entity (including
the Placement Agent) shall have good and marketable title to the Common Stock,
Warrants and Placement Agent Warrants, as the case may be, free and clear of
all
liens, encumbrances, claims, security interests and defects of any nature
whatsoever (with the exception of claims arising through the acts or omissions
of the purchasers and except as arising from applicable federal and state
securities laws) and the Company shall have paid all taxes, if any, in respect
of the original issuance thereof.
(xx) The
Company understands and agrees that the foregoing representations and warranties
shall conclusively be deemed material and conclusively deemed relied upon by
Placement Agent. No representation or warranty by the Company in this Agreement,
and no written statement contained in any document, certificate or other writing
delivered by the Company to Placement Agent contains any untrue statement of
material fact or omits to state any material fact necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.
8
(xxi) Upon
receipt of an executed Securities Purchase Agreement, the Company will promptly
forward copies of the Securities Purchase Agreement to the Placement Agent
if
received directly by Company from any prospective investors.
(xxii) The
Company will not deliver the Transaction Documents to any person it does not
reasonably believe to be an Accredited Investor.
(xxiii) The
Company will not intentionally take any action which it reasonably believes
would cause the Offering to violate the provisions of the Securities Act,
Exchange Act, or the Rules and Regulations.
(xxiv) The
Company is in compliance, to the extent applicable, with all reporting
obligations under Section 12(g) of the Exchange Act. The Common Stock is quoted
on the Over-the-Counter Market; and the Company has filed all documents required
to be filed pursuant to all reporting obligations, under either Section 13(a)
or
15(d) of the Exchange Act, since May 11, 1999. None of the Company’s filings
with the Commission since November 30, 2004 contain any untrue statement of
a
material fact or omit to state any 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 has, since November 30, 2004,
timely filed all requisite forms, report and exhibits thereto with the
Commission; and all reports and forms filed subsequent thereto by the Company
with the Commission, no such reports contained any untrue statement of a
material fact or omit to state any 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.
|
6.
|
Certain
Covenants and Agreements of the Company.
|
The
Company covenants and agrees at its expense, and without any expense to
Placement Agent, as follows:
A. To
advise
Placement Agent of any 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 Transaction
Documents occurring at any time prior to a Closing as soon as reasonably
practicable after the Company is either informed or becomes aware
thereof.
B. To
use
its best efforts to cause the Securities to be qualified or registered for
sale,
or to obtain exemptions from such qualification or registration requirements,
on
terms consistent with those stated in the Transaction Documents, the Common
Stock, Warrants and the Placement Agent Warrants under the securities laws
of
such jurisdictions as Placement Agent shall reasonably request, provided that
such states and jurisdictions do not require the Company to qualify as a foreign
corporation. Qualification, registration and exemption charges and fees shall
be
at the sole cost and expense of the Company. The Company’s counsel shall perform
the required “Blue Sky” services, and all reasonable expenses and disbursements
of the Company’s counsel relating to such “Blue Sky” matters and relating to the
Offering shall be paid by the Company.
C. To
use
the net proceeds of the Offering to fund the Company’s general working capital
needs, including the ongoing development and marketing of the Company’s
products. Pending utilization, the net proceeds will be invested in short-term,
interest bearing investments, certificates of deposit or guaranteed United
States government obligations.
9
D. To
comply
with the terms of the Securities Purchase Agreement, Common Stock, Warrants
and
Placement Agent Warrants, including, without limitation, the registration rights
provisions thereof.
E. Neither
the Company nor any of their respective officers, directors, stockholders or
affiliates (within the meaning of the Rules and Regulations) will take, directly
or indirectly, any action designed to, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of the price
of
any securities of the Company.
F. To
issue
to Placement Agent or its designees, at the Closing, the Placement Agent
Warrants exercisable for a period of seven years commencing on the date of
issuance and terminating on the seventh anniversary of the final Closing as
evidenced by a Placement Agent Warrant of the Company executed and delivered
to
Placement Agent on the date of such Closing which shall provide for registration
by the Company of the Placement Agent Shares.
G. To
keep
available out of its authorized and designated Common Stock, solely for the
purpose of issuance upon the exercise or conversion of the Warrants and
Placement Agent Warrants such number of shares of Common Stock, as shall then
be
issuable upon the exercise of all outstanding Warrants and Placement Agent
Warrants.
|
7.
|
Indemnification.
|
The
Company agrees to indemnify and hold harmless Placement Agent, its affiliates,
the directors, officers, members, agents, employees and associated persons
of
Placement Agent and its affiliates, and each other person or entity, if any,
controlling Placement Agent or any of its affiliates (collectively, “Indemnified
Persons”), from and against, any losses, claims, damages, verdicts, judgments,
awards, settlements and any and all other liabilities and expenses (including
reasonable counsel fees and expenses, and costs of investigation) (collectively,
the “Losses”) relating to or arising out of any complaint, action claim,
proceeding, or investigation by any private person or entity, governmental
or
regulatory authority, or any self-regulatory body (collectively, “Action”),
brought by or against any person, including but limited to, stockholders of
the
Company, (A) related to or arising out of (i) the Company’s action or failure to
act, (ii) any statements or omissions made in any disclosure or other
information or materials used in connection with the transaction(s) described
in
or contemplated by this Placement Agent Agreement (collectively, the
“Transactions”) (iii) the services, commitment and/or other obligations
undertaken or performed by Placement Agent arising out of this Placement Agent
Agreement (collectively, “Placement Agent’s Role”), or (iii) the action or
failure to act by an Indemnified Person with the Company’s consent or in
reliance on the Company’s action or failure to act or (B) otherwise related to
or arising out of the Transactions or Placement Agent’s Role, or any other
matter referred to in this Placement Agent Agreement agreement, except that
this
clause (B) shall not apply to the Losses of an Indemnified Person that are
determined by a court of competent jurisdiction in a final judgment not subject
to appeal to have resulted from the bad faith or gross negligence of such
Indemnified Person. If such indemnification is for any reason not available
or
insufficient to hold an Indemnified Person harmless, the Company agrees to
contribute to the Losses involved in such proportion as is appropriate to
reflect the relative benefits received (or anticipated to be received) by the
Company, any affiliate of the Company and any guarantor of the Company’s
obligations hereunder or in the Transactions and any of their securityholders,
on the one hand, and any guarantor of the Company’s obligations hereunder or in
the Transaction(s) to which such indemnification relates or would have related
or, if such allocation is judicially determined by a court of competent
jurisdiction in a final judgment not subject to appeal to be unavailable or
if
it is insufficient to hold an Indemnified Person harmless in such proportion
as
is appropriate to reflect not only such relative benefits, but also other
equitable consideration such as the relative fault of the Company or any such
affiliate or guarantor, on the one hand, and of Placement Agent, on the other
hand; provided, however, that the Company shall be responsible for all Losses
which in the aggregate are in excess of the amount of all fees actually received
by Placement Agent from the Company in connection with Placement Agent’s Role as
to such Transaction(s) to which such indemnification relates or would have
related shall be deemed to be in the same proportion as (i) the total gross
proceeds (before costs, expenses and placement compensation) received, or the
total value paid or proposed to be paid or received or proposed to be received,
in each case by or on behalf of the Company, each such affiliate, each such
guarantor and their securityholders, as the case may be, pursuant to such
Transaction(s), whether or not consummated, bears to (ii) all fees paid or
proposed to be paid to Placement Agent by the Company in connection with
Placement Agent’s Role as to such Transaction(s). Notwithstanding anything to
the contrary herein, the Company agrees that no Indemnified Person shall have
any liability to the Company or its owners, parents, affiliates, directors,
officers, agents, servants, security holders and/or creditors for, any Losses
of
the Company.
10
The
Company will reimburse each Indemnified Person for all expenses (including
fees
and disbursements of counsel) as they are incurred by such Indemnified Person
in
connection with investigating, preparing for or defending any Action (or
enforcing this letter agreement or any related engagement agreement), whether
or
not in connection with pending or threatened litigation in which any Indemnified
Person is a party, and whether or not such Action is brought by Placement Agent.
The Company agrees that it will not settle or compromise or consent to the
entry
of any judgment in any pending or threatened Action in respect of which
indemnification may be sought hereunder (whether or not an Indemnified Person
is
a party therein) unless the Company has given Placement Agent reasonable prior
written notice thereof and obtained an unconditional release of each Indemnified
Person from all liability arising therefrom.
The
Company’s reimbursement, indemnity and contribution obligations hereunder shall
be in addition to any liability that it may otherwise have, and shall insure
to
the benefit of any successors, assigns, heirs and representatives of any
Indemnified Person. , The Company hereby consents to personal jurisdiction
and
venue in any court in which any Action is brought. In the event that an
arbitration is commenced against an Indemnified Person in which a claim is
asserted that relates to or arises out of any of the matters referred to in
clause (A) or (B) of the first sentence of this Section 6, the Company agrees
to
arbitration of any claims Indemnified Persons may have against the Company
pursuant to this letter agreement under the same rules as, and under the
auspices of the same organization as, the arbitration in which the claim is
asserted against the Indemnified Person. The Company acknowledges that, in
connection with Placement Agent’s Role, Placement Agent is acting as an
independent contractor with duties owing solely to Placement Agent. The
provisions of this Section 6 shall survive any termination of the letter
agreement or completion of the Transaction or Placement Agent’s Role.
PLACEMENT
AGENT HEREBY AGREES AND THE COMPANY HEREBY AGREES, ON ITS OWN BEHALF AND ON
BEHALF OF ITS SECURITYHOLDERS, TO WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT
TO ANY CLAIM, COUNTER-CLAIM OR ACTION ARISING OUT OF PLACEMENT AGENT’S ROLE OR
THIS PLACEMENT AGENT AGREEMENT.
|
8.
|
Conditions
of the Closing.
|
The
Closing shall be held at the offices of the Company’s counsel or such other
place as determined by the Company. The obligations of Placement Agent 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 date of
the
Closing as if such representations and warranties had been made on and as of
such Closing; the accuracy on and as of the date of each Closing of the
representations,
warranties and covenants of
the
Company made pursuant to the provisions hereof; and the performance by the
Company on and as of each Closing of its covenants and obligations hereunder
and
to the following further conditions:
11
A. At
and
prior to the Closing, (i) there shall have been no material adverse change
nor
development involving a prospective change in the condition or prospects or
the
business activities, financial or otherwise, of the Company from the latest
dates as of which such condition is set forth in the Transaction Documents
and/or the Company’s SEC filings; (ii) there shall have been no material
transaction, not in the ordinary course of business, entered into by the Company
which has not been disclosed as having taken place or being contemplated in
the
Transaction Documents or to Placement Agent in writing; (iii) 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 Transaction Documents or the Company’s
filings with the SEC, the Company shall not have issued any securities (other
than those set forth in the Transaction Documents or pursuant to the exercise
of
outstanding warrants or options) or declared or paid any dividend or made any
distribution of its capital stock of any class and there shall not have been
any
material adverse 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 with
respect to assets in the normal course of business and as indicated in the
Transaction Documents; and (v) 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 Transaction Documents.
B. The
Offering will become qualified or be exempt from qualification under the
securities laws of the several states as contemplated by Section 5(B) no later
than the date of the Closing and no stop order suspending the sale of the Common
Stock shall have been issued, and no proceedings for that purpose shall have
been initiated or threatened.
C. At
the
Closing, Placement Agent shall have received a certificate of the Company signed
by its chief executive officer and chief financial officer, dated as of the
date
of the Closing, to the effect that the conditions set forth in subparagraph
(C)
above have been satisfied and that, as of the date of the Closing, the
representations and warranties of the Company set forth herein are true and
correct.
D. At
the
Closing, or within three (3) business days thereafter, the Company shall have
duly executed and delivered the appropriate number and designation of Common
Stock to the respective holders thereof.
E. At
the
Closing or within three (3) business days thereafter, the Company shall have
executed and delivered the appropriate number of Warrants to the respective
holders thereof.
F. At
the
Closing, the Company shall duly and validly issue the Placement Agent Warrants
in accordance with the terms hereof and shall pay the Placement Agent
compensation provided in Section 2(B).
|
9.
|
Termination.
|
This
Agreement shall terminate if a Closing does not take place on or before the
expiration of the Offering Period or as soon thereafter as the funds received
from subscriptions have cleared the banking system in the normal course of
business. Upon any termination of the Offering, all subscription documents
and
payments for the Securities not previously delivered to the purchasers thereof,
shall be returned to the respective subscribers, without interest thereon or
deduction therefrom, and neither party hereto shall have any further obligation
to each other, except as specifically provided herein
12
|
10.
|
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. Facsimile signatures shall suffice in lieu of
originals.
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, sent by overnight courier
or
faxed, addressed as follows:
To
Placement Agent:
EKN
Financial Services, Inc.
00
Xxxx
Xxxxxx - 00xx
Xxxxx
Xxx
Xxxx,
XX 00000
Fax:
(000) 000-0000
Attention:
Xxxxx X. Xxxxxxxx
with
a
copy to:
EKN
Financial Services, Inc.
000
Xxxxxxxxx Xxxx Xxxxx
Xxxxxxxx,
XX 00000
Fax:
(000) 000-0000
Attention:
Xxxx Xxxxxxxxx
To
the
Company:
000
Xxxx
Xxxxxxx
Xxxxxxx
Xxxxxx, XX 00000
Fax:
(000) 000-0000
Attention:
Xx Xxxxxxx
with
a
copy to:
Xxxxx
Xxxxx & Associates
00
Xxxx
Xxxxxxxxx Xxxxxx
Xxxxxx
Xxxxxx, XX 00000
Fax:
(000) 000-0000
Attn:
Xxxxx Xxxxx, Esq.
or
to
such other address of which written notice is given to the others.
C. In
addition to the Company, the Placement Agent shall have the exclusive right
to
publish a tombstone advertisement following the final closing of the Offering
and to use it from time to time, in its marketing materials.
13
D. This
Placement Agent Agreement was, and shall be deemed to have been, executed in
the
State of New York, and shall be governed by, and construed in all respects
under, the laws of the State of New York, without regard to its conflict of
laws
rules or principles. Any suit, action, proceeding or litigation arising out
of
or relating to this Agreement shall only be brought and prosecuted in any New
York State court sitting in the County of New York and any Federal court sitting
in the Southern District of the State of New York. The parties hereby
irrevocably and unconditionally consent to the jurisdiction of each such court
or courts located within the State of New York and to service of process by
registered or certified mail, return receipt requested, or by any other manner
provided by applicable law, and hereby irrevocably and unconditionally waive
any
right to claim that any suit, action, proceeding or litigation so commenced
has
been commenced in an inconvenient forum.
E. This
Agreement and the other agreements referenced herein contain 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. Any and all other or prior agreements
between the parties are hereby merged in and subsumed by this Placement Agent
Agreement.
F. 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.
G. The
representations and warranties of the parties hereto as contained in this
Agreement shall survive the closing of the Offering.
H.
This
Placement Agent Agreement has been mutually drafted by the parties, and in
the
case of any dispute or disagreement arising out of any of the terms hereof,
or
language contained herein, neither party shall be entitled to a presumption
against the other as the party causing this Placement Agent Agreement to be
drafted.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date
first written above.
|
EKN
Financial Services, Inc.
|
|
|
By:
|
/s/ Xxxxx X. Xxxxxxxx |
|
|
Name:
Xxxxx X. Xxxxxxxx
|
|
Title:
Director of Investment Banking
|
|
AGREED
TO
AND ACCEPTED
THIS
4
DAY OF April 2008:
By: /s/
Xxxxxx
Xxxxxxx
Name:
Xxxxxx
Xxxxxxx
Title:
Chief Financial Officer
14
Exhibit
A
In
addition to the relevant information disclosed in the Company’s filings with the
Securities and Exchange Commission, the Company has:
|
1.
|
granted
piggyback registration rights with respect to 2,600,000 units, each
consisting of one share of common stock and one warrant, which were
issued
during the first quarter of 2008;
|
|
2.
|
37,029,528
shares of outstanding common stock that are subject to lock-up agreements,
which expire on June 4, 2008; and
|
| 3. |
granted
certain registration rights and the right to appoint 40% of the Company’s
directors
to Xxxxxx
X. Xxxxxxx, pursuant to the asset purchase agreement, dated March
23,
2005, between the Company and Xx.
Xxxxxxx.
|
In
addition, the Company has the warrants and options listed on the spread sheet
below outstanding as of the date of this Placement Agent Agreement.
|
March
27, 2007
|
Stock
Price
|
|
Common
Stock Equivalents
|
|
Warrants
& Options, etc.
|
|
Fully
Diluted Basis
|
|
Paid
in Capital
|
|||||||
|
Preferred
Stock Outstanding(1)
|
0
|
0
|
0
|
0
|
||||||||||||
|
Common
Stock Outstanding
|
84,622,679
|
84,622,679
|
5,279,572
|
|||||||||||||
|
Common
Stock Purchase Warrants(2)
|
$
|
0.45
|
5,555,555
|
5,555,555
|
2,500,000
|
|||||||||||
|
Common
Stock Purchase Warrants(3)
|
$
|
0.75
|
13,740,000
|
13,740,000
|
10,305,000
|
|||||||||||
|
Common
Stock Purchase Warrants(4)
|
$
|
0.75
|
1,150,000
|
1,150,000
|
862,500
|
|||||||||||
|
Common
Stock Purchase Warrants(5)
|
$
|
0.40
|
2,600,000
|
2,600,000
|
||||||||||||
|
Employee/Consultants
Common Stock Options(6)
|
13,134,183
|
13,134,183
|
132,687
|
|||||||||||||
|
Total
|
97,756,862
|
23,045,555
|
120,802,417
|
19,079,759
|
||||||||||||
|
Notes:
|
||||||||||||||||
|
(1)
Authorized 1,000,000 shares
|
||||||||||||||||
|
(2)
Expire September 2008
|
||||||||||||||||
|
(3)
Expire September 2008
|
||||||||||||||||
|
(4)
Expire June 2009
|
||||||||||||||||
|
(5)
Expire January 2010
|
||||||||||||||||
|
(6)
Exercise prices as follows: 25,000 ($0.75); 4,247,183 ($0.45);
540,000
($0.35); 50,000 ($0.30); 4,622,000 ($0.15); 1,000,000 ($0.05);
2,650,000
($0.00)
|
||||||||||||||||
|
(7)
The Company has (3) convertible notes of $500,000 each (annual
interest of
15%/15%/12%) due in May, June and September of 2008.
|
||||||||||||||||
|
The
holder of the convertible notes has agreed to extend all notes
(at the
same interest rates) by one year from their respective due dates,
without
payment of any additional consideration.
|
||||||||||||||||
|
The
conversion price shall be equal to 95% of the average of the last
bid and
ask price of the common stock as quoted on the
|
||||||||||||||||
|
Over-The-Counter-Bulletin
Board or such other exchange where the common stock is quoted or
listed
for the five trading days prior to
conversion.
|
||||||||||||||||
15
