EXHIBIT 10.2
PLACEMENT AGENT AGREEMENT
As of February 13, 2007
▇▇▇▇▇▇▇▇▇▇ Securities Corporation
▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: PLACEMENT AGENT AGREEMENT
Gentlemen:
This letter is in confirmation of our agreement with you pertaining to
the private placement, coordinated by ▇▇▇▇▇▇▇▇▇▇ Securities Corporation (the
"Placement Agent," "▇▇▇▇▇▇▇▇▇▇" or "you") as placement agent on a "$2,500,000
minimum/$5,000,000 maximum" basis, of Units (the "Units"), each Unit consisting
of (i) one share of preferred stock (the "Preferred Stock"), and (ii) a
detachable, transferable four-year warrant (the "Warrant") to purchase one
thousand (1,000) shares of common stock of a Securities and Exchange Commission
("SEC") reporting and registered publicly-traded company that will be quoted on
the OTC Bulletin board ("Pubco") (the "Offering"). The Offering will close
concurrently with the closing of a reverse merger transaction (the "Reverse
Merger") involving a wholly-owned subsidiary of Pubco, and Visual Management
Systems Holding, Inc., a New Jersey corporation ("VMS"). The terms, conditions,
rights, preferences and privileges of the securities comprising the Units will
be more fully described in Section 1 below and in the Memorandum (as defined in
Section 1(a) below). Upon execution of this Agreement, the following terms and
conditions shall constitute a legally binding agreement on the part of the party
executing this Agreement.
SECTION 1. DESCRIPTION OF SECURITIES
(a) The shares of Preferred Stock and Warrants to be offered and
sold in the Offering on a "minimum/maximum" basis shall conform in all material
respects to the description thereof contained in this Section 1 and in a
Confidential Private Placement Memorandum to be prepared by VMS and reviewed and
approved by Placement Agent (as the same may be amended or supplemented from
time to time, and including all exhibits and appendices attached thereto, the
"Memorandum"), which will contain (i) a description of VMS and its business,
assets, prospects and management; (ii) the terms and conditions of the Offering;
(iii) a description of the securities comprising the Units; and (iv) certain
financial information. If necessary, Pubco and VMS will update or supplement the
Memorandum prior to completion of the Offering. Placement Agent shall be
entitled to rely on the accuracy and completeness of all information provided by
VMS and Pubco, including information incorporated by reference in the
Memorandum. Additionally, representatives of VMS and Pubco shall be available to
answer
questions of, and to provide additional information to, Placement Agent and any
potential investors.
(b) The Offering will be conducted to raise from investors a minimum
of $2,500,000 from the sale of 1,000 Units and a maximum of $5,000,000 from the
sale of 2,000 Units, at the purchase price per Unit of $2,500. After giving
effect to the completion of the Reverse Merger, and assuming the successful
completion of the Offering, assuming conversion of the Preferred Stock sold in
the Offering, the capitalization shall be as set forth in Schedule 1(b) attached
hereto and in the final Memorandum. Upon the mutual agreement of VMS and the
Placement Agent, VMS may sell additional Units at the same price per Unit,
provided that the aggregate number of additional Units sold shall not exceed 300
Units (the "Over Allotment Option").
(c) The Preferred Stock will have the following rights and
privileges:
(i) Subject to adjustment, each share of Preferred Stock shall be
convertible, at the option of the holder, into 1,000 shares of
common stock of Pubco ("Common Stock").
(ii) If Pubco issues any shares of its Common Stock following the
issuance of Preferred Stock (other than in connection with the
exercise of outstanding warrants described on Exhibit A attached
hereto or upon the exercise of the Placement Agent Warrants (as
defined in Section 4(c) of this Agreement)) for consideration at
a price per share less than $2.50 per share of Common Stock (or
for no consideration), the conversion rate shall be adjusted to
the price per share at which such new shares of Common Stock are
issued.
(iii) The Preferred Stock shall not be entitled to dividends.
(iv) The Preferred Stock shall not have voting rights.
(v) The Preferred Stock shall not be redeemable or callable.
(vi) The Preferred Stock shall rank senior to to Common Stock. Upon
the occurrence of a liquidation event, holders of Preferred
Stock will be entitled to a return of the price of $2,500 for
each share of Preferred stock held and will participate with the
holders of common stock in any remaining liquidation proceeds on
an as converted basis.
(d) The Warrants shall contain the following provisions:
(i) The Warrants shall be exercisable at a price of $3.50 per share.
(ii) The Warrants shall expire on the fourth year anniversary date of
the date of issuance.
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(iii) If Pubco issues any shares of its Common Stock following the
issuance of Warrants (other than in connection with the exercise
of outstanding warrants described on Exhibit A attached hereto
or upon the exercise of the Placement Agent Warrants (as defined
in Section 4(c) of this Agreement)) for consideration at a price
per share less than $3.50 per share of Common Stock (or for no
consideration), the exercise price of the Warrants shall be
adjusted to the price per share at which such new shares of
Common Stock are issued.
SECTION 2. REPRESENTATIONS AND WARRANTIES
(a) Each of VMS and Pubco represents and warrants to the Placement
Agent, as to itself (which shall be deemed to include each of its subsidiaries)
only and not with respect to any matters which do not pertain to itself, as
follows:
(i) VMS has full corporate power and authority to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement, the consummation by VMS of the transactions herein contemplated
and compliance by VMS with the terms of this Agreement have been duly authorized
by all necessary corporate action on the part of VMS, and when duly executed and
delivered by VMS this Agreement will constitute a valid and binding obligation
of VMS, enforceable in accordance with its terms.
(ii) Pubco has the corporate power and authority to execute
and deliver this Agreement and the Subscription Agreement and to perform its
obligations hereunder and thereunder and to issue the Units and the Placement
Agent Warrants and the Common Stock for which the Warrants and the Placement
Agent Warrants may be exercised. This Agreement and the Subscription Agreement
have been duly authorized by Pubco and when executed and delivered by Pubco,
will constitute its valid and binding obligation and be enforceable against
Pubco in accordance with its terms.
(iii) The execution, delivery and the performance of this
Agreement, the Subscription Agreement, and the issuance of the Common Stock, the
Warrants, the Placement Agent Shares and the Placement Agent Warrants by Pubco
do not and will not at each closing of the Offering (a "Closing Time") conflict
with Pubco's Certificate of Incorporation, as amended, or By-laws, or result in
a breach of any terms or provisions of, or constitute a default under, any
material contract, agreement or instrument to which Pubco is a party or by which
Pubco is bound.
(iv) The execution, delivery and the performance of this
Agreement do not, and at each Closing Time will not, conflict with VMS's
Certificate of Incorporation, as amended, or By-laws, or result in a breach of
any terms or provisions of, or constitute a default under, any material
contract, agreement or instrument to which VMS is a party or by which VMS is
bound.
(v) From the date of commencement of sales until completion
of the Offering of the Units by the Placement Agent, the Memorandum will contain
all statements
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required to be stated therein in accordance with the Securities Act of 1933, as
amended, (the "Securities Act") will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Notwithstanding the foregoing, none
of the representations and warranties set forth in this paragraph apply to any
statements and/or omissions from the Memorandum made in reliance on or in
conformity with information produced in writing to VMS by the Placement Agent
expressly for inclusion in the Memorandum. VMS confirms that statistical market
and industry data included in the Memorandum are based on or derived from
sources believed to be reliable and accurate.
(vi) VMS has prepared the Memorandum, which may be
supplemented or amended from time to time and which contains information
materially accurate as of the date specified therein, including, without
limitation:
(A) The terms of the Offering;
(B) a description of the Units, the Preferred Stock,
the Warrants and the Common Stock;
(C) a description of the Reverse Merger;
(D) a description of the business conducted by VMS;
(E) the financial condition of VMS;
(F) past material activities of VMS;
(G) commissions and compensation to be paid to the
Placement Agent in connection with the Offering;
(H) disclosure of material contracts, agreements or
other business arrangements, which affect or are
related to the business conducted by VMS and to
be conducted by VMS;
(I) information regarding VMS, its management,
material obligations, liabilities, any pending
or threatened lawsuits or proceedings, and
recent material adverse changes in its financial
condition;
(J) any appropriate legends and such other
information or material as the Placement Agent
may reasonably request to be included therein;
(K) information regarding any and all of VMS's
"employee benefit plans" (within the meaning of
Section 3(3) of the Employment Retirement
Security Act of 1974, as amended, and any other
employee benefit or fringe benefit plans,
arrangements, practices, contracts, policies or
programs,
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including, without limitation, employee stock
option plans; and
(L) information regarding certain relationships and
related transactions as would be required under
Item 404 of Regulation S-B under the Securities
Exchange Act of 1934, as amended.
(vii) Each of VMS and Pubco is, and at each closing of the
Offering (a "Closing" and the time of each Closing is hereinafter referred to as
a "Closing Time") will be, a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation.
Each of VMS and Pubco has, and at each Closing Time will have, the power and
authority to conduct all of the activities conducted by it, to own or lease all
of the assets owned or leased by it and to conduct its business as described in
the Memorandum. Each of VMS and Pubco is, and at each Closing Time will be, duly
licensed or qualified to do business and in good standing as a foreign
corporation in all jurisdictions in which the nature of the activities conducted
by it or the character of the assets owned or leased by it makes such license or
qualification necessary, except where the failure to be so qualified would not
have a material adverse effect on VMS or Pubco, as the case may be. Complete and
correct copies of the charter, bylaws and other constituent documents of each of
VMS and Pubco (including all amendments thereto) have been delivered to you, and
no changes therein will be made subsequent to the date hereof and prior to each
Closing Time, except as contemplated by the Memorandum and advised to you.
(viii) VMS had, at the date or dates indicated in the
Memorandum, a duly authorized and outstanding capitalization as set forth in the
Memorandum under the caption "Capitalization." Immediately prior to each Closing
Time, Pubco will have a duly authorized and outstanding capitalization as set
forth in the Memorandum under the caption "Capitalization" on a pro forma basis
after giving effect to the Reverse Merger.
(ix) Subsequent to the date hereof and prior to each Closing
Time, VMS will not acquire any of its equity securities and will not issue any
of its securities other than pursuant to currently outstanding stock options,
warrants and convertible securities. Except as set forth herein or referred to
in the Memorandum, neither VMS nor Pubco has outstanding, and at each Closing
Time will not have outstanding, any stock options to purchase, or any rights or
warrants to subscribe for, or any securities or obligations convertible into or
any contracts or commitments to issue or sell, shares of the Common Stock or any
such warrants, convertible securities or obligations, except as those described
therein.
(x) The financial statements (including the schedules and
notes thereto) of VMS included in the Memorandum present fairly the financial
position of VMS as of the dates thereof, and the results of operations and
changes in financial position of VMS for the periods indicated therein are in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved, except in the case of quarterly periods
to the extent they may exclude footnotes or may require normal year-end audit
adjustments.
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(xi) Except to the extent reflected or reserved against in
the financial statements of VMS included in the Memorandum, or as otherwise
described in the Memorandum, VMS has had no material liabilities, debts,
obligations or claims asserted against it, whether accrued, absolute, contingent
or otherwise, and whether due or to become due, including, without limitation,
liabilities on account of taxes, other governmental charges or lawsuits brought
subsequent to such date. Except to the extent reflected or reserved against in
the most recently filed financial statements of Pubco in its Annual Report on
Form 10-KSB, or as otherwise described in the Memorandum, Pubco has no material
liabilities, debts, obligations or claims asserted against it, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, including,
without limitation, liabilities on account of taxes, other governmental charges
or lawsuits brought subsequent to such date.
(xii) Subsequent to the respective dates as of which
information is set forth in the Memorandum and prior to each Closing Time,
except as set forth in the Memorandum, (i) VMS has not incurred and will not
have incurred any material liabilities or obligations, direct or contingent, and
has not entered into any material transactions other than as contemplated by the
business plan of VMS in the Memorandum, and will not enter into any material
transaction without disclosing such material transaction to the Placement Agent,
(ii) VMS has not and will not have paid or declared any cash dividends or other
distribution on its capital stock, and (iii) there has not been any material
adverse change in the business, properties, financial condition, results of
operations or prospects of VMS, or in the book value of the assets of VMS,
arising from any reason whatsoever.
(xiii) Except as set forth in the Memorandum, neither VMS nor
Pubco has, and at each Closing Time neither VMS nor Pubco will have, any
material contingent obligations.
(xiv) Neither VMS nor Pubco has any subsidiaries, except as
disclosed in the Memorandum, nor does either have any equity interest in any
partnership, joint venture, association or other entity, except as disclosed in
the Memorandum. VMS has provided to Placement Agent copies of the charter,
bylaws, operating agreements and other constituent documents, as applicable,
with respect to each subsidiary, partnership, joint venture, association or
entity in which VMS has an interest.
(xv) Except as set forth in the Memorandum, there are no
material actions, suits or proceedings pending, or to the knowledge of VMS
threatened, against or affecting VMS or Pubco or their respective businesses,
financial condition, results of operations or material properties before or by
any federal or state court, commission, regulatory body, administrative agency
or other governmental body, domestic or foreign, wherein an unfavorable ruling,
decision or finding would materially and adversely affect (i) VMS or its
businesses, financial condition, results of operations or material properties
taken as a whole, or (ii) the ability of VMS or Pubco to consummate the
transactions contemplated by this Agreement.
(xvi) Neither VMS nor Pubco is in violation of its charter or
bylaws. Neither the execution and delivery of this Agreement, nor the issuance
and sale of the Units sold in the Offering, nor the consummation of any of the
transactions contemplated herein, nor the compliance by VMS or Pubco with the
terms and provisions hereof has conflicted with or will
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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 material property or assets of VMS or Pubco pursuant to the
terms of any indenture, mortgage, deed of trust, note, loan or credit agreement
or any other material agreement or instrument to which VMS or Pubco is a party
or by which VMS or Pubco may be bound or to which any of the property or
material assets of VMS or Pubco is subject; nor will such action result in any
violation of the provisions of the charter or the bylaws of VMS or Pubco or any
statute, order, rule or regulation applicable to VMS or Pubco or of any federal,
state or other judicial, administrative or regulatory authority or other
government body having jurisdiction over VMS or Pubco.
(xvii) The shares of Preferred Stock, the Warrants, the
Placement Agent Shares, the Placement Agent Warrants and the shares of Common
Stock underlying the Preferred Stock, the Warrants and the Placement Agent
Warrants referred to in the Memorandum will, upon issuance, assuming the payment
of the applicable purchase or exercise price therefor, be validly issued, fully
paid and non-assessable. The Preferred Stock and the Common Stock underlying the
Preferred Stock, the Warrants and the Placement Agent Warrants will not be
subject to the preemptive rights of any security holder. As of each Closing, the
issuance and sale of each of the securities comprising the Units, the Placement
Agent Warrants and the Common Stock underlying the Preferred Stock, the Warrants
and the Placement Agent Warrants will have been duly and validly authorized by
all required corporate action and otherwise.
(xviii) All issued and outstanding securities of VMS have been
duly authorized and validly issued and the outstanding securities of VMS are
fully paid and non-assessable; and none of such securities were issued in
violation of the pre-emptive rights of any holders of any security of VMS. All
issued and outstanding securities of Pubco have been duly authorized and validly
issued and the outstanding securities of Pubco are fully paid and
non-assessable; and none of such securities were issued in violation of
preemptive rights of any holders of any security of Pubco.
(xix) VMS has good and marketable title to all properties and
assets free and clear of all liens, charges, encumbrances or restrictions,
except such liens, charges, encumbrances or restrictions as are not material to
the business of VMS or as are set forth in the Memorandum or such encumbrances
which will not have a material adverse effect on VMS's property or assets. VMS
has valid and enforceable leases or licenses for the material properties as used
by it in the operation of its business. All rentals, royalties or other payments
accruing under any such licenses or leases which became due prior to the date of
this Agreement have been duly paid, and neither VMS nor to VMS's knowledge any
other party is in material default thereunder, and, to the knowledge of VMS, no
event has occurred which, with the lapse of time or the giving of notice, or
both would constitute a material default thereunder.
(xx) All taxes which are due from VMS and Pubco have been
paid in full (or adequate accruals for the payment thereof have been provided
for in its accounting records). Each of VMS and Pubco has filed all federal,
state, municipal and local tax returns relating to VMS or Pubco, as the case may
be, (whether relating to income, sales, franchise, withholding, real or personal
property or other types of taxes) required to be filed under the laws of the
United States and applicable states or has duly obtained extensions of time for
the filing
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thereof. As to VMS, the provisions for income taxes payable, if any, shown on
the financial statements contained in the Memorandum are sufficient for all
accrued and unpaid domestic and foreign taxes, whether or not disputed, and for
all periods to and including the dates of such financial statements. As to
Pubco, the provisions for income taxes payable, if any, shown on the financial
statements contained in Pubco's most recently filed form 10-KSB are sufficient
for all accrued and unpaid domestic and foreign taxes, whether or not disputed,
and for all periods to and including the dates of such financial statements.
Each of the tax returns heretofore filed by each of VMS and Pubco correctly
reflects the amount of VMS's and Pubco's respective tax liability thereunder.
Each of VMS and Pubco has withheld, collected and paid all other levies,
assessments, license fees and taxes to the extent required and, with respect to
payments, to the extent that the same have become due and payable. Neither VMS
nor Pubco has executed or filed with any taxing authority, foreign or domestic,
any agreement extending the period for assessment or collection of any income
taxes nor is either a party to any pending action or proceeding by any foreign
or domestic governmental agency for assessment or collection of taxes; and no
claims for assessment or collection of taxes have been asserted against VMS or
Pubco.
(xxi) Except as set forth in the Memorandum, neither VMS nor
Pubco has (i) issued any securities or incurred any liability or obligation,
direct or contingent, for borrowed money, or entered into any transaction other
than in the ordinary course of business, nor (ii) declared or paid any dividend
or made any other distribution on or in respect to its capital stock.
(xxii) Except for the filing of (A) Form D under the Securities
Act, and (B) other than as may be required under applicable state securities or
Blue Sky laws, no authorization, approval, consent, order, registration,
certification, license or permit (collectively, "Permits") of any court or
governmental agency or body, is required for the valid authorization, issuance,
sale and delivery of the Units or the Placement Agent Warrants, subject to
compliance by Placement Agent with regulations regarding an offering to
accredited investors under Regulation D promulgated under the Securities Act.
(xxiii) Each contract or other instrument to which VMS is a
party or by which its properties or business is or may be bound or affected and
to which reference is made in the Memorandum has been duly and validly executed
by VMS and assuming that such contracts or other instruments have been properly
executed by the parties other than VMS is in full force and effect in all
material respects and to its knowledge is enforceable against the parties
thereto in accordance with its terms, and none of such contracts or instruments
has been assigned by VMS and except as described in the Memorandum, neither VMS
nor, to its knowledge, any other party is in default thereunder and no event has
occurred which, with the lapse of time or the giving of notice, or both, would
constitute a default thereunder. None of the material provisions of such
contracts or instruments violates any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court having
jurisdiction over VMS or its assets or business.
(xxiv) Except as set forth in the Memorandum, neither VMS nor
Pubco has any employee benefit plans (including, without limitation, profit
sharing and welfare benefit
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plans) or deferred compensation arrangements that are subject to the provisions
of the Employee Retirement Income Security Act of 1974.
(xxv) Neither VMS nor Pubco has directly or indirectly, at any
time, (A) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution in violation of law or (B) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law.
(xxvi) Assuming the representations and warranties of the
Placement Agent contained herein and of the purchasers contained in the
Subscription Documents are true and correct, the offer and sale of the Units by
VMS and Pubco has satisfied and at each Closing Time will have satisfied all of
the requirements of Regulation D and VMS is not disqualified from the exemption
under Rule 505 contained in Regulation D by virtue of the disqualifications
contained in Rule 505(b)(2)(iii), or the exemption under Regulation D by virtue
of the disqualification contained in Rule 507. The Memorandum and related
documents conform in all material respects with the requirements of Section 4(2)
of the Securities Act and Regulation D promulgated thereunder and with the
requirements of all other published rules and regulations of the SEC and state
blue sky securities laws currently in effect relating to "private offerings."
(xxvii) Other than any payments to the Placement Agent
hereunder, and except as disclosed in the Memorandum, neither VMS nor Pubco has
incurred any liability for any finder's fee or similar payments in connection
with the transactions herein contemplated. Neither VMS nor Pubco has engaged any
other other party to offer for sale securities of VMS or Pubco after the date
hereof.
(xxviii) To the best of its knowledge, VMS owns or possesses or
can acquire on reasonable terms adequate and enforceable rights to use all
trademarks, service marks, copyrights, patent rights, trade secrets or other
confidential information currently used in the conduct of its business as
described in the Memorandum (the "Intangibles"). Except as disclosed in the
Memorandum, to VMS's knowledge, VMS is not infringing upon the rights of others
with respect to the Intangibles and has not received any notice of conflict with
the asserted rights of others with respect to the Intangibles which could,
singly or in the aggregate, materially adversely affect VMS's business,
financial condition, results of operations or prospects, and VMS does not know
of any basis therefore. To VMS's knowledge, no other party has infringed upon
the Intangibles.
(xxix) Concurrently with or prior to the execution hereof, VMS
has provided the Placement Agent with the results of UCC lien searches in all
jurisdictions in which VMS has material assets.
(b) The Placement Agent represents and warrants to VMS as follows:
(i) The Placement Agent is, and at each Closing Time, will
be, a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction. The Placement Agent is, and at each Closing Time
will be, duly licensed and
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qualified in good standing as a broker-dealer authorized conduct private
placements under the rules and regulations of the SEC and the National
Association of Securities Dealers, Inc.
(ii) This Agreement has been duly authorized, executed and
delivered by the Placement Agent and is a valid and binding agreement on its
part. Neither the execution and delivery of this Agreement, nor the consummation
of any of the transactions contemplated herein, nor the compliance by the
Placement Agent with the terms and provisions hereof 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 Placement Agent pursuant to the
terms of any indenture, mortgage, deed of trust, note, loan or credit agreement
or any other agreement or instrument to which the Placement Agent is a party or
by which the Placement Agent may be bound or to which any of its properties or
assets is subject; nor will such action result in any violation of the
provisions of the certificate of incorporation or the bylaws of the Placement
Agent or any statute, order, rule or regulation applicable to the Placement
Agent or of any federal, state or other judicial, administrative or regulatory
authority or other government body having jurisdiction over the Placement Agent.
SECTION 3. PURCHASE, SALE AND DELIVERY OF THE SHARES; CLOSING; ESCROW
(a) On the basis of the representations and warranties contained in
this Agreement and subject to the terms and conditions herein set forth, VMS and
Pubco hereby appoint the Placement Agent as exclusive agent to offer and sell to
"accredited investors," as such term is defined in Rule 501 of Regulation D, as
promulgated under the Securities Act, the Units for a purchase price of $2,500
per Unit or such other price as the Placement Agent and VMS may agree in
writing. The Placement Agent hereby accepts such appointment and agrees to use
its commercially reasonable efforts as agent for VMS to sell the Units. Unless
expressly agreed to by VMS and the Placement Agent in writing, no sale of Units
will be consummated unless the gross proceeds from the sale of the Units by the
Placement Agreement shall be an amount of $2,500,000 or more. Neither VMS nor
Pubco shall utilize any party other than Placement Agent to sell the Units
without the express written consent of the Placement Agent.
(b) The Parties hereto shall enter into an escrow agreement at or
prior to the Closing with Corporate Stock Transfer, Inc., as escrow agent (the
"Escrow Agent") and Guaranty Bank & Trust, as escrow bank (the "Escrow Bank"),
or such other escrow agent as may be mutually agreed upon by the parties hereto.
The escrow agreement will provide for the direct disbursement of all fees and
funds held by the Escrow Agent.
SECTION 4. PLACEMENT AGENT COMPENSATION; EXPENSES
(a) PLACEMENT FEE
As compensation for the services to be rendered by the Placement Agent,
in connection with the sale of Units in the Offering, VMS, upon each closing of
the Offering, shall pay to the Placement Agent a placement fee equal to eight
percent (8%) of the gross proceeds derived from the sale of the Units subscribed
for (the "Placement Agent Fee"), in cash, whether the sale was directly the
result of Placement Agent's efforts or indirectly through the efforts of
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any other party legally permitted to effect the sale (including, but not limited
to, NASD Members as selling agents, which the Placement Agent may permit to
participate in the Offering). In addition, VMS shall, upon each closing of the
Offering, pay to the Placement Agent, in cash, a non-accountable expenses
allowance equal to two percent (2%) of the gross proceeds derived from the sale
of Units subscribed for (the "Non-Accountable Expense Allowance") whether the
sale was directly the result of Placement Agent's efforts or indirectly through
the efforts of any other party legally permitted to effect the sale (including,
but not limited to, NASD Members as selling agents, which the Placement Agent
may permit to participate in the Offering). The Placement Agent Fees and
Non-Accountable Expense Allowance are to be deducted by the Escrow Agent from
the Funds received in the Escrow Account at each Closing.
(b) OUT-OF-POCKET EXPENSES
At each Closing, VMS shall reimburse Placement Agent for reasonable
out-of-pocket expenses incurred by Placement Agent, including but not limited to
fees and expenses of counsel, printing, delivery and travel and lodging costs,
up to a maximum amount of $175,000 ("Expense Reimbursement").
(c) EQUITY COMPENSATION
At each closing, in connection with the sale of Units offered in the
Offering, the Placement Agent shall receive equity compensation in the form of
the number of shares of Common Stock equal to ten (10%) percent of the number of
shares of Common Stock into which the Preferred Stock sold at such Closing is
convertible ("Placement Agent Shares") and five-year warrants to purchase, at an
exercise price of $1.75 per share, the number of shares of Common Stock equal to
10% of the number of shares of Common Stock into which the Preferred Stock sold
at such Closing is convertible (the "Placement Agent Warrants"). The Placement
Agent Warrants shall contain provisions for "cashless exercise" by surrender of
that number of shares of Common Stock with a value equal to the exercise price
for the number of shares of Common Stock being purchased.
SECTION 5. OFFERING DOCUMENTS
VMS will deliver to Placement Agent, without charge, as many copies as
Placement Agent reasonably requests of the Memorandum, including any exhibits
attached thereto (the "Offering Documents"). All mailing and other expenses
associated with distribution of the Offering Documents to any person, including,
without limitation, potential investors, shall be paid by VMS. If during the
offering period VMS becomes aware of any event, as a result of which the
Memorandum, as then amended or supplemented, would include an untrue statement
of a material fact, or omit to state a material fact necessary in order to make
the statements made in light of the circumstances in which they were made not
misleading, or if it shall be necessary to amend or supplement the Memorandum to
comply with applicable law, VMS shall forthwith notify the Placement Agent
thereof, and furnish to the Placement Agent in such quantities as may be
reasonably requested, an amendment or amended and supplemented Memorandum which
corrects such statements or omissions or causes the Memorandum to comply with
applicable law. Prior to the Closing or earlier termination of the Offering, no
copies of the Memorandum or any exhibit thereto, or any material prepared by VMS
in connection with the Offering will be given
11
without the prior written permission of the Placement Agent which permission
will not be unreasonably withheld or delayed, by VMS or its counsel or by any
principal or agent of VMS to any person not a party to this Agreement, unless
(i) such person is a director or principal shareholder of, counsel to,
accountant for, or directly employed by, VMS, or is named in the Memorandum (ii)
such delivery is made to a state or federal regulatory agency in connection with
a specific legal requirement of the Offering, or (iii) such delivery is required
pursuant to the order of a court, a state or federal regulatory agency or
applicable law.
SECTION 6. COVENANTS
(a) VMS and Pubco covenant and agree with the Placement Agent as
follows:
(i) Pubco will file on or before the date which is sixty
(60) days after the final Closing of the Offering one or more registration
statements which will cover the shares of Common Stock (A) underlying the
Preferred Stock and Warrants sold in the Offering, (B) underlying the Placement
Agent Warrants, and (C) issued as Placement Agent Shares, for resale with the
SEC and under the securities or "Blue Sky" laws of such jurisdictions as is
required. In addition, Pubco shall file such amendments and furnish such
information as may be required for such purpose and to comply with such laws so
as to continue to maintain the effectiveness of the resale registration
statement from the effective date thereof through and until the date which is
forty eight (48) months after the effective date. Confirmation of these actions
being taken will be provided to Placement Agent with copies of all documents
relating thereto. In the event the resale registration statement is not filed
with the SEC on or prior to the date which is sixty (60) days after the final
closing of the Offering or if the resale registration statement is not declared
effective by the SEC on or prior to the date which is one hundred twenty (120)
days after the final closing of the Offering, the total number of shares of
Common Stock underlying the Preferred Stock sold as part of the Units in the
Offering and to be covered by the registration statement for each investor in
the Offering and their permitted transferees, successors, executors or
administrators (each such party, a "Holder") shall be increased by two percent
(2%) per month for each month (or portion thereof) that the registration
statement is not so filed or is not effective. Furthermore, Pubco shall use its
best efforts to respond to any Securities and Exchange Commission (the "SEC")
comments to the registration statement on or prior to the date which is twenty
(20) business days from the date such comments are received. In the event that
Pubco fails to respond to such comments within twenty (20) business days, the
total number of shares of Common Stock sold as part of the Units in the Offering
and to be covered by the registration statement for each Holder shall be
increased by two percent (2%) per month for each month (or portion thereof) that
a response to the comments to the registration statement has not been submitted
to the SEC. Notwithstanding anything contained in this Section 6(a)(i) to the
contrary, the aggregate increases in shares of Common Stock to be issued to
investors pursuant to this paragraph shall not exceed twenty percent (20%).
Pubco shall use its best efforts to have such resale registration statement
declared effective by the SEC as soon as possible after the initial filing date.
(ii) VMS and Pubco shall apply the net proceeds from the
Offering in the manner set forth under the heading "USE OF PROCEEDS" in the
Memorandum.
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(iii) VMS and Pubco shall apply 5% of the gross proceeds (up
to a maximum of $250,000) of the Offering to initiate a capital markets program,
which amount shall be held in a segregated bank account requiring the signature
of Placement Agent and VMS for all withdrawals.
(iv) Pubco shall, upon the closing of the Offering and until
the end of the thirtieth (30th) month following the final closing of the
Offering, cause a designee of Placement Agent to serve on the board of directors
of Pubco or, in the discretion of Placement Agent, to serve as an observer at
all meetings of the Board of Directors and committees thereof, which designation
will require prior approval of Pubco, which approval shall not be unreasonably
withheld. The Board of Directors of Pubco shall initially consist of five (5)
members. Each director of Pubco shall be entitled to be compensated with options
granted under an incentive stock or option plan approved by the Compensation
Committee of the Board of Directors.
(v) At least three (3) days prior to the date of closing of
the Merger, VMS and Pubco shall prepare and deliver to Placement Agent and to
each subscriber via overnight courier, email or facsimile, a draft copy of the
Current Report on Form 8-K (the "Draft Form 8-K") proposed to be filed by Pubco,
which shall describe the terms and conditions of the Merger, in accordance with
the requirements of the Securities Exchange Act of 1934 and the Accounting and
Financial Reporting Interpretations and Guidance issued by the accounting staff
members of the Division of Corporate Finance of the Securities and Exchange
Commission, as the same relates to "Reverse Acquisitions-Reporting Issues." VMS
and Pubco shall include with such Draft Form 8-K a transmittal letter to each
subscriber which states the Closing Time and informs each subscriber that, if
after reviewing the Draft Form 8-K and conducting any due diligence concerning
Pubco, they wish to rescind their subscription to purchase Units and have their
subscription proceeds returned, they may do so at any time up to the Closing
Time by so notifying VMS or the Placement Agent in writing. Such transmittal
letter shall include a reference to the SEC's website as a source for
information regarding Pubco.
(vi) At or prior to the Closing, Pubco shall adopt and modify
the existing VMS Stock Incentive Plan, if necessary, to create a pool of options
(the "Option Pool") of no more than ten percent (10%) of the fully-diluted
shares issued and outstanding on an as converted common stock equivalent basis.
The Option Pool will be used for attracting and retaining employees, directors
and advisors and options will be granted at fair market value under the guidance
and approval of the Compensation Committee or if no Compensation Committee
exists, then the Board of Directors. All options to purchase shares of common
stock of VMS outstanding prior to the initial closing of the Offering shall be
exchanged for options to purchase shares of Common Stock of Pubco. Such options
shall be adjusted by the same factor equivalent to that applied to the current
common stock of VMS outstanding in connection with the Reverse Merger and shall
not contain provisions for cashless exercise.
(vii) At least seven (7) days prior to the initial Closing,
VMS shall provide Placement Agent audited financial statements and related
auditor consents for inclusion of such statements in the Private Placement
Memorandum, as well as in the Securities and Exchange Commission and other
public regulatory filings for each of the two years ended December 31, 2006 and
2005.
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(b) The Placement Agent covenants and agrees with VMS as follows:
(i) Pursuant to its appointment hereunder, insofar as is
under its control, the Placement Agent will use its commercially reasonable
efforts to conduct the Offering in the manner prescribed by Rule 506 of
Regulation D and in this regard will:
(A) Refrain from making any oral or written
representations beyond those contained in the Memorandum;
(B) Refrain from offering, offering for sale or
selling any of the Units by means of any form of general solicitation or
general advertising within the meaning of Rule 502(c) of Regulation D,
including:
(x) Any advertisement, article, notice or
other communication mentioning the Units published in any
newspaper, magazine or similar medium or broadcast over
television or radio; or
(y) Any seminar or meeting whose attendees
have been invited by any general solicitation or general
advertising;
(C) Prior to the sale of any of the Units, have
reasonable grounds to believe based solely on each subscriber's Offering
Documents that each subscriber is an accredited investor within the
meaning of Rule 501(a) of Regulation D;
(D) Based solely on the representation of the
subscriber in its Offering Documents, have no reason to believe that the
subscriber is acquiring the Units for other than his or its own account;
(E) Provide each offeree with a copy of the
Memorandum during the course of the Offering;
(F) During the course of the Offering, if it has
been provided with a supplement or amendment to the Memorandum, promptly
distribute such supplement or amendment to persons who previously
received a copy of the Memorandum from it and whom it believes continue
to be interested in the Offering, and include such supplement or
amendment in all deliveries of the Memorandum made after receipt of any
such supplement or amendment;
(G) Obtain a completed investor questionnaire from
each accepted subscriber; and
(H) Comply in all material respects with the Trading
with the Enemy Act and applicable foreign assets control regulations of
the United States Treasury Department and the Patriot Act of 2001.
(ii) Upon receipt of each Subscription Agreement and any
funds paid by subscribers for Units, the Placement Agent will promptly deliver
the original copy of the Subscription Agreement and any accompanying check, bank
draft or money order to the Escrow
14
Agent for deposit with the Escrow Bank; except that it may promptly return all
such Offering Documents and funds to any subscriber who it determines, based
solely on a review of the Offering Documents, is not an accredited investor
within the meaning of Rule 501(a) of Regulation D or whose check, bank draft or
money order representing subscription funds is improperly drawn.
(iii) The Placement Agent shall maintain appropriate records
of the Offering Documents of each subscriber for a period of at least four years
after the Offering Expiration Date.
(iv) The Placement Agent shall not engage in any uncovered
short sales of the stock of the Company.
SECTION 7. EXPENSES
(a) VMS, upon the closing of the Offering, will pay and bear all
costs, fees, taxes and expenses incident to the performance of the obligations
of VMS and Pubco under this Agreement, including, but not limited to, the
expenses and taxes incident to:
(i) the issuance of the Preferred Stock and Warrants
pursuant to the Offering Documents and the preparation and delivery of
certificates evidencing the Preferred Stock and Warrants;
(ii) the registration or qualification for resale of the
shares of Common Stock underlying the Preferred Stock and Warrants issued in the
Offering and pursuant to the Reverse Merger and shares of Common Stock
underlying the Placement Agent Warrants under the securities laws of the various
jurisdictions; and
(iii) all transfer taxes with respect to the sale and delivery
of the Preferred Stock and Warrants sold pursuant to the Offering Documents and
the Placement Agent Warrants.
(b) VMS will pay and bear all fees and expenses of counsel for VMS
and of VMS's accountants, transfer agents and any special agents appointed for
the transfer of securities and the Escrow Agent.
SECTION 8. CONDITIONS OF PLACEMENT AGENT'S OBLIGATIONS
▇▇▇▇▇▇▇▇▇▇'▇ obligations as Placement Agent are subject (as of the date
hereof and as of the Closing Time), to the accuracy of and compliance with the
representations and warranties of VMS and Pubco and to the accuracy of the
statements of VMS and Pubco made pursuant to the provisions hereof and to the
performance by each of VMS and Pubco of its covenants and agreements hereunder,
and to the following additional conditions:
(a) Since the respective dates as of which information is given in
the Memorandum:
15
(i) there shall not have been any change in the capital
stock of VMS or any material change in the long-term debt of VMS or Pubco,
except as set forth in or contemplated by the Memorandum;
(ii) there shall not have been any material adverse change in
the general affairs, management, financial position or result of operations of
VMS or Pubco, other than as set forth in or contemplated by the Memorandum;
(iii) each of VMS and Pubco shall not have sustained any
material interference with its business or properties from fire, explosion,
flood or other casualty, whether or not covered by insurance, or from any labor
dispute or any court or legislative or other governmental action, order or
decree, if in the judgment of the Placement Agent any such development referred
to in clauses (i), (ii) or (iii) makes it impracticable or inadvisable to
consummate the sale and delivery of the Preferred Stock and the Warrants by the
Placement Agent.
(b) Since the respective dates as of which information is given
herein, there shall have been no litigation instituted against VMS or Pubco and
since such dates there shall be no proceeding instituted or threatened against
VMS or Pubco or any of their respective officers or directors, before or by any
federal, state or county court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, in which litigation or
proceeding an unfavorable ruling, decision or finding would materially and
adversely affect the business, properties, financial condition or results of
operations of VMS or Pubco.
(c) Each of the representations and warranties of each of VMS and
Pubco contained herein shall be true and correct at the signing of this
Agreement and at the Closing Time as if made at the Closing Time, and all
covenants and agreements herein contained to be performed on the part of VMS
and/or Pubco and all conditions herein contained to be fulfilled or complied
with by VMS and/or Pubco at or prior to the Closing Time shall have been duly
performed, fulfilled or complied with.
(d) At the Closing Time, counsel for VMS shall furnish to Placement
Agent an opinion of legal counsel in form and substance satisfactory to
Placement Agent, dated as of the date of delivery, to the effect that:
(i) VMS and each of its subsidiaries: (A) is existing as a
corporation or limited liability company in good standing under the laws of its
jurisdiction of organization; (B) is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the nature of the activities
conducted by it or the character of the assets owned or leased by it requires
such qualifications except where failure to be so qualified would not have a
material adverse effect on VMS; and (C) has all requisite corporate power and
authority to own or lease its properties and conduct its business as described
herein.
(ii) To the knowledge of such counsel, no authorization,
approval, consent or license of any governmental or regulatory body, agency or
instrumentality is required in connection with the authorization, issuance,
transfer, sale or delivery of the Preferred Stock
16
and Warrants issued pursuant to the Memorandum and the Placement Agent Warrants,
except as may be required pursuant to the federal securities laws and state Blue
Sky laws.
(iii) The outstanding shares of VMS's capital stock have been
duly authorized and validly issued, are fully paid and non-assessable, and have
not to its knowledge been issued in violation of any pre-emptive rights.
(iv) VMS has full corporate power and authority to enter into
this Agreement and the Merger Agreement; this Agreement and the Merger Agreement
have been duly authorized, executed and delivered by or on behalf of VMS and
each constitutes a legal, valid and binding obligation of VMS (except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws now or hereafter in effect relating to or affecting creditors' rights
generally and by general principles of equity relating to the availability of
remedies and except as rights to indemnity and contribution may be limited by
applicable securities laws and the public policy underlying such laws).
(v) The execution and delivery of this Agreement by VMS, the
consummation by VMS of the transactions herein contemplated and the compliance
with the terms of this Agreement do not and will not conflict with or result in
a breach of any of the terms or provisions of, or constitute a default under,
the charter or bylaws of VMS, or to such counsel's knowledge, any indenture,
mortgage or other agreement or instrument known to such counsel to which VMS is
a party or by which VMS or any of its properties is bound, or any existing law,
rule, regulation, judgment, order or decree of any government, governmental body
or court, domestic or foreign, having jurisdiction over VMS or any of its
respective properties.
(vi) The execution and delivery of the Merger Agreement by
VMS, the consummation by VMS of the transactions therein contemplated and the
compliance with the terms of the Merger Agreement do not and will not conflict
with or result in a breach of any of the terms or provisions of, or constitute a
default under, the charter or bylaws of VMS.
(vii) To such counsel's knowledge, there are no suits or
claims threatened or pending against VMS in any court or before or by any
governmental body which would materially affect the business of VMS or its
financial condition except as set forth herein or contemplated by the
Memorandum.
(e) At the Closing Time, the counsel for Pubco shall furnish to
Placement Agent an opinion in form and substance satisfactory to Placement
Agent, dated as of the date of delivery, to the effect that:
(i) Pubco and Acquisition Sub are existing as corporations
in good standing under the laws of their respective jurisdiction of
organization.
(ii) The Preferred Stock and Warrants, including the shares
of Common Stock underlying the Warrants and underlying the Preferred Stock to be
sold in the Offering, when issued, assuming the payment of the applicable
purchase or exercise price therefore will be validly issued and outstanding,
fully paid and non-assessable and are owned free and clear of any liens,
encumbrances, security interests, claims or other restrictions, other than as
set forth or referred to in the Memorandum.
17
(iii) The Common Stock underlying the Warrants sold in the
Offering and underlying the Preferred Stock sold in the Offering, and underlying
the Placement Agent Shares and the Placement Agent Warrants will be duly
authorized.
(iv) To the current actual knowledge of such counsel, no
authorization, approval, consent or license of any governmental or regulatory
body, agency or instrumentality is required in connection with the
authorization, issuance, transfer, sale or delivery of the Preferred Stock and
Warrants issued pursuant to the Memorandum, except as may be required pursuant
to the federal securities laws and state Blue Sky laws.
(v) The execution and delivery of this Agreement by Pubco,
the consummation by of the transactions herein contemplated and the compliance
with the terms of this Agreement do not and will not conflict with or result in
a breach of any of the terms or provisions of, or constitute a default under,
the charter or bylaws of, or to the best of such counsel's knowledge, any
indenture, mortgage or other agreement or instrument known to such counsel to
which is a party or by which or any of its properties is bound, or to such
counsel's knowledge any existing law, rule, regulation, judgment, order or
decree of any government, governmental body or court, domestic or foreign,
having jurisdiction over or any of its respective properties.
(vi) The execution and delivery of the Merger Agreement by
Pubco, the consummation by Pubco of the transactions herein contemplated and the
compliance with the terms of the Merger Agreement do not and will not conflict
with or result in a breach of any of the terms or provisions of, or constitute a
default under, the charter or bylaws of Pubco.
(vii) To such counsel's knowledge, there are no suits or
claims threatened or pending against Pubco in any court or before or by any
governmental body which would materially affect the business of Pubco or its
financial condition, except as disclosed in the Memorandum. Pubco is not subject
to any judgments which have not been satisfied.
(viii) To such counsel's knowledge, except as disclosed in the
Memorandum and in the annual and periodic reports filed with the SEC on Form
10-KSB and Form 10-QSB, respectively, Pubco has no material obligations and is
not subject to any indenture, mortgage or other agreement or instrument to which
Pubco is a party or by which Pubco or any of its properties is bound.
(ix) To such counsel's knowledge, Pubco's annual and periodic
reports filed with the SEC do not contain any untrue statement of a material
fact or omitted or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
(f) Placement Agent shall have received lock-up agreements from each
of the shareholders of VMS as of the time of the initial closing of the
Offering, except with respect to 100,000 shares of Common Stock to be held by
those shareholders specifically identified on Schedule 8(f) attached hereto,
which lock-up agreements shall contain the following provisions:
(i) No shares of Common Stock of Pubco may be sold by such
shareholder for a period of eighteen (18) months after the final closing of the
Offering;
18
(ii) Commencing on the later of (a) eighteen (18) months
following the final closing date of the Offering and (b) ninety (90) days after
the effective date of the resale registration statement required to be filed in
connection with the Offering (the "Effective Date"), and at three-month
intervals thereafter, each shareholder shall be permitted to sell 12.5% of such
shareholder's holdings, subject to shares of Pubco's Common Stock having a
minimum 30-day average trading price of $5.00 per share or greater;
(iii) Beginning at the later of (a) eighteen (18) months
following the final closing date of the Offering and (b) ninety (90) days after
the Effective Date, and at three-month intervals thereafter, should the 30-day
average trading price of Pubco's shares of Common Stock be below $5.00 per
share, if such shareholder is not an officer or director of Pubco (and was not
at the time of the Reverse Merger) an affiliate or related party of an officer
or director (an "Insider"), then such shareholder shall be permitted to sell a
maximum of 25,000 shares per three-month period;
(iv) At twenty-four (24) months after the final closing of
the Offering and at three-month intervals thereafter, such shareholder will be
permitted to sell up to 12.5% of their holdings per three-month period
irrespective of price;
(v) The Lock-Up Agreement will apply to shares of Common
Stock, underlying stock options and warrants (but shall not prohibit the
exercise thereof); and
(vi) All lock-up provisions will be removed on the three-year
anniversary date of the final closing of the Offering.
SECTION 9. INDEMNIFICATION AND CONTRIBUTION
(a) Each of VMS and Pubco agree, jointly and severally, to indemnify
and hold harmless the Placement Agent, and its directors, officers and employees
and Placement Agent's legal counsel, each person, if any, who controls the
Placement Agent within the meaning of the Securities Act or the Exchange Act,
and each and all of them, from and against any and all losses, claims, damages,
liabilities or actions, joint or several (including any investigation,
negotiation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they or any of them may become subject under the Securities
Act, or other federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions arise
out of, or are based upon, (i) any untrue statement or alleged untrue statement
of a material fact contained in the Memorandum, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except to the extent any losses, claims,
damages, liabilities or actions arise out of any such statement or omission
relating to any information furnished in writing by or on behalf of the
Placement Agent to VMS specifically for use in connection with the preparation
of the Memorandum or contained in the public SEC filings of Pubco, or the
omission of any statement or information as a result of the failure of the
Placement Agent to provide any such information and (ii) the breach of any
representation, warranty or covenant of VMS or Pubco contained in this
Agreement.
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(b) The Placement Agent agrees to indemnify and hold harmless each
of VMS and Pubco, and each of its directors and officers employees and legal
counsel, and each person, if any, who controls VMS or Pubco, as the case may be,
within the meaning of Section 15 of the Securities Act, and each and all of
them, from and against any and all losses, claims, damages, liabilities or
actions, (including any investigation, negotiation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under the Securities Act, or other federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any statement in
the Memorandum, in reliance upon and in conformity with information furnished in
writing to VMS or Pubco by or on behalf of the Placement Agent specifically for
use in connection with the preparation of the Memorandum. In no event shall the
indemnification and contribution obligations of Placement Agreement exceed the
fees that Placement Agent has actually received pursuant to this Agreement.
(c) Any party which proposes to assert the right to be indemnified
under this Section 9 will, promptly after receipt of notice of commencement of
any action, suit or proceeding against such party in respect of which a claim is
to be made against an indemnifying party under this Section 9, notify each such
indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served, but the omission so to notify such
indemnifying party of any such action, suit or proceeding shall not relieve it
from any liability which it may have to any indemnified party otherwise than
under this Section 9 unless it shall adversely effect the indemnifying party in
any material respect. In case any such action, suit or proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent that is shall wish, jointly with any
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses, other than reasonable costs
of investigation subsequently incurred by such indemnified party in connection
with the defense thereof. The indemnified party shall have the right to employ
its own counsel in any such action, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless:
(i) the employment of counsel by such indemnified party has
been authorized by the indemnifying parties;
(ii) counsel for the indemnified party shall have reasonably
concluded that there may be a conflict of interest between the indemnifying
parties and the indemnified party in the conduct of the defense of such action
(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
(iii) the indemnifying parties shall not in fact have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any settlement of any action or
claims effected without its written consent.
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(d) If the indemnification provided for in this Section 9 is
unavailable to any indemnified party in respect to any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, will contribute to the amount paid
or payable by such indemnified party, as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by VMS and Pubco on the one hand, and the
Placement Agent on the other hand, from the Offering, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of VMS on the one hand, and
of the Placement Agent on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses as well as any other relevant equitable considerations. The relative
benefits received by VMS and Pubco on the one hand, and the Placement Agent on
the other hand, shall be deemed to be in the same proportion as the total
proceeds from the Offering (net of sales commissions, but before deducting
expenses) received by VMS and Pubco bear to the commissions received by the
Placement Agent. The relative fault of VMS and/or Pubco on the one hand, and the
Placement Agent on the other hand, will be determined with reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by VMS
or Pubco, and their relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount payable
by a party as a result of the losses, claims, damages, liabilities or expenses
referred to above will be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim.
(e) VMS, Pubco and the Placement Agent agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 9, 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 guilty of such fraudulent misrepresentation.
(f) The rights to indemnification and contribution hereunder shall
terminate on the later of (x) the third anniversary date of the final Closing
and (y) the expiration of state (for each state in which the Units were offered)
and Federal statutes of limitations prior to which a claim for a securities law
violation must be brought.
SECTION 10. ALTERNATE TRANSACTIONS
(a) VMS acknowledges that Placement Agent will invest a significant
amount of time and resources and will incur significant expense in connection
with the Offering. In light of the foregoing, VMS acknowledges that the
provisions of this Section 10 and the Provisions of Section 11 are fair and
reasonable. Commencing on the date hereof and through March 31, 2007 or such
later date to which the term of the Offering may be extended ( such date of
expiration of the Offering is hereinafter referred to as the "Offering
Expiration Date" and such period of time from the date hereof through and
including the Offering Expiration Date is hereinafter referred to as the
"Offering Period"), VMS will not enter into discussions, finalize a closing or
execute any
21
agreement committing VMS to a closing regarding (i) a sale by VMS of debt or
equity securities or a sale by members of management of their interests in VMS,
(ii) a merger, consolidation, liquidation, business combination, sale of all or
substantially all of the assets of VMS or any similar transaction involving VMS,
or (iii) any other transaction which would reasonably be determined to preclude
or materially increase the difficulty of the closing of the transactions
contemplated by this Agreement, including, but not limited to, the Offering and
the Reverse Merger (the "Transactions"), or materially adversely affect the
benefits to Placement Agent of completing the Transactions (an "Alternate
Transaction").
(b) During the Offering Period, if VMS or management of VMS enters
into any agreement, arrangement or understanding with respect to, any Alternate
Transaction and this Agreement is terminated, VMS will make a cash payment to
Placement Agent covering the out-of-pocket expenses of Placement Agent related
to this Transaction, including, but not limited to, reasonable costs including
legal fees, costs related to securing Pubco, due diligence, and other related
costs. Such out-of-pocket expenses shall be capped at One Hundred Seventy Five
Thousand ($175,000) Dollars. In addition, if this Agreement is terminated, the
Company will make a cash payment to Placement Agent in an amount equal to One
Hundred Fifty Thousand ($150,000) Dollars upon closing of any such Alternate
Transaction (the "Alternate Transaction Fee").
In addition, if the Company receives an investment, commencing at the
end of the engagement of Placement Agent hereunder and ending six (6) months
thereafter (the "Tail Period"), from an investor which VMS cannot demonstrate,
to Placement Agent's reasonable satisfaction, had been previously introduced to
VMS by any person or entity other than Placement Agent or a selling agent in the
Offering, the Placement Agent shall be entitled to the equivalent fee ("Tail
Period Fee") as if the investment was consummated during the term of Placement
Agent's engagement hereunder as part of the Offering.
SECTION 11. TERMINATION
(a) The Offering will be conducted during the Offering Period,
through the Offering Expiration Date, unless sooner terminated in accordance
with this Section 11. The obligations of the Placement Agent to offer for sale
any Units shall terminate upon the Offering Expiration Date. After the Offering
Expiration Date, VMS and Pubco shall cease all solicitations for investment
under the Memorandum and shall not distribute any offering materials identifying
Placement Agent as placement agent or as acting on behalf of VMS or Pubco in any
other capacity.
(b) The Placement Agent may terminate its engagement hereunder at
any time in the event that: (i) any of the representations or warranties of
Pubco or VMS contained herein or in the Memorandum shall prove to have been
false or misleading in any material respect when made or deemed made; (ii) Pubco
or VMS shall have failed to perform any of its material obligations hereunder or
shall have abandoned the Offering; or (iii) there shall occur any event which
materially and adversely affects the transactions contemplated hereby not
occasioned by or arising out of or in connection with any breach or failure
hereunder on the part of the Placement Agent. In the event of (x) any such
termination occasioned by or arising out of or in connection with any breach
(other than a breach of a representation which arises out of events
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occurring after the date hereof and over which VMS has no control) or failure
hereunder on the part of VMS, or after the date of the Merger, Pubco, described
in clauses (i), (ii), or (iii) above or (y) any termination of the Offering or
the engagement of Placement Agent by VMS, or, after the date of the Merger,
Pubco or VMS, prior to the Offering Expiration Date, other than in the case of a
termination of Placement Agent's engagement by VMS or Pubco in accordance with
Section 11(c) below, in addition to other rights and remedies Placement Agent
may have hereunder, at law or otherwise, VMS shall pay to Placement Agent within
five (5) business days of the date of termination of Placement Agent's
engagement hereunder an amount equal to the sum of: (A) the full amount of the
unpaid Expense Reimbursement and (B) a termination fee equal to $175,000.
(c) The engagement of the Placement Agent may be terminated by Pubco
or VMS in the event: (i) any of the representations or warranties of the
Placement Agent contained herein shall prove to have been false or misleading in
any material respect when made or deemed made; or (ii) of the gross negligence,
bad faith, or willful misconduct of the Placement Agent or its representatives.
(c) Upon termination Offering, all subscription documents and
payments for the Units to be sold in the Offering not previously delivered to
the purchasers thereof shall be returned to respective subscribers without
interest thereon or deduction therefrom.
SECTION 12. MISCELLANEOUS.
(a) No change, amendment or supplement to, or waiver of, this
Agreement or any term, provision or condition contained herein, shall be valid
or of any effect unless in writing and signed by the party against whom such is
asserted.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida.
(c) This Agreement constitutes the entire understanding between the
parties with respect to the transactions contemplated hereby, and all prior or
contemporaneous oral agreements, understandings, discussions, representations
and statements are superseded by this Agreement. The waiver of any particular
condition precedent, provision or remedy provided by this Agreement shall not
constitute the waiver of any other.
(d) This Agreement may be executed in any number of counterparts,
each of which shall be taken as one and the same instrument, to the same effect
as if all the parties hereto had signed the same signature page. Any signature
page of this Agreement may be detached from any counterpart of this Agreement
identical in form hereto but having attached it to one or more additional
signature pages.
(e) The provisions of this Agreement shall be binding upon and
accrue to the benefit of the parties hereto and their respective heirs, legal
representatives, permitted successors and permitted assigns.
(f) If any provision of this Agreement for any reason shall be held
to be illegal, invalid or unenforceable, such illegality shall not affect any
other provision of this
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Agreement and this Agreement shall be amended so as to enforce the illegal,
invalid or unenforceable provision to the maximum extent permitted by applicable
law, and the parties shall cooperate in good faith to further modify this
Agreement so as to preserve to the maximum extent possible the intended benefits
to be received by the parties.
(g) All representations, warranties and agreements of the parties
hereto contained herein will survive the delivery and execution hereof and the
Closing for a period of three (3) years from the date hereof, and shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any party hereto or any person who controls any such party
within the meaning of the Securities Act, and will survive delivery of the
securities constituting the Units hereunder and the delivery of the Placement
Agent Warrants and any termination of this Agreement.
(h) Placement Agent acknowledges and agrees that it will have access
to, or become acquainted with, Confidential Information of VMS in the
performance of its duties and obligations hereunder. For purposes of this
Agreement, "Confidential Information" shall mean all confidential, proprietary,
or trade secret information, property, or material of VMS and any derivatives,
portions, or copies thereof, including, without limitation, information
resulting from or in any way related to (i) the Offering; (ii) the business
practices, plans, intellectual property, proprietary information, formulae,
methods, practices, designs, know how, processes and procedures, software, test
results, financial information, sales, customers, employees, suppliers,
contracts, agreements or relationships of VMS; and (iii) any other information
or material that VMS designates as Confidential Information. Placement Agent
shall keep all Confidential Information in strict confidence and shall not, at
any time during or for five (5) years after the expiration or earlier
termination of this Agreement, without VMS's prior written consent, disclose,
publish, disseminate or otherwise make available, directly or indirectly, any
item of Confidential Information to anyone. Placement Agent shall use the
Confidential Information only in connection with the performance of the Offering
and for no other purpose. Notwithstanding the obligations set forth above,
Placement Agent may disclose Confidential Information to any of its employees,
consultants or subcontractors who need to receive the Confidential Information
in connection with the Offering, provided that Placement Agent shall ensure
that, prior to disclosing the Confidential Information, each subcontractor,
consultant or employee to whom the Confidential Information is to be disclosed
is made aware of the obligations contained in this Agreement and agrees to
undertake, in a manner legally enforceable by VMS, to adhere to such terms of
this Agreement as if it were a party to it. Placement Agent recognizes that its
threatened breach or breach of this Section 12(h) will cause irreparable harm to
VMS that is inadequately compensable in damages and that, in addition to other
remedies that may be available at law or equity, VMS is entitled to injunctive
relief for such a threatened or actual breach of this Section 12(h).
Notwithstanding the above, Placement Agent shall not have any obligations of
confidentiality with respect to any portion of Confidential Information which
(i) was previously known to the Placement Agent prior to receipt from the
disclosing party, (ii) is now public knowledge, or becomes public knowledge in
the future, other than through acts or omissions of the Placement Agent in
violation of this Section 12(h), or (iii) is lawfully obtained by the Placement
Agent from sources independent of the disclosing party who have a lawful right
to disclose such Confidential Information. The Placement Agent may disclose
Confidential Information to the extent such disclosure is reasonably necessary
in complying with applicable governmental laws, rules or regulations or court
orders.
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If the foregoing conforms with your understanding of the arrangements
between us, please sign the copy of this letter provided in the space indicated,
whereupon this letter shall constitute a binding and legal agreement between the
VMS and the Placement Agent, and upon obtaining the signature of Pubco below,
Pubco shall become a party to this Agreement as if Pubco had executed this
agreement as of the date first written above.
Very truly yours,
VISUAL MANAGEMENT SYSTEMS HOLDING, INC.
By:
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Chief Executive Officer
Accepted as of the date first above written:
▇▇▇▇▇▇▇▇▇▇ SECURITIES CORPORATION
By:
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President
By executing this letter in the space provided below, Pubco hereby
acknowledges, agrees and confirms that it will be deemed to be a party to this
Agreement and shall be subject to all of the obligations applicable to Pubco as
if Pubco had executed this Agreement as of the date of this Agreement first
written above. Pubco hereby ratifies and agrees to be bound by all of the terms,
provisions and conditions contained in this Agreement.
PUBCO
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Company Name
By:
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Name:
Title: