Data Systems & Software Inc. PLACEMENT AGENT AGREEMENT June 12, 2006
EXHIBIT
10.2
Data
Systems & Software Inc.
June
12,
2006
First
Montauk Securities Corp.
Parkway
109 Office Center
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Ladies
and Gentlemen:
Data
Systems & Software Inc., a Delaware corporation (the “Company” or “DSSI”),
proposes to offer for sale (the "Offering") in a private offering pursuant
to
Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and/or
Regulation D promulgated thereunder, shares of its Common Stock, par value
$.01
per share (“Shares”) and (ii) warrants for purchase of Shares (“Warrants”). The
Shares and Warrants to be offered and sold are sometimes referred to herein
as
the “Securities”. The Offering is being conducted on a “best efforts” basis
(with no minimum gross proceeds) for up to $3,000,000 of gross proceeds (the
“Maximum Offering”). Offers and sales of the Securities shall be made solely to
Accredited Investors (as defined in Regulation D). This letter agreement
shall
confirm our agreement concerning First Montauk Securities Corp. acting as
our
placement agent (the “Placement Agent” or “First Montauk”) in connection with
the sale of the Securities.
l.
Appointment of Placement Agent.
On
the
basis of the representations and warranties contained herein, and subject
to the
terms and conditions set forth herein, the Company hereby appoints First
Montauk
as its Placement Agent and grants to First Montauk the exclusive right to
offer,
as its agent, the Securities through the period of the Offering, as such
period
may be extended in accordance with Section 2(c) below (the “Exclusive Period”).
The Company expressly acknowledges and agrees that First Montauk's obligations
hereunder are not on a firm commitment basis and that the execution of this
Agreement does not constitute a commitment by First Montauk to purchase the
Securities and does not ensure the successful placement of the Securities
or any
portion thereof. Further, First Montauk's obligation to use its best efforts
to
assist the Company in the Offering is subject to the completion of a due
diligence review of the Company, the industry and the market for such securities
generally, as well as general market conditions. On the basis of such
representations and warranties, and subject to such conditions, First Montauk
hereby accepts such appointment and agrees to use its reasonable commercial
efforts to secure subscriptions for the purchase of Securities up to the
Maximum
Offering.
2. Terms
of
the Offering.
(a)
The
Company has prepared and delivered to the Placement Agent copies of a
Confidential Private Placement Memorandum (as may be amended from time to
time,
and including the exhibits thereto, the “Memorandum”), relating to, among other
things, the business of the Company, its financial condition, the Securities
and
the terms of Offering.
(b)
Pursuant
to the Offering as further described in the Memorandum the Company intends
to
offer Shares with an aggregate purchase price of $3,000,000. The purchase
price
per Share in the Offering shall be $2.65 (the “Purchase Price”). In addition,
each purchaser in the Offering will receive Warrants equal to 25% of the
number
of Shares purchased (“Investor Warrants”). The Investor Warrants will have a
term of five (5) years and will be exercisable at an exercise price of $2.78
per
Share. The investors shall be entitled to such “registration rights”,
anti-dilution protection, future participation rights and other rights as
are
described in the Offering Documents (as defined below).
(c)
The
Offering shall commence on the date hereof and shall expire at 3:00 p.m.,
New
York time, on July 12, 2006 and may be extended at the discretion of the
Placement Agent and the Company up to August 11, 2006, or any date prior
thereto. Such period, as the same may be so extended, shall hereinafter be
referred to as the “Offering Period.”
(d)
Each
prospective investor (“Prospective Investor”) who desires to purchase Securities
shall deliver to the Placement Agent a fully executed Subscription Agreement,
Investor Questionnaire ), and such other agreements as are required to be
signed
in connection with the Offering (together with the Memorandum, Subscription
Agreement, Investor Questionnaire, and other exhibits thereto, the “Offering
Documents”) along with payment in the form of immediately available funds in the
amount necessary to purchase the number of Securities such Prospective Investor
desires to purchase. Upon receipt of the executed Offering Documents, the
Placement Agent shall forward such documents to the Company for review, keeping
a copy of such documents for its records. The Placement Agent shall not have
any
obligation to independently verify the accuracy or completeness of any
information contained in any Subscription Agreement or the authenticity,
sufficiency, or validity of any check delivered by any Prospective Investor
in
payment for Securities.
(e)
The
Placement Agent shall deliver all subscription funds received from a Prospective
Investor to Signature Bank for deposit in a segregated escrow account pursuant
to an escrow deposit agreement among the Company, Placement Agent and Signature
Bank, as escrow agent, and shall deliver the executed copies of the Subscription
Agreement received from such Prospective Investor to the Company. All funds
shall be held in the segregated non-interest-bearing account pending acceptance
of the subscription and no funds shall be released without execution of a
written notice by the Company and the Placement Agent. The Company shall
notify
the Placement Agent promptly of the acceptance or rejection or any
subscription.
(f)
Subject
to the approval of the Company and the conditions set forth herein, which
approval shall not be unreasonably withheld, First Montauk may engage other
persons selected by First Montauk to assist First Montauk in the Offering
(each
such broker/dealers being hereinafter referred to as a “Selling Group Member”)
and First Montauk may allow such Selling Group Member such part of the
compensation and payment of expenses payable to First Montauk under Section
5
hereof as First Montauk shall determine. Any such Selling Group Member shall
be
a member firm in good standing as a broker-dealer under the rules of the
NASD.
The Company hereby agrees to make such representations and warranties to,
and
covenants and agreements with, any Selling Group Member (including an agreement
to indemnify such Selling Group Member on terms substantially similar to
Section
12 hereof) as provided herein.
3.
Closings: Release of Funds.
(a)
The
date
that the parties determine to hold an initial closing for acceptance of
subscriptions by the Company and funds are released from the escrow account
shall be deemed the “Initial Closing”. There is no minimum amount of securities
which are required to be sold prior to the Initial Closing. At least one
(1) day
prior to the release of funds, the Company and the Placement Agent shall
send
written notice to each other, which notice shall state the amount of funds
to be
released, the name and address of each subscriber whose subscription has
been
accepted by the Company, and the amount of each subscription.
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(b) At
any
time prior to the expiration of the Offering Period following the Initial
Closing and after acceptance by the Company of subscriptions for the sale
of
additional Securities up to the Maximum Offering, one or more closings (each
an
"Interim Closing") shall take place in the manner herein set forth with respect
to the Initial Closing. The final Interim Closing to be held in accordance
herewith shall be deemed the “Final Closing” and the date thereof shall be the
”Final Closing Date”. References herein to a "Closing" shall mean the Initial
Closing, any Interim Closing or the Final Closing, as the context requires,
and
the date thereof shall be referred to as a ”Closing Date”. Prior to each
Closing, Placement Agent will furnish to the Company appropriate records
indicating the name and address of each person subscribing in the Offering
and a
copy of the executed Subscription Agreement for each subscriber. The Company
shall have discretion as to whether or not to accept any Subscription Agreement;
provided,
however
any rejection of a subscription shall be in good faith on the basis of a
reasonable business purpose
4. Representations
and Warranties of the Placement Agent.
The
Placement Agent represents, warrants to and agrees with the Company as
follows:
(a) The
Placement Agent is duly incorporated and validly existing and in good standing
under the laws of the State of New York.
(b) The
Placement Agent is, and at the time of each Closing will be, duly registered
as
a broker/dealer pursuant to the Securities Exchange Act of 1934, as amended
(the
“Exchange Act”) and a member in good standing of the NASD, and each of the
Placement Agent's representatives is, and at the time of each Closing will
be,
registered as an agent or salesman of the Placement Agent and in good standing
with the NASD.
(c) Sales
of
Securities by the Placement Agent will only be made in such jurisdictions
in
which the Placement Agent is a registered broker-dealer or where an applicable
exemption from such registration exists.
(d) Offers
and sales of Securities by the Placement Agent will be made only in accordance
with this Agreement and in compliance with the provisions of Rule 506 of
Regulation D (it being understood and agreed that the Placement Agent shall
be
entitled to rely upon the information and statements provided by the Prospective
Investors in the Subscription Agreement and Investor Questionnaires), and
the
Placement Agent will furnish to each Prospective Investor a copy of the Offering
Documents prior to the receipt thereby of any Subscription Agreement from
such
Prospective Investor.
(e) During
the course of the Offering, the Placement Agent and its representatives will
not
make any untrue statement of a material fact or omit to state a material
fact
required to be stated, or necessary to make any statement made, by the Placement
Agent or its representatives, not misleading concerning the Offering or any
matters set forth in or contemplated by the Offering Documents (it being
understood that the statements made in the Offering Documents are deemed
to be
made by the Company and not the Placement Agent, except for information set
forth therein based upon written information provided by, or on behalf of,
the
Placement Agent or any of its representatives for inclusion
therein).
(f) Neither
the Placement Agent nor any of its representatives or affiliates, has engaged
or
will engage, directly or indirectly, in any act or activity that may jeopardize
the status of the Offering and sale of the Securities as an exempt transaction
under the Act or under all applicable federal and/or state securities or
blue
sky laws of any jurisdiction in which the Securities may be offered or
sold.
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5.
Placement Agent Compensation; Future Financing.
(a) The
Placement Agent shall be entitled, on each Closing Date, as compensation
for its
services as Placement Agent under this Agreement, to (i) selling commissions
equal to 7% of the gross proceeds received by the Company from the sale of
the
Shares and (ii) a management fee of 3% of the gross proceeds received by
the
Company from the sale of the Shares. In addition, the Placement Agent will
receive an advisory fee equal to 1% of the gross proceeds of the
Offering.
All
payments hereunder shall be effected at each Closing in immediately available
funds.
(b)
In
addition to the forgoing cash compensation, the Placement Agent will be entitled
to receive Warrants to purchase a number of shares equal to 10% of the Shares
sold by it in the Offering (the “Agent Warrants”). The Agent Warrants shall be
on the same terms as the Investor Warrants.
(c)
For
a
period of 18 months following the end of the Exclusive Period, the Company
agrees to pay to Placement Agent at each closing of any other equity financing,
convertible debt financing or any instrument convertible into Shares from
any
Source contacted by Placement Agent on the Company’s behalf and disclosed to the
Company in writing or from any investor who purchases shares in the Offering
(i)
a cash transaction fee in the amount of 10% of the amount of the gross proceeds
received by the Company from any such financing, (ii) a non-accountable expense
allowance of 1% of the amount of gross proceeds received by the Company from
any
such financing and (iii) Agent Warrants. As
used
in this Agreement, the term “Source” shall be broadly interpreted to include,
without limitation, any corporation, company, institution, partnership,
individual and all of the Source’s affiliates that are directly or indirectly
contacted by Placement Agent for the purpose of investing in the Offering.
Placement Agent will periodically provide the Company with a written list
of all
Sources contacted by Placement Agent.
(d)
The
Placement Agent shall also be entitled to receive, during the term of the
Warrants, a warrant solicitation fee (“Solicitation Fee”) equal to five percent
(5%) of the exercise price of the Warrants, which fee shall be payable within
five business days of receipt by the Company of the exercise price from a
holder
of the Warrants. The Solicitation Fee shall be payable in accordance with
the
applicable rules of the NASD and the form of warrants issuable to investors
shall disclose shall include appropriate disclosure regarding the payment
of the
Solicitation Fee upon terms acceptable to the Placement Agent. The Company
shall
not hire any other broker dealer firm other than the Placement Agent to assist
it in connection with the solicitation of the exercise of the
Warrants.
(e) In
the
event that the Company enters into a merger, acquisition, or sale transaction
with a Source, Placement Agent shall be entitled to receive a fee in accordance
with industry standard terms to be agreed upon in good faith between the
Company
and Montauk.
6.
Representations and Warranties of the Company. The Company represents and
warrants to, and agrees with, the Placement Agent that as of the date hereof
and
as of each Closing Date (except as disclosed in the Disclosure Statement
or
contemplated therein):
(a)
Assuming
the accuracy of the representations and warranties of the Prospective Investors
set forth in the Subscription Agreement and Investor Questionnaire and the
representations and warranties of the Placement Agent set forth herein, the
Offering Documents (including, without limitation, the Company Documents
as
defined clause (c) below) (i) contain at all times during the period from
the
date hereof to and including each Closing Date, all information required
to be
contained therein, if any, pursuant to a private offering to all “accredited
investors“ under Rule 506 of Regulation D and all applicable federal and/or
state securities and blue sky laws, and (ii) do not, and during such period
will
not, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
the
light of the circumstances in which they were made, not misleading. Each
contract, agreement, instrument, lease, license, or other document required
to
be described in the Offering Documents shall be, and have been, accurately
described therein in all material respects.
4
(b)
The
information provided by the Company to Prospective Investors pursuant to
Section
7(f) hereof (it being understood that neither the Company nor any of its
officers or directors or employees shall provide any information to any
Prospective Investor which is not contained or referred to in the Offering
Documents) taken as a whole shall not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
made
therein, in the light of the circumstances in which they were made, not
misleading. Contracts to which the Company or any of its Controlled Subsidiaries
(as defined below) is a party provided by the Company to Prospective Investors
shall not be deemed to contain any untrue statement of a material fact or
to
omit to state any material fact if the contract so provided is a true, correct
and complete copy of such contract, as amended or modified through the date
it
is so provided.
(c)
The
authorized capital stock of the Company consists of 20,000,000 Shares . As
of
the date hereof, 8,162,024 Shares are issued and outstanding, and all such
Shares are, duly authorized, validly issued, fully paid and nonassessable
and
not subject to preemptive rights. In addition, there are (i) warrants
outstanding to acquire an aggregate of approximately 190,000 Shares of common
Stock, and (ii) options outstanding to acquire an aggregate of approximately
1,988,665 Shares of Common Stock. The Shares, including Shares issuable upon
exercise of the Warrants, when issued in accordance with the terms of the
Offering, will be validly issued, fully paid and nonassessable and not subject
to preemptive or any other similar rights and no personal liability will
attach
to the ownership thereof. The outstanding options, warrants and other
convertible securities of the Company are as set forth in the Memorandum
and the
Company’s filings with the SEC under the Exchange Act (collectively, the
“Company Documents).
Neither
the Company nor any Subsidiary is a party to an agreement, instrument or
understanding which calls for, and no securities of the Company or any
Subsidiary contain provisions relating to, the
resetting or repricing
of any debt or equity security instrument of the Company or any Subsidiary.
The
issuance of the Securities or the consummation of the Placement will not
trigger
any resetting or repricing of any debt or equity security instrument of the
Company or any Subsidiary and will not result in any preemptive rights to
acquire securities of the Company in favor of any third party.
(d) Each
statute, regulation, legal and governmental proceeding, contract, agreement,
instrument, lease, license, or other document required to be described in
the
Offering Documents has been accurately described therein in all material
respects.
(e) All
prior
offerings of the Company’s securities complied in all respects with the Act and
the rules and regulations promulgated thereunder and all applicable blue
sky
laws.
(f) The
Company and its Controlled Subsidiaries, are (a) corporations duly organized,
validly existing and in good standing under the laws of the respective state
of
their incorporation, each have full power and authority to own or lease all
of
the assets owned or leased by each of them and to conduct their respective
business as described in the Offering Documents and (b) are duly qualified
to do
business and in good standing as a foreign corporation in all jurisdictions
in
which the nature of the activities conducted or the character of the assets
owned or leased makes such qualification necessary, except where the failure
to
be so qualified would not have a material adverse effect on the Company's
presently conducted business (taken as a whole with the business of the
Controlled Subsidiaries). Complete and correct copies of the certificate
of
incorporation and of the by-laws of the Company and its Controlled Subsidiaries
as in effect on the date hereof have been delivered to First Montauk, and
no
changes therein will be made on or subsequent to the date hereof and prior
to
the Final Closing Date except as may be disclosed in the Offering Documents
or
required pursuant to this Agreement. The term “Controlled Subsidiaries” means
any corporation or other organization in which the Company owns, directly
or
indirectly, an equity or other ownership interest equal to or greater than
50
percent.
5
(g)
Since
the
dates as of which information is given in the Offering Documents, other than
as
set forth or contemplated therein, (A) there has not been any material adverse
change in the business, prospects, properties, management, financial condition
or results of operations of the Company or its Controlled Subsidiaries, (B)
the
Company has not and will not have paid or declared any dividends or other
distributions on its capital stock and (C) there has not been any change
in the
capital stock of the Company or any material change in the short-term or
long-term debt of the Company or its Controlled Subsidiaries.
(h) The
consolidated financial statements, together with related notes and schedules
of
the Company and its Controlled Subsidiaries, included as part of the Offering
Documents (including the financial statements contained in the company
Documents), present fairly the financial position of the Company and its
Controlled Subsidiaries in all material respects as of the respective dates
and
for the periods indicated therein. Audited financial statements, and related
notes and schedules, have been prepared in conformity with United States
generally accepted accounting principles applied on a consistent basis and
the
rules of the SEC through the entire period involved. Except as stated in
the
Offering Documents, the unaudited statements contained in the Offering Documents
are consistent with, and have been prepared from the books and records kept
by
the Company in a manner consistent with past practice.
(i) Except
as
described in the Offering Documents, there is no action, suit, investigation
or
proceeding pending or, to the Company's knowledge, threatened before or by
any
Federal or state court, commission, regulatory body, administrative agency
or
other governmental body, domestic or foreign, or arbitrator to which the
Company
or its Controlled Subsidiaries is or may become a party or of which any property
of the Company or its Controlled Subsidiaries is subject or affected that
(i)
might affect the consummation of the transactions contemplated under this
Agreement, including the issuance or validity of the Shares offered hereby
or
(ii) would have a material adverse effect on the financial condition,
properties, results of operations or businesses of the Company and its
Controlled Subsidiaries, taken as a whole (“Material Adverse
Effect”).
(j) The
Company and its Controlled Subsidiaries have all approvals, licenses,
franchises, authorizations and permits (collectively, “permits”) necessary under
all applicable statutes, codes, rules, regulations, orders and decrees of
governments or governmental bodies (collectively, “laws”), which are material to
the ownership, lease or use of their respective properties or the conduct
of
their respective businesses as described in the Offering Documents. Neither
the
Company nor its Controlled Subsidiaries has received notice of any proceedings
relating to the revocation or modification of any such permits which, singly
or
in the aggregate, would have a Material Adverse Effect, and each of the Company
and its Controlled Subsidiaries is in all material respects in compliance
with
such permits and laws.
(k) The
Company and its Controlled Subsidiaries own or are licensed to use all patents,
patent applications, inventions, trademarks, trade names, applications for
registration of trademarks, copyrights, know-how, trade secrets, licenses
and
rights in any thereof (“Proprietary Rights”) which are material to the business
of the Company and its Controlled Subsidiaries taken as a whole as now conducted
and as proposed to be conducted, in each case as described in the Offering
Documents. Except as described in the Offering Documents:
(i)
the
Company and its Controlled Subsidiaries do not have any knowledge of, and
the
Company and its Controlled Subsidiaries have not given or received any notice
of
any pending conflict with or infringement of, the rights of others with respect
to any Proprietary Rights or with respect to any license of Proprietary
Rights;
6
(ii)
no
action, suit, arbitration, or legal, administrative or other proceeding,
or
domestic or foreign governmental investigation is pending or, to the best
of the
Company's knowledge, threatened, which involves any Proprietary Rights and
would
have a Material Adverse Effect;
(iii)
neither the Company nor its Controlled Subsidiaries is subject to any judgment,
order, writ, injunction or decree of any court or any Federal, state, local,
foreign or other governmental department, commission, board, bureau, agency
or
instrumentality, domestic or foreign, or any arbitrator, which restricts
or
impairs the use of any such Proprietary Rights in a manner which would have
a
Material Adverse Effect on the use of any of the Proprietary
Rights;
(iv)
no
Proprietary Rights used by the Company or its Controlled Subsidiaries and
no
services or products sold by the Company or its Controlled Subsidiaries,
conflict with or infringe upon, to the knowledge of the Company and its
Controlled Subsidiaries, any proprietary rights available to any third
party;
(v)
neither the Company nor its Controlled Subsidiaries has entered into any
consent, indemnification, forbearance to ▇▇▇ or settlement agreement with
respect to Proprietary Rights other than in the ordinary course of
business;
(vi)
to
the best knowledge of the Company, no claims have been asserted by any person
with respect to the validity of or the Company's or its Controlled Subsidiaries'
ownership of or right to use the Proprietary Rights and, to the best knowledge
of the Company, there is no reasonable basis for any such claim;
(vii)
to
the best knowledge of the Company, the Proprietary Rights are valid and
enforceable and no registration relating thereto has lapsed, expired or been
abandoned or canceled or is the subject of cancellation or other adversarial
proceedings which would have a Material Adverse Effect, and any applications
therefore are pending and are in good standing;
(viii)
the Company and its Controlled Subsidiaries have complied, in all material
respects, with their respective contractual obligations relating to the
protection of the Proprietary Rights used pursuant to licenses; and
(ix)
to
the best knowledge of the Company, no person is infringing on or violating
the
Proprietary Rights owned or used by the Company or its Controlled
Subsidiaries.
(l)
Except
as
described in the Offering Documents, there are no contracts, agreements or
understandings between the Company and any person granting such person the
right
to require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such person
or
to require the Company to include such securities in the securities being
registered pursuant to any registration statement filed by the Company under
the
Act.
(m) All
offers and sales of securities of the Company issued during the three year
period prior to the date hereof were at all relevant times duly registered
or
exempt from the registration requirements of the Act and the rules and
regulations thereunder and were duly registered or the subject of an available
exemption from the registration requirements of the applicable state securities
or Blue Sky laws. The Company has not, directly or indirectly, solicited
any
offer to buy or offered to sell any securities during the twelve-month period
ending on the date hereof which, to the knowledge of the Company, would be
integrated with the Offering.
7
(n) Neither
the Company nor its Controlled Subsidiaries are (i) in violation of its
certificate of incorporation or by-laws, (ii) to the best knowledge of the
Company, in violation of any statute, law, rule, code, administrative
regulation, ordinance, judgment, order or decree of any government, governmental
instrumentality, court, domestic or foreign, or arbitration panel or other
body
applicable to it where such violation would have a Material Adverse Effect
or
(iii) to the best knowledge of the Company, in default in the performance
or
observance of any obligation, agreement, covenant or condition contained
in any
indenture, mortgage, deed of trust, voting agreement, voting trust agreement,
loan agreement, bond, debenture, note or other evidence of indebtedness,
lease,
sublease, license agreement, contract or other agreement or instrument to
which
it is a party or by which it or any of its respective properties are bound
or
affected (“Contracts”), where such defaults, singly or in the aggregate, would
have a Material Adverse Effect. To the knowledge of the Company, no other
party
under any Contract is in default in any material respect thereunder which
affects the Company.
(o) The
Company has all requisite power and authority to execute, deliver and perform
its obligations under this Agreement and the Subscription Agreement. This
Agreement and the Subscription Agreement have been duly and validly authorized,
executed and delivered by the Company, and each such agreement constitutes
a
legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its respective terms, except as rights to indemnity
and contribution hereunder and thereunder may be limited by the securities
laws
and public policy of the United States and except as such enforceability
may be
limited by bankruptcy, insolvency, reorganization or similar laws or equitable
principles affecting the enforcement of creditors' rights
generally;
(p) The
issuance of the Securities and the execution, delivery and performance of
this
Agreement and the Subscription Agreement, and the consummation of the
transactions contemplated hereby and thereby, do not and will not conflict
with
or result in a material breach or violation of any of the terms or provisions
of, or constitute a material default under, or give rise to rights of
termination under, or result in the acceleration of any obligation under,
or
result in the creation or imposition of any lien, charge or encumbrance upon
any
material property or assets of the Company or any of its Controlled Subsidiaries
pursuant to the terms of any indenture, mortgage, deed of trust, voting
agreement, voting trust agreement, loan agreement, bond, debenture, note
or
other evidence of indebtedness or result in a material breach or violation
of
any of the terms or provisions of, or constitute a material default under
any
lease, sublease, contract or other agreement or instrument to which the Company
or any of its Controlled Subsidiaries are a party, or by which the Company,
its
Controlled Subsidiaries, or any of the Company’s or its Controlled
Subsidiaries’respective properties or assets are bound or affected, nor will
such action result in any violation of the provisions of the certificate
of
incorporation or by-laws of the Company or its Controlled Subsidiaries or
a
material violation of any applicable statute, law, rule, code, administrative
regulation, ordinance, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, or arbitration panel or other
body, having jurisdiction over the Company, its Controlled Subsidiaries,
or any
of the Company’s or its Controlled Subsidiaries’ respective properties or
obligations.
(q) No
consent, approval, authorization, license or order of or from, or registration,
qualification, declaration or filing with, federal, state, local, foreign
or
other governmental authority or any person or court, administrative agency,
or
other body is required for the consummation of the transactions contemplated
in
this Agreement, or the Offering Documents, except as may have been made,
are
required to be made prior to the Initial Closing, or may be required to be
obtained under any state securities or blue sky laws or pursuant to Regulation
D.
8
(r) The
Company is in compliance in all material respects with all applicable federal,
state and local environmental laws and regulations (collectively, the
“Environmental Laws”), except for any material noncompliance as may be described
in the Offering Documents, and to the best of the Company's knowledge, there
are
no circumstances that would prevent, interfere with, or materially increase
the
cost of such compliance in the future. Except as set forth in the Offering
Documents, there is no claim under any Environmental Law, including common
law
(“Environmental Claim”), pending or, to the knowledge of the Company, threatened
against or affecting the Company or its Controlled Subsidiaries and, to the
best
of the Company's knowledge, there are no past or present actions, activities,
circumstances, events or incidents, including, without limitation, releases
of
any material into the environment, that could form the basis of any
Environmental Claim against or affecting the Company or its Controlled
Subsidiaries.
(s) Each
of
the Company and its Controlled Subsidiaries has good and marketable title
to all
property owned by it, in each case free and clear of all liens, charges,
encumbrances or restrictions except as described in the Offering Documents
or
such as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company.
Except as described in the Offering Documents, all material Contracts to
which
the Company or its Controlled Subsidiaries is a party or by which the Company
or
its Controlled Subsidiaries or any of their respective properties or assets
are
bound are valid, subsisting and enforceable and are in full force and
effect.
(t) The
Company and its Controlled Subsidiaries (A) has paid all federal, state,
local
and foreign taxes for which it is liable and has furnished all information
returns it is required to furnish pursuant to the Internal Revenue Code of
1986,
as amended, (B) has established adequate reserves for such taxes which are
not
due and payable and (C) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
(u) The
Company and its Controlled Subsidiaries maintain insurance of the types and
in
amounts which it deems adequate for its business taken as a whole, all of
which
are in full force and effect.
(v) Other
than as set forth herein or in the Offering Documents, there are no claims,
payments, issuances, arrangements or understandings, whether oral or written,
for services in the nature of a finder's or origination fee with respect
to the
sale of the Securities.
(w) Neither
the Company nor its Controlled Subsidiaries, nor to the best of the Company’s
knowledge any of the Company’s officers, employees, agents or any other person
acting on behalf of, at the direction of or for the benefit 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 (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which (a) might subject the Company or any other such person
to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, might have
had a
Material Adverse Effect or (c) if not continued in the future, might result
in a
Material Adverse Effect. The Company's internal accounting controls are
sufficient to cause the Company to comply with the Foreign Corrupt Practices
Act
of 1977, as amended.
(x) To
the
best knowledge of the Company, during the past five years, none of the current
officers or directors of the Company have been:
(i) The
subject of a petition under the federal bankruptcy laws or any state insolvency
law filed by or against them, or by a receiver, fiscal agent or similar officer
appointed by a court for their business or property, or any partnership in
which
any or them was a general partner at or within two years before the time
of such
filing, or any corporation or business association of which any of them was
an
executive officer at or within two years before the time of such
filing;
9
(ii) Convicted
in a criminal proceeding or a named subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses);
(iii) The
subject of any order, judgment, or decree not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining any of them from, or otherwise limiting, any of the following
activities:
(iv) acting
as
a futures commission merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage transaction merchant, any
other
person regulated by the Commodity Futures Trading Commission, or an associated
person of any of the foregoing, or as an investment adviser, underwriter,
broker
or dealer in securities, or as an affiliated person, director or employee
of any
investment company, bank, savings and loan association or insurance company,
or
engaging in or continuing any conduct or practice in connection with any
such
activity;
(v)
engaging
in any type of business practice; or
(vi) engaging
in any activity in connection with the purchase or sale of any security or
commodity or in connection with any violation of federal or state securities
law
or federal commodity laws.
(vii) the
subject of any order, judgment or decree, not subsequently reversed, suspended
or vacated of any federal or state authority barring, suspending or otherwise
limiting for more than sixty (60) days their right to engage in any activity
described in paragraph (c)(i) above, or be associated with persons engaged
in
any such activity;
(viii) found
by
any court of competent jurisdiction in a civil action or by the Securities
and
Exchange Commission to have violated any federal or state securities law,
and
the judgment in such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(ix) found
by
a court of competent jurisdiction in a civil action or by the Commodity Futures
Trading Commission to have violated any federal commodities law, and the
judgment in such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(x) found
by
a court or an administrative agency to have or is alleged to have violated
any
foreign securities laws.
(y) Neither
the Company nor, to the knowledge of the Company, any of its affiliates has,
directly or through any agent, sold, offered for sale or solicited offers
to buy
any security of the Company, nor will any of the foregoing directly buy any
security of the Company.
(z) Neither
the Company nor any of its officers, directors, or affiliates, has engaged
or
will engage, directly or indirectly, in any act or activity that may jeopardize
the status of the Offering and sale of the Securities as an exempt transaction
under the Act or under all applicable federal and/or state securities or
blue
sky laws of any jurisdiction in which the Securities may be offered or sold.
10
(aa) The
Company and the Subsidiaries maintain a system of internal accounting and
other
controls sufficient to provide reasonable assurances that: (i) transactions
are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of reliable
financial statements in conformity with United States generally accepted
accounting principles and to maintain accountability for assets, (iii) access
to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accounting for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any material differences.
(bb) Neither
the Company nor any of its Subsidiaries has violated or is currently in
violation of any provisions of: (a) any federal or state environmental law,
(b)
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder (“ERISA”), (c) the Bank
Secrecy Act, as amended, (d) the Money Laundering Control Act of 1986, as
amended, (e) the Foreign Corrupt Practices Act, or (f) the Uniting and
Strengthening of America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism (“USA Patriot Act”) Act of 2001, and the rules and
regulations promulgated under any such law, or any successor law, except
for
such violations which, singly or in the aggregate, would not have a Material
Adverse Effect.
(cc) So
long
as the Common Stock and the Warrants (including the Common Stock receivable
upon
the exercise thereof) are “restricted securities” within the meaning of Rule
144(a)(3) under the Securities Act, the Company, during any period in which
it
is not subject to and in compliance with Section 13 or 15(d) of the Exchange
Act, or is not exempt from such reporting requirements pursuant to and in
compliance with Rule 12g3-2b under the Exchange Act, provide to each holder
of
Common Stock and to each prospective purchaser (as designated by such holder)
of
Common Stock upon the request of such holder or prospective holder, any
information required to be provided by Rule 144A(d)(4) under the Securities
Act.
(dd)
The
Company is not and, at all times up to and including consummation of the
transactions contemplated by this Agreement, and after giving effect to
application of the net proceeds of the Placement, will not be, subject to
registration as an “investment company” under the Investment Company Act of
1940, as amended (the “1940
Act”),
and
is not and will not be an entity “controlled” by an “investment company” within
the meaning of the 1940 Act. The Company will: (i) utilize the proceeds of
the
Placement in accordance with the “Use of Proceeds” section of the Memorandum and
(ii) initially utilize the proceeds of the Placement and all other funds
of the
Company in such a manner so as to cause the Company not to be subject to
the
1940 Act, and will thereafter use its best efforts to avoid the Company’s
becoming subject to the ▇▇▇▇ ▇▇▇.
(ee) The
Company is in compliance with applicable requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act
of 2002 and applicable rules and regulations promulgated by the Commission
thereunder in effect as of the date of this Agreement, except where such
noncompliance could not be reasonably expected to have, individually or in
the aggregate, a material adverse effect upon the Company.
7. Covenants
of the Company.
The
Company covenants that it will:
(a)
Notify First Montauk immediately, and confirm such notice in writing, (i)
when
any event shall have occurred during the period commencing on the date hereof
and ending on the Final Closing Date, as a result of which the Offering
Documents would include any untrue statement of a material fact or omit to
state
any material fact necessary to make the statements made therein, in the light
of
the circumstances under which they were made, not misleading, and (ii) of
the
receipt of any notification with respect to the modification, rescission,
withdrawal, or suspension of the qualification or registration of the
Securities, or of an exemption from such registration or qualification, in
any
jurisdiction. The Company will use its reasonable best efforts to prevent
the
issuance of any such modification, rescission, withdrawal, or suspension,
and at
Placement Agent's request, to use reasonable best efforts to obtain the lifting
thereof as promptly as possible.
11
(b)
Not
make any supplement or amendment to the Offering Documents unless such
supplement or amendment complies with the requirements of the Act and Regulation
D and the applicable federal and/or state securities and blue sky laws and
unless the Placement Agent shall have approved of such supplement or amendment.
If, at any time during the period commencing on the date hereof and ending
on
the Final Closing Date, any event shall have occurred as a result of which
the
Offering Documents contain any untrue statement of a material fact or omit
to
state any material fact necessary to make the statements made therein, in
the
light of the circumstances in which they were made, not misleading, or if,
in
the reasonable opinion of counsel to the Company or counsel to the Placement
Agent, it is necessary at any time to supplement or amend the Offering Documents
to comply with the Act, Regulation D, or any applicable securities or blue
sky
laws, the Company will promptly prepare an appropriate supplement or amendment
(in form and substance satisfactory to the Placement Agent) which will correct
such statement or omission or which will effect such compliance.
(c)
Deliver without charge to the Placement Agent such number of copies of the
Offering Documents and any supplement or amendment thereto as may reasonably
be
requested by the Placement Agent.
(d)
Not,
directly or indirectly, solicit any offer to buy from, or offer to sell to
any
person any Securities, or any other securities (whether debt or equity) of
the
Company except through the Placement Agent.
(e)
Use
its best efforts to establish an exemption from qualification and registration
under the securities or blue sky laws of the jurisdictions as may be required
by
the Placement Agent in connection with the offer and sale of the Securities
and
retain counsel in making any required filings; provided, however, that the
Company will not be obligated to qualify to do business or register as a
dealer
in securities, or otherwise subject itself to general service of process,
in any
jurisdiction in which it is not so qualified. The Company shall make a Form
99
and State Notice filing with the State of New York prior to the commencement
of
the Offering and timely file a Form D and such other required notice with
all
state blue sky authorities and the SEC.
(f)
At
all times during the period commencing on the date hereof and ending on the
Final Closing Date, provide to each Prospective Investor or his Purchaser
Representative (as defined in Regulation D), if any, on request, such
information (in addition to that contained in the Offering Documents) concerning
the Offering, the Company and any other relevant matters, as it possesses
or can
acquire without unreasonable effort or expense, and to extend to each
Prospective Investor or his Purchaser Representative, if any, the opportunity
to
ask questions of, and receive answers from, the President or other executive
officers of the Company concerning the terms and conditions of the Offering
and
the business of the Company and to obtain any other additional information,
to
the extent it possesses the same or can acquire it with reasonable effort
or
expense, and in conformity with existing laws and regulations of federal
and
state and other regulatory bodies and agencies as such Prospective Investor
or
Purchaser Representative may consider necessary in making an informed investment
decision or in order to verify the accuracy of the information furnished
to such
Prospective Investor or Purchaser Representative, as the case may be.
Notwithstanding, anything in this Section 7(f) to the contrary, the Prospective
Investor and/or his Purchaser Representative, as the case may be, shall only
rely on such information in making an investment decision, to the extent
it has
been provided to them in the Offering Documents or otherwise provided by
the
Company in writing.
12
(g) So
long
as the Shares and the Warrants (including the Shares receivable upon the
exercise thereof) are “restricted securities” within the meaning of Rule
144(a)(3) under the Securities Act, the Company, during any period in which
it
is not subject to and in compliance with Section 13 or 15(d) of the Exchange
Act, or is not exempt from such reporting requirements pursuant to and in
compliance with Rule 12g3-2b under the Exchange Act, provide to each holder
of
Shares and to each prospective purchaser (as designated by such holder) of
Shares upon the request of such holder or prospective holder, any information
required to be provided by Rule 144A(d)(4) under the Securities
Act.
(h)
Not,
directly or indirectly, engage in any act or activity which may jeopardize
the
status of the offering and sale of the Securities as exempt transactions
under
the Act or under the securities or blue sky laws of any jurisdiction in which
the Offering maybe made. Without limiting the generality of the foregoing,
and
notwithstanding anything contained herein to the contrary, the Company shall
not, directly or indirectly, engage in any offering of securities which,
if
integrated with the Offering in the manner prescribed by Rule 502(a) of
Regulation D and applicable releases of the Commission, may jeopardize the
status of the offering and sale of the Securities as exempt transactions
under
Regulation D.
(i)
Apply
the net proceeds from the sale of the Securities in a manner consistent with,
in
all material respects, the description as set forth in the Offering Documents.
(j)
Not,
during the period commencing on the date hereof and ending on the Final Closing
Date, issue any press release or other communication, or hold any press
conference with respect to the Company, its financial condition, results
of
operations, business, properties, assets, or liabilities, or the Offering,
without First Montauk prior written consent, not to be unreasonably withheld,
except as required by applicable securities laws and except as may be related
to
the marketing and sale of its products in the normal course of business.
The
foregoing shall not prohibit the Company from holding informational meetings
with accredited investors who have a pre-existing relationship with the Company
during which the materials and information disseminated will be limited to
the
information contained in the Offering Documents or from making disclosures
required by law.
8.
Payment of Expenses. The Company hereby agrees to pay all fees, charges,
and
expenses incident to the performance by the Company of its obligations
hereunder, including, without limitation, all fees, charges, and expenses
in
connection with: (i) the preparation, printing, copying and mailing of the
Offering Documents; (ii) the purchase, sale, and delivery of the Securities,
and
any supplements or amendments thereto; (iii) the issuance, sale, transfer,
and
delivery of the Securities, including any transfer or other taxes payable
thereon and the fees of any transfer agent or registrar; (iv) the filing
fees
for the offer and sale under the securities laws of such states and other
jurisdictions as Placement Agent may designate (including without limitation,
all disbursements of Company counsel incurred in connection with such filings);
(v) Placement Agent's documented counsel fees for services rendered in
connection with the Offering, up to an amount of $25,000, of which $10,000
has
previously been paid; and (vi) the expense of the escrow account which expenses
shall equal $2,500 and be payable to the escrow agent in advance. To the
extent
that Placement Agent wishes to incur any such costs or fees on the Company’s
behalf, with the exception of NASD Rule 2710, blue sky filing fees, and counsel
fees as provided for in the preceding sentence, all such expenses must be
approved by Company prior to their incurrence.
13
9. Conditions
of Placement Agent's Obligations.
The
obligations of the Placement Agent pursuant to this Agreement shall be subject,
in its discretion, to the continuing accuracy in all material respects of
the
representations and warranties of the Company contained herein and in each
certificate and document contemplated under this Agreement to be delivered
to
the Placement Agent, as of the date hereof and as of each Closing Date, with
respect to the performance in all material respects by the Company of its
obligations hereunder, and to the following conditions:
(a)
At
the First Closing and the Final Closing, the Placement Agent shall have received
the favorable opinion of ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, counsel for the Company,
dated each Closing Date, addressed to the Placement Agent, and in form and
scope
reasonably satisfactory to counsel for the Placement Agent, substantially
to the
effect that:
(i)
the
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware, with the requisite corporate power
to
own and operate its properties and assets, and to carry on its business as
described in the Offering Documents and is duly qualified to do business
and is
in good standing as a foreign corporation in those jurisdictions where the
failure to so qualify would have a Material Adverse Effect on the business
of
the Company;
(ii)
the
Company has, as of the date hereof, an authorized, and, to such counsel's
knowledge based on the records of the Company, outstanding, capitalization
as
set forth in the Disclosure Statement. To such counsel's knowledge, each
of the
issued and outstanding Shares is validly issued, fully paid, and nonassessable.
Except as set forth in the Disclosure Statement, to such counsel's knowledge,
there are no preemptive rights, options or warrants or other conversion
privileges or rights presently outstanding to purchase any of the authorized
but
unissued stock of the Company;
(iii)
to
such counsel's knowledge there is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation pending
or threatened with respect to the Company or any of its operations, businesses,
properties, or assets except as described in the Offering Documents or such
as
individually or in the aggregate have, or could reasonably be expected to
have a
material adverse effect upon the operations, business, properties, or assets
of
the Company or which could materially adversely affect the transactions or
other
acts contemplated by this Agreement or the validity or enforceability of
this
Agreement;
(iv)
the
Company has all requisite corporate power and authority to execute, deliver,
and
perform this Agreement, and to consummate the transactions contemplated hereby.
All necessary corporate proceedings of the Company have been taken to authorize
the execution, delivery, and performance by the Company of this Agreement,
and
the consummation of the transactions contemplated hereby. This Agreement
has
been duly authorized, executed, and delivered by the Company, is the legal,
valid, and binding obligation of the Company, and is enforceable against
the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium
and
other laws of general application now or hereafter in effect relating to
or
affecting the enforcement of creditors' right generally and the application
of
general equitable principles in any action, legal or equitable and then except,
as to those provisions relating to indemnity or contribution, such opinion
shall
be limited as effected by any Federal or state securities laws regarding
indemnity and/or contribution;
(v)
upon
receipt of payment therefore in accordance with the Offering Documents, the
Securities shall be validly authorized, validly issued, fully paid, and
nonassessable;
14
(vi)
assuming that (i) the Offering was made in the manner and by the means
contemplated by the Offering Documents, (ii) a proper Form D is filed in
accordance with Rule 503 of Regulation D, (iii) that the offer and sale of
the
Securities by the Placement Agent was made in accordance with Regulation
D and
the Offering Documents including, but not limited to, only accredited investors
in compliance with Rule 506 of Regulation D without any advertising and/or
general solicitation, (iv) the Placement Agent's representations, warranties
and
covenants set forth herein are true and correct, (v) the Company's
representations, warranties and covenants set forth herein are true and correct,
and (vi) the representations of the Prospective Investors in the Subscription
Agreements and Investors Questionnaire signed by them are true and correct
(which facts will not be independently verified by such counsel), the sale
of
Securities in the Offering is exempt from registration under the
Act.
(vii)
the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereunder and the issuance of the Securities will not result
in any
material violation of, or material conflict with, or constitute a material
default under (i) the certificate of incorporation or by-laws of the Company,
(ii) to such counsel's knowledge, any material contract, instrument, agreement
or document to which the Company is a party, or by which the assets or
properties of the Company are bound; or (iii) to such counsel's knowledge,
any
statute, rule or regulation of Delaware or New York corporate law, or any
judgment or order to which the Company is a party.
In
rendering such opinion, counsel for the Company may (A) base such opinions
on
such assumptions, qualifications, limitations and conditions as required
by the
opinion committee of such counsel, (B) rely as to matters of fact, on
certificates of responsible officers of the Company; (C) to the extent they
deem
proper, upon written statements or certificates of officers of departments
of
various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company, provided that copies of any such
statements or certificates shall be delivered to counsel for the Placement
Agent; and (D) rely upon such other opinions of other counsel to the Company
as
it deems necessary.
(b)
On or
prior to the Initial Closing Date the Placement Agent shall have been furnished
such information, documents, certificates, and opinions as it may reasonably
require for the purpose of enabling it to review the matters referred to
in
Section 8(a), and in order to evidence the accuracy, completeness, or
satisfaction of any of the representations, warranties, covenants, agreements,
or conditions herein contained, or as it may otherwise reasonably
request.
(c)
At
the First Closing and at each additional Closing, the Placement Agent shall
have
received one or more certificates of the chief executive officer and of the
chief financial officer of the Company, dated the applicable Closing Date
to the
effect that, as of the date of this Agreement and as of the applicable Closing
Date the representations and warranties of the Company contained herein were
and
are accurate, and that as of the Closing Date the obligations to be performed
by
the Company hereunder on or prior thereto have been fully performed. In
addition, the parties shall deliver such other certificates or closing documents
as are customarily used by the Placement Agent in offerings of this
nature.
(d)
All
proceedings taken in connection with the issuance, sale, and delivery of
the
Securities shall be satisfactory in form and substance to First Montauk and
First Montauk’s counsel.
(e)
Any
certificate or other document signed by any officer of the Company and delivered
to First Montauk or to First Montauk counsel at a Closing shall be deemed
a
representation and warranty by the Company hereunder as to the statements
made
therein. If any condition to First Montauk obligations hereunder has not
been
fulfilled as and when required to be so fulfilled, First Montauk may terminate
this Agreement or, if First Montauk so elects, in writing waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment. In the event that First Montauk elects to terminate this Agreement,
First Montauk shall notify the Company of such election in writing. Upon
such
termination, neither party shall have any further liability or obligation
to the
other except as provided in Section 11 hereof.
15
10. Conditions
of Company's Obligations.
The
obligations of the Company pursuant to this Agreement shall be subject, in
its
discretion in good faith, to the performance by the Placement Agent in all
material respects of its obligations hereunder.
11. Termination.
If
subscriptions for the Offering are not received into escrow during the Offering
Period, or Placement Agent has committed a material breach of this Agreement,
the Company may terminate the Agreement and the agency relationship created
hereby upon prior written notice to First Montauk. First Montauk may terminate
this Agreement and the agency created hereby for any reason upon written
notice
to the Company. In either case, neither party shall have any liability or
continuing obligation to the other except that, regardless of which party
elects
to terminate, (i) the Company agrees to reimburse First Montauk for, or
otherwise pay and bear, the expenses and fees to be paid and borne by the
Company as provided for in Section 8 above and, subject to the Company's
pre-approval for any expenses in excess of $350 individually, to reimburse
First
Montauk for the full amount of its actual out-of-pocket expenses (which shall
include, without limitation, the fees and disbursements of First Montauk's
counsel (up to the limits set forth in Section 8), travel and lodging expenses,
mailing, printing and reproduction expenses, less amounts previously paid
to
First Montauk in reimbursement for such expenses, and (ii) the provisions
of
paragraph 8 and the Indemnification Provisions in Section 12 shall remain
in
full force and effect. Upon any such termination, the Company agrees to cease
to
use any Offering materials that represent First Montauk as placement agent.
In
the event that any Securities are sold, Sections 5, 8, 12, 13 and 14 shall
survive the termination of this Agreement. Furthermore, notwithstanding anything
to the contrary in this Agreement, in the event that the Company refuses
to
accept subscriptions during the Offering Period without a reasonable basis
related to the subscriber or to the Offering generally, or otherwise refuses
to
complete the Offering without any failure of the condition set forth in Section
10, then First Montauk shall be entitled to a fee of $200,000 which shall
be
deemed liquidated damages.
12. Indemnification
and Contribution.
(a)
The
Company agrees to indemnify and hold harmless the Placement Agent, its officers,
directors, partners, employees, agents, and counsel, and each person, if
any,
who controls the Placement Agent within the meaning of Section 15 of the
Act or
Section 20(a) of the Exchange Act , against any and all loss, liability,
claim,
damage, and expense whatsoever (which shall include, for all purposes of
this
Section 12, but not be limited to, reasonable attorneys' fees and any and
all
reasonable expense whatsoever incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim whatsoever
and any
and all amounts paid in settlement of any claim or litigation) as and when
incurred arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Offering Documents or in any document delivered or written statement made
pursuant to Section 7(f), or in any application or other document or
communication (it being understood that neither the Company nor any officer,
director or employee shall provide any information to any Prospective Investor
which is not contained or referred to in the Offering Documents) (in this
Section 12 collectively called an "application") executed by or on behalf
of the
Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to register or qualify the Securities
under the blue sky or securities laws thereof or in order to secure an exemption
from such registration or qualification or filed with the Commission; or
any
omission or alleged omission to state a material fact necessary to make the
statements made therein, in the light of the circumstances in which they
were
made, not misleading, unless such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company
as
stated in Section 12(b) with respect to the Placement Agent expressly for
inclusion in the Offering Documents or in any application, as the case may
be;
and (ii) any breach of any representation, warranty, covenant, or agreement
of
the Company contained in this Agreement.
The
foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Agreement.
16
If
any
action is brought against the Placement Agent or any of its officers, directors,
partners, employees, agent, or counsel, or any controlling persons of the
Placement Agent (an "indemnified party"), in respect of which indemnify may
be
sought against the Company pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the Company (the "indemnifying party")
in
writing of the institution of such action (but the failure so to notify shall
not relieve the indemnifying party from any liability it may have unless
the
indemnifying party is prejudiced by such failure) and the indemnifying party
shall promptly assume the defense of such action, including the employment
of
counsel (reasonably satisfactory to such indemnified party or parties) and
payment of expenses. Such indemnified party shall have the right to employ
its
own counsel in any such case, but the fees and expense of such counsel shall
be
at the expense of such indemnified party unless the employment of such counsel
shall have been authorized in writing by the indemnifying party in connection
with the defense of such action, in which event such fees and expenses shall
be
borne by the indemnifying party. Anything in this paragraph to the contrary
notwithstanding, the indemnifying party shall not be liable for any settlement
of any such claim or action effected without its written consent. The Company
agrees promptly to notify the Placement Agent of the commencement of any
litigation or proceedings against the Company or any of its officers or
directors in connection with the sale of the Securities, the Offering Documents,
or any application.
(b)
The
Placement Agent agrees to indemnify and hold harmless the Company, its officers,
directors, employees, agents, and counsel, and each other person, if any,
who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity
from
the Company to the Placement Agent in Section 12(a), with respect to any
and all
loss, liability, claim, damage, and expense whatsoever (which shall include,
for
all purposes of this Section 12, but not be limited to, attorneys' fees and
any
and all expense whatsoever incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim whatsoever
and any
and all amounts paid in settlement of any claim or litigation) as and when
incurred arising out of, based upon, or in connection with (i) statements
or
omissions, if any, made in the Offering Documents in reliance upon and in
conformity with written information furnished to the Company by or on behalf
of
Placement Agent expressly for inclusion in the Offering Documents; (ii) the
failure of the Placement Agent or its representatives to comply with the
provisions of Section 4(c) hereof or with the federal, blue sky or securities
laws of the jurisdictions in which the Placement Agent solicits offers to
buy or
offers to sell any Securities; or (iii) any breach of any representation,
warranty, covenant or agreement of the Placement Agent contained in this
Agreement. If any action shall be brought against the Company or any other
person indemnified under this Section 12(b) in respect of which indemnity
may be
sought against the Placement Agent pursuant to this Section 12, the Placement
Agent shall have the rights and duties given to the indemnifying party, and
the
Company and each other person so indemnified shall have the rights and duties
given to the indemnified parties, by the provisions of Section 12(a)
hereof.
17
(c)
To
provide for just and equitable contribution, if (i) an indemnified party
makes a
claim for indemnification pursuant to Section 12(a) or 12(b) hereof but it
is
found in a final judicial determination, not subject to further appeal, that
such indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including for this purpose any contribution
made by or on behalf of any officer, director, employee, agent, or counsel
of
the Company, or any controlling person of the Company), on the one hand,
and the
Placement Agent (including for this purpose any contribution by or on behalf
of
an indemnified party), on the other hand, shall contribute to the losses,
liabilities, claims, damages, and expenses whatsoever to which any of them
may
be subject, in such proportions as are appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Placement Agent,
on
the other hand; provided, however, that if applicable law does not permit
such
allocation, then other relevant equitable considerations such as the relative
fault of the Company and the Placement Agent in connection with the facts
which
resulted in such losses, liabilities, claims, damages, and expenses shall
also
be considered. The relative benefits received by the Company, on the one
hand,
and the Placement Agent, on the other hand, shall be deemed to be in the
same
proportion as (x) the total proceeds from the Offering (net of compensation
payable to the Placement Agent pursuant to Section 5 hereof but before deducting
expenses) received by the Company, and (y) the compensation received by the
Placement Agent pursuant to Section 5 (a) hereof.
The
relative fault, in the case of an untrue statement, alleged untrue statement,
omission, or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission, or alleged omission
relates
to information supplied by the Company or by the Placement Agent, and the
parties' relative intent, knowledge, access to information, and opportunity
to
correct or prevent such statement, alleged statement, omission, or alleged
omission. The Company and the Placement Agent agree that it would be unjust
and
inequitable if the respective obligations of the Company and the Placement
Agent
for contribution were determined by pro rata or per capita allocation of
the
aggregate losses, liabilities, claims, damages, and expenses or by any other
method of allocation that does not reflect the equitable considerations referred
to in this Section 12(c). In no case shall the Placement Agent be responsible
for a portion of the contribution obligation in excess of the compensation
received by it pursuant to Section 5 hereof. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is
not
guilty of such fraudulent misrepresentation. For purposes of this Section
12(c),
each person, if any, who controls the Placement Agent within the meaning
of
Section 15 of the Act or Section 20(a) of the Exchange Act and each officer,
director, partners, employee, agent, and counsel of the Placement Agent,
shall
have the same rights to contribution as the Placement Agent, and each person,
if
any, who controls the Company within the meaning of Section 15 of the Act
or
Section 20(a) of the Exchange Act and each officer, director, partner, employee,
agent, and counsel of the Company, shall have the same rights to contribution
as
the Company, subject in each case to the provisions of this Section 12(c).
Anything in this Section 12(c) to the contrary notwithstanding, no party
shall
be liable for contribution with respect to the settlement of any claim or
action
effected without its written consent. This Section 12(c) is intended to
supersede any right to contribution under the Act, the Exchange Act, or
otherwise.
13.
Solicitation Prohibition.
The
Company agrees that, for a period of 18 months from end of the Exclusive
Period,
it shall not, directly or indirectly, (A) solicit offers to buy or sell any
securities of the Company or any other entity from or to any person first
introduced to the Company by First Montauk who purchases Securities in
connection with the Offering, or (B) provide the name of any such person
to any
other securities broker or dealer or selling agent, without paying to First
Montauk an amount equal to 10% of the aggregate purchase price of the securities
so purchased or consideration received by such person.
18
14.
Representations and Agreements to Survive Delivery.
All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and, such representations, warranties, covenants,
and agreements, including the indemnification and contribution agreements
contained in Section 12, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Placement Agent
or
any indemnified person, or by or on behalf of the Company or any person or
entity which is entitled to be indemnified under Section 12(b), and shall
survive termination of this Agreement or the issuance, sale, and delivery
of the
Securities. In addition, notwithstanding any election hereunder or any
termination of this Agreement, and whether or not the terms of this Agreement
are otherwise carried out, the provisions of Sections 5, 8, 11, 12, 13 and
14
shall survive termination of this Agreement and shall not be affected in
any way
by such election or termination or failure to carry out the terms of this
Agreement or any part thereof.
15.
Notices.
All
communications hereunder, except as may be otherwise specifically provided
herein, shall be in writing and, if sent to the Placement Agent, shall be
mailed
by certified mail, hand delivered, or sent by overnight courier service,
to
First Montauk Securities Corp., Parkway 109 Office Center, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, with a copy
to
Ellenoff ▇▇▇▇▇▇▇▇ & Schole LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.; or if sent
to the
Company to Data Systems & Software Inc., ▇▇▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Chief Executive Officer, with a copy to ▇▇▇▇▇▇▇▇▇
& ▇▇▇▇▇▇ LLP, ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇
▇▇▇▇▇▇, Esq. All notices hereunder shall be effective upon delivery to the
party
to which it is addressed.
16.
Parties.
This
Agreement shall inure solely to the benefit of, and shall be binding upon,
the
Placement Agent and the Company and the persons and entities referred to
in
Section 12 who are entitled to indemnification or contribution, and their
respective successors, legal representatives, and assigns (which shall not
include any purchaser, as such, of Securities), and no other person shall
have
or be construed to have any legal or equitable right remedy, or claim under
or
in respect of or by virtue of this Agreement or any provision herein contained.
The engagement dated as of May 2, 2006 between First Montauk and the Company
(the “Engagement Letter”) shall remain in effect, except as superseded by this
Agreement. In the event of a conflict between the terms of this Agreement
and
those of the Engagement Letter, the terms of this Agreement will
control.
17.
Governing Law. Submission to Jurisdiction.
The
validity and interpretation of this Agreement shall be governed by the laws
of
the State of New York applicable to agreements made and to be fully performed
therein. Each of First Montauk and the Company (a) agrees that any legal
suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York,
or
in the United States District Court for the Southern District of New York,
(b)
waives any objection which the Company may have now or hereafter to the venue
of
any such suit, action or proceeding, and (c) irrevocably consents to the
jurisdiction of the foregoing named courts in any such suit, action or
procedure. Each of the Company and First Montauk further agrees to accept
and
acknowledge service of any and all process which may be served in any suit,
action or proceeding in the foregoing courts, and agrees that service of
process
upon the Company or First Montauk mailed by certified mail to the address
set
forth in Section 16 hereof shall be deemed in every respect effective service
of
process upon the Company in any such suit, action or proceeding. In the event
of
litigation between the parties arising hereunder, the prevailing party shall
be
entitled to costs and reasonable attorney's fees.
18.
Counterparts.
This
Agreement may be executed in counterparts, each of which shall constitute
an
original and all of which, when taken together, shall constitute one agreement.
The
parties hereto agree to accept a facsimile transmission copy of their respective
actual signatures as evidence of their actual signatures to this
Agreement
19
If
the
foregoing correctly sets forth the understanding between us, please so indicate
in the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among us.
Very
truly yours,
DATA
SYSTEMS & SOFTWARE INC.
By:
________________________________
Name:
▇▇▇▇ ▇. ▇▇▇▇▇
Title:
Chief Executive Officer
Accepted
as of the date
first
above written:
FIRST
MONTAUK SECURITIES CORP.
By:
_______________________________
Name:
Title: