EXHIBIT 99.1
PLACEMENT AGENCY AGREEMENT
--------------------------
April 10, 2002
▇▇▇▇▇▇▇ ▇▇▇▇▇ Ventures, Incorporated
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Home Director, Inc., a Delaware corporation (the "COMPANY"), hereby confirms its
agreement (the "AGREEMENT") with ▇▇▇▇▇▇▇ ▇▇▇▇▇ Ventures, Incorporated, a
Delaware corporation (the "PLACEMENT AGENT"), as follows (unless the context
otherwise requires, as used herein, the "Company" refers to Home Director, Inc.
and Digital Interiors, Inc., a California Corporation):
1. OFFERING.
(a) The Company will offer (the "OFFERING") for sale through the Placement
Agent, as exclusive agent for the Company, and its selected dealers, a minimum
of 40 units and a maximum of 100 units (the "UNITS"). Each Unit will consist of
a $100,000 convertible note of the Company (each, a "NOTE"), which Notes shall
be convertible into the common stock of the Company at a conversion price of
$.10 per share (subject to adjustment) and shall have such other rights and
privileges as shall be described in the Memorandum (as defined in Section 1(d)
hereof) under the heading "Description of the Notes and the Security Agreement."
(b) Placement of the Units by the Placement Agent will be made on a best
efforts, "all-or-none" basis with respect to the first 40 Units (the "MINIMUM
AMOUNT") and on a best efforts basis as to the remaining 60 Units (together with
the Minimum Amount, the "MAXIMUM AMOUNT"). The minimum subscription for Units
shall be one Unit; however, the Placement Agent and the Company may, in their
discretion, offer fractional Units and, during the first twenty (20) days of the
Offering (the "RIGHTS OFFERING PERIOD") subscriptions will be accepted only from
current investors in the Company who have preemptive investment rights for that
number of Units to which they are entitled pursuant to the terms of such
preemptive investment rights. Following the Rights Offering Period, the Units
will be offered to potential subscribers, which may include affiliates or
related persons of the Placement Agent or the Company, or investment vehicles
formed by the Placement Agent or its affiliates, for another 70 days, unless
extended by the Placement Agent and the Company for an additional 90 days or
terminated earlier as provided herein (the "OFFERING PERIOD"). The date on which
the Offering shall terminate shall be referred to as the "TERMINATION DATE."
(c) Subject to Section 4(e) hereof, subscriptions for the Units will be accepted
by the Company at a price of $100,000 per Unit (the "OFFERING PRICE"); PROVIDED,
HOWEVER, that the Placement Agent shall not tender to the Company and the
Company shall not accept subscriptions from, or sell Units to, any persons or
entities that do not qualify as (or are not reasonably believed to be)
"accredited investors," as such term is defined in Rule 501 of Regulation D
promulgated under Section 4(2) of the Securities Act of 1933, as amended (the
"ACT").
(d) The offering of the Units will be made by the Placement Agent on behalf of
the Company solely pursuant to the Memorandum, which at all times will be in
form and substance reasonably acceptable to the Placement Agent and its counsel
and contain such legends and other information as the Placement Agent and its
counsel may, from time to time, deem necessary and desirable to be set forth
therein, including with regard to that certain contemplated merger of the
Company with a subsidiary of Netword, Inc. (the "MERGER"). "MEMORANDUM" as used
in this Agreement means the Company's Confidential Private Placement Memorandum,
inclusive of all exhibits, and any and all amendments, supplements and
appendices thereto that the Placement Agent may use on the Company's behalf to
sell the Units. Unless otherwise defined, each term used in this Agreement will
have the same meaning as shall be set forth in the Memorandum.
2. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to
the Placement Agent that each of the following shall be true in all respects as
of the date hereof and, as applicable, on and as of the date of the Memorandum
as if made on and as of the date hereof:
(a) The Memorandum will be, and as of the date of the Memorandum has been,
diligently prepared by the Company, at its sole cost, in conformity with all
applicable laws, and will in all material respects be in compliance with
Regulation D as promulgated under Section 4(2) of the Act ("REGULATION D"), the
Act and the requirements of all other rules and regulations (the "REGULATIONS")
of the Securities and Exchange Commission (the "SEC") relating to offerings of
the type contemplated by the Offering, and the applicable securities laws and
the rules and regulations of those jurisdictions wherein the Units are to be
offered and sold, excluding foreign jurisdictions. The Units will be offered and
sold pursuant to the registration exemption provided by Regulation D and Section
4(2) and/or Section 4(6) of the Act as a transaction not involving a public
offering and the requirements of any other applicable state securities laws and
the respective rules and regulations thereunder in those United States
jurisdictions in which the Placement Agent notifies the Company that the Units
are being offered for sale. The Memorandum will describe all material aspects,
including attendant risks, of an investment in the Company. The Company has not
taken nor will it take any action that conflicts with the conditions and
requirements of, or that would make unavailable with respect to the Offering,
the exemption(s) from registration available pursuant to Regulation D or Section
4(2) and/or Section 4(6) of the Act and knows of no reason why any such
exemption would be otherwise unavailable to it. Neither the Company nor its
affiliates has been subject to any order, judgment or decree of any court or
governmental authority of competent jurisdiction temporarily, preliminarily or
permanently enjoining such person for failing to comply with Section 503 of
Regulation D.
(b) The Memorandum will not, and as of the date of the Memorandum does not,
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. None
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of the statements, documents, certificates or other items prepared or supplied
by the Company with respect to the transactions contemplated hereby contains or
will contain an untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein not misleading. There is no
fact that the Company has not disclosed to the Placement Agent and its counsel
in writing and of which the Company is aware that materially and adversely
affects or could materially and adversely affect the business, prospects,
financial condition, operations, assets or affairs of the Company or any of its
subsidiaries.
(c) The Company is a corporation duly organized, validly existing and in good
standing under the laws of Delaware. The Company has no subsidiaries and does
not have an equity interest in any other firm, partnership, association or other
entity other than Digital Interiors, Inc., a California corporation wholly-owned
by the Company. The Company is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each jurisdiction where
the location of its properties or the conduct of its business makes such
qualification necessary, except where the failure to be so qualified would not
have a material adverse effect on the Company or its business.
(d) The Company has all requisite power and authority (corporate and other) to
conduct its business as presently conducted and as proposed to be conducted
(described in the Memorandum), to enter into and perform its obligations under
this Agreement and the other agreements contemplated hereby and by the
Memorandum (including pursuant to the Merger) (collectively, the "TRANSACTION
DOCUMENTS") and to issue, sell and deliver the Notes and the shares of the
Company's common stock, par value $.001 per share (the "COMMON STOCK"), issuable
upon conversion of the Notes (the "CONVERSION SHARES"). The execution and
delivery of each of the Transaction Documents has been, or prior to completion
of the Offering will be, duly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered and constitutes, and each of the
other Transaction Documents, upon due execution and delivery, will constitute,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to any applicable bankruptcy,
insolvency or other laws affecting the rights of creditors generally and to
general equitable principles and the availability of specific performance.
(e) None of the execution and delivery of, or performance by the Company under,
any of the Transaction Documents or the consummation of the transactions herein
or therein contemplated conflicts with or violates, or will result in the
creation or imposition of (other than the security interest in respect of the
Units), any material lien, charge or other encumbrance upon any of the assets of
the Company under any agreement or other instrument to which the Company is a
party or by which the Company or its assets may be bound, any term of the
charter or by-laws of the Company, or any license, permit, judgment, decree,
order, statute, rule or regulation applicable to the Company or any of its
assets.
(f) The Company will have the authorized and outstanding capital stock set forth
under the heading "Capitalization" in the Memorandum, after giving effect to the
Reverse Stock Split (as defined in Section 2(t) hereof). Except as set forth in
the Memorandum, all outstanding shares of capital stock of the Company are duly
authorized, validly issued and outstanding, fully paid and nonassessable. Except
as set forth in the Memorandum: (i) there are no outstanding options, stock
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subscription agreements, warrants or other rights permitting or requiring the
Company or others to purchase or acquire any shares of capital stock, or other
equity securities of the Company, or to pay any dividend or make any other
distribution in respect thereof; (ii) there are no securities issued or
outstanding that are convertible into or exchangeable for any of the foregoing
and there are no contracts, commitments or understandings, whether or not in
writing, to issue or grant any such option, warrant, right or convertible or
exchangeable security; (iii) no shares of stock or other securities of the
Company are reserved for issuance for any purpose; and (iv) there are no voting
trusts or other contracts, commitments, understandings, arrangements or
restrictions of any kind with respect to the ownership, voting or transfer of
shares of stock or other securities of the Company, including without
limitation, any preemptive rights, rights of first refusal, proxies or similar
rights. The issued and outstanding shares of capital stock of the Company
conform to all statements in relation thereto contained in the Memorandum and
the Memorandum describes all material terms and conditions thereof. To the best
of the Company's knowledge, all issuances by the Company of its securities were
at the time of their issuance exempt from registration under the Act and any
applicable state securities laws.
(g) The Notes, the Conversion Shares and the Agent's Shares (as defined in
Section 3(e) hereof) have been duly authorized and, when issued and delivered
against payment therefore as provided in the Transaction Documents, will be
validly issued, fully paid and nonassessable and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company other than as provided in the Transaction Documents. No holder of any of
the Notes, the Conversion Shares or the Agent's Securities (as defined in
Section 3(e) hereof) will be subject to personal liability solely by reason of
being such a holder and, except as set forth in the Memorandum, none of the
Notes, the Conversion Shares or the Agent's Securities is subject to preemptive
or similar rights of any securityholder of the Company. After giving effect to
the Reverse Stock Split, a sufficient number of authorized but unissued shares
of Common Stock have been reserved for issuance upon the conversion of the Notes
and the exercise of the Agent's Warrants (as defined in Section 3(e) hereof).
(h) No consent, authorization or filing of or with any court or governmental
authority is required in connection with the issuance of the Notes, the
Conversion Shares or the Agent's Securities or the consummation of the
transactions contemplated herein or in the other Transaction Documents, except
for required filings with the SEC, if any, and applicable "blue sky" or state
securities commissions relating specifically to the Offering (all of which will
be duly made on a timely basis).
(i) Except as set forth in the Memorandum, the financial statements, together
with the related notes thereto, of the Company included in the Memorandum are
true and complete and present fairly, in all material respects, the financial
position of the Company as of the respective dates specified and the results of
its operations and changes in financial position for the respective periods
covered thereby. Such financial statements and related notes were prepared in
accordance with U.S. generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods indicated except as may be
disclosed in the notes thereto, and except that the unaudited financial
statements omit full notes, and except for normal year-end adjustments. Except
as set forth in such financial statements or in the Memorandum, the Company has
no material liabilities of any kind, whether accrued, absolute, contingent or
otherwise or entered into any material transactions or commitments. The other
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financial and statistical information with respect to the Company and any pro
forma information and related notes included in the Memorandum present fairly
the information shown therein on a basis consistent with the financial
statements of the Company included in the Memorandum. The Company does not know
of any facts, circumstances or conditions (or any state of facts, circumstances
or conditions which management of the Company has concluded could give rise
thereto) that could materially adversely affect its business, operations,
earnings or prospects that have not been fully disclosed in the Memorandum.
(j) The conduct of business by the Company as presently and proposed to be
conducted is not subject to continuing oversight, supervision, regulation or
examination by any governmental official or body of the United States or any
other jurisdiction wherein the Company conducts or proposes to conduct such
business, except as described in the Memorandum or except such regulation as is
applicable to commercial enterprises generally. The Company has obtained all
requisite licenses, permits and other governmental authorization necessary to
conduct its business as presently, and as proposed to be, conducted.
(k) Except as disclosed in the Memorandum, no default by the Company or, to the
best knowledge of the Company, any other party exists in the due performance
under any material agreement to which the Company is a party or to which any of
its assets is subject (collectively, the "COMPANY AGREEMENTS"). The Company
Agreements, disclosed in the Memorandum are the only material agreements to
which the Company is bound or by which its assets are subject, are accurately
and fairly described in the Memorandum and are in full force and effect in
accordance with their respective terms.
(l) Except as set forth in the Memorandum, there are no actions, proceedings,
claims or investigations, before or by any court or governmental authority (or
any state of facts which management of the Company has concluded could give rise
thereto) pending or, to the best knowledge of the Company, threatened, against
the Company, or involving its assets or, to the knowledge of the Company,
involving any of its officers or directors which, if determined adversely to the
Company or such officer or director, could result in any material adverse change
in the condition (financial or otherwise) or prospects of the Company or
adversely affect the transactions contemplated by this Agreement or the other
Transaction Documents or the enforceability thereof.
(m) The Company is not in violation of: (i) its charter or by-laws; (ii) any
indenture, mortgage, deed of trust, note (except for certain notes which are in
default and which will be repaid from the proceeds of the Offering) or other
agreement or instrument to which the Company is a party or by which it is or may
be bound or to which any of its assets may be subject; (iii) any statute, rule
or regulation currently applicable to the Company; or (iv) any judgment, decree
or order applicable to the Company, which violation or violations individually,
or in the aggregate, would result in any material adverse change in the
condition (financial or otherwise) or prospects of the Company.
(n) The Company does not own any real property in fee simple, and the Company
has good and marketable title to all property (personal, tangible and
intangible) owned by it, free and clear of all security interests, liens and
encumbrances, except for (i) such as described in the Memorandum and (ii) liens
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incurred in the ordinary course of business which in the aggregate are not
material.
(o) The Company owns all right, title and interest in, or possesses adequate and
enforceable rights to use, all patents, patent applications, trademarks, trade
names, service marks, copyrights, rights, licenses, franchises, trade secrets,
confidential information, processes, formulations, software and source and
object codes reasonably necessary for the conduct of its business, except as
otherwise described in the Memorandum (collectively, the "INTANGIBLES"). Except
as set forth in the Memorandum, it has not infringed upon the rights of others
with respect to the Intangibles; the Company has not received notice that it has
or may have infringed or is infringing upon the rights of others with respect to
the Intangibles, or any notice of conflict with the asserted rights of others
with respect to the Intangibles that could, individually or in the aggregate,
materially and adversely affect the business, condition (financial or otherwise)
or prospects of the Company. Except as set forth in the Memorandum, to the best
knowledge of the Company, no others have infringed or are infringing upon the
Intangibles.
(p) Except as set forth in the Memorandum and as may otherwise be contemplated
therein, since January 1, 2001 the Company has operated its business diligently
and only in the ordinary course as theretofore conducted and there has been no:
(i) material adverse change in the business condition (financial or otherwise)
or prospects of the Company; (ii) transaction otherwise than in the ordinary
course of business; (iii) issuance of any securities (debt or equity) or any
rights to acquire any such securities; (iv) damage, loss or destruction, whether
or not covered by insurance, with respect to any asset or property of the
Company; or (v) agreement to permit any of the foregoing.
(q) The Company has filed, on a timely basis, each Federal, state, local and
foreign tax return which is required to be filed by it, or has requested an
extension therefor and has paid all taxes and all related assessments, penalties
and interest to the extent that the same have become due.
(r) The Company is not obligated to pay, and has not obligated the Placement
Agent to pay, a finder's or origination fee in connection with the Offering and
agrees to indemnify the Placement Agent from any such claim made by any other
person. The Company has not offered for sale or solicited offers to purchase the
Units except for negotiations with the Placement Agent and the sale of the
Interim Notes (as defined in Section 4(d) below). Except as set forth in the
Memorandum, as of the commencement of the Offering, no other person has any
right to participate in any offer, sale or distribution of the Company's
securities to which the Placement Agent's rights, described herein, shall apply.
(s) The Company has and will maintain appropriate casualty and liability
insurance coverage, in scope and amounts reasonable and customary for similar
businesses.
(t) The Company shall effectuate a 10 for 1 reverse stock split (the "REVERSE
STOCK SPLIT") as soon as practicable after the date hereof and prior to the
First Closing. The Reverse Stock Split and any documents or instruments executed
in connection therewith shall be effectuated or executed, as the case may be, in
accordance with all applicable legal requirements, including federal and state
securities laws, and in accordance with the Company's certificate of
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incorporation and by-laws and any material agreement or other obligation to
which the Company is a party or by which it is bound.
3. PLACEMENT AGENT APPOINTMENT AND COMPENSATION.
(a) In accordance with the terms hereof, the Company hereby appoints the
Placement Agent and its selected dealers, as its exclusive agent in connection
with the Offering. The Company acknowledges that the Placement Agent may use
selected dealers and sub agents to fulfill its agency hereunder provided that
such dealers and sub agents are compensated solely by the Placement Agent.
Except as expressly stated herein, the Company has not and will not make, or
permit to be made, any offers or sales of the Units other than through the
Placement Agent without the Placement Agent's prior written consent. The
Placement Agent has no obligation to purchase any of the Units. The agency of
the Placement Agent hereunder shall continue until the earlier of the
Termination Date or the Final Closing (as defined in Section 4(c) hereof).
(b) The Company will cause to be delivered to the Placement Agent copies of the
Memorandum and has consented, and hereby consents, to the use of such copies for
the purposes permitted by the Act and applicable securities laws, and hereby
authorizes the Placement Agent and its agents, employees and selected dealers to
use the Memorandum in connection with the sale of the Units until the
Termination Date, and no other person or entity is or will be authorized to give
any information or make any representations other than those contained in the
Memorandum or to use any offering materials other than those contained in the
Memorandum in connection with the sale of the Units. The Company will provide at
its own expense such quantities of the Memorandum and other documents and
instruments relating to the Offering as the Placement Agent may reasonably
request.
(c) The Company will cooperate with the Placement Agent by making available to
its representatives such information as may be requested in making a reasonable
investigation of the Company and its affairs and shall provide access to such
employees as shall be reasonably requested.
(d) The Company shall pay to the Placement Agent a placement fee equal to ten
percent (10%) of the gross Offering Price paid per Unit by each investor (the
"PLACEMENT AGENT'S FEE"). In addition, the Company shall pay all expenses set
forth in Section 5(j) hereof. The Placement Agent's Fee and the expenses set
forth in Section 5(j) hereof will be deducted from the gross proceeds of the
Units sold at each Closing, as set forth in Section 4 hereof. The Placement
Agent shall direct all such amounts to be paid directly from the escrow account
established pursuant to Section 4(b) hereof.
(e) As additional compensation hereunder, at each closing, the Company shall
sell to the Placement Agent or its designees, for nominal consideration,
warrants to purchase, at an exercise price of $0.10 per share, the number of
shares of Common Stock equal to twenty percent (20%) of the gross proceeds of
the Units sold at such Closing divided by $.10 per share (the "AGENT'S
WARRANTS"). If the Merger is effected, the Agent's Warrants will be assumed by
the successor entity of the Merger (the "SUCCESSOR ENTITY") and adjusted, in the
same manner as other Company warrants assumed by the Successor Entity, to be
exercisable for shares of common stock received by shareholders of the Company
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pursuant to the Merger (the "SUCCESSOR STOCK"). The shares of Common Stock or
Successor Stock, as the case may be, underlying the Agent's Warrants shall be
referred to collectively herein as the "AGENT'S SHARES" and, together with the
Agent's Warrants, as the "AGENT'S SECURITIES". The Agent's Warrants shall be
exercisable until the earlier of the date seven (7) years after the date of the
Final Closing or the date which is five (5) years after the closing date of the
earlier of the Merger or an initial public offering (the "IPO") of the Company's
securities. The holders of the Agent's Securities shall, to the extent the
Merger is not consummated, have demand and "piggy-back" registration rights
equivalent to those granted to the Placement Agent in the Company's Series B
Convertible Preferred Stock issuance. Prior to the First Closing, the Company
and Placement Agent shall enter into a warrant agreement (the "WARRANT
AGREEMENT"), which shall contain such terms and other customary provisions
including cashless exercise and customary anti-dilution provisions (including
value related anti-dilution) in form and substance reasonably satisfactory to
the Placement Agent and the Company.
(f) The Company shall also pay compensation to the Placement Agent in an amount
to be negotiated in good faith with respect to, and based on, any investment by
any party (or related party thereof) that is contacted by the Placement Agent in
connection with the Offering and provided with a Private Placement Memorandum in
connection with the Offering that invests in the Company or its successor at any
time within twelve (12) months of the later of the Termination Date or Final
Closing (the "POST-CLOSING INVESTOR"). If the Company and the Placement Agent
cannot agree on the amount of such compensation, the Company will not accept any
such investment.
(g) In addition to any other compensation received by the Placement Agent in
this Agreement, to the extent the Merger is consummated, the Placement Agent
shall receive an additional fee of $250,000 for its services in connection with
the Merger, which fee shall be due and payable upon closing of the Merger.
4. SUBSCRIPTION AND CLOSING PROCEDURES.
(a) Each prospective purchaser will be required to complete and execute one
original signature page for the Subscription Agreement in the form annexed to
the Memorandum (the "SUBSCRIPTION AGREEMENT"), which will be forwarded or
delivered to the Placement Agent at the Placement Agent's offices at the address
set forth in Section 11 hereof, together with the subscriber's check or good
funds in the full amount of the Offering Price for the number of Units desired
to be purchased.
(b) All funds for subscriptions received from the Offering will be promptly
forwarded by the Placement Agent or the Company, if received by it, to and
deposited in an escrow account (the "ESCROW ACCOUNT") with an escrow agent
established for the purpose of holding subscription funds prior to a Closing
(the "ESCROW AGENT"). Upon each Closing, the net Closing proceeds will be
applied to the purchase of Notes. All such funds for subscriptions will be held
in the Escrow Account pursuant to the terms of the escrow agreement with respect
thereto among the Company, the Placement Agent and the Escrow Agent (the "ESCROW
AGREEMENT"). The Company will pay all fees related to the establishment and
maintenance of the Escrow Account, regardless of whether a Closing occurs. Any
interest accruing on funds in the Escrow Account shall be utilized first to
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reimburse the Company for such fees, and the balance shall be distributed to the
Placement Agent. Subject to the receipt of such subscriptions for the Minimum
Amount, the Company will either accept or reject the Subscription Agreement in a
timely fashion and at the Closing will countersign the Subscription Agreement
and provide duplicate copies of such agreement to the Placement Agent for
distribution to the subscribers. The Company will give written notice to the
Placement Agent of its acceptance or rejection of each subscription. The
Company, or the Placement Agent on the Company's behalf, will promptly return to
subscribers incomplete, improperly completed, improperly executed and rejected
subscriptions and give written notice thereof to the Placement Agent upon such
return.
(c) If subscriptions for at least the Minimum Amount have been accepted prior to
the Termination Date, the funds therefor have been collected by the Escrow Agent
and all of the conditions set forth elsewhere in this Agreement are fulfilled, a
closing shall be held promptly with respect to the Units sold (the "FIRST
CLOSING"). Thereafter, the remaining Units will continue to be offered and sold
until the Termination Date. Additional closings ("CLOSINGS") may from time to
time be conducted at times mutually agreeable with respect to additional Units
sold, with the final closing ("FINAL CLOSING") to occur within ten (10) days
from the earlier of the Termination Date or the sale of all Units offered.
Delivery of payment for the accepted subscriptions for Units from the funds held
in the Escrow Account will be made at each Closing at the Placement Agent's
offices against delivery of the Notes underlying the Units by the Company at the
address set forth in Section 11 hereof (or at such other place as may be
mutually agreed upon between the Company and the Placement Agent), net amounts
due to the Placement Agent and Blue Sky counsel pursuant to Section 5(j) hereof
as of such Closing. Executed notes representing the Notes and the Agent's
Warrants will be in such authorized denominations and issued in such names as
the Placement Agent may request on or before the second full business day prior
to the date of each Closing ("CLOSING DATE"), and will be made available to the
Placement Agent for review and packaging at the Placement Agent's office at
least one full business day prior thereto.
(d) At the First Closing, each of those certain senior secured convertible notes
issued by the Company on February 6, 2002 in the aggregate principal amount of
$705,000 (the "INTERIM NOTES") shall, in accordance with their terms, be
automatically exchanged for an equal principal amount of Notes. The principal
amount of the Interim Notes to be so exchanged at the First Closing shall not be
included in the calculation of the Minimum Amount or Maximum Amount.
(e) If Subscription Agreements for the Minimum Amount have not been received and
accepted by the Company on or before the Termination Date for any reason, the
Offering will be terminated, no Units will be sold, and the Escrow Agent will,
at the request of the Placement Agent, cause all monies received from
subscribers for the Units to be promptly returned to such subscribers without
interest, penalty, expense or deduction.
5. FURTHER COVENANTS. The Company hereby covenants and agrees that:
(a) Except with the prior written consent of the Placement Agent, the Company
shall not, at any time prior to the Final Closing, take any action that would
cause any of the representations and warranties made by it in this Agreement not
to be complete and correct on and as of each Closing Date with the same force
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and effect as if such representations and warranties had been made on and as of
each such date.
(b) If, at any time prior to the Final Closing, any event shall occur that does
or may materially affect the Company or as a result of which it might become
necessary to amend or supplement the Memorandum so that the representations and
warranties herein remain true, or in case it shall, in the reasonable opinion of
counsel to the Placement Agent, be necessary to amend or supplement the
Memorandum to comply with Regulation D or any other applicable securities laws
or regulations, the Company will promptly notify the Placement Agent and shall,
at its sole cost, prepare and furnish to the Placement Agent copies of
appropriate amendments and/or supplements in such quantities as the Placement
Agent may reasonably request. The Company will not at any time, whether before
or after the Final Closing, prepare or use any amendment or supplement to the
Memorandum of which the Placement Agent will not previously have been advised
and furnished with a copy, or to which the Placement Agent or its counsel will
have objected in writing or orally (confirmed in writing within 24 hours), or
which is not in compliance with the Act, the Regulations and other applicable
securities laws. As soon as the Company is advised thereof, the Company will
advise the Placement Agent and its counsel, and confirm the advice in writing,
of any order preventing or suspending the use of the Memorandum, or the
suspension of the qualification or registration of the Units for offering or the
suspension of any exemption for such qualification or registration of the Units
for offering in any jurisdiction, or of the institution or threatened
institution of any proceedings for any of such purposes, and the Company will
use its best efforts to prevent the issuance of any such order, judgment or
decree, and, if issued, to obtain as soon as reasonably possible the lifting
thereof.
(c) The Company shall comply with the Act, the Regulations, the Securities and
Exchange Act of 1934, as amended (the "1934 ACT"), and the rules and regulations
thereunder, all applicable state securities laws and the rules and regulations
thereunder in the states in which the Placement Agent's Blue Sky counsel has
advised the Placement Agent that the Units are qualified or registered for sale
or exempt from such qualification or registration, so as to permit the
continuance of the sales of the Units, and will file with the SEC, and shall
promptly thereafter forward to the Placement Agent, any and all reports on Form
D as are required.
(d) The Company shall use its reasonable best efforts to qualify the Units for
sale (or seek exemption therefrom) under the securities laws of such
jurisdictions in the United States as the Placement Agent shall designate, and
the Company will (through Blue Sky counsel) make such applications and furnish
information as may be required for such purposes. The Company will, from time to
time, prepare and file such statements and reports as are or may be required to
continue such qualifications in effect for so long a period as the Placement
Agent may reasonably request. The Company shall not, however, in either case, be
required to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.
(e) The Company shall place a legend on the certificates representing the Notes
and the Conversion Shares issued to subscribers stating that the securities
evidenced thereby have not been registered under the Act or applicable state
securities laws, setting forth or referring to the applicable restrictions on
10
transferability and sale of such securities under the Act and applicable state
laws.
(f) The Company shall apply the net proceeds from the sale of the Units to fund
its working capital requirements and/or for such other purposes as shall be
specifically described under "Use of Proceeds" in the Memorandum.
(g) During the Offering Period, the Company shall make available for review by
prospective purchasers of the Units during normal business hours at the
Company's offices, upon their request, copies of the Company Agreements to the
extent that such disclosure shall not violate any obligation on the part of the
Company to maintain the confidentiality thereof and shall afford each
prospective purchaser of Units the opportunity to ask questions of and receive
answers from an officer of the Company concerning the terms and conditions of
the Offering and the opportunity to obtain such other additional information
necessary to verify the accuracy of the Memorandum to the extent it possesses
such information or can acquire it without unreasonable expense.
(h) Except with the prior written consent of the Placement Agent or as set forth
in the Memorandum with respect to the Merger, the Company shall not, at any time
prior to the earlier of the Final Closing or the Termination Date, engage in or
commit to engage in any transaction outside the ordinary course of business,
including, without limitation, the incurrence of material indebtedness,
materially change its business or operations as shall be described in the
Memorandum, or issue, agree to issue or set aside for issuance any securities
(debt or equity) or any right to acquire such securities except as shall be
contemplated by the Memorandum.
(i) Until the earlier of (A) the five-year anniversary of the Final Closing or
(B) a Liquidity Event (as defined below), the Company shall, unless otherwise
required by applicable securities laws, (i) deliver to the Placement Agent and
the Company's stockholders annual audited financial statements prepared in
accordance with GAAP setting forth fairly the financial position of the Company,
(ii) deliver to the Placement Agent semi-annual unaudited financial statements
including both a balance sheet and statement of income prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated except
as may be disclosed in the notes thereto, and except that the unaudited
financial statements omit full notes, and except for normal year end
adjustments, (iii) deliver to the Company's stockholders a quarterly report,
reviewed by the Placement Agent, of the progress and status of the Company and
an annual report setting forth clearly the financial position of the Company,
(iv) deliver to the Placement Agent a copy of a list of its stockholders as and
when so requested, to extent the Company has such information is available or
otherwise will take such action as is necessary to make such information
available, and (v) deliver to the Placement Agent such additional information
and documents concerning the business and financial condition and outlook of the
Company as the Placement Agent may from time to time reasonably request.
(j) Whether or not the transactions contemplated hereby are consummated, or this
Agreement is terminated, the Company hereby agrees to pay all fees, costs and
expenses incident hereto and to the Offering, including, without limitation,
those in connection with (i) preparing, distributing and binding the Memorandum
and any and all amendments and/or supplements thereto, fees for bound volumes
and any and all agreements, contracts and other documents related hereto and
11
thereto; (ii) the authorization, issuance, transfer and delivery of the Notes,
the Conversion Shares, the Agent's Shares and the Agent's Warrants, including,
without limitation, fees and expenses of any transfer agent or registrar; (iii)
the fees and expenses of the Escrow Agent (subject to Section 4(b) hereof); (iv)
all fees and expenses of legal, accounting and other advisers to the Company;
(v) all reasonable filing fees, costs and legal fees and expenses for Blue Sky
services and related filings with respect to Blue Sky exemptions and
qualifications, $12,500 of which shall be paid to the Placement Agent's counsel
upon execution of this Agreement (for legal fees in connection with obtaining
Blue Sky exemptions (the "BLUE SKY FEES"); and (vi) subject to Section 9 hereof,
a nonaccountable expense allowance ("PLACEMENT AGENT EXPENSES") incurred by the
Placement Agent in connection with the Offering, including, without limitation,
travel and related expenses and fees and expenses of legal, accounting and other
advisers to the Company equal to three (3%) percent of the gross proceeds from
the subscriptions for Units sold.
(k) Until the Termination Date, neither the Company nor any person or entity
acting on its behalf will negotiate or enter into any agreement with any other
placement agent or underwriter with respect to a private or public offering of
the Company's or any subsidiary's debt or equity securities. The Company agrees
that any such offering of the Company's securities, other than through the
Placement Agent, in accordance with the terms an and provisions of this
Agreement, will terminate immediately upon the commencement of the Offering.
Neither the Company nor anyone acting on its behalf will, until the Termination
Date, without the prior written consent of the Placement Agent, offer for sale
to, or solicit offers to subscribe for Units or other securities of the Company
from, or otherwise approach or negotiate in respect thereof with, any other
person.
(l) Until the earlier of the second anniversary of the Final Closing or a
Liquidity Event (as defined below), except for the Company's option plan in
effect as of the date hereof, the Company will not issue or sell any of its
securities or grant any warrants, options or other rights to acquire its
securities (except pursuant to any existing options, warrants and rights and
option and similar plans as shall be described in the Memorandum) to any other
person or entity without the Placement Agent's prior written consent, which
shall not be unreasonably withheld. For the purposes of this Agreement, a
"LIQUIDITY EVENT" shall mean (A) the consummation of the IPO, (B) the Merger or
(C) the consummation of any merger, consolidation or business combination of the
Company with any other entity other than an Affiliate and pursuant to which (1)
the Company is not the surviving entity or the shareholders of the Company
immediately before such transaction own less than 50% of the voting power of the
Company immediately after such transaction and (2) the shares of the surviving
entity are publicly traded.
(m) The Board of Directors of the Company shall consist of not less than five
(5) and not more than ten (10) members. Until the earlier of one year after the
Merger or the IPO, the Placement Agent shall have the right to designate one (1)
person reasonably acceptable to the Company to be, at the Placement Agent's sole
discretion, either a nominee for director of the Company or advisor to the Board
of Directors of the Company. In the event such person is designated a nominee
for director, the Company shall use its best efforts (which shall include,
without limitation, the solicitation of proxies on behalf of such nominee) to
elect such nominee to the Board of Directors. The Company agrees to indemnify
and hold the Placement Agent and its designated nominee or advisor harmless
against any and all claims, actions, damages, awards and judgments arising out
of the attendance and participation, at any such meeting described herein. In
the event the Company maintains a liability insurance policy affording coverage
12
for the acts of its officers and directors, it agrees, if commercially
reasonable, to include the Placement Agent's designated observer as insured
under such policy.
(n) The Company hereby agrees that, until the earlier of the third anniversary
of the Final Closing or the occurrence of a Liquidity Event, it shall not
conduct or authorize a private offering of or resell any of the Company's
securities other than through the Placement Agent.
(o) The Company shall use its best efforts to effect the Merger. The Company
covenants and agrees that the agreement and plan of merger pursuant to which the
Merger shall be effected (the "MERGER AGREEMENT"), a form of which is attached
as Exhibit D to the Memorandum, shall provide that (i) to the extent the Agent's
Warrants have not been exercised prior to the closing of the Merger, the
Successor Entity shall assume the Agent's Warrants and shall issue the Successor
Stock upon the post-Merger exercise of the Agent's Warrants, as provided herein,
and a sufficient number of authorized but unissued shares of Successor Stock
shall have been reserved for issuance upon the conversion of the Agent's
Warrants, and (ii) the Successor Stock shall have been duly authorized and, when
issued and delivered against payment therefore as provided herein, will be
validly issued, fully paid and nonassessable and will be free and clear of all
liens, charges restrictions, claims and encumbrances imposed by or through the
Successor Entity other than as provided in the Merger Agreement.
(p) As soon as practicable after the date hereof and prior to the First Closing,
the Company shall effectuate the Reverse Stock Split.
(q) The Company and the Placement Agent agree that, upon the consummation of the
Merger, that certain finder's fee letter agreement dated as of May 11, 2000,
between the Company and the Placement Agent shall be terminated.
6. CONDITIONS OF PLACEMENT AGENT'S OBLIGATIONS. The obligations of the Placement
Agent hereunder are subject to the fulfillment, at or before each Closing, of
the following additional conditions:
(a) Each of the representations and warranties of the Company shall be true and
correct when made on the date hereof and on and as of each Closing Date as
though made on and as of each Closing Date.
(b) The Company shall have performed and complied with all agreements, covenants
and conditions required to be performed and complied with by it under the
Transaction Documents at or before each Closing.
(c) No order suspending the use of the Memorandum or enjoining the offering or
sale of the Units shall have been issued, and no proceedings for that purpose or
a similar purpose shall have been initiated or pending, or, to the best of the
Company's knowledge, are contemplated or threatened.
(d) As of the First Closing, after giving effect to the Reverse Stock Split, the
Company will have an authorized capitalization of at least (i) 200,000,000
shares of Common Stock authorized, of which 1,123,372 shares shall be issued and
13
outstanding, (ii) 35,000,000 shares of Series A Convertible Preferred Stock, par
value $.001 per share, authorized, of which 3,333,333 shares will be issued and
outstanding; (iii) 100,000,000 shares of Series B Convertible Preferred Stock,
par value $.001 per share, authorized, of which 4,495,925 shares shall be issued
and outstanding; (iv) 12,000,000 shares of Series C Convertible Preferred Stock,
of which 1,000,000 shares are issued and outstanding; and (v) 5,062,356 options
and warrants shall be granted.
(e) The Placement Agent shall have received certificates of the CEO of the
Company, dated as of each Closing Date, certifying on behalf of the Company, in
such detail as Placement Agent may reasonably request, as to the fulfillment of
the conditions set forth in subparagraphs (a), (b), (c) and (d) above.
(f) The Company shall have delivered to the Placement Agent (i) a currently
dated good standing certificate from the Secretary of State of Delaware and each
jurisdiction in which the Company is qualified to do business as a foreign
corporation, and (ii) certified resolutions of the Company's Board of Directors
approving this Agreement and the other Transaction Documents, and the
transactions and agreements contemplated by this Agreement and the other
Transaction Documents.
(g) On or prior to the date hereof and at each Closing, the CEO of the Company
shall have provided a certificate to the Placement Agent confirming on behalf of
the Company that there have been no undisclosed material and adverse changes in
the business condition (financial or otherwise) or prospects of the Company from
the date of the latest financial statements included in the Memorandum, the
absence of undisclosed liabilities and such other matters relating to the
financial condition and prospects of the Company that the Placement Agent may
reasonably request.
(h) At each Closing, the Company shall have (i) paid to the Placement Agent the
Placement Agent's Fee in respect of all Units sold at such Closing, (ii) paid
all fees, costs and expenses set forth in Section 5(j) hereof, and (iii)
executed and delivered to the Placement Agent the Agent's Warrants in an amount
proportional to the Units sold at such Closing.
(i) There shall have been delivered to the Placement Agent a signed opinion of
counsel to the Company ("COMPANY COUNSEL"), dated as of each Closing Date, in
substantially the form attached hereto as Exhibit A.
(j) All proceedings taken at or prior to each Closing in connection with the
authorization, issuance and sale of the Units and the Agent's Warrants will be
reasonably satisfactory in form and substance to the Placement Agent and its
counsel, and such counsel shall have been furnished with all such documents,
certificates and opinions as they may reasonably request upon reasonable prior
notice in connection with the transactions contemplated hereby.
7. INDEMNIFICATION.
(a) The Company will (i) indemnify and hold harmless the Placement Agent, its
selected dealers and their respective officers, directors, employees and each
person, if any, who controls the Placement Agent within the meaning of the Act
and such selected dealers (each an "INDEMNITEE") against, and pay or reimburse
14
each Indemnitee for, any and all losses, claims, damages, liabilities or
expenses whatsoever (or actions or proceedings or investigations in respect
thereof), joint or several (which will, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees, including appeals), to which
any Indemnitee may become subject, under the Act or otherwise, in connection
with the offer and sale of the Units, whether such losses, claims, damages,
liabilities or expenses shall result from any claim of any Indemnitee or any
third party; and (ii) reimburse each Indemnitee for any legal or other expenses
reasonably incurred in connection with investigating or defending against any
such loss, claim, action, proceeding or investigation; PROVIDED, HOWEVER, that
the Company will not be liable in any such case to the extent that any such
claim, damage or liability results from (A) an untrue statement or alleged
untrue statement of a material fact made in the Memorandum, or an omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in reliance upon and
in conformity with written information furnished to the Company by the Placement
Agent or any such controlling persons specifically for use in the preparation
thereof, or (B) any violations by the Placement Agent of the Act or state
securities laws which does not result from a violation thereof or a breach
hereafter by the Company or any of its affiliates. In addition to the foregoing
agreement to indemnify and reimburse, the Company will indemnify and hold
harmless each Indemnitee against any and all losses, claims, damages,
liabilities or expenses whatsoever (or actions or proceedings or investigations
in respect thereof), joint or several (which shall for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys' fees, including appeals) to which
any Indemnitee may become subject insofar as such costs, expenses, losses,
claims, damages or liabilities arise out of or are based upon the claim of any
person or entity that he or it is entitled to broker's or finder's fees from any
Indemnitee in connection with the Offering.
(b) The Placement Agent will indemnify and hold harmless the Company, its
officers, directors, employees and each person, if any, who controls the Company
within the meaning of the Act against, and pay or reimburse any such person for,
any and all losses, claims, damages or liabilities or expenses whatsoever (or
actions, proceedings or investigations in respect thereof) to which the Company
or any such person may become subject under the Act or otherwise, whether such
losses, claims, damages, liabilities or expenses (or actions, proceedings or
investigations in respect thereof) shall result from any claim of the Company,
any of its officers, directors, employees, agents, any person who controls the
Company within the meaning of the Act or any third party, insofar as such
losses, claims, damages or liabilities are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Memorandum but
only with reference to information contained in the Memorandum relating to the
Placement Agent, or an omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, if made or omitted in reliance upon and in conformity with
written information furnished to the Company by the Placement Agent or any such
controlling persons, specifically for use in the preparation thereof. The
Placement Agent will reimburse the Company or any such person for any legal or
other expenses reasonably incurred in connection with investigating or defending
against any such loss, claim, damage, liability or action, proceeding or
investigation to which such indemnity obligation applies. Notwithstanding the
foregoing, in no event shall the Placement Agent's indemnification obligation
hereunder exceed the amount of the Placement Agent's Fees actually received by
it.
15
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, claim, proceeding or investigation
("ACTION"), such indemnified party, if a claim in respect thereof is to be made
against the indemnifying party under this Section 7, will notify the
indemnifying party of the commencement thereof, but the omission to so notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party under this Section 7 unless the indemnifying party has
been substantially prejudiced by such omission. The indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party, to assume the defense thereof subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party. The indemnified party will have the right to employ separate
counsel in any such Action and to participate in the defense thereof, but the
fees and expenses of such counsel will not be at the expense of the indemnifying
party if the indemnifying party has assumed the defense of the Action with
counsel reasonably satisfactory to the indemnified party; PROVIDED, HOWEVER,
that if the indemnified party shall be requested by the indemnifying party to
participate in the defense thereof or shall have concluded in good faith and
specifically notified the indemnifying party either that there may be specific
defenses available to it which are different from or additional to those
available to the indemnifying party or that such Action involves or could have a
material adverse effect upon it with respect to matters beyond the scope of the
indemnity agreements contained in this Agreement, then the counsel representing
it, to the extent made necessary by such defenses, shall have the right to
direct such defenses of such Action on its behalf and in such case the
reasonable fees and expenses of such counsel in connection with any such
participation or defenses shall be paid by the indemnifying party. No settlement
of any Action against an indemnified party will be made without the consent of
the indemnifying party and the indemnified party, which consent shall not be
unreasonably withheld or delayed in light of all factors of importance to such
party and no indemnifying party shall be liable to indemnify any person for any
settlement of any such claim effected without such indemnifying party's consent.
8. CONTRIBUTION. To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 7 hereof
and it is finally determined, by a judgment, order or decree not subject to
further appeal that such claims for indemnification may not be enforced, even
though this Agreement expressly provides for indemnification in such case; or
(ii) any indemnified or indemnifying party seeks contribution under the Act, the
1934 Act, or otherwise, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Placement Agent on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Placement Agent on the other
shall be deemed to be in the same proportion as the total net proceeds from the
Offering (before deducting expenses) received by the Company bear to the total
commissions and fees received by the Placement Agent. The relative fault, in the
case of an untrue statement, alleged untrue statement, omission or alleged
omission will 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
16
obligations of the Company and the Placement Agent for contribution were
determined by PRO RATA allocation of the aggregate losses, liabilities, claims,
damages and expenses or by any other method or allocation that does not reflect
the equitable considerations referred to in this Section 8. No person guilty of
a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls the Placement Agent within the meaning of the Act will have
the same rights to contribution as the Placement Agent, and each person, if any,
who controls the Company within the meaning of the Act will have the same rights
to contribution as the Company, subject in each case to the provisions of this
Section 8. Anything in this Section 8 to the contrary notwithstanding, no party
will be liable for contribution with respect to the settlement of any claim or
action effected without its written consent. This Section 8 is intended to
supersede, to the extent permitted by law, any right to contribution under the
Act, the 1934 Act or otherwise available.
9. TERMINATION.
(a) The Offering may be terminated by the Placement Agent at any time prior to
the expiration of the Offering Period in the event that (i) any of the
representations or warranties of the Company contained herein shall prove to
have been false or misleading in any material respect when made or deemed made,
(ii) the Company shall have failed to perform any of its material obligations
hereunder, (iii) the Company shall have determined for any reason not to
continue with the Offering or (iv) the Placement Agent shall determine in its
sole discretion, reasonably exercised, that it is reasonably likely that any of
the conditions to Closing set forth herein will not, or cannot, be satisfied. In
the event of any such termination occasioned by or arising out of or in
connection with the matters set forth in clauses (i)-(iii) above, or occasioned
by or arising out of or in connection with a matter set forth in clause (iv)
above due to any breach or failure hereunder on the part of the Company, the
Placement Agent shall be entitled to receive, an amount equal to the sum of: (A)
any Placement Agent's Fees to which the Placement Agent is entitled pursuant to
Section 3(d) hereof earned through the Termination Date, (B) an amount equal to
three percent (3%) of the Offering Price of all Units sold in the Offering
(deeming, for this purpose, all Units offered (other than Units available for
over-subscriptions) as having been sold), less any amounts theretofore paid in
respect of Placement Agent Expenses, and all unpaid Blue Sky Fees and other
expenses set forth in Section 5(j) hereof and (C) all amounts that may become
payable in respect of Post-Closing Investors pursuant to Section 3(f) hereof. In
addition to the sum of the amounts in clauses (A)-(C) in the previous sentence,
in the event that the Company is sold (in a stock or asset sale), merged or
otherwise acquired or combined, completes a public or private offering of its
securities or the Company enters into a binding letter of intent or agreement
with respect to the foregoing that results in a financing event, within one year
after the Offering is not completed because the Company breaches any
representation, warranty or covenant made by it herein or determines not to
proceed with the Offering at the Agent option the Company shall pay to the Agent
either (x) an investment banking fee equal to five percent (5%) of the total
consideration received by the Company and/or its stockholders in connection with
such sale, merger, acquisition or sale of securities or (y) the Placement Agent
commissions, fees and expenses and Agent's Warrants described in Sections 3(d)
and 3(e) hereof as if the maximum number of Units had been sold. In the event of
any such termination by the Placement Agent as a result of any event described
in clause (iv) above, or pursuant to Section 4(f) hereof, not occasioned by or
arising out of or in connection with any breach or failure hereunder by the
17
Company, the Placement Agent will be entitled to receive the sum of the
Placement Agent's Fee earned through the Termination Date, the amount of the
Placement Agent Expenses accrued through the Termination Date and the amount set
forth in clause (C) of this Section 9(a), only with respect to a Post-Closing
investor introduced to the Company by the Placement Agent.
(b) This Offering may be terminated by the Company at any time prior to the
Termination Date in the event that (i) the Placement Agent shall have failed to
perform any of its material obligations hereunder or (ii) there shall occur any
event described in Section 9(a)(iv) above not occasioned by or arising out of or
in connection with any breach or failure hereunder on the part of the Company.
In the event of any termination by the Company pursuant to clause (i) above, the
Placement Agent shall be entitled to receive all Placement Agent Expenses
accrued through the Termination Date, but shall be entitled to no other amounts
whatsoever except as may be due under any indemnity or contribution obligation
provided herein or any other Transaction Document, at law or otherwise. On such
Termination Date, the Company shall pay all such unpaid Placement Agent
Expenses, and all unpaid Blue Sky Fees and other expenses set forth in Section
5(j) hereof.
(c) Upon any such termination, the Escrow Agent will, at the request of the
Placement Agent, cause all money received in respect of subscriptions for Units
not accepted by the Company to be promptly returned to such subscribers without
interest, penalty, expense or deduction. Any interest earned thereon shall be
applied first to the payment of amounts, if any, due to the Escrow Agent and
next to the payment of any amounts payable to the Placement Agent hereunder
which remain unpaid.
10. SURVIVAL.
(a) The obligations of the parties to pay any costs and expenses hereunder and
to provide indemnification and contribution as provided herein shall survive any
termination hereunder.
(b) The respective indemnities, agreements, representations, warranties and
other statements of the Company set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of, and regardless of any access to information by, the Company or the
Placement Agent, or any of their officers or directors or any controlling person
thereof, and will survive the sale of the Units.
11. NOTICES. All communications hereunder will be in writing and, except as
otherwise expressly provided herein or after notice by one party to the other of
a change of address, if sent to the Placement Agent, will be mailed, delivered
or telefaxed and confirmed to ▇▇▇▇▇▇▇ ▇▇▇▇▇ Ventures, Incorporated, ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
President, Telefax number (▇▇▇) ▇▇▇-▇▇▇▇, with a copy to ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
LLP, 1251 Avenue of the Americas, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇,
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq., Telefax number (▇▇▇) ▇▇▇-▇▇▇▇, and if sent
to the Company, will be mailed, delivered or telefaxed and confirmed to Home
Director, Inc., c/o Digital Interiors, Inc., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇ ▇▇▇▇,
▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Telefax number (▇▇▇) ▇▇▇-▇▇▇▇, with a copy
18
to Kronish ▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq., Telefax number (▇▇▇) ▇▇▇-▇▇▇▇.
12. APPLICABLE LAW, COSTS, ETC. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. ALL CONTROVERSIES,
WHICH MAY ARISE BETWEEN THE PARTIES CONCERNING THIS AGREEMENT, SHALL BE
EXCLUSIVELY DETERMINED BY ARBITRATION PURSUANT TO THE RULES THEN PERTAINING TO
THE AMERICAN ARBITRATION ASSOCIATION (THE "AAA") IN NEW YORK COUNTY, NEW YORK.
HEARINGS WITH REGARD TO SUCH DISPUTE SHALL BE HELD EXCLUSIVELY AT THE OFFICES OF
THE AAA IN THE CITY OF NEW YORK AND JUDGMENT UPON ANY AWARD RENDERED PURSUANT
THERETO MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. ANY DECISION
RENDERED BY THE AAA SHALL BE FINAL AND BINDING. SERVICE OF PROCESS MAY BE MADE
UPON THE COMPANY BY MAILING A COPY THEREOF TO IT, BY CERTIFIED OR REGISTERED
MAIL, AT ITS ADDRESS TO BE USED FOR THE GIVING OF NOTICES UNDER THIS AGREEMENT.
THE COMPANY AND THE PLACEMENT AGENT EACH HEREBY WAIVES ITS RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.
13. CONFIDENTIALITY. The Company hereby agrees to hold confidential the
identities of the purchasers in the Offering and shall not disclose their names
and addresses without the prior written consent of the Placement Agent, unless
required by law or filing with the SEC. The Company hereby consents to the
granting of an injunction against it by any court of competent jurisdiction to
enjoin it from violating the foregoing confidentiality provisions. The Company
hereby agrees that the Placement Agent will not have an adequate remedy at law
in the event that the Company breaches these confidentiality provisions
contained herein, and that the Placement Agent will suffer irreparable damage
and injury as a result of any such breach. Resort to such equitable relief shall
not, however, be construed to be a waiver of any other rights or remedies which
the Placement Agent may have.
14. MISCELLANEOUS. No provision of this Agreement may be changed or terminated
except by a writing signed by the party or parties to be charged therewith.
Unless expressly so provided, no party to this Agreement will be liable for the
performance of any other party's obligations hereunder. Any party hereto may
waive compliance by the other with any of the terms, provisions and conditions
set forth herein; PROVIDED, HOWEVER, that any such waiver shall be in writing
specifically setting forth those provisions waived thereby. No such waiver shall
be deemed to constitute or imply waiver of any other term, provision or
condition of this Agreement. This Agreement contains the entire agreement
between the parties hereto and is intended to supersede any and all prior
agreements between the parties relating to the same subject matter. This
Agreement may be executed in counterparts, each of which shall be deemed an
original and all of which shall constitute a single agreement.
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15. ENTIRE AGREEMENT. This Agreement together with any other agreement referred
to herein is intended to supersede all prior agreements between the parties with
respect to the Units purchased hereunder and the subject matter hereof.
[SIGNATURE PAGE FOLLOWS]
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If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Agreement, whereupon it will become a binding
agreement between the Company and the Placement Agent in accordance with its
terms.
Very truly yours,
HOME DIRECTOR, INC.
By: ___________________________
Name:
Title:
Accepted and agreed to this
10th day of April, 2002.
▇▇▇▇▇▇▇ ▇▇▇▇▇ VENTURES,
INCORPORATED
By: ___________________________
Name:
Title:
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EXHIBIT A
FORM OF LEGAL OPINION
The phrase "Transaction Documents," whenever it is used in this letter, means
(a) the Placement Agency Agreement dated as of April 10, 2002 by and among Home
Director, Inc. (the "Company") and ▇▇▇▇▇▇▇ ▇▇▇▇▇ Ventures, Incorporated (the
"Placement Agent") (such agreement, the "Placement Agency Agreement"), (b) the
Placement Agent Warrant Agreement dated as of April __, 2002, by and among the
Company and the Placement Agent (the "Placement Agent Warrant Agreement"), and
(c) the Subscription Agreement by and among the Company and each investor
signatory thereto (such investors, the "Investors" and such agreement, the
"Subscription Agreement"). All capitalized terms used in this letter have the
respective meanings set forth in the Placement Agency Agreement unless otherwise
defined herein.
(i) The Company has been duly organized as a corporation and is validly existing
and in good standing under the laws of the State of Delaware, has full corporate
power and authority to own, lease and operate its properties and conduct its
business as described in the Memorandum and is duly qualified as a foreign
corporation for the transaction of business and is in good standing in each
jurisdiction where the conduct of its business makes such qualification
necessary, except where the failure to so qualify would not have a material
adverse effect upon the business (as currently conducted), financial condition
or results of operation of the Company.
(ii) The Company has the full corporate power and authority to execute and
deliver the Placement Agency Agreement, the Subscription Agreement and the
Placement Agent Warrant Agreement (the "Transaction Documents") and all other
documents and certificates contemplated thereby and to perform its obligations
thereunder. The execution, delivery and performance by the Company of the
Transaction Documents have been duly authorized by all necessary corporate
action. Each of the Transaction Documents has been duly executed and delivered
on behalf of the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against it in accordance with its terms.
(iii) To our knowledge, the Company has authorized and outstanding capital stock
as set forth in the Memorandum and outstanding shares of capital stock of the
Company have been duly authorized and are validly issued, fully paid and
nonassessable. The Notes, the Conversion Shares and the Agent's Shares have been
duly authorized, and when duly and validly delivered and paid for pursuant to
the terms of the Transaction Documents will be validly issued, fully paid and
nonassessable. Except as set forth in the Memorandum, the issuance of the Notes,
the Conversion Shares and the Agent's Securities are not subject to statutory,
or to our knowledge, contractual or other preemptive rights of any stockholder
of the Company. The Notes, the Conversion Shares and the Agent's Securities
conform in all material respects with the descriptions thereof contained in the
Memorandum.
(iv) None of the execution and delivery of, and performance by the Company
under, any of the Transaction Documents in accordance with the terms thereof or
the consummation by the Company of the transactions contemplated thereby,
conflicts with or violates (a) any term of the certificate of incorporation
(except with respect to the sufficiency of the Company's authorized capital) or
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by-laws of the Company, (b) any statute, rule or regulation or (c) any permit,
judgment, decree, or order known to us which is applicable to the Company or any
of its assets, properties or businesses.
(v) To our knowledge, except as provided in the Transaction Documents, none of
the execution and delivery of, or performance by the Company under, any of the
Transaction Documents or the consummation of the transactions contemplated
thereby, conflicts with or results in the creation or imposition of, any lien,
charge or other encumbrance upon any of the properties or assets of the Company
pursuant to the terms of any material indenture, mortgage, deed of trust, note,
material license, agreement or other instrument known to us to which the Company
is a party or by which the Company may be bound or to which any of its assets,
properties or businesses is or may be subject.
(vi) No consent, approval, authorization, order, registration or qualification
of or with any court or regulatory, administrative or governmental agency, body
or authority of the United States of America or any political subdivision
thereof is required in connection with the issuance or sale of the Notes or the
Agent's Warrants except for required filings with the United States Securities
and Exchange Commission and applicable "Blue Sky" or state securities
commissions relating specifically to the Offering.
(vii) To our knowledge, except as set forth in the Memorandum, there are no
legal or regulatory, administrative or governmental charges, actions, suits,
proceedings, claims, hearings or investigations, before or by any court,
governmental authority, or instrumentality pending or threatened against the
Company, or involving its assets or properties or any of its officers or
directors which, if determined adversely to the Company, could adversely affect
any of the transactions contemplated by the Transaction Documents or the
validity or enforceability thereof.
(viii) To our knowledge, the Company is not in violation or breach of: (i) its
certificate of incorporation or by-laws or (ii) any judgment, decree or order
applicable to the Company which violation or violations individually, or in the
aggregate, might result in any Material Adverse Effect in the condition
(financial or otherwise) of the Company.
(ix) We have participated in the preparation of the Memorandum and in
conferences with officers and other representatives of the Company, at which the
contents of the Memorandum and related matters were discussed, and based only
upon our participation in those conferences, nothing has come to our attention
that causes us to believe that the Memorandum (other than the financial
statements, including the notes thereto, and other financial and statistical
information included in the Memorandum) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements therein not misleading in light of the circumstances under which they
were made.
(x) Assuming that the Units have been sold only to "accredited investors" (as
defined in Rule 501 of Regulation D) and each of the Company and the Placement
Agent has complied in all material respects with its obligations under the
Placement Agency Agreement and Regulation D, such sales were exempt from
registration under the Securities Act pursuant to Section 4(2) of the Act and/or
Rule 506 of Regulation D.
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[Opinion may be rendered subject to customary assumptions and qualifications.
These include limitation to Federal, New York and Delaware corporate law.]
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