EXHIBIT 10.1
PLACEMENT AGENCY AGREEMENT
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October 30, 1997
The Zanett Securities Corporation
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Gentlemen:
This agreement ("AGREEMENT") will confirm that Advanced Environmental
Recycling Technologies, Inc., a Delaware corporation (the "COMPANY"), has
retained The Zanett Securities Corporation ("ZANETT" or the "PLACEMENT AGENT")
as its exclusive placement agent to assist the Company, during the four-week
period commencing on the date hereof ("TERM"), on a "best-efforts" basis, in
connection with the placement of $1,300,000 in aggregate principal amount of the
Company's Promissory Notes (the "NOTES"), which Notes shall bear interest at the
rate of 12% per annum and shall become due and payable on the date which is 270
days from the issuance date (subject to the right of the Company to extend the
maturity date to the date which is 365 days from the issuance date). All
interest which may become due and payable under the Notes shall be payable
quarterly in arrears through the issuance by the Company of shares of the
Company's Class A Common Stock, par value $.01 per share (the "COMMON STOCK").
The Company agrees that, during the Term, Zanett shall have the exclusive right
to offer and place the Notes and that all conversations, negotiations, documents
and other materials exchanged between the Company and the Placement Agent shall
not be disclosed or released to any third party without the prior written
consent of Zanett. The Company acknowledges that certain of the aforementioned
securities may be purchased by affiliates of Zanett.
The Notes are being offered to "accredited investors" in accordance with
Regulation D promulgated under the Securities Act of 1933, as amended (the
"SECURITIES ACT"). Each prospective investor ("INVESTOR") subscribing to
purchase the Notes will be required to deliver, among other things, a note
purchase agreement between the Company and the Investor (the "NOTE PURCHASE
AGREEMENT") in form and substance reasonably satisfactory to Zanett and the
Company, representing and warranting, among other things, that such Investor is
an "accredited investor" as such term is defined in Regulation D.
Contemporaneous with the execution and delivery of the Note Purchase Agreement,
the Investors shall execute and deliver a Registration Rights Agreement (the
"REGISTRATION RIGHTS AGREEMENT") in form and substance reasonably satisfactory
to Zanett and the Company pursuant to which the Company will agree to provide
the Investors certain registration rights under the Securities Act with respect
to the shares of the Company's Common Stock issuable pursuant to the Notes (the
"NOTE SHARES").
The Note Purchase Agreement, the Notes and the Registration Rights
Agreement are referred to herein collectively as the "OFFERING DOCUMENTS." The
offering of Notes described in the Offering Documents is referred to herein as
the "OFFERING."
1. Appointment of Placement Agent. Zanett is hereby appointed Placement
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Agent of the Company for the purposes of assisting the Company in finding
qualified Investors to participate in the Offering. On the basis of the
representations and warranties and subject to the terms and conditions contained
herein, Zanett hereby accepts such agency and agrees to assist the Company in
finding qualified Investors to participate in the Offering. Zanett's agency
hereunder is not terminable by the Company except upon termination of the
Offering. Upon termination of the Offering, all subscriptions received, if any,
shall be returned to Investors.
2. Closing; Placement Fee and Warrant; Expenses.
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(a) Closing. Upon satisfaction of the conditions to closing
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contained in the Note Purchase Agreement, the closing (the "CLOSING") of the
purchase and sale of the Notes shall take place at the offices of Klehr,
Harrison, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP or such other mutually agreed place, at
such time and date (the "CLOSING DATE") as may be agreed upon between the
Placement Agent, the Investors and the Company.
(b) Procedures at Closing. Counsel for the Placement Agent shall act
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as escrow agent for the Closing (the "ESCROW AGENT"). At the Closing:
(i) The Company shall deliver to the Escrow Agent, on behalf of
the Placement Agent and the Investors, an opinion of the Company's outside legal
counsel, dated as of the Closing Date, in such form as may be reasonably
acceptable to the Placement Agent and its counsel.
(ii) The Company shall deliver to the Escrow Agent certificates
from the Company, signed by the President or a Vice President thereof,
certifying that attached thereto is a true and correct copy of resolutions
adopted by the Company's Board of Directors authorizing (A) the execution,
delivery and performance of this Agreement, the Note Purchase Agreement, the
Registration Rights Agreement, the Notes and other documentation related to the
Offering, and (B) the issuance of the Notes and the reservation for issuance and
issuance of the Note Shares, and certifying that such resolutions have not been
modified, rescinded or amended and are in full force and effect.
(iii) The Company shall deliver to the Escrow Agent a certificate
of good standing of the Company, dated as of a recent date, from the Secretary
of State of the State of Delaware.
(iv) Each Investor shall deliver to the Escrow Agent two
executed copies of the Note Purchase Agreement and Registration Rights Agreement
signed by such Investor, and the Company shall deliver to the Escrow Agent with
respect to each Investor two executed copies of its acceptance of the Note
Purchase Agreement and Registration Rights Agreement executed by such Investor.
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(v) Each Investor shall have delivered by wire transfer to an
escrow account designated by the Escrow Agent an amount equal to the aggregate
principal amount of the Note(s) being purchased by such Investor at the Closing.
(vi) The Company shall have delivered to the Escrow Agent the
duly executed Notes being purchased by the Investors in such denominations as
the Investors shall request.
(vii) The Company and the Placement Agent shall instruct the
Escrow Agent to pay to the Company the purchase price (the "PURCHASE PRICE") for
the Notes subscribed for at the Closing, less the Placement Agent Fee (as
defined below), out of the funds on deposit in the escrow account received from
Investors whose Note Purchase Agreements have been accepted.
(c) Placement Fee; Expenses. The Company covenants and agrees to pay
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to the Placement Agent at the Closing a fee (the "PLACEMENT AGENT FEE") equal
to ten percent (10%) of the aggregate gross proceeds received by the Company
from the sale of the Notes at such Closing. Such Placement Agent Fee shall be
delivered by the Escrow Agent to Zanett by wire transfer, in accordance with
Zanett's written wiring instructions, from the funds on deposit in the escrow
account simultaneously with payment for and delivery of the Notes at the Closing
under the Note Purchase Agreement as provided in paragraph 2(a) above. In
addition, the Placement Agent shall be entitled to receive from the Company a
non-accountable expense allowance (the "EXPENSE ALLOWANCE") equal to three
percent (3%) of the aggregate gross proceeds received by the Company from the
sale of the Notes at the Closing. Such Expense Allowance shall be delivered in
the same manner as the Placement Agent Fee.
(d) Warrants. In addition to the Placement Agent Fee, at the Closing
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under the Note Purchase Agreement, the Company shall issue to the Placement
Agent warrants, in substantially the form attached hereto as Exhibit A, to
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purchase such number of shares of the Company's Common Stock as is equal to
twelve percent (12%) of the aggregate Purchase Price (as expressed in numerical
rather than dollar terms) (the "AGGREGATE PURCHASE PRICE") of all Notes sold at
the Closing (the "INITIAL PLACEMENT WARRANTS"); provided, however, that in the
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event that the maturity date of the Notes is extended, at the Company's option
as set forth in the Note Purchase Agreement, from a date 270 days from the date
of issuance of the Notes (the "ISSUANCE DATE") to a date up to and including 365
days from the Issuance Date, the Company shall, concurrently with notice to the
Investors and Zanett of such extension, issue to the Placement Agent additional
warrants (the "EXTENSION WARRANTS") to purchase such number of shares of Common
Stock as is equal to the difference between eighteen percent (18%) of the
Aggregate Purchase Price (as expressed in numerical rather than dollar terms)
minus the number of Initial Placement Warrants. The Initial Placement Warrants
and the Extension Warrants shall be exercisable for a period of five (5) years
from the date of issuance at a price per share equal to the average of the
Closing Bid Prices (as defined in the Notes) for the Common Stock during the
five (5) consecutive trading days ending on the trading day immediately
preceding the Closing Date. The Initial Placement Warrants, the Extension
Warrants, the Additional Placement
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Warrants (as defined in Section 2(f)(iii)) and the Additional Extension Warrants
(as defined in Section 2(f)(iii)) are collectively referred to as the "PLACEMENT
WARRANTS." The shares of the Company's Common Stock issuable upon exercise of
the Placement Warrants shall hereinafter be referred to as the "WARRANT SHARES."
The Company shall grant the Placement Agent certain registration rights under
the Securities Act with respect to the Warrant Shares pursuant to a Registration
Rights Agreement, in substantially the form attached hereto as Exhibit B, to be
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entered into by the Company and the Placement Agent at the Closing (the "ZANETT
REGISTRATION RIGHTS AGREEMENT").
(e) Expenses of Offering. The Company shall be responsible for and
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shall bear all expenses directly and necessarily incurred by it in connection
with the Offering, including, but not limited to, the following: filing fees,
registrar and transfer agent fees, investigatory fees (including, but not
limited to travel, lodging and entertainment expenses), issuer's counsel and
accounting fees, blue sky fees and counsel, if any, and issue and transfer
taxes, if any. In the event a Closing does not occur during the Term, the
Company shall reimburse the Placement Agent for its reasonable out-of-pocket
expenses incurred in connection with the Offering.
(f) Non-Circumvention Period; Lockup Period; Additional Financing
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Period.
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(i) The Company agrees that, during the period beginning on the
date hereof and ending five (5) years following the later of the date hereof and
the date of the Closing (as defined in Section 2(a) hereof) (the "NON-
CIRCUMVENTION PERIOD"), it will not, without the prior written consent of the
Placement Agent, negotiate or contract or have discussions concerning any such
matters with any Investor or any other party introduced to the Company by
Placement Agent to obtain additional financing in any form.
(ii) The Company agrees that, during the period beginning on the
date hereof and ending two (2) years following the later of the date hereof and
the date of the Closing (the "LOCK-UP PERIOD"), it will not, without the prior
written consent of the Placement Agent, negotiate or contract or have
discussions concerning any such matters with any other party to obtain
additional financing of any type in any form; provided, however, that the
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foregoing shall not limit the Company's ability during the Lock-up Period (A) to
obtain bank financing, governmental bond or loan financing, equipment financing,
and factoring or receivable and inventory financing without the consent of the
Placement Agent; or (B) to obtain equity, debt or other financing from ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and/or members of their
immediate family so long as (x) in the event that such financing takes the form
of a sale by the Company of shares of Common Stock or any security convertible
into or exercisable for shares of Common Stock, the price at which such shares
of Common Stock may be acquired from the Company is greater than or equal to the
Closing Bid Price (as defined in the Notes) of the Common Stock on the date of
issuance of such security, (y) no fees (whether payable in cash, through the
issuance of warrants to acquire shares of Common Stock or otherwise) are paid by
the Company to any purchaser or any third party in connection with such
financing, and (z) the Company shall have first delivered to the Placement
Agent, at least thirty
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(30) days prior to the closing of such financing, written notice describing the
proposed financing, including the terms and conditions thereof, and providing
the Placement Agent and its affiliates an option during the thirty (30) day
period following delivery of such notice to purchase all of the securities being
offered in the financing on the same terms as contemplated by such financing.
(iii) The Company agrees that, at any time during the period
beginning on the date hereof and ending two (2) years following the later of the
date hereof and the date of the Closing (the "ADDITIONAL FINANCING PERIOD"), the
Placement Agent shall have the right, but not the obligation, to offer and place
on behalf of the Company an additional $2,200,000 in aggregate principal amount
of the Notes (the "ADDITIONAL NOTES"), and the Company agrees to issue and sell
such Additional Notes to Investors identified by the Placement Agent in
accordance with the procedures set forth in Section 2 above. The terms of such
Additional Notes may vary from the terms of the Notes, but shall provide,
without limitation, that, unless extended by the Company at its option, the
Additional Notes shall mature and become payable on a date 270 days from the
date of initial issuance thereof. In the event that Zanett exercises its option
to offer and place the Additional Notes during the Additional Financing Period,
and the closing of the issuance and sale of the Additional Notes (the
"ADDITIONAL CLOSING") occurs at any time on or before the sixtieth (60th) day
following the expiration of the Additional Financing Period, the Placement Agent
shall be entitled to receive from the Company the Placement Agent Fee and
Expense Allowance indicated in Section 2(c) hereof calculated based on the
aggregate gross proceeds to the Company from the sale of the Additional Notes.
Such amounts will be paid to the Placement Agent in the manner set forth in
Section 2(c) hereof at the Additional Closing. In addition, at the Additional
Closing, the Company shall deliver to the Placement Agent warrants, in
substantially the form attached hereto as Exhibit A, to purchase such number of
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shares of the Company's Common Stock as is equal to twelve percent (12%) of the
aggregate Purchase Price of the Additional Notes (as expressed in numerical
rather than dollar terms) (the "ADDITIONAL PLACEMENT WARRANTS"); provided,
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however, that in the event that the maturity date of the Additional Notes is
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extended, at the Company's option, from a date 270 days from the date of
issuance of the Additional Notes (the "ADDITIONAL NOTE ISSUANCE DATE") to a date
up to and including 365 days from the Additional Note Issuance Date, the Company
shall, concurrently with notice to the purchasers of such Additional Notes and
Zanett of such extension, issue to the Placement Agent additional warrants (the
"ADDITIONAL EXTENSION WARRANTS") to purchase such number of shares of Common
Stock as is equal to the difference between eighteen percent (18%) of the
aggregate Purchase Price of the Additional Notes (as expressed in numerical
rather than dollar terms) minus the number of Additional Placement Warrants.
The Additional Placement Warrants and the Additional Extension Warrants shall be
exercisable for a period of five (5) years from the date of issuance at a price
per share equal to the average of the Closing Bid Prices (as defined in the
Notes) for the Common Stock during the five (5) consecutive trading days ending
on the trading day immediately preceding the Additional Closing Date. The
Warrant Shares issuable upon exercise of the Additional Placement Warrants and
the Additional Extension Warrants shall be considered "REGISTRABLE SECURITIES"
under the Zanett Registration Rights Agreement.
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3. Representations and Warranties and Covenants of the Company.
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(a) The Company represents and warrants to Zanett that this Agreement
has been duly authorized, executed and delivered by the Company and, assuming
the due execution by Zanett, constitutes a legal, valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms.
(b) The Company has delivered to Zanett true and complete copies of
all reports, schedules, forms, statements and other documents filed by the
Company on or after December 31, 1993 with the Securities and Exchange
Commission (the "SEC") pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to as the "SEC
DOCUMENTS"). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
December 31, 1996, and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
(c) The Company recognizes and confirms that Zanett (i) will use and
rely primarily on the SEC Documents and on information available from generally
recognized public sources in performing the services contemplated by this
Agreement without having independently verified the same; (ii) is authorized to
assist the Company in the structuring of the Offering with any prospective
purchaser who is an "accredited investor" as defined in Regulation D under the
Securities Act and to provide copies of the SEC Documents and forms of the Note
Purchase Agreement and other legal documentation to prospective purchasers of
the Company's securities in connection with the performance of Zanett's services
hereunder; and (iii) does not assume responsibility for the accuracy or
completeness of the SEC Documents.
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(d) In addition to the foregoing, the Company hereby incorporates by
reference all of the representations and warranties and covenants to be set
forth in the Note Purchase Agreement and the other Offering Documents with the
same force and effect as if specifically set forth herein.
(e) For a period of five years from the Closing, (i) the Company shall
provide Zanett, within three (3) business days of the filing or preparation
thereof, with such financial and other statements including, without limitation,
management letters and consolidated financial statements as are provided to any
other lenders to or security holders of the Company; (ii) in the event any
current officer, director, employee, consultant or other agent ceases,
subsequent to the date hereof, to have such relationship with the Company and
such cessation has, or is likely to have, a material adverse effect on the
Company, taken as a whole, the Company shall promptly notify Zanett of such
event, which notification shall comprehensively describe such circumstances;
(iii) the Company shall, on a regular basis, provide to Zanett updates of any
material litigation and/or governmental proceedings which could reasonably be
expected to have a material adverse effect on the business of the Company; and
(iv) the Company shall promptly provide to Zanett notice of any event of default
under any agreement or other document with any lender or holder of any security
of the Company. Zanett shall hold in confidence and shall not make any
disclosure (except to an Investor) or use of any such information disclosed to
it pursuant to clauses (i) through (iv) above which the Company determines in
good faith to be confidential, and of which determination Zanett is so notified,
unless (a) the release of such information is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction or (b) the
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. Anything contained
herein to the contrary notwithstanding, Placement Agent's obligations to proceed
with the Offering is conditioned upon Placement Agent's due diligence
investigation of the Company. Zanett shall be fully informed by the Company of
any events which might have a material affect on the financial condition of the
Company. If, in Zanett's opinion, the condition of the Company, financial or
otherwise, and its prospects are affected in a material and/or adverse manner
and do not fulfill Zanett's expectations, Zanett shall have the sole discretion
to review and determine its continued interest in the Offering.
(f) For a period of the later of (i) five years from the Closing and
(ii) so long as Zanett and/or affiliates own any securities of the Company, the
Company shall make available, during regular business hours, all records and
books of account of the Company for inspection by Zanett. The Company shall
permit Zanett, during regular business hours, to inspect its properties.
(g) The Company has the requisite corporate power and authority to
enter into and perform this Agreement and to issue the Placement Warrants in
accordance with the terms hereof. The execution and delivery of this Agreement
by the Company and the consummation by it of the transactions contemplated
hereby (including, without limitation, the issuance of the Placement Warrants
and the reservation for issuance and issuance of the Warrant Shares issuable
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upon exercise thereof) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors, or its shareholders is required.
(h) The Placement Warrants and the Warrant Shares issuable upon the
exercise thereof are duly authorized and, upon issuance of the Placement
Warrants in accordance with the terms hereof and the Warrant Shares upon
exercise of the Placement Warrants in accordance with the terms thereof, will be
validly issued, fully paid and non-assessable, and free from all taxes, liens
and charges with respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of the shareholders of the Company.
(i) The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby will not (A) result in a violation of the Company's Certificate of
Incorporation or By-laws or (B) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company is
a party, or result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected (except, with respect to clause (B), for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a material adverse effect
on the operation, properties, prospects or financial condition of the Company
("MATERIAL ADVERSE EFFECT")). The Company is not in violation of its
Certificate of Incorporation or By-laws and is not in default (and no event has
occurred which with notice or lapse of time of both would put the Company in
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party, except for possible defaults as would not, individually
or in the aggregate, have a Material Adverse Effect. The business of the
Company is not being conducted, and shall not be conducted, in violation of any
law, ordinance or regulation of any governmental entity, except for possible
violations which either singly or in the aggregate do not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the Securities Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement in accordance with the terms
hereof.
(j) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of Warrant Shares to provide for
the full exercise of the outstanding Placement Warrants.
(k) The Company shall promptly secure the listing of the Warrant
Shares upon each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed (subject to official
notice of issuance) and shall maintain, so long
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as any other shares of Common Stock shall be so listed, such listing of all
Warrant Shares from time to time issuable upon exercise of the Warrants.
4. Publicity. The Company shall not make any reference to Zanett or to
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any of its affiliates in any release or other communication without Zanett's
prior written consent. Without Zanett's prior written consent, no advice
rendered by Zanett in connection with the services performed by Zanett pursuant
to this Agreement will be quoted by the Company, its affiliates or
representatives nor will any such advice be referred to in any report, document,
release or other communication, whether oral or written, prepared or issued or
transmitted by such person, except to the extent required by law (in which case
the appropriate party shall so advise Zanett in writing prior to such use and
shall consult with Zanett with respect to the form and timing of the
disclosure).
5. Indemnification and Contribution.
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(a) To the extent permitted by law, the Company will indemnify, hold
harmless and defend Zanett and each of its directors, officers, partners,
members, employees, agents and each person who controls Zanett within the
meaning of the Securities Act or the Exchange Act, if any, (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any
transaction contemplated by this Agreement, the retention of Zanett as Placement
Agent under this Agreement, the performance of services by Zanett hereunder or
any involvement or alleged involvement of Zanett in the Offering or (ii) any
breach of any of the Company's representations, warranties or covenants
contained herein. The Company shall reimburse each of the Indemnified Persons,
promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 5(a) shall not (i) apply in instances where the Claims
were the result of Zanett's gross negligence or based on Zanett's wilful
misconduct, and (ii) apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld.
(b) Promptly after receipt by an Indemnified Person under this Section
5 of notice of the commencement of any action (including any governmental
action), such Indemnified Person shall, if a Claim in respect thereof is made
against the Company under this Section 5, deliver to the Company a written
notice of the commencement thereof, and the Company shall have the right to
participate in, and, to the extent the Company so desires, to assume control of
the defense thereof with counsel mutually satisfactory to the Company and the
Indemnified Person; provided, however, that an Indemnified Person shall have the
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right to retain its own counsel, with the fees and expenses to be paid by the
Company, if, in the reasonable opinion of counsel retained by the Indemnified
Person, the representation by such counsel of the
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Indemnified Person and the Company would be inappropriate due to actual or
potential differing interests between such Indemnified Person and any other
party represented by the Company's counsel in such proceeding. The Company shall
pay for only one separate legal counsel for the Indemnified Persons, and such
legal counsel shall be selected by Placement Agent. The failure to deliver
written notice to the Company within a reasonable time of the commencement of
any such action shall not relieve the Company of any liability to the
Indemnified Person under this Section 5, except to the extent that the Company
is actually prejudiced in its ability to defend such action. The indemnification
required by this Section 5 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as such expense,
loss, damage or liability is incurred and is due and payable.
(c) To the extent any indemnification by the Company of an Indemnified
Person is prohibited or limited by law or otherwise unavailable in respect of
any Claim, the Company agrees to make the maximum contribution with respect to
any amounts for which it would otherwise be liable under Section 5 to the
fullest extent permitted by law. In this regard, the Company shall contribute
to the amount paid or payable by such Indemnified Person as a result of any such
Claim (i) in such portion as is appropriate to reflect the relative benefits
received by the Company, on the one hand, and the Indemnified Person, on the
other, from the structuring and issuance of the securities in the Offering or
any other transaction in which Zanett rendered services hereunder or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company, on
the one hand, and of the Indemnified Person, on the other, in connection with
untrue statements or omissions or other actions (or alleged untrue statements,
omissions or other actions) which resulted in such Claim as well as any other
relevant equitable considerations. The relative benefits received by the
Company, on the one hand, and the Indemnified Person, on the other, shall be
deemed to be in the same proportion as the total gross proceeds received by the
Company in the Offering or any other financing bears to such Indemnified
Person's compensation. The relative fault of the Company on the one hand and of
the Indemnified Person on the other shall be determined by reference to, among
other things, whether such untrue statements or omissions or other actions (or
alleged untrue statements, omissions or other actions) relate to information
supplied or action taken by the Company, on the one hand, or by the Indemnified
Person, on the other, and the relevant persons' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statements, omission or actions. The amount paid or payable by a party as a
result of the Claim shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The Company and Zanett agree that it would not
be just and equitable if contribution pursuant to this Section 5 were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above.
(d) The aforesaid indemnity and contribution agreements shall apply to
any related activities engaged in by any Indemnified Person prior to this date
and to any modification of Zanett's engagement hereunder, and shall remain in
full force and effect regardless of any investigation made by or on behalf of
Placement Agent or any of its agents, employees, officers,
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directors or controlling persons and shall survive the issuance of any
securities in any transaction referred to hereunder (including the Offering) and
any termination of this Agreement or Placement Agent's engagement hereunder. The
Company agrees to promptly notify Zanett of the commencement of any litigation
or proceeding against it or any of its directors, officers, agents or employees
in connection with the transactions contemplated hereby.
(e) The Company also agrees that no Indemnified Person shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company, its owners, creditors or security holders for or in connection with
advice or services rendered or to be rendered by Zanett pursuant to this
Agreement, the transactions contemplated hereby or any Indemnified Person's
actions or inactions in connection with any such advice, services or
transactions except for liabilities (and related expenses) of the Company that
are determined by a final judgment of a court of competent jurisdiction to have
resulted primarily from such Indemnified Party's gross negligence or wilful
misconduct in connection with any such advice, actions, inactions or services.
6. Survival of Certain Provisions. The representations, warranties,
------------------------------
covenants and provisions contained in Section 2(f), Section 3, Section 4 and
Section 5 hereof shall survive in full force and effect until that date which is
three (3) years from the date hereof (or such longer period as may be specified
in such provisions) regardless of (a) any completion or termination of any
financing contemplated by this Agreement (including the Offering), (b) any
termination of this Agreement, or (c) any investigation made by or on behalf of
Placement Agent or any affiliate of Placement Agent, and shall be binding upon,
and shall inure to the benefit of, any successors, assigns, heirs and personal
representatives of the Company, Zanett, the Indemnified Parties and any holder
of Placement Warrants.
7. Miscellaneous.
-------------
(a) All notices, requests, demands and other communications which are
required or may be given hereunder shall be in writing and shall be deemed to
have been duly given when delivered personally, receipt acknowledged or five (5)
days after being sent by registered or certified mail, return receipt requested,
postage prepaid. All notices shall be made to the parties at the addresses
designated above or at such other or different addresses which party may
subsequently provided with notice thereof, and, to their respective legal
counsel, as follows:
(i) If to Placement Agent, to
---------------------
The Zanett Securities Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-with a copy to -
-▇▇-
▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
(ii) If to the Company, to
-----------------
Advanced Environmental Recycling Technologies, Inc.
▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Chairman of the Board
-with a copy to -
Akin, Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇, Esq.
(b) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
(c) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York (without regard to its conflict of laws
provisions). The Company hereby agrees to submit to the exclusive jurisdiction
of an arbitration panel of the National Association of Securities Dealers, Inc.
located in the City of New York in connection with any suit, action or
proceeding related to this Agreement or any of the matters contemplated hereby,
irrevocably waives any defense of lack of personal jurisdiction and irrevocably
agrees that all claims in respect of any suit, action or proceeding may be heard
and determined in by such panel. The Company irrevocably waives, to the fullest
extent it may effectively do so under applicable law any objection which it may
now or hereafter have to the laying of venue of any such suit, action or
proceeding brought before any such court and any claims that any such suit,
action or proceeding brought in any such arbitration panel has been brought in
an inconvenient forum. The Company further agrees to pay or reimburse Zanett
for all reasonable costs and expenses incurred by Placement Agent in connection
with the enforcement of any of its rights under this Agreement, including
without limitation, all attorneys' fees and expenses of its counsel.
(d) The section headings in this Agreement have been inserted as a
matter of
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convenience of reference and are not a part of this Agreement.
(e) This Agreement may not be modified or amended except in writing
duly sworn by the parties hereto.
(f) If any term, provision, covenant or restriction contained in this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy, the remainder of
the terms, provisions, covenants and restrictions contained in this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
(g) Each party to this Agreement has participated in the negotiation
and drafting of this Agreement. As such, the language used herein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.
Please sign and return the original and one copy of this letter to indicate
your acceptance of the terms set forth herein whereupon this letter and your
acceptance shall constitute a binding agreement between you and the Company.
Very truly yours,
Advanced Environmental Recycling
Technologies, Inc.
By:
--------------------------------------
Accepted and Agreed to
this 30th day of October, 1997.
THE ZANETT SECURITIES CORPORATION
By:
----------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
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