Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SB-2 Registration Statement 71 393K
2: EX-3.4 Amended and Restated By-Laws 17 72K
3: EX-4.34 Common Stock Purchase Warrant - Brockington 14 61K
4: EX-4.35 Common Stock Purchase Warrant - Sld 14 61K
5: EX-4.36 Form of Warrant 12 45K
6: EX-4.37 Common Stock Purchase Warrant - Trask 13 50K
7: EX-5.1 Opinion of Kronish Lieb Weiner & Hellman LLP 2 12K
8: EX-10.10 Placement Agency Agreement 24 122K
9: EX-10.11 Engagement Agreement 8 35K
10: EX-10.12 Consulting Agreement 3 14K
11: EX-10.13 Subscription Agreement 11 67K
12: EX-10.14 Registration Rights Agreement 10 46K
13: EX-10.15 Employment Agreement - Liddle 10 40K
14: EX-10.16 Employment Agreement 14 41K
15: EX-10.17 Separation Agreement 9 39K
16: EX-23.1 Consent of Mahoney Cohen & Company 1 7K
PLACEMENT AGENCY AGREEMENT
November ___, 2003
Spencer Trask Ventures, Inc.
535 Madison Avenue
18th Floor
New York, New York 10022
Ladies and Gentlemen:
Home Director, Inc., a Delaware corporation (the "Company"), hereby confirms its
agreement (the "Agreement") with Spencer Trask Ventures, Inc., a Delaware
corporation (the "Placement Agent"), as follows (unless the context otherwise
requires, as used herein, the "Company" refers to Home Director, Inc. and each
of its subsidiaries, if any):
1. Offering.
(a) The Company will offer (the "Offering") for sale through the Placement
Agent as exclusive agent for the Company, investment units ("Units"), each Unit
comprised of (i) one (1) share (the "Shares") of common stock, par value $0.01
per share, of the Company (the "Common Stock") and (ii) a three (3)-year warrant
(the "Warrant", together with the Shares, the "Securities") to purchase one
share of Common Stock. The offering price per Unit (the "Purchase Price per
Unit") shall be equal to eighty percent (80%) of the average of the closing bid
prices of the Common Stock on the OTC Bulletin Board over the ten (10) trading
days immediately prior to each closing of the sale of Units (a "Closing"). The
exercise price of each Warrant shall be equal to the average of the closing bid
prices of the Common Stock on the OTC Bulletin Board over the ten (10) trading
days immediately prior to the related Closing. The total amount of gross
proceeds from the sale of Units in the Offering shall be a minimum of $1.0
million (the "Minimum Amount") and a maximum of $2.5 million (the "Maximum
Amount"). In addition, for the purpose of covering overallotments in the sale of
the Units, the Company and the Placement Agent may agree to sell additional
Units with total gross proceeds equal to up to thirty percent (30%) of the
Maximum Amount. All share prices, exercise prices and conversion prices should
be assumed to be proportionally adjusted to reflect stock splits, stock
dividends, recapitalizations and the like.
(b) The Units will be offered on a reasonable efforts basis for a period of 60
days from the date that the Memorandum (as defined in Section 1(d)) is first
sent to prospective investors (the "Commencement Date"), which period may be
extended by the Placement Agent for up to an additional 30 days (the "Offering
Period"). The date on which the Offering shall terminate shall be referred to as
the "Termination Date."
(c) The minimum subscription for Units shall be $25,000, however, the Placement
Agent and the Company may, in their discretion, agree to accept less than the
minimum subscription amount;
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 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.
"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. 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. All references to the "Company" in this
Section 2 shall be deemed to include the Company's subsidiaries, as applicable.
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
of the statements, documents, certificates or other items prepared or
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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. and Home Director Technologies, Inc.
The Company directly or indirectly owns all of the outstanding capital stock of
its subsidiaries. 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 (collectively, the "Transaction Documents") and to issue, sell and
deliver the Units and the shares of Common Stock issuable upon exercise of the
Warrants (the "Conversion Shares"). The execution and delivery of each of the
Transaction Documents has been or prior to the 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, 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 as set
forth in the Memorandum. 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 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
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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; (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; and (v) except as set forth
in the Memorandum no person holds a right to require the Company to register any
securities of the Company under the Act or to participate in any such
registration. 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. All
issuances by the Company of its securities were at the time of their issuance
either (i) exempt from registration under the Act and any applicable state
securities laws or (ii) appropriately registered.
(g) The Shares, the Warrants, the Conversion Shares and the Agent's Warrants (as
defined in Section 3(e) hereof) have been duly authorized and, when issued and
delivered against payment therefor 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 Securities, 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 Securities, the Conversion Shares or the Agent's Securities is
subject to preemptive or similar rights of any securityholder of the Company,
nor will the issuance of such securities trigger an adjustment under the
antidilution or exercise rights of any holders of any outstanding shares of
capital stock, options, warrants or other rights to acquire any securities of
the Company except as set forth in the Memorandum. A sufficient number of
authorized but unissued shares of Common Stock has been reserved for issuance
upon exercise of the Warrants and the exercise of the Agent's Warrants.
(h) No consent, authorization or filing of or with any court or governmental
authority is required in connection with the issuance of the Securities, the
Conversion Shares or the Agent's Securities (as defined in Section 3(e) hereof)
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 or incorporated by
reference 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
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entered into any material transactions or commitments. The other financial and
statistical information with respect to the Company 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. Except as set forth in the
Memorandum, all material licenses, permits, approvals, government
authorizations, leases, contracts and agreements referred to in the Memorandum,
along with all other material licenses, permits, approvals, leases, governmental
authorizations or contracts to which the Company is a party, have been obtained
and are valid and in full force and effect and neither the Company nor, to the
knowledge of the Company, any other party is in default thereunder, and to the
knowledge of the Company, no event has occurred which with the passage of time
or the giving of notice, or both, would constitute a default thereunder except
for a default which would not have a material adverse effect on the Company.
Except as described in the Memorandum, all material licenses, permits, approvals
or governmental authorizations necessary to permit the Company to conduct its
business have been obtained and are outstanding and will be outstanding on each
Closing Date, and the Company is in all material respects complying therewith.
There are no proceedings pending, or to the knowledge of the Company threatened,
seeking to cancel, terminate or limit such licenses, approvals or permits.
(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.
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(m) Except as set forth in the Memorandum, the Company is not in violation of:
(i) its charter or by-laws; (ii) any indenture, mortgage, deed of trust, note 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) Except as set forth in the Memorandum and the financial statements
incorporated by reference therein, 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 liens imposed by law, such as
carrier's, warehouseman's, and mechanic's liens imposed in the ordinary course
of business with respect to obligations not yet due.
(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, the Company 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, the Company, since June 30, 2003, has operated its business diligently
and only in the ordinary course as theretofore conducted and since the date of
the financial statements incorporated by reference in the Memorandum 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) Except as set forth in the in Memorandum and the financial statements
incorporated by reference therein, 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
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solicited offers to purchase the Units except for negotiations with the
Placement Agent. 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) All of the Company's filings with the SEC are true and correct in all
material respects.
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 Purchase Price Per Unit paid by each investor (the
"Placement Agent's Fee"). In addition, the Company shall pay all expenses set
forth in Section 5(i) hereof. The Placement Agent's Fee and the expenses set
forth in Section 5(i) 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.
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(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 the number of shares of Common Stock equal to twenty
percent (20%) of the Shares and Conversion Shares underlying the Warrants
purchased at each Closing (the "Agent's Warrants"), at an exercise price per
share equal to the exercise price per share of the Warrants issued at the
applicable Closing. The shares of Common Stock 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 five years after their date of issuance. The holders
of the Agent's Securities shall have registration rights equivalent to those
granted to the holders of Units. Prior to the First Closing, the Company and
Placement Agent shall agree to the form of Agent's Warrant, which shall contain
such terms and other customary provisions including cashless exercise and
weighted average anti-dilution provisions in form and substance reasonably
satisfactory to the Placement Agent and the Company.
(f) In the event any investor in the Offering or other party contacted by the
Placement Agent in connection with the Offering (except for parties that have
previously invested in the Company not as a result of an introduction by the
Placement Agent), subsequently invests in the Company at any time within
eighteen (18) months from the later of the Termination Date or the final closing
of the Offering ("Final Closing")(the "Tail Period"), the Company shall pay to
the Placement Agent the Placement Agent's Fee and a nonaccountable expense
allowance equal to 3%, and issue to the Placement Agent the Agent's Warrants
(exercisable at the subsequent investment share price) with respect to, and
based on the gross proceeds from investments in the Company made during the Tail
Period by such investors or parties.
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 and the accredited investor certification attached thereto, 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 Purchase Price Per
Unit 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 American Stock
Transfer & Trust Company, acting as escrow agent (the "Escrow Agent")
established for the purpose of holding subscription funds prior to a Closing.
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 Company will pay all fees related to
the establishment and maintenance of the Escrow Account. The Placement Agent or
the Company can reject any subscriptions for any reason. Subject to the receipt
of such subscriptions for the Minimum Amount, the Company will either accept or
reject the Subscription Agreements in a timely fashion and at each Closing will
countersign the Subscription Agreements and provide copies of such agreements to
the Placement Agent. 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,
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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 that portion of the Units sold
(the "First Closing"). Thereafter, the remaining Units will continue to be
offered and sold until the Termination Date. Additional Closings may from time
to time be conducted at times mutually agreeable with respect to the additional
Units sold, with the Final Closing to occur within ten (10) days after the
earlier of the Termination Date or the sale of all Units offered. Delivery of
payment for the accepted subscriptions from the funds held in the Escrow Account
will be made at each Closing at the Placement Agent's offices against delivery
by the Company of the Securities comprising the Units 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 of amounts due to the
Placement Agent and Blue Sky counsel pursuant to Section 5(i) hereof as of such
Closing. Executed Securities 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) 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
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 and therein 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 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
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(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
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 subject.
(e) The Company shall place a legend on the certificates representing the
Securities 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 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. The net
proceeds shall not be used to repay indebtedness to current executive officers
or principal shareholders of the Company, or to repurchase or redeem any
securities.
(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 applicable law or 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
10
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 and to the
extent in compliance with applicable law.
(h) Except with the prior written consent of the Placement Agent or as set forth
in the Memorandum with respect to the issuance of Units, 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; dispose of any material assets or make any material
acquisition; 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) 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
thereto; (ii) the authorization, issuance, transfer and delivery of the Shares,
the Warrants, Conversion Shares, the Agent's Securities 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 reasonable fees and expenses of legal, accounting
and other advisers to the Company; (v) all filing fees, costs and legal fees and
expenses for Blue Sky services and related filings with respect to Blue Sky
exemptions and qualifications, including legal fees of $3,000 for the first ten
states and $450 per state thereafter, $3,000 of which shall be paid to the
Placement Agent's counsel upon the First Closing 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") relating to 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 Placement
Agent) equal to three (3%) percent of the gross proceeds from the sale of Units.
A good faith advance of $20,000 to cover up front expenses to be incurred by the
Placement Agent has been paid by the Company. Such amount shall be credited at
the First Closing against the 3% nonaccountable expense allowance.
(j) 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. 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.
(k) At each Closing Date, (i) the independent auditors for the Company shall
have provided a "comfort letter" concerning the Company's financial statements
in the form customarily provided by Mahoney Cohen & Company in connection with
securities offerings by its audit clients and (ii)
11
the chief executive officer, president and chief financial officer of the
Company shall have provided representations and warranties relating to the
Company's most recent quarterly and year-to-date unaudited financial statements
and internal financial controls, similar to those to be included in the
Company's 2002 annual report on Form 10-KSB under the 1934 Act, and as required
by the Sarbanes-Oxley Act of 2002.
(l) The Company hereby agrees to cooperate with Spencer Trask in exploring
strategic options, including, but not limited to investments, mergers and
acquisitions (but with no obligation to effect such a transaction).
(m) The Company and each of Donald Witmer and Robert Wise (the "Officers")
hereby agree that if the Company fails to achieve at least $1.00 (one dollar) of
earnings before interest, taxes, depreciation and amortization ("EBITDA") in at
least one fiscal quarter (the "Relevant Quarter") ending prior to January 1,
2004 (the said $1.00 of EBITDA is herein referred to as the "Earnings
Milestone"), the Officers shall, irrespective of anything contained in the
Officer's employment agreements with the Company (i) not be entitled to any
bonus for 2003 and (ii) their 2004 base salaries shall be reduced by 50% from
the levels in effect as of the date of this Agreement. The Company's achievement
of the Earnings Milestone shall be evidenced by a certificate from the Company's
chief executive officer and chief financial officer based on the Company's
regularly prepared financial statements for the Relevant Quarter as reviewed by
Company's independent auditors and such certificate and financial statements
shall be submitted to Spencer Trask and the investors in the Offering within
sixty (60) days of the end of the Relevant Quarter. The effective date of the
Earnings Milestone shall be extended by three months if the Company consummates
an acquisition of an unaffiliated company prior to December 31, 2003 with an
aggregate transaction value equal to at least $1,000,000.
(n) The Company hereby agrees to use commercially reasonable best efforts to
file a registration statement on Form SB-2 or other appropriate registration
document under the Act for resale of the Shares, the Conversion Shares and the
shares underlying the Placement Agent Warrants, as soon as practicable, but not
later than forty five (45) days following the Final Closing. The Company shall
use commercially reasonable best efforts to cause the effectiveness of such
registration statement on or before 90 days following the filing date of such
registration statement. If the registration statement has not been filed within
the said 45 day period, or does not become effective on or before 90 days after
the earlier of its filing and the end of such 45 day period, the Company shall
pay to each investor in the Offering as liquidated damages, an amount in cash
equal to 0.5% of the aggregate purchase price paid by such investor in the
Offering per week, until such registration statement has been filed or has been
declared effective, as applicable. The liquidated damages shall be paid to the
said investors within 10 days after the first 30 days that such amounts become
applicable and at the end of each 30 days thereafter until the applicable date
of when the registration statement is filed or becomes effective. The 45 day and
90 day periods referred to in this paragraph shall be extended by the period of
any delay in the filing or effectiveness of the registration statement
necessitated by the occurrence of one or more significant transactions or events
affecting the Company (e.g., an acquisition or significant commercial
transaction or event outside the control of the Company that causes the filing
or effectiveness of the registration statement to be seriously detrimental to
the Company or its stockholders), which require the Company to alter disclosure
or defer the effectiveness of the
12
Registration Statement in order to comply with applicable securities laws, but
in no event shall any such delay exceed 60 days in any event.
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 date of the Memorandum, the Company has a capitalization of (i)
40,000,000 shares of Common Stock authorized, of which 3,751,467 shares are
issued and outstanding, (ii) 2,000,000 shares of preferred stock, par value $.01
per share, authorized, of which no shares are issued and outstanding; (iii)
options to purchase 613,371 shares of Common Stock are issued and outstanding;
and (iv) warrants to purchase 773,592 shares of Common Stock are issued and
outstanding. Between the date of the Memorandum and the Final Closing, no
additional securities will be issued by the Company, including but not limited
to shares, options, stock subscription agreements or warrants to purchase shares
of the Company or any other obligation to issue shares or other securities of
the Company, without the prior written consent of the Placement Agent.
Notwithstanding the preceding sentence, the Company may issue (i) compensatory
option grants to employees and consultants in the ordinary course of business
pursuant to option plans presently in effect, (ii) shares of its Common Stock
upon exercise of outstanding options or warrants or conversion of outstanding
convertible securities and (iii) securities included in the Units sold in the
Offering and the Agent's Warrants.
(e) The Placement Agent shall have received certificates of the chief financial
officer 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.
13
(g) On or prior to the date hereof and at each Closing, the chief executive
officer, president and chief financial officer 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 material 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(i) 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 actions taken at or prior to each Closing and related documentation 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.
(k) The Placement Agent shall be satisfied with the results of its due diligence
investigation of the Company.
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
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
14
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.
(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
15
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
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.
16
9. Termination.
(a) (I) 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 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 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 Purchase Price Per Unit of all Units sold in the Offering (deeming, for
this purpose, all Units offered (other than Units available for over-allotments
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 pursuant to
Section 3(f) hereof. If the Offering is not completed because the Placement
Agent prevents its completion (except where the Placement Agent does so because
of a breach by the Company of a covenant, representation or warranty contained
herein or in the Memorandum which the Company fails to cure within ten (10)
business days of receipt of written notice from the Company) or the Company
terminates the Offering because of failure of the Commencement Date to occur
within 10 days from the date hereof, the Placement Agent shall retain the
$20,000 previously paid to the Placement Agent. If the Company prevents
completion of the Offering (except where the Company does so because of a breach
by the Placement Agent of a covenant, representation or warranty contained
herein which the Placement Agent fails to cure within ten (10) business days of
receipt of written notice from the Placement Agent), the Company's liability for
the Placement Agent's expenses shall be equal to 3% of the Maximum Amount to
cover the Placement Agent's expenses and efforts. Notwithstanding the foregoing,
in the event the Company completes one or more public or private offerings of
its securities within one year after the Company prevents the completion of the
Offering (except where the Company does so because of a breach by the Placement
Agent of a covenant, representation or warranty contained herein which the
Placement Agent fails to cure within ten (10) business days of receipt of
written notice from the Placement Agent), the Company shall also pay the
Placement Agent an investment banking fee equal to five percent (5%) of the
total consideration received by the Company in connection with such sales of
securities.
(II) This Offering may be terminated by the Placement Agent by notice to the
Company at any time if, in the sole judgment of the Placement Agent, the
Offering or the sale or the payment for or the delivery of the Units is rendered
impracticable or inadvisable because (i) additional material governmental
restrictions not in force and effect on the date hereof shall have been imposed
upon trading in securities generally, or minimum or maximum prices shall have
been generally established on the New York Stock Exchange, or trading in
securities generally on such exchange shall have been suspended or a general
banking moratorium shall have been established by federal
17
or New York State authorities, (ii) a war, major hostilities, terrorist or
similar activity, act of God or other calamity shall have occurred, (iii) of a
material adverse change in the condition (financial or otherwise) of the
Company, its business or business prospects or (iv) the Placement Agent, in its
sole discretion, shall be dissatisfied with the results of its due diligence
investigation.
(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)(I)(iv) above not occasioned by or arising out of
or in connection with any breach of 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 no additional amounts whatsoever
except amounts 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 unpaid Blue Sky Fees and other
expenses set forth in Section 5(i) 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 sold 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 Spencer Trask Ventures, Inc., 535 Madison Avenue,
18th Floor, New York, New York 10022, Attention: William P. Dioguardi,
President, Telefax number 212-829-4406, with a copy to Feldman Weinstein LLP,
420 Lexington Avenue, New York, New York 10170, Attention: David N. Feldman,
Esq., Telefax number (212) 997-4242, and if sent to the Company, will be mailed,
delivered or telefaxed and confirmed to Home Director, Inc., 2525 Collier Canyon
Road, Livermore, CA 94551, Attention: Donald B. Witmer, Telefax number (925)
243-1745, with a copy to Kronish Lieb Weiner & Hellman LLP, 1114 Avenue of the
Americas, New York, NY 10036, Attention: Russell S. Berman, Esq., Telefax number
(212) 479-6275.
12. APPLICABLE LAW, COSTS, ETC. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
18
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 SEC filings. 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 shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Placement Agent. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which shall constitute a
single agreement. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt
19
to agree upon a valid and enforceable provision that is a reasonable substitute
therefore, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
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 ___ day of
November, 2003.
SPENCER TRASK VENTURES, INC.
By: ___________________________
Name:
Title:
Accepted and Agreed to
this __ day of November, 2003.
_______________________________
Name: Donald Witmer
Address:
_______________________________
Name: Robert Wise
Address:
21
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 _____________, 2003 by and among
Home Director, Inc. (the "Company") and Spencer Trask Ventures, Inc. (the
"Placement Agent") (such agreement, the "Placement Agency Agreement"), (b) the
Placement Agent Warrant dated as of ___________, 2003, by and among the Company
and the Placement Agent (the "Placement Agent Warrant") and (c) the Subscription
Agreement, dated as of______________, 2003, by and among the Company and each
investor signatory thereto (such investors, the "Investors" and such agreement,
the "Subscription Agreement"), the Escrow Agreement and the Warrant. 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 and each of its subsidiaries have been duly organized as a
corporation and are validly existing and in good standing under the laws of
their respective jurisdictions of organization, have full corporate power and
authority (corporate and otherwise) to own, lease and operate their properties
and conduct their business as described in the Memorandum and are duly qualified
as a foreign corporation for the transaction of business and are 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 (a "Material Adverse Effect").
(ii) The Company has the full corporate power and authority to execute and
deliver the Transaction Documents and all other agreements, documents and
certificates contemplated thereby and to perform its obligations thereunder. The
execution, delivery and performance thereof and thereunder has 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
legal, valid and binding obligations of the Company, enforceable against it in
accordance with its terms except as such enforceability may be limited by
applicable bankruptcy, insolvency or laws affecting creditor's rights or
remedies and general principles of equity.
(iii) To our knowledge, the Company has an authorized and outstanding capital
stock as set forth in the Memorandum and the outstanding shares of capital stock
of the Company have been duly authorized and are validly issued, fully paid and
nonassessable and were not issued in violation of, or subject to, any statutory,
or to our knowledge, contractual or other preemptive rights. The Units, the
components thereof, 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 Confidential Private Placement
Memorandum (the "Memorandum"), the issuance of the Units, Conversion Shares or
the Agent's Securities are not subject to statutory, or to our knowledge,
22
contractual or other preemptive rights of any stockholder of the Company. The
Units, Conversion Shares and the Agent's Securities conform in all material
respects with the descriptions thereof contained in the Memorandum. A sufficient
number of authorized but unissued shares of Common Stock have been reserved for
issuance upon conversion or exercise of the components of the Units and exercise
of the Agent's Warrants if such Warrants had been exercised on the date hereof.
(iv) None of the execution and delivery of, or performance by the Company under,
any of the Transaction Documents or the consummation of the transactions therein
contemplated, will conflict with or violate (a) any term of the charter or
by-laws of the Company or any subsidiary, (b) any statute, rule, regulation or
ordinance or (c) any permit, judgment, decree, or order known to us which is
applicable to the Company, its subsidiaries or any of their respective 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 therein
contemplated, will conflict with or result in the creation or imposition of, any
lien, charge or other encumbrance upon any of the properties or assets of the
Company or its subsidiaries pursuant to the terms of any material indenture,
mortgage, deed of trust, note, material license, agreement or other instrument
filed as an Exhibit to the Company's SEC reports to which the Company or any
subsidiary is a party or by which the Company or any subsidiary may be bound or
to which any of their respective 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 Units 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, any of its subsidiaries, or involving their respective assets or
properties or any of their officers or directors which, if determined adversely
to the Company, could have a Material Adverse Effect on the Company or adversely
affect any of the transactions contemplated by the Transaction Documents or the
validity or enforceability thereof.
(viii) To our knowledge except as provided in the Memorandum, neither the
Company nor any of its subsidiaries is in violation or breach of: (i) its
charter or by-laws, (ii) any statute, rule, regulation or ordinance under the
Delaware General Corporation Law or federal securities law; (iii) any material
indenture, mortgage, deed of trust, note or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it is or may
be bound or to which any of its assets, properties or businesses may be subject
and which have been filed as an exhibit to the Company's SEC reports; or (iv)
any judgment, decree or order applicable to the
23
Company or any subsidiary which violation or violations individually, or in the
aggregate, might result in any Material Adverse Effect in the condition
(financial or otherwise), or prospects of the Company.
(ix) To our knowledge, the descriptions in the Memorandum of contracts and other
documents are accurate in all material respects and such descriptions fairly
present in all material respects the information required to be shown. To our
knowledge, there are no contracts or other documents of a character required to
be referred to in the Memorandum other than those described or referred to
therein.
(x) To our knowledge, the Company and its subsidiaries have obtained all
authorizations, approvals, licenses, permits, franchises and orders of and from
all governmental officials and bodies to own or lease and operate its assets and
properties (the "Authorizations") and to conduct its business as currently
conducted as described in the Memorandum; all of such Authorizations are to the
best of our knowledge in full force and effect and the Company and its
subsidiaries are in all material respects complying therewith and there are, to
the best of our knowledge of such counsel no proceedings pending or threatened
seeking to cancel or terminate such Authorizations.
(xi) We have participated in the preparation of the Memorandum and in
conferences with officers and other representatives of the Company, at which
such conferences the contents of the Memorandum and related matters were
discussed, and based upon those conferences and upon such counsel's
participation in the preparation of the Memorandum, and any amendment or
supplement thereto, 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 than the supporting schedules 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 in which they were made.
(xi) Assuming that the Units were sold only to "accredited investors" (as
defined in Rule 501 of Regulation D) and the Placement Agent complied in all
material respects with Regulation D, such sales were made in conformity in all
material respects with the requirements of Sections 4(2) of the Act and and/or
Rule 506 of Regulation D and the issuance of the Units in accordance with the
Memorandum is exempt from registration under the Securities Act of 1933, as
amended.
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Dates Referenced Herein and Documents Incorporated by Reference
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