DIGS, INC.
PLACEMENT AGENT AGREEMENT
Dated as of: March 14, 2000
May ▇▇▇▇▇ Group, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇
Ladies and Gentlemen:
The undersigned, Digs, Inc. (the "Company"), hereby agrees with May ▇▇▇▇▇
Group, Inc. ("May ▇▇▇▇▇") as follows:
1. Offering.
A. The Company hereby engages May ▇▇▇▇▇ to act as its exclusive
placement agent in connection with the issuance and sale by the Company (the
"Offering") of the Company's Convertible Series A Preferred Stock, $0.01 par
value per share (the "Preferred Stock"), at a price of $1,000 per share for an
aggregate offering price of $2,500,000. For every forty (40) shares of Preferred
Stock purchased in the Offering, an investor will receive a common stock
purchase warrant (collectively, the "Warrants" and individually, a "Warrant")
for the purchase of one (1) share of the Company's common stock, $0.001 par
value per share (the "Common Stock").
The Preferred Stock will be convertible by the holder for a period of three (3)
years at any time after the Closing Date (as hereinafter defined) into shares of
Common Stock (the 'Conversion Shares") in accordance with the terms and
conditions set forth in the Company's Certificate of Designations, Preferences
and Rights governing the Preferred Stock to be filed by the Company with the
Secretary of State of Delaware on or before the Closing Date (the "Certificate
of Designations"). Each Warrant entitles the holder to purchase one share of
Common Stock (the "Warrant Shares") for an exercise price as set forth in the
Warrants.
The Preferred Stock and the Warrants are subject to the terms of the Certificate
of Designations, the Securities Purchase Agreement (the "Securities Purchase
Agreement") and the registration rights agreement (the "Registration Rights
Agreement") to be executed by the Company and all investors who purchase shares
of Preferred Stock and Warrants in the Offering and all disclosure materials of
the Company referred to in the Securities Purchase Agreement (collectively, the
"Offering Materials"). The Preferred Stock, the Conversion Shares, the Warrants
and the Warrant Shares are hereinafter sometimes collectively referred to as the
"Securities." The Securities will be offered without registration under the
Securities Act of 1933, as amended (the "Securities Act"). Purchasers of the
Securities will be granted certain registration rights with respect to the
Conversion Shares and the Warrant Shares as more fully set forth in the
Registration Rights Agreement, the Securities Purchase Agreement and in the
certificates representing the Preferred Stock and the Warrants.
B. The Offering of Preferred Stock will be made by May ▇▇▇▇▇ on a
"best efforts, all or none" basis. The closing of the Offering (the "Closing")
will occur as soon as practicable after the date on which subscriptions have
been received and accepted by the Company for all 2,500 shares of Preferred
Stock being sold in the Offering (the "Closing Date"), and the Company shall
issue shares of Preferred Stock and Warrants at the Closing upon receipt of
investors' funds that have cleared the banking system in the normal course of
business. The Closing will take place at the offices of ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇, P.C., counsel to May ▇▇▇▇▇, at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or such other place as determined by the Company and May
▇▇▇▇▇, at such time as shall be determined by May ▇▇▇▇▇.
C. The Offering shall commence on the date hereof and shall
terminate on March 31, 2000, unless extended by the Company and May ▇▇▇▇▇ (such
date, as the same may be extended, is hereinafter referred to as the
"Termination Date"; the period commencing on the date hereof and ending on the
Termination Date is sometimes referred to herein as the "Offering Period"). If
subscriptions for all shares of Preferred Stock being offered in the Offering
are not received by May ▇▇▇▇▇ prior to the Termination Date, all funds received
by investors will be returned thereto without interest thereon or deduction
therefrom.
2. Information.
A. The Preferred Stock will be offered by May ▇▇▇▇▇ on a "best
efforts, all or none" basis.
B. The Preferred Stock shall have the terms set forth in the
Certificate of Designations and the Preferred Stock and Warrants shall be
offered by the Company by means of the Securities Purchase Agreement and other
Offering Materials. Payment for the Preferred Stock shall be made by check or
wire transfer as more fully described in the Securities Purchase Agreement. The
minimum purchase by any purchaser shall be $50,000, or 50 shares of Preferred
Stock, except that subscriptions for lesser amounts of Preferred Stock may be
accepted at the discretion of the Company and May ▇▇▇▇▇. May ▇▇▇▇▇ and the
Company agree that the Preferred Stock will be offered and sold only to
"accredited investors" within the meaning of Rule 501 of Regulation D
("Accredited Investors") promulgated by the Securities and Exchange Commission
(the "Commission") under the Securities Act and Rule 506 of Regulation D of the
Securities Act.
C. In the event that the Closing occurs, the funds received in respect
of the shares of Preferred Stock closed on will be forwarded to the Company,
against delivery of the appropriate amount of the securities offered, net of (i)
the placement agent commission equal to ten percent (10%) of the gross proceeds
from the sale of shares of Preferred Stock in the Offering, and (iii) legal fees
and expenses related thereto due to May ▇▇▇▇▇'▇ counsel.
D. In addition to the foregoing compensation, at the Closing the
Company shall issue to May ▇▇▇▇▇ common stock purchase warrants to purchase
200,000 shares of Common Stock at an exercise price equal to 110% of the closing
bid price of the Common Stock on the Closing Date (the Placement Agent's
Warrants). The Placement Agent's Warrants shall be exercisable at any time by
the Placement Agent's for a period of sixty (60) months from the Closing Date
and shall contain such anti-dilution and other protective provisions as are
contained in the Warrants to be issued to investors in the Offering.
E. At the Closing, the Company shall cause to be paid by, at the
option of May ▇▇▇▇▇, certified or official bank check or wire transfer, to the
extent not previously paid by the Company to May ▇▇▇▇▇ (i) the placement agent
commission equal to eight percent (8%) of the gross proceeds from the sale of
shares Preferred Stock in the Offering, (ii) mailing and related expenses of May
▇▇▇▇▇ and (iii) and legal fees and expenses related thereto due to May ▇▇▇▇▇'▇
counsel, not to exceed $20,000 plus out of pocket expenses. In addition to the
foregoing, the Company shall be responsible for the fees and expenses identified
in Sections 6, 7, and 9 hereof, which expenses shall not be deemed to be
commissions.
F. May ▇▇▇▇▇ shall not be obligated to sell any shares of Preferred
Stock and shall only be obligated to offer the Preferred Stock on a "best
efforts" basis.
G. The Company and May ▇▇▇▇▇ reserve the right to reject any
subscriber, in whole or in part, in their sole discretion. Notwithstanding
anything to the contrary contained in this Section 2(G), the Company's right to
reject a subscriber shall lapse three (3) days after receipt by the Company of
the fully completed and duly executed subscription documents from May ▇▇▇▇▇ with
respect to such subscriber (unless it is determined subsequent to such period
that such subscriber does not meet the investor suitability requirements of this
Offering). Funds received from any subscriber whose subscription is rejected
will be returned to such subscriber, without deduction therefrom or interest
thereon, but no sooner than such funds have cleared the banking system in the
normal course of business.
3. Representations, Warranties and Covenants of May ▇▇▇▇▇.
A. May ▇▇▇▇▇ represents, warrants and covenants as follows:
(i) May ▇▇▇▇▇ has the necessary power to enter into this
Agreement, the Placement Agent's Warrant, the Placement Agent's Registration
Agreement and to consummate the transactions contemplated hereby and thereby.
(ii) The execution and delivery by May ▇▇▇▇▇ of this Agreement,
the Placement Agent's Warrant, the Placement Agent's Registration Rights
Agreement and the consummation of the transactions contemplated herein and
therein will not result in any violation of, or be in conflict with, or
constitute a default under, any agreement or instrument to which May ▇▇▇▇▇ is a
party or by which May ▇▇▇▇▇ or its properties are bound, or any judgment,
decree, order or, to May ▇▇▇▇▇'▇ knowledge, any statute, rule or regulation
applicable to May ▇▇▇▇▇. This Agreement, the Placement Agent's Warrant, and the
Placement Agent's Registration Rights Agreement when executed and delivered by
May ▇▇▇▇▇, ▇▇▇▇ constitute the legal, valid and binding obligations of May
▇▇▇▇▇, enforceable in accordance with their respective terms, except to the
extent that (a) the enforceability hereof or thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect and affecting the rights of creditors generally, (b) the
enforceability hereof or thereof is subject to general principles of equity, or
(c) the indemnification provisions hereof or thereof may be held to be violative
of public policy.
(iii) May ▇▇▇▇▇ will deliver to each purchaser, prior to any
submission by such person of a written offer relating to the purchase of the
Preferred Stock, the Securities Purchase Agreement, the Registration Rights
Agreement, the Warrant and a copy of the Certificate of Designations.
(iv) Upon receipt of an executed Securities Purchase Agreement, a
Registration Rights Agreement and the payments representing subscriptions for
shares of Preferred Stock, May ▇▇▇▇▇ will promptly forward copies of the
Securities Purchase Agreement and Registration Rights Agreement to the Company
or its counsel and shall forward all consideration received for such shares of
Preferred Stock to be held in escrow.
(v) May ▇▇▇▇▇ will not deliver any Offering Materials to any
person it does not reasonably believe to be an Accredited Investor.
(vi) May ▇▇▇▇▇ will not intentionally take any action that it
reasonably believes would cause the Offering to violate the provisions of the
Securities Act, the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), the respective rules and regulations promulgated thereunder
(the "Rules and Regulations") or applicable "Blue Sky" laws of any state or
jurisdiction.
(vii) May ▇▇▇▇▇ shall use all reasonable efforts to determine (a)
whether any prospective purchaser is an Accredited Investor and (b) that any
information furnished by a prospective investor is true and accurate. May ▇▇▇▇▇
shall have no obligation to insure that (a) any check, note, draft or other
means of payment for the Preferred Stock will be honored, paid or enforceable
against the subscriber in accordance with its terms, or (b) subject to the
performance of May ▇▇▇▇▇'▇ obligations and the accuracy of May ▇▇▇▇▇'▇
representations and warranties hereunder, (i) the Offering is exempt from the
registration requirements of the Securities Act or any applicable state "Blue
Sky" law or (ii) any prospective purchaser is an Accredited Investor.
(viii) May ▇▇▇▇▇ is a member of the National Association of
Securities Dealers, Inc., and is a broker-dealer registered as such under the
Exchange Act and under the securities laws of the states in which the Preferred
Stock will be offered or sold by May ▇▇▇▇▇, unless an exemption for such state
registration is available to May ▇▇▇▇▇. May ▇▇▇▇▇ is in compliance with all
material rules and regulations applicable to May ▇▇▇▇▇ generally and applicable
to May ▇▇▇▇▇'▇ participation in the Offering.
(ix) Placement Agent agrees that Placement Agent shall not engage
in any transaction constituting a "short sale" (as defined in Rule 3b-3 of the
▇▇▇▇ ▇▇▇) of Common Stock for a period of 12 months from the date of this
Agreement.
4. Representations and Warranties of the Company.
A. The Company represents and warrants as follows:
(i) The execution, delivery and performance of each of this Agreement,
the Securities Purchase Agreements, the Registration Rights Agreements, the
Warrant, the Placement Agent's Warrant, the Placement Agent's Registration
Rights Agreement and the Certificate of Designations has been or will be duly
and validly authorized by the Company and is, or with respect to the Securities
Purchase Agreements, the Registration Rights Agreements, the Warrant, the
Placement Agent's Warrant, the Placement Agent's Registration Rights Agreement
and the Certificate of Designations will be, a valid and binding agreement of
the Company, enforceable in accordance with their respective terms, except to
the extent that (a) the enforceability hereof or thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect and affecting the rights of creditors generally, (b) the
enforceability hereof or thereof is subject to general principles of equity or
(c) the indemnification provisions hereof or thereof may be held to be violative
of public policy. The Securities have been duly authorized and, when issued and
paid for in accordance with the (x) this Agreement, the Warrant, the Certificate
of Designations, the Securities Purchase Agreements, the Placement Agent's
Warrant the certificates/instruments representing each of such Securities, (y)
will be valid and binding obligations of the Company, enforceable in accordance
with their respective terms, except to the extent that (a) the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws from time to time in effect and affecting the rights of creditors
generally, and (b) the enforceability thereof is subject to general principles
of equity. All corporate action required to be taken for the authorization,
issuance and sale of the Securities has been duly and validly taken by the
Company.
(ii) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Offering Materials. The Company is not a
party to or bound by any instrument, agreement or other arrangement providing
for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and the agreements described herein and as
described in the Offering Materials. All issued and outstanding securities of
the Company, have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission or preemptive
rights with respect thereto and are not subject to personal liability solely by
reason of being securityholders; and none of such securities was issued in
violation of the preemptive rights of any holders of any security of the
Company. The Company has 80,000,000 shares of authorized Common Stock, 6,648,631
of which will be issued and outstanding as of the date hereof. The Company has
20,000,000 authorized shares of Preferred Stock, of which 2,500 shares of
Redeemable Convertible Series A Preferred Stock will be outstanding after the
Offering.
(iii) The Securities have been duly authorized and when issued and
paid for in accordance with the (x) this Agreement, the Certificate of
Designations, the Securities Purchase Agreements, the Warrants, the Placement
Agent's Warrant, the certificates/instruments representing each of such
Securities, (y) will be validly issued, fully-paid and non-assessable; the
holders thereof will not be subject to personal liability solely by reason of
being such holders; such securities are not and will not be subject to the
preemptive rights of any holder of any security of the Company.
(iv) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
necessary to conduct its business (including, without limitation any real or
personal property stated in the Offering Materials to be owned or leased by the
Company), free and clear of all liens, encumbrances, claims, security interests
and defects of any material nature whatsoever, other than those set forth in the
Offering Materials and liens for taxes not yet due and payable.
(v) There is no litigation or governmental proceeding pending or, to
the best of the Company's knowledge, threatened against, or involving the
properties or business of the Company, except as set forth in the Offering
Materials.
(vi) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware. Except as
set forth in the Offering Materials, the Company does not own or control,
directly or indirectly, an interest in any other corporation, partnership,
trust, joint venture or other business entity. The Company is duly qualified or
licensed and in good standing as a foreign corporation in each jurisdiction in
which the character of its operations requires such qualification or licensing
and where failure to so qualify would have a material adverse effect on the
Company. The Company has all requisite corporate power and authority, and all
material and necessary authorizations, approvals, orders, licenses, certificates
and permits of and from all governmental regulatory officials and bodies
(domestic and foreign) to conduct its businesses (and proposed business) as
described in the Offering Materials, and the Company is doing business in strict
compliance with all such authorizations, approvals, orders, licenses,
certificates and permits and all foreign, federal, state and local laws, rules
and regulations concerning the business in which it is engaged. Any disclosures
in the Offering Materials concerning the effects of foreign, federal, state and
local regulation on the Company's businesses as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact. The Company has all corporate power and authority to enter into
this Agreement, the Securities Purchase Agreements, the Registration Rights
Agreements, the Placement Agent's Warrant, the Placement Agent's Registration
Rights Agreement and the Certificate of Designations and to carry out the
provisions and conditions hereof and thereof, and all consents, authorizations,
approvals and orders required in connection herewith and therewith have been
obtained or will have been obtained prior to the Termination Date. No consent,
authorization or order of, and no filing with, any court, government agency or
other body is required by the Company for the issuance of the Securities or
execution and delivery of the Securities Purchase Agreements and the Placement
Agent's Warrant, the Placement Agent's Registration Rights Agreement except for
applicable federal and state securities laws. The Company, since its inception,
has not incurred any liability arising under or as a result of the application
of any of the provisions of the Securities Act, the Exchange Act or the Rules
and Regulations.
(vii) There has been no material adverse change in the condition or
prospects of the Company, financial or otherwise, from the latest dates as of
which such condition or prospects, respectively, are set forth in the Offering
Materials, and the outstanding debt, the property and the business of the
Company conform in all material respects to the descriptions thereof contained
in the Offering Materials.
(viii) Except as set forth in the Offering Materials, the Company is
not in breach of, or in default under, any term or provision of any material
indenture, mortgage, deed of trust, lease, note, loan or credit agreement or any
other material agreement or instrument evidencing an obligation for borrowed
money, or any other material agreement or instrument to which it is a party or
by which it or any of its properties may be bound or affected. The Company is
not in violation of any provision of its charter or Bylaws or in violation of
any franchise, license, permit, judgment, decree or order, or in violation of
any statute, rule or regulation. Neither the execution and delivery of this
Agreement, the Securities Purchase Agreements, the Registration Rights
Agreements, the Placement Agent's Warrant, or the Placement Agent's Registration
Rights Agreement, or the Certificate of Designations, nor the issuance and sale
or delivery of the Securities, nor the consummation of any of the transactions
contemplated herein or in the Securities Purchase Agreements, Placement Agent's
Warrant, or the Placement Agent's Registration Rights Agreement, nor the
compliance by the Company with the terms and provisions hereof or thereof, has
conflicted with or will conflict with, or has resulted in or will result in a
breach of, any of the terms and provisions of, or has constituted or will
constitute a default under, or has resulted in or will result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or pursuant to the terms of any indenture, mortgage, deed of trust,
note, loan or credit agreement or any other agreement or instrument evidencing
an obligation for borrowed money, or any other agreement or instrument to which
the Company may be bound or to which any of the property or assets of the
Company is subject except (a) where such default, lien, charge or encumbrance
would not have a material adverse effect on the Company and (b) as described in
the Offering Materials; nor will such action result in any violation of the
provisions of the charter or the Bylaws of the Company or, assuming the due
performance by May ▇▇▇▇▇ of its obligations hereunder, any statute or any order,
rule or regulation applicable to the Company of any court or of any foreign,
federal, state or other regulatory authority or other government body having
jurisdiction over the Company.
(ix) Subsequent to the dates as of which information is given in the
Offering Materials, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (a) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, or (b)
entered into any transaction other than in the ordinary course of business, or
(c) declared or paid any dividend or made any other distribution on or in
respect of its capital stock. Except as described in the Offering Materials, the
Company has no outstanding obligations to any officer or director of the
Company.
(x) There are no claims for services in the nature of a finder' or
origination fee with respect to the sale of the Preferred Stock or any other
arrangements, agreements or understandings that may affect May ▇▇▇▇▇'▇
compensation, as determined by the National Association of Securities Dealers,
Inc.
(xi) The Company owns or possesses, free and clear of all liens or
encumbrances and rights thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses necessary
to conduct its business (including, without limitation, any such licenses or
rights described in the Offering Materials as being owned or possessed by the
Company) and, except as set forth in the Offering Materials, there is no claim
or action by any person pertaining to, or proceeding, pending or threatened,
which challenges the exclusive rights of the Company with respect to any
trademarks, service marks, copyrights, service names, trade names, patents,
patent applications and licenses used in the conduct of the Company's businesses
(including, without limitation, any such licenses or rights described in the
Offering Materials as being owned or possessed by the Company) except any claim
or action that would not have a material adverse effect on the Company; the
Company's current products, services or processes do not infringe or will not
infringe on the patents currently held by any third party.
(xii) Except as described in the Offering Materials, the Company is
not under any obligation to pay royalties or fees of any kind whatsoever to any
third party with respect to any trademarks, service marks, copyrights, service
names, trade names, patents, patent applications, licenses or technology it has
developed, uses, employs or intends to use or employ, other than to their
respective licensors.
(xiii) Subject to the performance by May ▇▇▇▇▇ of its obligations
hereunder, the Offering Materials and the offer and sale of the Securities
comply, and will continue to comply, up to the Termination Date in all material
respects with the requirements of Rule 506 of Regulation D promulgated by the
Commission pursuant to the Securities Act and any other applicable federal and
state laws, rules, regulations and executive orders. Neither the Offering
Materials nor any amendment or supplement thereto nor any documents prepared by
the Company in connection with the Offering will contain 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. All statements of material facts in the
Offering Materials are true and correct as of the date of the Offering Materials
and will be true and correct on the date of the Closing.
(xiv) All taxes which are due and payable from the Company have been
paid in full and the Company does not have any tax deficiency or claim
outstanding assessed or proposed against it.
(xv) The financial information of the Company included in the Offering
Materials fairly presents the financial position of the Company in accordance
with generally accepted accounting principles consistently applied. There has
been no adverse change or development involving a material prospective change in
the condition, financial or otherwise, or in the earnings, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company on a consolidated basis, whether or not arising in the
ordinary course of business, since the date of the most recent financial
information included in the Offering Materials; and the outstanding debt, the
property, both tangible and intangible, and the businesses of the Company
conform in all material respects to the descriptions thereof contained in the
Offering Materials.
(xvi) None of the Company nor any of its officers, directors,
employees or agents, nor any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency or instrumentality
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who is or may be in a position to
help or hinder the business of the Company (or assist it in connection with any
actual or proposed transaction) which (A) might subject the Company to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, or (B) if not given in the past, might have had a materially adverse
effect on the assets, business or operations of the Company as reflected in any
of the financial statements contained in the Offering Materials, or (C) if not
continued in the future, might adversely affect the assets, business, operations
or prospects of the Company in the future.
5. Certain Covenants and Agreements of the Company.
The Company covenants and agrees at its expense and without any
expense to May ▇▇▇▇▇ as follows:
A. To advise May ▇▇▇▇▇ of any material adverse change in the Company's
financial condition, prospects or business or of any development materially
affecting the Company or rendering untrue or misleading any material statement
in the Offering Materials occurring at any time prior to the Closing as soon as
the Company is either informed or becomes aware thereof.
B. To use its best efforts to cause the Securities to be qualified or
registered for sale, or to obtain exemptions from such qualification or
registration requirements, on terms consistent with those stated in the Offering
Materials under the securities laws of such jurisdictions as May ▇▇▇▇▇ shall
reasonably request, provided that such states and jurisdictions do not require
the Company to qualify as a foreign corporation. Qualification, registration and
exemption charges and fees shall be at the sole cost and expense of the Company.
C. Upon written request, to provide and continue to provide to each
holder of Securities participating in the Offering, so long as such holder shall
remain a security holder of the Company, for a period ending on the earlier of
(i) the registration of the Conversion Shares and Warrant Shares under the
Securities Act and (ii) three (3) years from the Termination Date, copies of all
quarterly financial statements and audited annual financial statements prepared
by or on behalf of the Company, other reports prepared by or on behalf of the
Company for public disclosure and all documents delivered to the Company's
stockholders.
D. To deliver, for a period ending on the earlier of (i) the
registration of the Conversion Shares and Warrant Shares under the Securities
Act and (ii) three (3) years following the Termination Date, to May ▇▇▇▇▇, upon
May ▇▇▇▇▇'▇ request, in the manner provided in Section 10(B) of this Agreement:
(i) within forty five (45) days after the end of each of the first three
quarters of each fiscal year of the Company, commencing with the first quarter
ending after the Termination Date, a statement of its income for each such
quarterly period, and its balance sheet and a statement of changes in
stockholders' equity as of the end of such quarterly period, all in reasonable
detail, certified by its principal financial or accounting officer; (ii) within
ninety (90) days after the close of each fiscal year, its balance sheet as of
the close of such fiscal year, together with a statement of income, a statement
of changes in stockholders' equity and a statement of cash flow for such fiscal
year, such balance sheet, statement of income, statement of changes in
stockholders' equity and statement of cash flow to be in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
auditors if audited financial statements are prepared; and (iii) a copy of all
documents, reports and information furnished to its stockholders at the time
that such documents, reports and information are furnished to its stockholders.
E. To apply the proceeds of the Offering substantially in accordance
with the Offering Materials.
F. To provide May ▇▇▇▇▇ with as many copies of the Offering Materials
as May ▇▇▇▇▇ may reasonably request.
G. To comply with the terms of the Securities Purchase Agreements, the
Registration Rights Agreements, the Placement Agent's Warrants, the Placement
Agent's Registration Rights Agreement, the Certificate of Designations and the
Warrants.
H. To keep available out of its authorized Common Stock solely for the
purpose of issuance upon the conversion of the Preferred Stock, the exercise of
the Warrants and the Placement Agent's Warrant, such number of shares of Common
Stock as shall then be issuable upon the exercise or conversion thereof.
I. To issue to May ▇▇▇▇▇, or May ▇▇▇▇▇'▇ designee, at the Closing, the
Placement Agent Warrant to purchase 200,000 shares of Common Stock. Each
Placement Agent Warrant shall entitle the holder thereof to purchase one share
of Common Stock at an exercise price equal to 110% of the closing bid price of
the Common Stock on the Closing Date (subject to adjustment under certain
circumstances) at any time commencing from issuance until sixty (60) months
thereafter. The Placement Agent's Warrants shall not be redeemable by the
Company. The terms of the Placement Agent's Warrants shall be more fully set
forth in the certificate(s) representing the Placement Agent's Warrants.
J. To ensure that any transactions between or among the Company, or any
of its officers, directors and affiliates be on terms and conditions that are no
less favorable to the Company, than the terms and conditions that would be
available in an "arm's length" transaction with an independent third party.
6. Indemnification.
A. The Company hereby agrees that it will indemnify and hold May ▇▇▇▇▇
and each officer, director, shareholder, employee or representative of May
▇▇▇▇▇, and each person controlling, controlled by or under common control with
May ▇▇▇▇▇ within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act or the Rules and Regulations, harmless from and against any
and all loss, claim, damage, liability, cost or expense whatsoever (including,
but not limited to, any and all reasonable legal fees and other expenses and
disbursements incurred in connection with investigating, preparing to defend or
defending any action, suit or proceeding, including any inquiry or
investigation, commenced or threatened, or any claim whatsoever or in appearing
or preparing for appearance as a witness in any action, suit or proceeding,
including any inquiry, investigation or pretrial proceeding such as a
deposition) to which May ▇▇▇▇▇ or such indemnified person of May ▇▇▇▇▇ may
become subject under the Securities Act, the Exchange Act, the Rules and
Regulations, or any other federal or state law or regulation, common law or
otherwise, arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in (A) Section 4 of this
Agreement, (B) the Offering Materials (except those written statements relating
to May ▇▇▇▇▇ given by an indemnified person for inclusion therein), (C) any
application or other document or written communication executed by the Company
or based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Preferred Stock under the securities laws
thereof, or any state securities commission or agency; (ii) the omission or
alleged omission from documents described in clauses (A), (B) or (C) above of a
material fact required to be stated therein or necessary to make the statements
therein not misleading; or (iii) the breach of any representation, warranty,
covenant or agreement made by the Company in this Agreement. The Company further
agrees that upon demand by an indemnified person, at any time or from time to
time, it will promptly reimburse such indemnified person for any loss, claim,
damage, liability, cost or expense actually and reasonably paid by the
indemnified person as to which the Company has indemnified such person pursuant
hereto. Notwithstanding the foregoing provisions of this Paragraph 6(A), any
such payment or reimbursement by the Company of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final judgment by
a court of competent jurisdiction (after all appeals or the expiration of time
to appeal) is entered against May ▇▇▇▇▇ or such indemnified person as a direct
result of May ▇▇▇▇▇ or such person's gross negligence or willful misfeasance
will be promptly repaid to the Company.
B. May ▇▇▇▇▇ hereby agrees that it will indemnify and hold the Company
and each officer, director, shareholder, employee or representative of the
Company, and each person controlling, controlled by or under common control with
the Company within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act or the Rules and Regulations, harmless from and against any
and all loss, claim, damage, liability, cost or expense whatsoever (including,
but not limited to, any and all reasonable legal fees and other expenses and
disbursements incurred in connection with investigating, preparing to defend or
defending any action, suit or proceeding, including any inquiry or
investigation, commenced or threatened, or any claim whatsoever or in appearing
or preparing for appearance as a witness in any action, suit or proceeding,
including any inquiry, investigation or pretrial proceeding such as a
deposition) to which the Company or such indemnified person of the Company may
become subject under the Securities Act, the Exchange Act, the Rules and
Regulations, or any other federal or state law or regulation, common law or
otherwise, arising out of or based upon (i) the conduct of May ▇▇▇▇▇ or its
officers, employees or representatives in its acting as Placement Agent for the
Offering or (ii) the breach of any representation, warranty, covenant or
agreement made by May ▇▇▇▇▇ in this Agreement.
C. Promptly after receipt by an indemnified party of notice of
commencement of any action covered by Section 6(A) or 6(B), the party to be
indemnified shall, within five (5) business days, notify the indemnifying party
of the commencement thereof; the omission by one indemnified party to so notify
the indemnifying party shall not relieve the indemnifying party of its
obligation to indemnify any other indemnified party that has given such notice
and shall not relieve the indemnifying party of any liability outside of this
indemnification if not materially prejudiced thereby. In the event that any
action is brought against the indemnified party, the indemnifying party will be
entitled to participate therein and, to the extent it may desire, to assume and
control the defense thereof with counsel chosen by it which is reasonably
acceptable to the indemnified party. After notice from the indemnifying party to
such indemnified party of its election to so assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under such
Section 6(A) or 6(B) for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof, but the
indemnified party may, at its own expense, participate in such defense by
counsel chosen by it, without, however, impairing the indemnifying party's
control of the defense. Subject to the proviso of this sentence and
notwithstanding any other statement to the contrary contained herein, the
indemnified party or parties shall have the right to choose its or their own
counsel and control the defense of any action, all at the expense of the
indemnifying party if, (i) the employment of such counsel shall have been
authorized in writing by the indemnifying party in connection with the defense
of such action at the expense of the indemnifying party, or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel shall be borne by the
indemnifying party; provided, however, that the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstance, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for all such indemnified parties. No
settlement of any action or proceeding against an indemnified party shall be
made without the consent of the indemnifying party.
D. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 6(A) or 6(B)
is due in accordance with its terms but is for any reason held by a court to be
unavailable on grounds of policy or otherwise, the Company and May ▇▇▇▇▇ shall
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with the investigation
or defense of same) which the other may incur in such proportion so that May
▇▇▇▇▇ shall be responsible for such percent of the aggregate of such losses,
claims, damages and liabilities as shall equal the percentage of the gross
proceeds paid to May ▇▇▇▇▇ and the Company shall be responsible for the balance;
provided, however, that no person guilty of fraudulent misrepresentation within
the meaning of Section 11(f) of the Securities Act shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 6(D), any person controlling,
controlled by or under common control with May ▇▇▇▇▇, or any partner, director,
officer, employee, representative or any agent of any thereof, shall have the
same rights to contribution as May ▇▇▇▇▇ and each person controlling, controlled
by or under common control with the Company within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act and each officer of the
Company and each director of the Company shall have the same rights to
contribution as the Company. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against the other party under this Section 6(D), notify such party from whom
contribution may be sought, but the omission to so notify such party shall not
relieve the party from whom contribution may be sought from any obligation they
may have hereunder or otherwise if the party from whom contribution may be
sought is not materially prejudiced thereby. The indemnity and contribution
agreements contained in this Section 6 shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of any
indemnified person or any termination of this Agreement.
7. Payment of Expenses.
Whether or not the Offering is successfully completed, the Company hereby agrees
to bear all of the expenses in connection with the Offering, including, but not
limited to the following: filing fees, printing and duplicating costs,
advertisements, postage and mailing expenses with respect to the transmission of
Offering Materials, registrar and transfer agent fees, escrow agent fees and
expenses, fees of the Company's counsel and accountants, issue and transfer
taxes, if any, and counsel fees and expenses (such counsel fees not to exceed
$20,000 plus out of pocket expenses).
8. Conditions of the Closing
The Closing shall be held at the offices of May ▇▇▇▇▇ or its counsel.
The obligations of May ▇▇▇▇▇ hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing with respect to the Company as if it had been
made on and as of the Closing; the accuracy on and as of the Closing of the
statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing of its
covenants and obligations hereunder and to the following further conditions:
A. At the Closing, May ▇▇▇▇▇ shall receive the opinion of ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, Esq., counsel to the Company, dated as of the date of the Closing,
which opinion shall be in form and substance reasonably satisfactory to counsel
for May ▇▇▇▇▇.
B. At or prior to the Closing, counsel for May ▇▇▇▇▇ shall have been
furnished such documents, certificates and opinions as they may reasonably
require for the purpose of enabling them to review or pass upon the matters
referred to in this Agreement and the Offering Materials, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
C. At and prior to the Closing, (i) there shall have been no material
adverse change nor development involving a prospective change in the condition
or prospects or the business activities, financial or otherwise, of the Company
from the latest dates as of which such condition is set forth in the Offering
Materials; (ii) there shall have been no transaction, not in the ordinary course
of business, entered into by the Company which has not been disclosed in the
Offering Materials or to May ▇▇▇▇▇ in writing; (iii) except as set forth in the
Offering Materials, the Company shall not be in default under any provision of
any instrument relating to any outstanding indebtedness for which a waiver or
extension has not been otherwise received; (iv) except as set forth in the
Offering Materials, the Company shall not have issued any securities (other than
those set forth in the Offering Materials) or declared or paid any dividend or
made any distribution of its capital stock of any class and there shall not have
been any change in the indebtedness (long or short term) or liabilities or
obligations of the Company (contingent or otherwise); (v) no material amount of
the assets of the Company shall have been pledged or mortgaged, except as
indicated in the Offering Materials; and (v) no action, suit or proceeding, at
law or in equity, against the Company or affecting any of its properties or
businesses shall be pending or threatened before or by any court or federal or
state commission, board or other administrative agency, domestic or foreign,
wherein an unfavorable decision, ruling or finding could materially adversely
affect the businesses, prospects or financial condition or income of the
Company, except as set forth in the Offering Materials.
D. At the Closing, May ▇▇▇▇▇ shall have received a certificate of the
Company signed by its chief executive officer and chief financial officer, dated
as of the date of the Closing, to the effect that the conditions set forth in
subparagraph (C) above have been satisfied and that, as of the Closing Date, the
representations and warranties of the Company set forth herein are true and
correct.
E. At the Closing, the Company shall have duly executed and delivered
to May ▇▇▇▇▇, or its designees, the Placement Agent's Warrants, in the names and
denominations specified by May ▇▇▇▇▇.
9. Termination.
This Agreement shall terminate if the Closing specified in Section 1(B)
does not take place on or before seven (7) business days following the
Termination Date or as soon thereafter as the funds received from subscriptions
have cleared the banking system in the normal course of business. Either May
▇▇▇▇▇ or the Company may terminate the Offering in its sole discretion prior to
the Closing. In the event that the Company determines to terminate the Offering
from and after the date hereof through the end of the Offering Period for any
reason other than May ▇▇▇▇▇'▇ breach of the terms of this Agreement, and May
▇▇▇▇▇ is willing to proceed, then the Company shall immediately pay to May ▇▇▇▇▇
the amount of its out-of-pocket expenses. Upon such termination, the Securities
Purchase Agreements, Registration Rights Agreements and payments for the
Preferred Stock not previously delivered to the purchasers thereof, without
interest thereon or deduction therefrom, shall be returned to the respective
subscribers, May ▇▇▇▇▇ shall have no further obligation to the Company, and the
Company shall have no obligation to May ▇▇▇▇▇. If May ▇▇▇▇▇ does not or fails to
complete the Offering and the reasons therefor are reasonably related to a
material adverse change in the business or financial results, prospects or
condition of the Company, factors beyond May ▇▇▇▇▇ control and through no fault
of its own or a material adverse change in market conditions then, in any such
case, the Company agrees to promptly pay May ▇▇▇▇▇ its actual out-of-pocket
expenses, including the fees and disbursements of May ▇▇▇▇▇'▇ legal counsel.
10. Miscellaneous.
A. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all which shall be deemed to be
one and the same instrument.
B. Any notice required or permitted to be given hereunder shall be
given in writing and shall be deemed effective when deposited in the United
States mail, postage prepaid, or when received if personally delivered or faxed,
addressed as follows:
To May ▇▇▇▇▇:
May ▇▇▇▇▇ Group, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
with a copy to:
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To the Company:
Digs, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇
or to such other address of which written notice is given to the others.
C. This Agreement shall be governed by and construed in all respects
under the laws of the State of New York, without reference to its conflict of
laws rules or principles. Any suit, action, proceeding or litigation arising out
of or relating to this Agreement shall be brought and prosecuted in such federal
or state court or courts located within the State of New York as provided by
law. The parties hereby irrevocably and unconditionally consent to the
jurisdiction of each such court or courts located within the State of New York
and to service of process by registered or certified mail, return receipt
requested, or by any other manner provided by applicable law, and hereby
irrevocably and unconditionally waive any right to claim that any suit, action,
proceeding or litigation so commenced has been commenced in an inconvenient
forum.
D. This Agreement and the other agreements referenced herein contain
the entire understanding between the parties hereto and may not be modified or
amended except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought.
E. If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
DIGS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
--------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: President
MAY ▇▇▇▇▇ GROUP, INC.
By: ________________________
Name:
Title:
