AGENCY AGREEMENT

 

 

 

 

AGENCY AGREEMENT

 

THIS AGENCY AGREEMENT (this "Agreement") is made and entered into effective as of December 14, 2004, by and between Guardian Technologies International, Inc., a Delaware corporation (the "Company"), and The Shemano Group, Inc., a California corporation ( "Shemano"). Shemano and the Company agree as follows :

 

1.

Engagement of Shemano :  The Company hereby engages Shemano to act as the Company's non- exclusive placement agent with respect to sales by the Company in a private placement (the “Offering”) of up to $20 million aggregate principal amount of equity, equity-related or debt securities (the “Securities”) of the Company to certain accredited, institutional investors during the term of this Agreement as set forth in Section 6 and Shemano hereby accepts such engagement.

 

2.

Offering Procedures:   Shemano will introduce the Company to one or more investors who Shemano reasonably believes to be "accredited investors," as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the “1933 Act”), with whom Shemano has a pre-existing substantive relationship (the “Offerees”).

 

Shemano's Compensation:   Upon each closing of the Offering, in consideration for the services rendered by Shemano hereunder, the Company shall pay or provide to Shemano , or cause Shemano to be paid or provided , the following compensation:

 

 

(b)

Cash Compensation: Within three (3) days of each closing of the Offering and receipt and acceptance of the Offering proceeds by the Company, the Company shall pay to Shemano cash compensation equal to eight percent (8%) of the aggregate gross proceeds received in the Offering and accepted by the Company at such closing.

 

(b)

Warrants:   Within three (3) days of each closing of the Offering and receipt and acceptance of the Offering proceeds by the Company, the Company will issue to Shemano warrants to purchase a number of shares of common stock of the Company equal to 15% of the shares of common stock issued and sold in the Offering or issuable upon conversion of any convertible securities sold in the Offering and the subject of such closing (the “Agent’s Warrants”).  The exercise price of the Agent’s Warrants shall equal the exercise price of the warrants issued in the Offering to investors; provided that if no such warrants are issued to investors in the Offering, the exercise price of the Agent’s Warrants shall equal 130% of the price of any common stock issued and sold

 

Page 1

 

 

 

 

in the Offering or the conversion price of any convertible securities issued and sold in the Offering.  The term, registration rights, and other terms of the Agent’s Warrants shall be identical to the warrants issued in the Offering to any Offeree, and if the Offering does not provide for the issuance of warrants, then the Agent’s Warrants issued to Shemano shall be on terms customary for the type of offering, shall have a five-year term, and contain a cashless exercise provision commencing one (1) year following the issuance thereof if the underlying shares have not then been registered.  The shares underlying the Agent’s Warrants shall be subject to equitable adjustment for stock splits, stock dividends and similar events.  The shares underlying the Agent’s Warrants shall have “piggyback” registration rights for the term of the Agent’s Warrants .

 

For purposes of determining Shemano’s compensation under this Section 3, the aggregate gross proceeds received in the Offering(s) shall include any additional amount paid to the Company by investors upon exercise or conversion of any of the Securities or warrants , including the value allocated to any securities not issued pursuant to a “cashless exercise” or similar provision, whenever actually received by the Company.

 

 

 

 

 

3.

Certain Matters Relating to Shemano’s Duties:

 

Shemano’s responsibilities shall include using its best efforts to introduce potential accredited, institutional investors to the Company. In conducting the Offering, Shemano shall not use any general solicitation or general advertising within the meaning of applicable securities laws in connection with any offering and shall otherwise comply with applicable federal, state and foreign securities laws in connection with the offer and sale of the Securities. Shemano shall have no responsibility to participate or assist in any negotiations between any potential investor and the Company but may do so at the reasonable request of the Company. Further, Shemano shall have no responsibility for fulfilling any SEC reporting or filing requirements as such requirements relate to the Company; provided, however, that Shemano agrees to provide the Company with reasonable assistance related to any registration, qualification or other requirements under applicable securities laws and other regulatory requirements, upon request of the Company, including but not limited to any approval required under applicable NASD rules or regulations then applicable with regard to any compensation paid hereunder by the Company to Shemano.

 

 

(c)

Shemano agrees to introduce the Company to Offerees which are accredited, institutional investors only in states in which Shemano has been advised by the Company that offers and sales of Securities can be legally made by the

 

Page 2

 

 

 

 

Company and in which Shemano is authorized to offer such securities.

 

 

(e)

Shemano shall perform its duties under this Agreement in a manner consistent with the instructions of the Company. Such performance shall include, but not be limited to, the delivery to each Offeree of a current copy of a private placement memorandum or similar offering document, subscription agreement and any offering questionnaire and/or similar documents provided to Shemano by the Company, as such documents may be amended from time to time by the Company and delivered to Shemano (the “Offering Documents”). Shemano shall consecutively number each copy of the Offering Documents (which will include the first letter of Shemano’s name or other identifying mark sufficient to designate an Offeree introduced by Shemano); keep a log of when and to whom each copy of any Offering Document is given, with the Offering Document numbers; maintain a copy of any written information Shemano obtains regarding the suitability of each Offeree; and only use the Offering Documents in introducing Offerees to the Company. Shemano shall provide this log and all such written information to the Company at any time and promptly upon request of the Company at the termination of this Agreement. The Company shall, promptly following execution of this Agreement, provide Shemano with a written list of prospective Offerees which the Company does not want Shemano to contact. Shemano agrees to not contact any person on such list, and Shemano shall not be entitled to any compensation set forth in Section 3 or otherwise with respect to any investment made by such person in the Company’s Securities.

 

Shemano is and will hereafter act as an independent contractor and not  as an employee of the Company and nothing in this Agreement shall be interpreted or construed to create any employment, partnership, joint venture, or other relationship between Shemano and the Company . Shemano will not hold itself out as having, and will not state to any person that Shemano has, any relationship with the Company other than as an independent contractor. Shemano shall have no right or power to find or create any liability or obligation for or in the name of the Company or to sign any documents on behalf of the Company.

 

 

 

 

(a)

Shemano understands that the Company is subject to certain obligations in connection with the disclosure of material nonpublic information to certain persons outside the Company, including broker-dealers, investment advisers, institutional investment managers (and their associated persons), investment companies, and holders of the Company’s securities (collectively, the “Enumerated Persons”).  In order to help assure the Company’s compliance with provisions of Regulation FD promulgated by the Securities and Exchange Commission, except as set forth herein, Shemano will not disclose to any third party any information that has been furnished to Shemano by the Company without the Company’s prior written consent; and, further, in the event of any proposed disclosure of such information to any Enumerated

 

Page 3

 

 

 

 

Person by Shemano, Shemano shall assure that each such Enumerated Person agrees to keep such disclosed information in confidence by executing an appropriate confidentiality or similar agreement with Company or otherwise agreeing to maintain the confidentiality of such disclosed information.

 

 

4.

Right of First Refusal .  In consideration for Shemano acting as agent in connection with the proposed Offering and provided Shemano shall have raised not less than $10 million (excluding any offering proceeds raised by Berthel Fisher) in the Offering, the Company hereby grants Shemano a right of first refusal to serve as the Company’s exclusive financial advisor and investment banker in connection with any subsequent private placement of debt or equity securities (other than any such issuance in connection with any merger, acquisition, purchase of assets or similar transaction by the Company) for a period of six (6) months from the initial closing of the Offering.  In the event the Company advises Shemano that it desires to effect any subsequent private placement of debt or equity securities, the Company and Shemano will negotiate in good faith the terms of Shemano’s engagement in a separate agreement which would set forth, among other matters, compensation for Shemano based upon customary fees for the services provided; provided that if the parties are unable to agree to such terms within ____(__) days of the Company’s initial notice to Shemano, this right of first refusal shall automatically terminate.  

 

6.

Termination of Agreement . This Agreement shall commence on the date of the execution hereof and shall remain in full force and effect for a period of ________; provided that this Agreement shall terminate immediately upon the completion or termination of the Offering.  The Company may terminate this Agreement and the Offering at any time upon written notice to Shemano.  In addition, either party may terminate this Agreement by notifying the other party in writing upon a material breach by that other party, unless such breach is curable and is in fact cured within 15 days after such notice. Notwithstanding the foregoing, all provisions of this Agreement other than sections 1, 2 and 4(a) – (d), shall survive the expiration or termination of this Agreement with respect to Offerees which Shemano introduces to the Company prior to any termination of the Offering. Shemano shall be entitled to compensation under section 3 with regard to investments made by such Offerees prior to the termination of this Agreement or at any time within (1) one year thereafter.

 

7.

Indemnification . The Company and Shemano each shall indemnify and defend the other and the other’s affiliates, directors, officers, employees, agents, consultants, attorneys, accountants and other representatives (each an “ Indemnified Person ”) and shall hold each Indemnified Person harmless, to the fullest extent permitted by law, from and against any and all claims, liabilities, losses, damages and expenses (including reasonable attorney’s fees and costs), as they are incurred, in connection with the Offering, resulting from the indemnifying party’s gross negligence, bad faith or willful misconduct in connection with the Offering, any violation by the indemnifying party (not caused by an Indemnified Person) of Federal or state securities laws in connection with the Offering, or any breach by the indemnifying

 

Page 4

 

 

 

 

party of this Agreement (“Claim”). In case any Claim shall be brought against any Indemnified Person, the indemnifying party shall be entitled to assume the defense of such Claim with counsel of the indemnifying party’s choice at its expense (in which case the indemnifying party shall not be responsible for the fees and expenses of any separate counsel retained by such Indemnified Person, except in the limited circumstances described below in this section); provided, however, that such counsel shall be reasonably satisfactory to the Indemnified Person. Notwithstanding the indemnifying party’s election to assume the defense of such litigation or pr