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Source Capital Group, Inc. Proposed Offering Engagement Letter

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REEDS INC | Reed's Inc | Source Capital Group, Inc

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Title: Source Capital Group, Inc. Proposed Offering Engagement Letter
Governing Law: New York     Date: 1/28/2011
Industry: Beverages (Non-Alcoholic)     Sector: Consumer/Non-Cyclical

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Exhibit 10.4




Capital Group, Inc.


April 22, 2010


Christopher J. Reed

Reed's Inc.

13000 South Spring St.

Los Angeles, CA 90061


Source Capital Group, Inc. Proposed Offering Engagement Letter


To Mr. Reed:


The purpose of this engagement letter is to set forth the terms pursuant to which Source Capital Group, Inc. whose address is 276 Post Road West, Westport, CT 06880 (hereinafter referred to as "Source or "SCG" or "Dealer Manager) will act as the sole exclusive placement agent and financial advisor for a proposed issuance of unregistered equity and/or equity-linked securities ("Proposed Offering") of Reed's Inc. whose address is 13000 South Spring St. Los Angeles, CA 90061 (collectively, with its subsidiaries and affiliates), (hereinafter referred to as the "Issuer" or the "Company"), including but not limited to any Proposed Offering under Regulation D or Regulation S of the Securities Act of 1933, as amended.


The terms of our agreement are as follows:


1.          The Issuer hereby retains and engages Source, for the period beginning on the date hereof and ending upon the completion of the Proposed Offering (the "Engagement Period"), to act as the Issuer's sole exclusive placement agent and financial advisor in connection with the Proposed Offering, The compensation for acting as the exclusive sole placement agent to the Issuer and conditions of Source's engagement is stated hereunder. During the Engagement Period and as long as Source is proceeding in good faith with activities in connection with the Proposed Offering, the Issuer agrees not to solicit, negotiate with or enter into any agreement with any other source of financing (whether equity, debt or otherwise other than bank financings or financings in connection with strategic alliances), any placement agent, financial advisor, dealer manager or any other person or entity in connection with the Proposed Offering, as the case may be.


2.          in consideration for its services in the Proposed Offering, Source shall be entitled to the following payments:


(a)           A cash fee equal to 8% of the dollar amount received by the Issuer, in connection with a Proposed Offering, including any proceeds received by the Issuer from any cash exercise of warrants, options or rights issued to investors in the Proposed Offering.


(b)           An accountable expense allowance equal to the cost of legal counsel for the Closing of the transaction, not to exceed $25,000.


(c)           At the Closing or Closings, the Issuer shall grant to Source (or its designated affiliates or assignees) share purchase warrants (the "Warrants") covering a number of shares of Common Stock equal to 8% of the total number of Shares being sold and/or issued in the Proposed Offering. The Warrants will be nonexercisable or transferrable for six (6) months after the date of the Closing other than as permitted by FINRA Rule 5110 and will be exercisable and expire five years after Closing. The Warrants will be exercisable at a price






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Capital Group, Inc.


equal to 125% of the public or private offering price. The Warrants shall not be redeemable, The Warrants may be exercised as to all or a lesser number of shares of Common Stock, will provide for cashless exercise, and, if not registered, will contain provisions for one demand registration of the sale of the underlying shares of Common Stock for a period of five years after the Closing at the Issuer's expense, an additional demand registration at the warrantholders' expense, and "piggyback" registration rights for a period of five years after the Closing at the Issuer's expense.


3.         The Issuer shall be responsible for and pay all expenses relating to the Proposed Offering, including, without limitation, all filing fees relating to any registration statement required by be filed as part of the Proposed Offering of and any filing fees relating to the review of the Proposed Offering materials by the Financial Industry Regulatory Authority, Inc. ("FINRA"); all fees and expenses relating to the listing of such Shares on the exchange where the Common Stock is (or will be) listed; all fees, expenses and disbursements relating to the registration or qualification of the Shares under the "blue sky" securities laws of any states or other jurisdictions; the costs of mailing and printing all of the Proposed Offering documents, Registration Statements, Prospectuses and all amendments, supplements and exhibits thereto and as many preliminary and final Prospectuses as Source may reasonably deem necessary; the costs and expenses of any public relations or solicitation firm hired by the Issuer; the costs of preparing, printing and delivering certificates representing the securities; the fees and expenses of the Issuer's accountants and the fees and expenses of the Issuer's legal counsel and other agents and representatives.


4.         The Proposed Offering shall be conditioned upon, among other things, the following:


(a)          Satisfactory completion by Source of its due diligence investigation and analysis;


(b)          Source shall have received from outside counsel to the Issuer such counsel's written opinion, addressed to Source, dated as of the Closing, in customary form and substance reasonably satisfactory to Source;


(c)          FINRA shall have raised no objection to the fairness and reasonableness of the terms and arrangements of this Agreement; and


(d)          Any Proposed Offering shall fund through an escrow account established by Source and paid for by the Issuer.


5.          Notwithstanding any termination of this engagement letter pursuant to the terms hereof or otherwise, if

on or before the 12 month anniversary of the later of the consummation of a Proposed Offering that is not a registered offering (or 12 months after any termination of this engagement letter), the Issuer enters into a commitment or letter of intent relating to any such unregistered Proposed Offering of equity securities of the Issuer, including any rights or securities convertible or exercisable into equity securities: (A) with any investor to whom the issuer was introduced by Source, or who was contacted by Source in connection with its services for the Issuer hereunder, or (B) as a result of the use by the Issuer of materials or other work product prepared by Source in connection with such unregistered Proposed Offering, if any, Source shall be paid, at and subject to the closing of any such subsequent placement, the cash compensation described in, and in accordance with the terms and provisions of, Section 2 above.


6.          The Issuer represents and warrants to Source as follows:


(a)              The Issuer has the requisite corporate power and authority to enter into and to consummate the transactions contemplated hereunder and otherwise to carry out its obligations hereunder. The execution and delivery of this Agreement by the Issuer and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the issuer and no further action is






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Capital Group, Inc.


required by the Issuer, its board of directors or its stockholders in connection herewith. This Agreement has been duly authorized and executed by the Issuer and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Issuer enforceable against the Issuer in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies, and (iii) that rights to indemnification and contribution thereunder may be limited by federal or state securities laws or public policy relating thereto.


(b)          The execution, delivery and performance of this Agreement by the Issuer do not and will not (i) conflict with or violate any provision of the Issuer's or any subsidiary's certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Issuer or any subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Issuer or subsidiary debt or otherwise) or other understanding to which the Issuer or any subsidiary is a party or by which any property or asset of the Issuer or any subsidiary is bound or affected (except as may have been consented to or waived), or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Issuer or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Issuer or a Subsidiary is bound or affected.


(c)          The Issuer is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other "Person" (defined as an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability Issuer, joint stock Issuer, government (or an agency or subdivision thereof) or other entity of any kind) in connection with the execution, delivery and performance by the Issuer of this Agreement, other than such filings as are required to be made under applicable Federal and state securities laws, by the Trading Market.


(d)          Except as otherwise provided in this Agreement, no brokerage or finder's fees or commissions are or will be payable by the Issuer to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the this Agreement. Source shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the offer and sale of the Securities contemplated by the this Agreement.


(e)          The Issuer has not, and to its knowledge none of its officers or directors have, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Issuer to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the Securities (other than Source's placement of the Securities), or (iii) paid or agreed to pay to any person any compensation for soliciting another

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