Exhibit 10.5
PLACEMENT AGENCY
AGREEMENT
As of May 25,
2006
Brookstreet Securities
Corporation
2361 Campus Drive, Suite
210
Irvine, California
92612
Ladies and
Gentlemen:
Avasoft, Inc., a
California corporation (the “Company”), proposes to
offer for sale to “accredited investors,” in a private
placement (the “Offering”), up to 6,000,000 shares (the
“Shares”) of the Company’s common stock, par
value $.001 per share (the “Common Stock”), with an
aggregate value of $6,000,000. The Shares will be offered
pursuant to those terms and conditions acceptable to you as
reflected in the engagement letter, dated April __, 2006, as
amended or supplemented (the “Engagement Letter”).
The Shares will be offered on a “best efforts - all or
none” basis as to the first 2,000,000 Shares offered (the
“Minimum Offering”) and on a “best efforts”
basis as to the 4,000,000 Shares offered and sold thereafter (the
“Maximum Offering”), pursuant to the Engagement Letter
and related documents, in accordance with Section 4(2) of the
Securities Act of 1933, as amended (the “Securities
Act”), and Regulation D promulgated thereunder. The
Company has also granted to Brookstreet Securities Corporation (the
“Placement Agent”) an option, subject to the closing of
the Maximum Offering, to be exercised within 60 days after the
final Closing (as such term is defined in Section 4(a) hereof), to
sell up to 900,000 additional Shares solely to cover
over-subscriptions (the “Over-subscription Shares”), if
any.
Giving consideration to
present market conditions, and assuming no adverse changes in the
business or prospects of the Company, it is contemplated that the
aggregate number of shares to be retained by existing shareholders
of the Company and the per share purchase price and aggregate
number of shares to be sold in such private placement will be
consistent with a pre-money valuation for the Company of
$4,000,000. The Placement Agent may form a selling group of
selected dealers to offer and sell the Shares in the
Offering.
Prior to or
concurrently with the closing of the Maximum Offering, the Company
will enter into a merger agreement and plan of reorganization with
a publicly-held company whose shares are quoted on the NASD’s
OTC Bulletin Board (“Pubco”), pursuant to which the
Company will become a wholly-owned subsidiary of Pubco (the
“Merger”), and Pubco, with proceeds of the Offering,
will continue the business of the Company. Each share of Common
Stock of the Company outstanding immediately prior to the Merger,
including the Shares purchased in the Offering, will be exchanged
in the Merger for one share of Pubco’s common stock
(“Pubco Stock”). In addition, all issued and
outstanding stock options and warrants to purchase capital stock of
the Company will be exchanged for options or warrants, as the case
may be, to purchase (at the same exercise price) an equal number of
shares of Pubco Stock. Following the Merger, Pubco will be the
issuer of the Shares in the Offering.
The Offering will be
accomplished pursuant to a confidential private placement
memorandum (the “Private Placement Memorandum”). The
Private Placement Memorandum, as it may be amended or supplemented
from time to time, the form of proposed subscription agreement
between the Company and each subscriber (the “Subscription
Agreement”) and the other exhibits which are part of the
Private Placement Memorandum and/or the Subscription Agreement are
collectively referred to herein as the “Offering
Documents.”
The Company will prepare
and deliver to the Placement Agent a reasonable number of copies of
the Offering Documents in form and substance satisfactory to
counsel to the Placement Agent.
Each prospective
investor subscribing to purchase Shares (a
“Subscriber”) will be required to deliver, among other
things, a Subscription Agreement and a confidential subscriber
questionnaire (a “Questionnaire”) in the form to be
provided to offerees.
1.
Appointment of
Placement Agent .
(a)
You are hereby
appointed exclusive Placement Agent, for the purposes of assisting
the Company in finding qualified Subscribers pursuant to the
Offering of the Company, for a term commencing as of May 25, 2006,
the date of the Private Placement Memorandum, and expiring 90 days
from that date; provided , however , that the
expiration date of the term (the “Termination Date”)
may be extended for two successive 30-day periods thereafter by the
Company or the Placement Agent. The Company shall not solicit any
other broker-dealers to participate in the Offering and the Company
will not sell any Shares directly to the public without the
Placement Agent’s prior consent.
(b)
Subject to the
performance by the Company of all of its obligations to be
performed under this Agreement and to the completeness and accuracy
of all representations and warranties of the Company contained in
this Agreement, the Placement Agent hereby accepts such agency and
agrees to use its best efforts to assist the Company in finding
qualified Subscribers pursuant to the Offering described in the
Offering Documents. It is understood that the Placement Agent
has no commitment to sell the Shares. The agency of the
Placement Agent hereunder is not terminable by the Company except
upon termination of the Offering Period.
(c)
Subscriptions for
Shares shall be evidenced by the execution by Subscribers of a
Subscription Agreement. No Subscription Agreement shall be
effective unless and until it is accepted by the Company.
Until the Closing, all subscription funds received shall be
held as described in the Subscription Agreement and in Section 4(b)
hereof. The Placement Agent shall not have any obligation to
independently verify the accuracy or completeness of any
information contained in any Subscription Agreement or the
authenticity, sufficiency or validity of any check delivered by any
prospective investor in payment for Shares.
2.
Representations and
Warranties of the Company . The Company represents and
warrants to the Placement Agent as follows:
(a)
Securities Law
Compliance .
The Offering Documents conform in all respects with the
requirements of Section 4(2) of the Securities Act and Regulation D
promulgated thereunder and with the requirements of all other
published rules and regulations of the Securities and Exchange
Commission (the “Commission”) currently in effect
relating to “private offerings” to “accredited
investors.” The Offering Documents, when read together
as of their respective dates, will not contain an untrue statement
of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances
in which they were made, not misleading. If at any time prior
to the Termination Date or other termination of this Agreement any
event shall occur as a result of which it might become necessary to
amend or supplement the Offering Documents so that they do not
include any untrue statement of any material fact or omit to state
any material fact necessary in order to make the statements
therein, in the light of the circumstances then existing, not
misleading, the Company will promptly notify the Placement Agent
and will supply the Placement Agent with amendments or supplements
correcting such statement or omission. The Company will also
provide the Placement Agent for delivery to all offerees and
purchasers and their representatives, if any, any information,
documents and instruments which the Placement Agent deems necessary
to comply with applicable state and federal law.
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(b)
Organization
. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of California and has all requisite
corporate power and authority to own and lease its properties, to
carry on its business as currently conducted and as proposed to be
conducted, to execute and deliver this Agreement and to carry out
the transactions contemplated by this Agreement, and is duly
licensed or qualified to do business as a foreign corporation in
each jurisdiction in which the conduct of its business or ownership
or leasing of its properties requires it to be so qualified, except
where the failure to be so qualified would not have a material
adverse effect on the business, financial condition or prospects of
the Company.
(c)
Capitalization
. The authorized,
issued and outstanding capital stock of the Company prior to the
consummation of the transactions contemplated hereby is as set
forth in the Offering Documents. All issued and outstanding
shares of the Company are validly issued, fully paid and
nonassessable and have not been issued in violation of the
preemptive rights of any shareholder of the Company. All
prior sales of securities of the Company were either registered
under the Securities Act and applicable state securities laws or
exempt from such registration.
(d)
Warrants, Preemptive
Rights, etc. Except for the warrants to
purchase shares of Common Stock to be issued to the Placement Agent
or its designees in consideration for acting as Placement Agent
hereunder (the “Agent’s Warrants”) and except as
set forth in the Engagement Letter, including the exhibits thereto,
there are not, nor will there be immediately after the Closing, any
outstanding warrants, options, agreements, convertible securities,
preemptive rights to subscribe for or other commitments pursuant to
which the Company is, or may become, obligated to issue any shares
of its capital stock or other securities of the Company and this
Offering will not cause any anti-dilution adjustments to such
securities or commitments except as reflected in the Engagement
Letter.
(e)
Subsidiaries and
Investments . Except as stated in the
Offering Documents, the Company has no subsidiaries and the Company
does not own, directly or indirectly, any capital stock or other
equity ownership or proprietary interests in any other corporation,
company, association, trust, partnership, joint venture or other
entity.
(f)
Financial
Statements .
The financial information contained in the Offering Documents
is accurate in all material respects (such financial statements
included as part of the Offering Documents are hereinafter referred
to collectively as the “Financial Statements”).
The Financial Statements have been prepared in conformity
with generally accepted accounting principles consistently applied
and show all material liabilities, absolute or contingent, of the
Company required to be recorded thereon and present fairly the
financial position and results of operations of the Company as of
the dates and for the periods indicated.
(g)
National Security
Legislation . Neither the sale of the
Shares hereunder nor its use of the proceeds thereof will violate
the Trading with the Enemy Act, as amended, or any of the foreign
assets control regulations of the United States Treasury Department
(31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto. Without limiting
the foregoing, neither the Company nor any of its subsidiaries (a)
is a person whose property or interests in property are blocked
pursuant to Section 1 of Executive Order 13224 of September 23,
2001 Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg.
49079 (2001)) or (b) engages in any dealings or transactions, or be
otherwise associated, with any such person. The Company and
its subsidiaries are in compliance with the USA Patriot Act of 2001
(signed into law October 26, 2001).
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(h)
Absence of
Changes .
Except as set forth in the Offering Documents, the Company
has not incurred any liabilities or obligations, direct or
contingent, not in the ordinary course of business, or entered into
any transaction not in the ordinary course of business, which is
material to the business of the Company, and there has not been any
change in the capital stock of, or any incurrence of long-term debt
by, the Company, or any issuance of options, warrants or other
rights to purchase the capital stock of the Company, or any adverse
change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition
(financial or otherwise), net worth, results of operations,
business, key personnel or properties which would be material to
the business or financial condition of the Company, and the Company
has not become a party to, and neither the business nor the
property of the Company has become the subject of, any litigation
which if adversely determined would have a material adverse affect,
whether or not in the ordinary course of business.
(i)
Title
. Except as set
forth in the Offering Documents, the Company has good and
marketable title to all properties and assets owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except
such as are not materially significant or important in relation to
the Company’s business; all of the material leases and
subleases under which the Company is the lessor or sublessor of
properties or assets or under which the Company holds properties or
assets as lessee or sublessee are in full force and effect, and the
Company is not in default in any material respect with respect to
any of the terms or provisions of any of such leases or subleases,
and no material claim has been asserted by anyone adverse to rights
of the Company as lessor, sublessor, lessee or sublessee under any
of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continued possession of the
leased or subleased premises or assets under any such lease or
sublease. The Company owns or leases all such properties as
are necessary to its operations as now conducted and to be
conducted, as presently planned.
(j)
Patents, Trademarks,
etc. The Company owns or possesses
adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, trade secrets,
processes, formulations, technology or know-how used or proposed to
be used in the conduct of its business as described in the Offering
Documents (collectively, “Proprietary Rights”).
The Company has not received any notice of any claims, nor
does it have any knowledge of any threatened claims, and knows of
no facts which could form the basis of any claim, asserted by any
person to the effect that the sale or use of any product or service
now used or offered by the Company or proposed to be used or
offered by the Company infringes on any patents or infringes upon
the use of any such Proprietary Rights of another person and, to
the best of the Company’s knowledge, no others have infringed
the Company’s Proprietary Rights.
(k)
Software
. The current
software of the Company (the “Software”) is original
and capable of copyright protection in the United States, and the
Company has complete rights to the ownership of such Software,
including possession of, or ready access to, the source code for
such Software in its most recent version. No part of any such
Software is an imitation or copy of, or infringes upon, the
software of any other person or entity, or violates or infringes
upon any common law or statutory rights of any other person or
entity, including, without limitation, rights relating to
defamation, contractual rights, copyrights, trade secrets, and
rights of privacy or publicity. The Company has not sold,
assigned, licensed, distributed or in any other way disposed of or
encumbered the Software, other than in the ordinary course of its
business. The Software, to the extent any part of it is
licensed from any third-party licensor or constitutes
“off-the-shelf” software, is held by the Company
legitimately. The Company warrants that, to the best of the
Company’s knowledge, the Software is free from any
significant software defect or programming or documentation error,
operates and runs in a reasonable and efficient business manner,
and conforms to its stated specifications. The Company has no
knowledge of the existence of any bugs or viruses with respect to
the Software which would have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business
or business prospects of the Company.
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(l)
Litigation . There is no material action, suit,
investigation, customer complaint, claim or proceeding at law or in
equity by or before any arbitrator, governmental instrumentality or
other agency now pending or, to the knowledge of the Company,
threatened against the Company (or basis therefor known to the
Company), the adverse outcome of which could materially adversely
affect the Company’s business. The Company is not
subject to any judgment, order, writ, injunction or decree of any
federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign which could materially adversely affect the Company’s
business or prospects.
(m)
Nondefaults;
Noncontravention . The Company is not in
violation of or default under, nor will the execution and delivery
of this Agreement or any of the Offering Documents or consummation
of the transactions contemplated herein or therein result in a
violation of or constitute a default in the performance or
observance of any obligation (i) under its Articles of
Incorporation or its By-laws, (ii) under any indenture, mortgage,
deed of trust, material contract, material purchase order or other
material agreement or instrument to which the Company is a party or
by which it or its property is bound or affected or (iii) with
respect to any material order, writ, injunction or decree of any
court or any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, and there exists no condition, event or act
which constitutes, nor which after notice, the lapse of time or
both, could constitute a default under any of the foregoing, which
in either case would have a material adverse effect on the business
of the Company.
(n)
Taxes
. The Company has
filed all federal, state, local and foreign tax returns which are
required to be filed by it and all such returns are true and
correct in all material respects. The Company has paid all
taxes pursuant to such returns or pursuant to any assessments
received by it or which it is obligated to withhold from amounts
owing to any employee, creditor or third party. The Company
has properly accrued all taxes required to be accrued. The
tax returns of the Company are not currently being audited by any
state, local or federal authorities. The Company has not
waived any statute of limitations with respect to taxes or agreed
to any extension of time with respect to any tax assessment or
deficiency.
(o)
Compliance with
Laws; Licenses, etc. The Company has not received
notice of any violation of or noncompliance with any federal,
state, local or foreign laws, ordinances, regulations and orders
applicable to its business which has not been cured, the violation
of, or noncompliance with which, would have a materially adverse
effect on the business or operations of the Company. The
Company has all licenses and permits and other governmental
certificates, authorizations and approvals (collectively,
“Licenses”) required by every federal, state and local
government or regulatory body for the operation of its business as
currently conducted and the use of its properties, except where the
failure to be licensed would not have a material adverse effect on
the business of the Company. The Licenses are in full force
and effect and no violations are or have been recorded in respect
of any License and no proceeding is pending or, to the knowledge of
the Company, threatened to revoke or limit any thereof.
(p)
Authorization of
Agreement, etc. This Agreement has been duly
executed and delivered by the Company and the execution, delivery
and performance by the Company of this Agreement and the
Subscription Agreement and other Offering Documents have been duly
authorized by all requisite corporate action by the Company and
constitute the legal, valid and binding obligations of the Company,
enforceable in accordance with their respective terms.
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(q)
Authorization of
Shares .
The issuance, sale and delivery of the Shares, the
Agent’s Warrants and the Advisory Shares (as such term is
defined in Section 4(e) hereof) have been duly authorized by all
requisite corporate action of the Company and, when so issued, paid
for and delivered, will be validly issued, fully paid and
nonassessable and, will not be subject to preemptive or any other
similar rights of the shareholders of the Company or others which
rights shall not have been waived prior to the Closing.
(r)
Authorization of
Reserved Shares . The issuance, sale and
delivery by the Company of the shares of Common Stock reserved for
issuance upon exercise of the Agent’s Warrants (the
“Reserved Shares”) have been duly authorized by all
requisite corporate action of the Company. The Reserved Shares have
been duly reserved for issuance upon exercise of the Agent’s
Warrants and when so issued, sold, paid for and delivered, the
Reserved Shares will be validly issued and outstanding, fully paid
and nonassessable, and not subject to preemptive or any other
similar rights of the shareholders of the Company or others which
rights shall not have been waived prior to the Closing.
(s)
Exemption from
Registration . Assuming (i) the accuracy
of the information provided by the respective Subscribers in the
Subscription Documents and the other Offering Documents and (ii)
that the Placement Agent has complied in all material respects with
the provisions of Rule 502(c) of Regulation D promulgated under the
Securities Act, the offer and sale of the Shares pursuant to the
terms of this Agreement are exempt from the registration
requirements of the Securities Act and the rules and regulations
promulgated thereunder (the “Regulations”). The
Company is not disqualified from the exemption under Regulation D
by virtue of the disqualifications contained in Rule 505(b)(2)(iii)
or Rule 507 promulgated thereunder.
(t)
Registration
Rights .
Except with respect to holders of the Shares, the Advisory
Shares and the Agent’s Warrants, no person has any right to
cause the Company to effect the registration under the Securities
Act of any securities of the Company.
(u)
Securities
Brokers .
Neither the Company nor any of its officers, directors,
employees or shareholders has employed any broker or finder in
connection with the transactions contemplated by this Agreement
other than the Placement Agent.
(v)
Title to
Shares .
When certificates representing the Common Stock, Advisory
Shares and/or Reserved Shares shall have been duly delivered to the
purchasers and payment shall have been made therefor (assuming such
purchasers are bona fide purchasers within the meaning of the
Uniform Commercial Code), the several purchasers shall have
marketable title to the Common Stock, Advisory Shares and/or
Reserved Shares free and clear of all liens, encumbrances and
claims whatsoever (with the exception of claims arising from or
through the acts of the purchasers and except as arising from
applicable federal and state securities laws), and the Company
shall have paid all transfer taxes, if any, in respect of the
original issuance thereof.
(w)
Right of First
Refusal .
No person, firm or other business entity is a party to any
agreement, contract or understanding, written or oral, entitling
such party to a right of first refusal with respect to the offer or
sale of any equity or debt securities by the Company.
(x)
Solvency
. The
Company’s assets currently exceed its liabilities.
3.
Representations and
Warranties of the Placement Agent . The Placement Agent
represents and warrants to the Company as follows:
(a)
This Agreement has been
duly authorized, executed and delivered by the Placement Agent and
is a valid and binding agreement on its part, enforceable against
the Placement Agent in accordance with its terms.
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(b)
The Placement Agent is
duly registered pursuant to the provisions of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”),
as a broker-dealer and is a member in good standing of the National
Association of Securities Dealers, Inc. and is duly registered as a
broker-dealer in those states in which it is required to be so
registered in order to carry out the Offering contemplated
hereby.
4.
Closing; Escrow;
Placement and Fees .
(a)
Closing
. Provided the Offering
shall have been subscribed for and funds representing the sale of
at least 2,000,000 Shares shall have cleared, a closing (the
“Closing”) shall take place at the offices of counsel
to the Placement Agent, Greenberg Traurig LLP, at 2450 Colorado
Avenue, Suite 400E, Santa Monica, California 90404, on such date
(the “Closing Date”) which is on or before the
Termination Date (which date may be accelerated or adjourned by
agreement between the Company and the Placement Agent). At
the Closing, payment for the Shares issued and sold by the Company
shall be made against delivery of stock certificates representing
such Shares. In addition, one or more subsequent closings (if
applicable; and the date of each and any subsequent closing and
such subsequent closing shall also be referred to as a
“Closing Date” and a “Closing,”
respectively) may be scheduled at the discretion of the Company and
the Placement Agent.
(b)
Escrow
Account .
Funds received from the sale of the Shares will be deposited
by the Placement Agent with a chartered banking institution as
escrow agent (the “Escrow Agent”), and held by the
Escrow Agent in trust for the investors until the Placement Agent
is required to deliver the funds to the Company or return the funds
to the investors upon termination of the Offering or upon
instruction from the Company. All funds returned to investors will
be with interest.
(c)
Conditions to
Placement Agent’s Obligations . The obligations of the
Placement Agent hereunder will be subject to the accuracy of the
representations and warranties of the Company herein contained as
of the date hereof and as of each Closing Date, to the performance
by the Company of its obligations hereunder and to the following
additional conditions:
(i)
Due Qualification or
Exemption .
(A) The Offering contemplated by this Agreement will become
qualified or be exempt from qualification under the securities laws
of the several states pursuant to paragraph 5(d) not later than the
Closing Date, and (B) at the Closing Date no stop order suspending
the sale of the Shares shall have been issued, and no proceeding
for that purpose shall have been initiated or
threatened.
(ii)
No Material
Misstatements . The Placement Agent will
not have notified the Company that the Blue Sky qualification
materials or the Engagement Letter, or any supplement thereto,
contains an untrue statement of a fact which in its opinion is
material, or omits to state a fact which in its opinion is material
and is required to be stated therein, or is necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(iii)
Compliance with
Agreements .
The Company will have complied with all agreements and
satisfied all conditions on its part to be performed or satisfied
hereunder, including with respect to the Merger, in all material
respects at or prior to the Closing Date.
(iv)
Corporate
Action .
The Company will have taken all necessary corporate action,
including, without limitation, obtaining the approval of the
Company’s Board of Directors, for the execution and delivery
of this Agreement, the performance by the Company of its
obligations hereunder and the Offering contemplated
hereby.
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(v)
Opinion of Company
Counsel .
At each Closing, and dated as of the date thereof, the
Placement Agent shall receive the opinion of counsel to the Company
substantially to the effect that:
(A) the Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of California, has all requisite power
and authority to own or lease its properties, to carry on its
business as currently conducted and as proposed to be conducted, to
execute and deliver this Agreement and to carry out the
transactions contemplated by this Agreement and is duly qualified
or licensed to do business as a foreign corporation and is in good
standing in each other jurisdiction to such counsel’s
knowledge, in which the ownership or leasing of its properties or
conduct of its business requires such qualification, except where
the failure to be so qualified or licensed would not have a
material adverse effect on the business, financial condition or
prospects of the Company;
(B) each of this
Agreement, the Subscription Agreement, the other Offering Documents
and the Agent’s Warrants has been duly and validly
authorized, executed and delivered by the Company, and is the valid
and binding obligation of the Company, enforceable against it in
accordance wit
