PLACEMENT AGENT AGREEMENT

 

Exhibit 10.5

 

PLACEMENT AGENT AGREEMENT

 

 

This Placement Agent Agreement (“Agent Agreement”) is entered into this _ 25___ day of February, 2005, by and between LITTLE SQUAW GOLD MINING COMPANY, an Alaska corporation (the “Company”) and STRATA PARTNERS, LLC, a Washington limited liability company (the “Agent”).  The Company and the Agent have signed a Term Sheet dated January 14, 2005, setting forth the general terms and conditions for a private placement of units by the Agent on a best efforts basis for the Company.  The Term Sheet is attached hereto as Exhibit A.  The purpose of this Agent Agreement is to set forth the terms and conditions of the agency relationship between the Company and the Agent.  

 

1.

Engagement of Agent .  The Company engages Strata Partners, LLC, a Washington limited liability company, as Placement Agent for the Company, with respect to the sale by the Company in a private placement transaction of 9,166,666 units of the Company to investors (the “Offering”).  

 

2.

Description of the Offering .  The Company intends to offer to prospective investors an aggregate of Two Million Seven Hundred Fifty Thousand Dollars (U.S. $2,750,000) of its shares of Common Stock and Warrants as a Unit at U.S. $0.30 per unit.  The Units will consist of one share of common stock of the Company (“Common Shares”) and one warrant (“Warrant”) entitling the holder of the Common Shares to acquire one additional share of common stock of the Company at U.S. $0.45 per share for the period of one year from the date of issue of the Common Shares to the holder.  The exercise price for the Warrants will increase to U.S. $0.55 for the period of the second year from the date of issue and further increase to U.S. $0.75 for the period of the third year from the date of issue.  The Company reserves the right to use the closing date for the Offering or date of last sale as the “Issue Date” for the exercise periods for the Warrants.

 

The minimum purchase for each investor is 150,000 Units (U.S. $45,000).

 

The Units to be issued, and the Common Shares and Warrants comprising the Units, and the Common Shares issuable upon exercise of the Warrants (collectively, with the Warrants issuable to the Agents under Section 3.2, the “Securities”) have not been registered with the Securities and Exchange Commission, pursuant to the provisions of the Securities Act of 1933, as amended (the “1933 Act”), or with state commissions or agencies pursuant to the securities laws of the states in which offerees for the Offering may receive the Memorandum.   The Units are being sold in reliance on exemptions from the state and federal registration requirements and, when acquired, will be considered restricted securities as that term is defined in Rule 144 promulgated pursuant to the provisions of the 1933 Act.  Any certificate issued for the Units will bear a legend stating, in substance, that the Units may not be sold, assigned or transferred for value in the absence of an effective registration statement or an opinion of counsel acceptable to the Company that such registration is not required.

 

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The Company will grant each investor the registration rights set forth in the Registration Rights Declaration attached hereto as Exhibit C (the “Registration Rights Declaration”).

 

The Company has the right to terminate the Offering at any time and may accept subscriptions for less than all the Units in its discretion.  The Company also reserves the right to sell Units to any person at any time.  The Offering will be more fully described in a Private Placement Memorandum (the “Memorandum”); the Company expects to complete preparation of this Memorandum on or before March 15, 2005.

 

3.

Agent’s Compensation .  In consideration for the services to be performed by the Agent, the Company shall pay to the Agent, or cause the Agent to be paid, compensation as provided in this section within five (5) business days of the Company’s receipt of funds from the purchasers of the Common Shares.  

 

3.1

Cash Compensation .  The Company shall pay to the Agent a cash compensation fee in U.S. dollars in an amount equal to five percent (5%) of the gross proceeds of the Offering received by the Company.

 

3.2

  Warrants .  The Agent also will receive Warrants to purchase additional restricted shares of common stock of the Company equal to five percent (5%) of the total number of Common Shares sold by the Company in the Offering.  The terms, conditions and exercise price of the warrants to be issued to the Agent shall be identical to the terms, conditions and exercise price of the Warrants issued by the Company in the Offering.  The Company hereby agrees to grant the Agents the same registration rights granted to Investors under the Registration Rights Declaration.

 

4.

Representations and Warranties of the Company.  The Company represents and warrants that:

 

4.1

The Company is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Alaska with power and authority to own assets and to conduct its business as will be described in the Memorandum.   The Company does not have any subsidiaries.

 

4.2

The Company has an authorized and outstanding capitalization, including common shares, preferred stock, options, warrants and convertible securities, as set forth on Exhibit A.  The Memorandum will include a true, accurate and correct description of the Company’s Common Shares, preferred stock, options, warrants and convertible securities.  The Common Shares, when issued and delivered, shall be duly and validly issued, fully paid and non-assessable.

 

4.3

The Memorandum will not contain any untrue statement or material fact or omit to state any material fact required to be stated or necessary to make the statements in the Memorandum not misleading; provided, however, that this representation and

 

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warranty does not apply to statements or omissions made in reliance upon and in conformity with information furnished to the Company in connection with the Memorandum by Agent directly or through or by counsel on Agent’s behalf. The financial statements and schedules included in the Memorandum will present fairly the cost of the assets, the liabilities, and the capital stock of the Company as of the dates of such statements and schedules, all in conformity with generally accepted accounting principles.

 

4.4

Neither the execution and delivery of this Agent Agreement, nor the consummation of the transactions contemplated in this Agent Agreement (in compliance with the terms and provisions of this Agent Agreement), shall conflict with, or result in a breach of, the Articles of Incorporation of the Company, Bylaws of the Company, or any other agreement or instrument to which the Company is a party or by which it is bound.

 

4.5

This Agent Agreement has been duly authorized, executed, and delivered on behalf of the Company, and is the valid, binding, and enforceable obligation of the Company, except to the extent that obligations concerning indemnification under this Agent Agreement may be limited by applicable securities laws or federal bankruptcy provisions.

 

4.6

No authorization, approval, or consent of any regulatory body or authority will be required for the valid authorization, issuance, sale, and delivery of the Securities, or, if so required, all authorizations, approvals, and consents will be obtained and will be in full force and effect as of the issuance date for the Securities.

 

4.7

The Company owns, possesses or has obtained, all governmental, administrative and third party licenses, permits, certificates, registrations, approvals, consents and other authorizations (collectively, “Permits”) necessary to own or lease (as the case may be) its properties, and to conduct its businesses as currently conducted, except such Permits the failure of which to obtain would not have a material adverse effect on the business, properties, operations, financial condition or results of operations of the Company; the Company has not received any notice of proceedings relating to the revocation, modification or suspension of any Permits which would have a material adverse effect on the Company, or notice of any circumstance which would lead it to believe that such proceedings are reasonably likely.

The Company will obtain such Permits as are necessary for the future operations, prior to commencement of any such operations.

4.8

The business and operations of the Company to its knowledge have been conducted in accordance with all applicable laws, rules and regulations of all governmental authorities, except for such violations which would not, individually or in the aggregate, have a material adverse effect on the financial condition or business of the Company.

4.9

The issuance of the Securities will not be subject to any pre-emptive right

 

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or other contractual right to purchase securities granted by the Company or to which the Company is bound.

4.10

The Company has complied and will comply fully with the requirements of all applicable corporate and securities laws in all matters relating to the Offering.

4.11

There are no legal or governmental actions, suits, proceedings or investigations pending or, to the Company’s knowledge, threatened, to which the Company is or may be a party or of which property owned or leased by the Company is or may be the subject, or related to environmental, title, discrimination or other matters, which actions, suits, proceedings or investigations, individually or in the aggregate, could have a material adverse effect on the Company.

4.12

There are no judgments against the Company which are unsatisfied, nor is the Company subject to any injunction, judgment, decree or order of any court, regulatory body, administrative agency or other governmental body.

4.13

The Company is not in violation of its organizational or incorporating documents nor in violation of, or in default under, any lien, mortgage, lease, agreement or instrument, except for such defaults which would not, individually or in the aggregate, have a material adverse effect on the financial condition, properties or business of the Company.

4.14

Subject to the accuracy of the representations and warranties of the Agent contained in this Agent Agreement, and in the subscription agreements to be executed by investors in connection with the Offering, the offer, sale and issuance of the Securities as contemplated by this Agreement are exempt from the registration requirements of the 1933 Act and from the registration or qualifications requirements of the state securities or “blue sky” laws and regulations of any applicable state or other applicable jurisdiction.

4.15

The Company’ shares of common stock are quoted for trading on the National Association of Securities Dealers over-the-counter electronic bulletin board (the “OTCBB”).

4.16

No order ceasing, halting or suspending trading in securities of the Company nor prohibiting the sale of such securities has been issued to and is outstanding against the Company or its directors, officers or promoters, and, to the best of the Company knowledge, no investigations or proceedings for such purposes are pending or threatened.

4.17

Neither the Company nor any subsidiary thereof will have taken any action which would be reasonably expected to result in the delisting or suspension of quotation of the Common Shares on or from the OTCBB and the Company will have complied, in all material respects, with any rules and regulations of eligibility on the OTCBB.

4.18

The Company is a "reporting issuer" under section 12 of the Securities Exchange Act of 1934, as amended (the “1934 Act”) and is not in default of any of the requirements of the 1934 Act.

4.19

As of their respective filing dates, each report, schedule, registration

 

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statement and proxy filed by the Company with the United States Securities and Exchange Commission (“SEC”) after June 30, 2003 (each, an “SEC Report” and collectively, the “SEC Reports”) (and if any SEC Report filed prior to the date of this Agreement  but after June 30, 2003 was amended or superseded by a filing prior to the date of this Agreement, then also on the date of filing of such amendment or superseding filing), (i) where required, were prepared in all material respects in accordance with the requirements of the 1933 Act, or the 1934 Act, as the case may be, and the rules and regulations promulgated under such Acts applicable to such SEC Reports, (ii) did not contain any untrue statements of a material fact and did not omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (iii) are all the forms, reports and documents required to be filed by the Company with the SEC since June 30, 2003.  Each set of audited consolidated financial statements and unaudited interim financial statements of the Company (including any notes thereto) for the fiscal years ended December 31, 2003 and December 31, 2004 included in the SEC Reports (i) complies as to form in all material respects with the published rules and regulations of the SEC with respect thereto, and (ii) have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto) and fairly present, in all material respects, the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended subject, in the case of the unaudited interim financial statements, to normal year-end adjustments which were not or are not expected to be material in amount.  To the Company’s knowledge, no events or other factual matters exist which would require the Company to file any amendments or modifications to any filed SEC Reports.

4.20

Each SEC Report containing financial statements that has been filed with or submitted to the SEC since June 30, 2003, was accompanied by the certifications required to be filed or submitted by the Company’s chief executive officer and chief financial officer pursuant to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); at the time of filing or submission of each such certification, to the best knowledge of the chief executive officer and chief financial officer, such certification was true and accurate and complied with the Sarbanes-Oxley Act and the rules and regulations promulgated thereunder; such certifications contain no qualifications or exceptions to the matters certified therein and have not been modified or withdrawn; and neither the Company nor any of its officers has received notice from any governmental entity questioning or challenging the accuracy, completeness, form or manner of filing or submission of such certification.

4.21

There is no fact known to the Company which the Company has not publicly disclosed which materially adversely affects, or so far as the Company can reasonably foresee, will materially adversely affect, the assets, liabilities (contingent or otherwise), capital, affairs, business, prospects, operations or condition (financial or otherwise) of the Company or the ability of the Company to perform its obligations under this Agreement.

4.22

Except as disclosed in the SEC Reports, the Company has filed all federal, state, local and foreign tax returns which, to the Company's knowledge, are required to be

 

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filed, or have requested extensions thereof, and have paid all taxes required to be paid by them and any other assessment, fine or penalty levied against them, to the extent that any of the foregoing is due and payable, except for such assessments, fines and penalties which are currently being contested in good faith.

4.23

There are no liens for taxes on the assets of the Company except for taxes not yet due, and there are no audits of any of the tax returns of the Company which are known by the Company’ management to be pending; there are no claims which have been or may be asserted relating to any such tax returns which, if determined adversely, would result in the assertion by any governmental agency of any deficiency which would have a material adverse effect on the properties, business or assets of the Company.

4.24

The Company is not an "investment company" within the meaning of the Investment Company Act of 1940.

4.25

Neither the Company nor any of its affiliates, nor any person acting on its or their behalf (i) has made or will make any “directed selling efforts” (as such term is defined in Regulation S of the 1933 Act) in the United States, or (ii) has engaged in or will engage in any form of “general solicitation” or “general advertising” (as such terms are defined in Rule 502 (c) under Regulation D of the 1933 Act) in the United States with respect to offers or sales of the Securities.

4.26

The Company has not, for a period of six months prior to the date hereof, sold, offered for sale or solicited, and will not for a period of six months after the Closing Date, offer, sell or solicit, any offer to buy any of its securities in a manner that would be integrated with the offer and sale of the Units and which would cause the exemption from registration set forth in Rule 506 of Regulation D or Rule 903 of Regulation S of the 1933 Act to become unavailable with respect to the offer and sale of the Securities.  “Closing Date” for the purposes of this Agent Agreement means the date on which the last closing of the Units are issued under the Offering.

4.27

The warranties and representations in this section are true and correct and will remain so as of the Closing Date.

 

5.

Representations and Warranties of the Agent.  The Agent represents and warrants that:

 

(a)

The Agent is a limited liability company formed under the laws of the State of Washington, validly existing and in good standing, with all requisite power and authority to enter into this Agent Agreement and to carry out its obligations hereunder.

 

(b)

This Agent Agreement has been duly authorized, executed and delivered by the Agent and is a valid and binding agreement enforceable in accordance with its terms.

 

(c)

The Agent is duly registered pursuant to the provisions of the 1934 Act, as a broker-dealer and is a member in good standing of the National Association of Securities Dealers, Inc. (“NASD”) and duly registered as a broker-dealer in those states

 

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in which the Agent is required to be so registered in order to carry out the Offering contemplated by the Memorandum.

 

(d)

The Agent will use its best efforts to conduct the Offering in compliance with the requirements of Regulation D and in this regard the Agent will have:

 

(i)

During the course of the Offering, and to the extent any representations are made concerning the Offering or matters set forth in the Memorandum, not made any untrue statement of a material fact and not omitted to state a material fact required to be stated or necessary to make any statement not misleading;

 

(ii)

Not offered, offered for sale, or sold the Units, except to the extent permitted by Regulation D, by means of:

 

(A)

Any advertisement, article, notice, or other communication mentioning the Units published in any newspaper, magazine or similar medium or broadcast over television or radio;

 

(B)

Any seminar or meeting, the attendees of which have been invited by any general solicitation or general advertising; or

 

(iii)

Prior to the sale of any of the Units, reasonably believed that each subscriber and his or her purchaser representative, if any, met the suitability and other investor standards set forth in the Memorandum and the Blue Sky Survey prepared by Company Counsel pursuant to Section 9.(c) of this Agent Agreement; the Agent will prepare and maintain memoranda and other appropriate records substantiating the foregoing;

 

(iv)

Only used sales materials other than the Memorandum which have been approved for use in this Offering by the Company;

 

(v)

During the course of the Offering provided each offeree with a copy of the Memorandum;

 

(vi)

Until the last closing date, promptly distributed any supplement or amendment to the Memorandum received from the Company to persons who previously received a copy of the Memorandum and who the Agent believes continue to be interested in the Company and included such supplement or amendment in all deliveries of the Memorandum made after receipt of any such supplement or amendment; and

 

(vii)

Not made any representations on behalf of the Company other than those contained in the Memorandum, nor have acted as an agent of the Company in any other capacity except as expressly set forth herein.

 

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6.

Covenants of the Company.  The Company covenants that:

 

6.1

Amendments and Supplements. The Company shall not at any time make any amendment or supplement to the Memorandum without previously providing Agent with (a) a copy of such amendment or supplement, and (b) a reasonable opportunity to comment regarding the same.

 

6.2

Copies of Memorandum. The Company shall deliver to Agent, without charge, from time to time during the term of this Agent Agreement, as many copies of the Memorandum as Agent reasonably may request, and the Company consents to the use of the Memorandum as permitted by applicable state and federal securities laws.

 

6.3

Compliance with Laws. The Company shall use best efforts to comply with, and to continue to comply with, applicable state and federal securities and other laws so as to permit the continuation of the Offering.

 

6.4

Stop Order. The Company promptly shall notify Agent in the event of (a) the issuance by any federal or state securities commission or authority of any stop order suspending the effectiveness of the Memorandum, or (b) the institution or notice of the intended institution of any action or proceeding for that purpose. The Company shall make every reasonable effort to prevent the issuance of a stop order, and, if a stop order is issued at any time, to obtain the withdrawal of the order at the earliest possible time.

 

6.5

Outstanding Capitalization.  On the Closing Date, the Company will deliver to the Agent a certificate of its Chief Executive Officer setting forth the authorized and outstanding capitalization, including common shares, preferred stock, options, warrants and convertible securities, on the Closing Date after giving effect to the Closing.

 

6.6

Exclusivity.  Until the later of March 1, 2005, or 21 days after the completion of the Memorandum, the Company will not, and will cause its directors, officers, employees, agents and representatives not to, directly or indirectly, solicit or entertain offers from, or in any manner encourage, accept, or consider any proposal of, any other person relating to the acquisition of the Company, shares of its capital stock, securities convertible into or exchangeable for shares of its capital stock, or the Company’s assets or businesses, in whole or in part, whether directly or indirectly, through purchase, merger, consolidation, original issuance, or otherwise, except in the case that the Company is negotiating to acquire properties or interests from other parties, to the extent that the Company may offer capital stock as part of the acquisition.  The Company will immediately notify Agent regarding any contact between the Company, any of its directors, officers, employees, representatives or any other person regarding any offer, proposal, or inquiry during this exclusivity period.

 

 

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The Company, however, may borrow funds from affiliated persons pursuant to loan documents granting the affiliates the right to convert the loan into a purchase of shares and warrants upon the same terms as will set forth in the Memorandum.

 

7.

Covenants of the Agent.  The Agent will use its best efforts to conduct the Offering in a manner intended to be in compliance with the offering procedures and the suitability standards set forth in the Memorandum and with the requirements of Regulation D of the 1933 Act, and the 1934 Act.  The Agent will:

 

(a)

During the course of the Offering, and to the extent any representations other than those set forth in the Memorandum are made, not make any untrue statement of a material fact or omit to state a material fact required to be stated or necessary to make any statement made not misleading concerning the Offering, or any matters set forth in or contemplated by the Memorandum; and

 

(b)

Take all actions necessary to fulfill its duties under Rule 15c2-4 under the 1934 Act, which duties relate to transmission or maintenance of funds received from potential participants.

 

8.

Expenses of Offering.   The Company will pay all expenses incurred by it in the performance of its obligations to be set forth in the Memorandum, including but not limited to the fees and expenses of the Company’s counsel and accountants and the cost of qualifying the Offering, and the sale of the Units, in various states or obtaining an exemption from state registration requirements.  The Company will reimburse the Agent for actual expenses, including but not limited to accounting, legal and professional fees, incurred by the Agent in connection with the Offering, not to exceed one-half percent (0.5%) of the gross offering proceeds.

 

The provisions of this Section shall survive any termination of this Agent Agreement.

 

9.

Conditions to Agent’s Obligations.  The obligations of the Agent in this Agent Agreement shall be subject to the accuracy of and compliance with, as of the date hereof, and on each closing date for the sale of the Common Shares, the representations, covenants, and warranties contained in Sections 4 and 6 hereof, the performance by the Company of its obligations hereunder, and to the following further conditions:

 

(a)

The Agent shall have received on or before the commencement date for the Offering an opinion from Paine, Hamblen, Coffin, Brooke & Miller LLP, Spokane, Washington (the “Company Counsel”) satisfactory in form and substance to the Agent and its counsel, to the effect that:

 

(i)

Upon the commencement date of the Offering, the Company will be a company in good standing and validly existing under the laws of the State of Alaska, fully authorized to transact the business in which it is engaged, and authorized to enter into this Agent Agreement;

 

 

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(ii)

The Common Shares, Warrants and Common Shares issuable upon exercise of the Warrants when issued and sold will be validly and legally issued and the offering of the Common Shares, Warrants and Common Shares will be as described in the Memorandum have been duly authorized by the Company;

 

(iii)

The Offering will not result in the breach of any of the terms or conditions of, or constitute a default under any loan commitment, agreement, or other instrument of which such counsel has knowledge and to which the Company is a party or violate any order of any court or any federal or state regulatory body or administrative agency having jurisdiction over the Company or over the Company’s property;

 

(iv)

To the best knowledge of such Company Counsel, upon reasonable inquiry, there is not in existence, pending nor threatened any action, suit or proceeding to which the Company or any director thereof is a party, except as may be set forth in the Memorandum or any supplement thereto, before any court or governmental agency or body, which action, suit or proceeding might, if decided adversely, materially affect the subject matter of this Agent Agreement, the Offering or the financial condition, business or prospects of the Company;

 

(v)

The disclosures to be made in the Memorandum, together with the Company’s offer to each subscriber to provide access to additional information, are sufficient to satisfy the “information requirements” of Rule 502 of Regulation D assuming the receipt by each subscriber of a copy of the Memorandum;

 

(vi)

registration under the 1933 Act of the Securities is not required for the offer and sale thereof to the investors in accordance with the provisions of this Agreement

 

(vii)

In rendering the opinions to be set forth, the Company Counsel, as to factual matters, may rely upon certificates, statements, letters, representations or affidavits of the Company and its officers, any public records of the Company, certificates of public officials and letters of independent certified public accountants.

 

(b)

The Agent will receive on the commencement of the Offering, a certificate from the Company stating that the representations and warranties made in this Agent Agreement are true and correct, as if made on the commencement date of the Offering; the certificate further will state that the Company has complied with all agreements and covenants and that the Memorandum does not include any untrue statement of 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.

 

(c)

The Agent will receive on the commencement date of the Offering a

 

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survey prepared by Company Counsel and addressed to the Company and to the Agent relating to the securities laws of the jurisdictions in which the Company and the Agent have agreed to make offers to potential investors.  This survey shall be referred to as the “Blue Sky Survey.”  Company Counsel and the Agent shall agree upon the form and statements to be made in the Blue Sky Survey.

 

10.

Conditions to Company’s Obligations.   The obligations of the Company shall be subject to the accuracy as of the date hereof and on the commencement date of the Offering of the representations and warranties made by the Agent in Sections 5 and 7 of this Agent Agreement.

 

11.

Indemnification.

 

(a) The Company agrees that it shall indemnify and hold harmless, Agent, its members, directors, officers, employees, agents, affiliates and controlling persons within the meaning of Section 20 of the 1934 Act and Section 15 of the 1933 Act (any and all of whom are referred to as an "Indemnified Party"), from and against any and all losses, claims, damages, liabilities, or expenses, and all actions in respect thereof (including, but not limited to, all legal or other expenses reasonably incurred by an Indemnified Party in connection with the investigation, preparation, defense or settlement of any claim, action or proceeding, whether or not resulting in any liability), incurred by an Indemnified Party:  (i) arising out of, or in connection with, any actions taken or omitted to be taken by the Company, its affiliates, employees or agents, or any untrue statement or alleged untrue statement of a material fact contained in any of the financial or other information furnished to the Agent by or on behalf of the Company or the omission or alleged omission of a 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; or (ii) with respect to, caused by, or otherwise arising out of any transaction contemplated by the Agreement or the Agent's performing the services contemplated hereunder; provided , however , the Company will not be liable under clause (ii) hereof to the extent, and only to the extent, that any loss, claim, damage, liability or expense is  finally judicially determined to have resulted primarily from the Agent's gross negligence or bad faith in performing such services.

 

(b)

The Agent will indemnify and hold harmless the Company, its stockholders, directors, officers, employers, agents, affiliates and controlling persons (any and all of whom are referred to as an "Indemnified Party") from and against any losses, claims, damages, or liabilities, joint or several, to which the Indemnified Party may become subject, under the 1933 Act, the 1934 Act, the various state securities acts or otherwise insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Memorandum, in any other offering documentation or state "blue sk