The Project Group, Inc.
SELLING AGENT AGREEMENT
Dated as of March 1, 2004
First Montauk Securities Corp.
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, New Jersey 07701
Gentlemen:
The Project Group, Inc. (the "Company") proposes to offer for
sale (the "Offering") in a private offering
pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the
"Act"), and/or Regulation D promulgated
by the Securities and Exchange Commission
thereunder, an aggregate of up to
$1,500,000 of units comprised of up to
1,500 shares of preferred stock and
common stock warrants, at a subscription
price of $1000.00 per unit (the
"Securities"). The Offering and terms of
the securities are more fully described
in the Term Sheet date as of February 18,
2004 executed by the Company and First
Montauk Securities Corp. Offers and sales
of the Securities shall be to
Accredited Investors (as defined in
Regulation D.) This letter agreement shall
confirm our agreement concerning First
Montauk Securities Corp. acting as
exclusive selling or placement agent (the
"Selling Agent" or "FMSC")) in
connection with the sale of the
Securities.
l. Appointment of Selling Agent.
On the basis of the representations and warranties contained
herein, and subject to the terms and
conditions set forth herein, the Company
hereby appoints First Montauk Securities
Corp. as exclusive selling
agent/placement agent and grants to FMSC
the right to offer, as its agent, the
Securities pursuant to the terms of this
Agreement. On the basis of such
representations and warranties, and subject
to such conditions, FMSC hereby
accepts such appointment and agree to use
its reasonable best efforts to secure
subscriptions to purchase up to $1,500,000
of subscriptions for Securities. The
Company understands that the Selling Agent
is being retained to obtain
subscriptions on a "best efforts" basis and
has not guaranteed the sale of any
Securities.
2. Terms of the Offering.
(a) The Offering shall consist of up to $1,500,000 of
units, consisting of (i) 1,500 shares of
Series B 4% Redeemable Preferred Stock,
with an issue price of $1,000 per share and
(ii) 6,500 redeemable common stock
warrants for each share of preferred stock,
all as more described in the term
sheet, which is deemed a part hereof. The
Offering is being made on a "best
efforts" basis with no minimum offering
amount. The offering shall be completed
in two tranches of up to $750,000 each, as
more fully described in the Term
Sheet. In the event a subscription is not
accepted, such rejected subscription
funds will be returned to the subscriber
without interest or deduction.
(b) The Company has prepared a Securities Purchase
Agreement, Certificate of Designation for
the Series B Stock and form of Warrant
to be delivered to all prospective
investors. The Securities Purchase Agreement,
Certificate of Designation and form of
Warrant, including all supplements,
exhibits and appendices thereto and
documents delivered therewith, are referred
to herein as the "Documents" and shall
include any supplements or amendments in
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accordance with this Agreement. The
Offering shall commence on the date hereof,
and shall expire at 5:00 p.m., New York
time, on March 12, 2004, and may be
extended by mutual agreement of FMSC and
the Company until March 17, 2004. Such
period, as same may be so extended, shall
hereinafter be referred to as the
"Offering Period."
(c) Each prospective investor ("Prospective
Investor") who desires to purchase
Securities shall deliver to the Selling Agent
the Securities Purchase Agreement and
immediately available funds in the amount
necessary to purchase the number of
Securities such Prospective Investor desires
to purchase. The Selling Agent shall not
have any obligation to independently
verify the accuracy or completeness of any
information contained in any Purchase
Agreement or the authenticity, sufficiency,
or validity of any check delivered
by any Prospective Investor in payment for
Securities.
(d) The Selling Agent shall deliver each check (or
wire of funds) received from a Prospective
Investor to the Selling Agent (or
directly to the escrow bank) for deposit in
a segregated escrow account
maintained at Signature Bank in New York,
New York (or in the alternative, the
funds may be deposited in an attorney
escrow account) and shall deliver the
executed copies of the subscription
agreement received from such Prospective
Investor to the Company. All funds shall be
held in the segregated bank account
pending acceptance of the subscription. The
Company shall notify the Selling
Agent promptly of the acceptance or
rejection or any subscription.
3. Escrow; Closings; Release of Funds.
(a) All funds shall be placed into an escrow account
at Signature Bank pursuant to the terms of
an escrow agreement to be executed
between the Company, Selling Agent and the
bank (or in the alternative, the
funds may be deposited in an attorney
escrow account). Funds shall not bear
interest. In the event that a subscription
is returned to an investor, it will
be returned without interest or deduction.
No funds shall be released without a
written notice executed by the Company and
FMSC and delivered to the escrow
agent.
(b) The date that the initial subscriptions for the
first tranche of $750,000 are accepted by
the Company and funds are released
from the segregated account shall be deemed
the "Initial Closing". At least one
(1) day prior to the release of funds, FMSC
and the Company shall send written
notice to each other confirming the amount
of funds to be released, the name and
address of each subscriber whose
subscription has been accepted, and the amount
of each subscription.
(c) The closing for the second tranche of $750,000
("Final Closing") shall be
made within five business days following
the effective date of the registration
statement required to be filed by the
Company in accordance with the terms of
the Securities Purchase Agreement.
References herein to a "Closing" shall mean
the Initial Closing or the Final Closing,
as the context requires, and the date
thereof shall be referred to as a "Closing
Date."
4. Representations and Warranties of the Selling Agent.
The Selling Agent represents and warrants to the Company as
follows:
(a) The Selling Agent is duly incorporated and
validly existing and in good standing under
the laws of its State of
incorporation.
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(b) The Selling Agent is, and at the time of each
Closing will be, a member in good standing
of the NASD.
(c) Offers and Sales of Securities by the Selling
Agent will only be made in such
jurisdictions in which the Selling Agent is a
registered broker-dealer or where an
applicable exemption from such registration
exists.
(d) Offers and sales of Securities by the Selling
Agent will be made only in accordance with
this Placement Agreement and in
compliance with the provisions of Rule 506
of Regulation D (it being understood
and agreed that the Selling Agent shall be
entitled to rely upon the information
and statements provided by the Prospective
Investor in the Purchase Agreement
and/or Section 4(2) of the Securities Act
of 1933), and the Selling Agent will
furnish to each investor a copy of the
Documents prior to accepting any
subscription for the Securities.
5. Compensation.
(a) The Selling Agent shall be entitled, on each
Closing Date, as compensation for its
services as Selling Agent under this
Agreement, to (i) selling Commissions equal
to 10 % of the gross subscription
proceeds received by the Company through
subscriptions made by investors
introduced by FMSC.
(b) In addition to the compensation payable to the
Selling Agent set forth in clause (a)
above, the Company shall grant the Selling
Agent (or its assigns) warrants to purchase
up to 850,000 shares of Common Stock
with an exercise price of $0.30 per share
based upon 425,000 warrants for each
tranche of the Offering ("Selling Agent
Warrants"). The Selling Agent Warrants
shall be exercisable for a period of three
(3) years from the Final Closing Date
and the Selling Agent shall be entitled to
registration rights with respect to
the shares of Common Stock underlying the
Selling Agent Warrants on the same
terms as provided to investors in the
Offering. The Selling Agent Warrants shall
not be redeemable. In addition, the Selling
Agent shall have the right to
require the Company amend the terms of the
Selling Agent Warrants in the event
that the NASD, Inc. Department of Corporate
Finance requires amendments thereto
so as to comply with the NASD rules
regarding compensation. In the event that
the Prospective Investors breach their
commitment to provide the funds for the
2nd investment tranche, all of the Selling
Agent Warrants shall be deemed
immediately terminated.
(c) In the event that the Company seeks to redeem the
Warrants , FMSC shall also be entitled to a
warrant solicitation fee in
connection with the solicitation of the
exercise of the Warrants equal to 5% of
the aggregate exercise price of any Warrant
which is exercised through the
efforts of the Selling Agent as
solicitation agent evidenced by written
acknowledgment of the warrant holder and
provided that the warrant solicitation
is conducted in accordance with the rules
of the NASD. The fee shall be payable
only in accordance with NASD Rule
2710(6)(xii). In the event that the Company
seeks to redeem the Warrants, then the
Selling Agent shall be entitled to serve
as warrant solicitation agent The Company
may not employ any other broker dealer
or agent in connection with any Warrant
redemption and may not redeem the
warrants, or solicit their exercise,
without employing FMSC. FMSC shall have the
right to deliver any warrant redemption
notice on the Company's behalf and shall
be named in any press release or public
disclosure regarding the warrant
redemption.
6. Representations and Warranties of the Company.
(a) The Company represents and warrants to, and
agrees with, the Selling
Agent that:
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(i) Assuming the accuracy of the
representations and warranties of the
Prospective Investors set forth in the
Purchase Agreement and the representations
and warranties of the Selling Agent
set forth herein, the Documents (a)
contain, and at all times during the period
from the date hereof to and including each
Closing Date, will contain all
information required to be contained
therein, if any, pursuant to Rules 502 and
506 of Regulation D and all applicable
federal and/or state securities and "blue
sky" laws, and (b) do not, and during such
period will not, 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 made therein not
misleading.
(ii) No Documents or information provided by
the Company to Prospective Investors,
including, without limitation the SEC
Reports (as defined in the Documents),
shall 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 circumstances made
therein not misleading.
(iii) The Company is, and at all times
during the period from the date hereof to
and including each Closing Date will
be, a corporation duly organized, validly
existing, and in good standing under
the laws of the State of Nevada, with full
corporate power and authority, and
has obtained all necessary consents,
authorizations, approvals, orders,
licenses, certificates, and permits and
declarations of and from, and has made
filings with, all federal, state and local
authorities, to own, lease, license,
and use its properties and assets and to
conduct its business as presently
conducted as described in the Documents
and/or in any such case where the
failure to have any of the foregoing would
not have a material adverse effect on
the Company's presently conducted business.
As of the date hereof, the Company
is, and at all times during the period from
the date hereof to and including
each Closing Date, duly qualified to do
business and is in good standing in
every jurisdiction in which its ownership,
leasing, licensing, or use of
property and assets or the conduct of its
business makes such qualification
necessary except where the failure to be so
qualified would not have a material
adverse effect on the Company's
business.
(iv) The Company has made, or shall make,
during the Offering Period all required
filings with the SEC and/or blue sky
authorities of the appropriate states in
connection with the offer and sale of
the Securities so as to comply with the
requirements of Regulation D and /or the
laws of the various states.
(v) The financial statements (the "Financial
Statements") of the Company included in the
SEC Documents fairly present in
accordance with generally accepted
accounting principles the financial position,
the results of operations, and the other
information with respect to the Company
purported to be shown therein at the
respective dates and for the respective
periods to which they apply. The Financial
Statements have been prepared in
accordance with generally accepted
accounting principles consistently applied
throughout the periods involved, are
correct and complete, and are in accordance
with the books and records of the Company.
There has at no time been a material
adverse change in the financial condition,
results of operations, business,
properties, assets, liabilities, or future
prospects of the Company from the
latest information set forth in the
Documents, except as may be properly
described in the Documents as having
occurred or as may occur and except for
continued deterioration in the Company's
cash position and total assets and
continued losses from operations.
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(vi) As of the date hereof, except as
disclosed in the Documents, there is no,
and as of each Closing Date there shall
not be any, litigation, arbitration, claim,
governmental or other proceeding
(formal or informal), or investigation
pending or to the Company's knowledge
threatened, with respect to the Company, or
its respective operations,
businesses, properties, or assets, except
as properly described in the Documents
or such as individually or in the aggregate
do not now have and will not in the
future have a material adverse effect upon
the operations, business, properties,
or assets of the Company. The Company is
not, nor as of each Closing Date shall
be, in violation of, or in default with
respect to, any law, rule, regulation,
order, judgment, or decree, except as
properly described in the Documents or
such as individually or in the aggregate do
not have and will not in the future
have a material adverse effect upon the
operations, business, properties, or
assets of the Company; nor is the Company
required to take any action in order
to avoid any such violation or default.
(vii) As of the date hereof, the Company is
not, and at all times during the period
from the date hereof to and including
the Final Closing Date, shall not be, in
violation or breach of, or in default
with respect to complying with any material
provision of any material contract,
agreement, instrument, lease, license,
arrangement, other than any such
violation or breach which would not have,
individually or in the aggregate, a
material adverse effect on the Company's
business, and each such contract,
agreement, instrument, lease, license,
arrangement, and under- standing is in
full force and effect and is the legal,
valid, and binding obligation of the
parties thereto enforceable as to them in
accordance with its terms. The Company
enjoys peaceful and undisturbed possession
under all leases and licenses under
which it is operating as of the date
hereof. As of the date hereof, the Company
is not a party to or bound by any contract,
agreement, instrument, lease,
license, arrangement, or understanding, or
subject to any charter or other
restriction, which has had or may in the
future have a material adverse effect
on the financial condition, results of
operations, business, properties, assets,
liabilities, or future prospects of the
Company. The Company is not in violation
or breach of, or in default with respect
to, any term of its Certificate of
Incorporation or By- Laws.
(viii) To its best knowledge, the Company
has not infringed, is not infringing, or
has not received notice of infringement
with respect to asserted Intangibles of
others. To the best knowledge of the
Company, none of the patents, patent
applications, trademarks, service marks,
trade names and copyrights, and licenses
and rights to the foregoing presently
owned or held by the Company, materially
infringe upon any like right of any
other person or entity. The Company (i)
owns or has the right to use, free and
clear of all liens, charges, claims,
encumbrances, pledges, security interests,
defects or other restrictions of any kind
whatsoever, sufficient patents,
trademarks, service marks, trade names,
copyrights, licenses and right with
respect to the foregoing, to conduct its
business as presently conducted except
as set forth in the Documents, and (ii)
except as set forth in the Documents, is
not obligated or under any liability
whatsoever to make any payments by way of
royalties, fees or otherwise to any owner
or licensee of, or other claimant to,
any patent, trademark, service mark, trade
name, copyright, know-how, technology
or other intangible asset, with respect to
the use thereof or in connection with
the conduct of its business as now
conducted or otherwise. The Company has
direct ownership of title to all its
intellectual property (including all United
States and foreign patent applications and
patents), other proprietary rights,
confidential information and know-how; owns
all the rights to its Intangibles as
are currently used in or have potential for
use in its business.
(ix) The Company has all requisite corporate
power and authority to execute, deliver,
and perform this Agreement and to
consummate the transactions contemplated
hereby. All necessary corporate
proceedings of the Company have been duly
taken to authorize the execution,
delivery, and performance by the Company of
this Agreement and the consummation
of the transactions contemplated hereby.
This Agreement has been duly
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authorized, executed, and delivered by the
Company, is a legal, valid, and
binding obligation of the Company, and is
enforceable as to the Company in
accordance with its terms. Assuming the
accuracy of the representations and
warranties of the Prospective Investors set
forth in the Purchase Agreements and
the representations and warranties of the
Selling Agent set forth herein, no
consent, authorization, approval, order,
license, certificate, or permit of or
from, or registration, qualification,
declaration, or filing with, any federal,
state, local, foreign, or other
governmental authority or any court or other
tribunal is required by the Company for the
execution, delivery, or performance
by the Company of this Agreement, the
consummation of the transactions
contemplated hereby and thereby, except the
filing of a Notice of Sales of
Securities on Form D pursuant to Regulation
D, and such consents,
authorizations, approvals, registrations,
and qualifications as may be required
under all applicable federal and/or
securities or "blue sky" laws in connection
with the issuance, sale, and delivery of
the Securities pursuant to this
Agreement. No consent of any party to any
material contract, agreement,
instrument, lease, license, arrangement, or
understanding to which the Company
is a party, or to which any of its
properties or assets are subject, is required
for the execution, delivery, or performance
of this Agreement, and the
consummation of the transactions
contemplated hereby and thereby, and such
execution, delivery and performance will
not violate, result in a breach of,
conflict with, or (with or without the
giving of notice or the passage of time
or both) entitle any party to terminate or
call a default under any such
contract, agreement, instrument, lease,
license, arrangement, or understanding,
violate or result in a breach of any term
of the
