EQUITY SOURCE PARTNERS, LLC
575 Jericho Tpke; Suite 102
Jericho, NY 11753
August 16, 2007
Martin Schacker
Chairman of the Board
Tetragenex Pharmaceuticals, Inc.
1 Maynard Drive, Suite 205
Park Ridge, NJ 07656
Dear Martin:
Equity Source Partners, LLC ("ESP") is pleased to act as the exclusive placement
agent for Tetragenex (the "Company") in connection with your proposed capital
transaction. The terms of our engagement are set forth below. We look forward to
working with you.
I. THE OFFERING. We understand you wish to raise up to five million
dollars ($5,000,000) through a private placement of certain equity,
equity-linked or debt securities solely to Institutional and
Accredited Investors (the "Offering"). The Offering will be made in
accordance with the exemption from the registration requirements of
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (collectively, the "Act") provided by
Regulation D under the Act "Regulation D") and the qualification and
registration requirements of applicable state and foreign securities
or blue sky laws and regulations. You understand that ESP will use
reasonable efforts with respect to the marketing of the Offering and
that the actual terms of the Offering will depend on market
conditions, and will be subject to due diligence and negotiation
between the Company and prospective investors.
2. FEES AND EXPENSES.
Concurrently with any closing of any Offering during the Term, the
Company will pay ESP the following:
(a) A cash fee equal to 8% of the gross proceeds received from the
sale of securities.
(b) Reimbursement of $25,000 of non-accountable expenses inclusive of
legal fees to be incurred by ESP in connection with the Offering.
(c) 5 year warrants to purchase a number of securities sold equal to
8% of the gross number of shares sold at each closing (or the number
of shares of common stock the securities are convertible into in the
event convertible debt is sold). The warrants shall contain the same
provisions (including strike price (or the initial conversion price in
the case of convertible debt securities), anti-dilution protections
and registration rights) afforded to the investors in the Offering,
along with a cashless exercise provision.
Martin Schacker,
Chairman of the Board
August 16, 2007
Page 2
3. TERM; TAIL RIGHTS; RIGHT OF FIRST REFUSAL.
(a) The term of this agreement ("Term") shall commence on the date
hereof and shall continue for an initial term of two (2) months;
provided, however, either party may terminate this agreement upon
10 days written notice to the other party based on a breach of
the other party's obligations hereunder and provided, however,
that no such termination shall be effective unless the breaching
party is provided with written notice of such breach and a
reasonable time period to cure such breach. Upon termination, ESP
will be entitled to receive any fees accruing prior to such
termination (based only on securities actually placed and sold)
and post termination (i.e., the "tail" provisions as provided in
Section 3(b) and 3(c) below) and reasonable expenses actually
incurred through the date of termination, subject to the
limitation in Section 2(b) hereof. In addition, upon expiration
or termination of this Agreement, it is understood that Section
6. - Indemnification, Section 7. - Governing Law and Section 12.
- Miscellaneous shall survive.
(b) If during the twelve months following termination or expiration
of this agreement, any person which we introduced to the Company
during the Term (an "ESP Introduced Party") purchases securities
from the Company other than through an underwritten public
offering (or enters into an agreement during the Term to purchase
securities from the Company which is consummated at anytime
thereafter), the Company shall pay ESP upon the receipt of such
funds, a cash fee and warrants in the amount that would otherwise
have been payable to ESP had such transaction occurred during the
Term in accordance with section 2.
(c) In the event any ESP Introduced Party invests in the Offering and
then makes a subsequent investment (including the exercise of
warrants attached to this transaction) in the Company within a
thirty (36) month period following its initial investment, the
Company agrees to pay ESP upon the closing of such subsequent
investment a cash fee and warrants in the amount that would
otherwise have been payable to ESP had such transaction occurred
during the Term in accordance with section 2.
(d) Upon a closing of the Offering in which gross proceeds of at
least $1 million is raised, the Company will grant ESP a twelve
(12) month right of first refusal to act as lead placement agent
on any future private placement of the Company's securities. It
is understood that if a third party broker-dealer provides the
Company with written terms with respect to a future private
securities offering ("Written Offering Terms"), the Company shall
promptly present same to ESP. ESP shall have ten (10) business
days from its receipt of the Written Offering Terms in which to
determine whether or not to accept such offer and, if ESP
refuses, and provided that such financing is consummated (a) with
another placement agent upon substantially the same terms and
conditions as the Written Offering Terms and (b) within three
months after the end of the aforesaid ten (10) business day
period, this right of first refusal shall thereafter be forfeited
and terminated; PROVIDED, HOWEVER, IF the financing is not
consummated under the conditions of clauses (a) and (b) above,
then the right of first refusal shall once again be reinstated
under the same terms and conditions set forth in this paragraph.
Martin Schacker,
Chairman of the Board
August 16, 2007
Page 3
4. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) The Company will cooperate with and will furnish ESP with all
reasonable information and data concerning the Company and the
Offering which ESP deem appropriate (all such information so
furnished being the "Information") and will provide ESP with
reasonable access to the Company's officers, directors and
employees. The Company represents that all Information and any
disclosure materials made available to ESP for distribution to
investors will be complete and correct in all material respects
and will not contain any untrue statement of material fact or
omit to state a material fact necessary in order to make the
statements therein not misleading in light of the circumstances
under which such statements are made. The Company will advise ESP
immediately of the occurrence of any event or any other change
known to the Company which results in the Information containing
an untrue statement of a material fact or omitting to state a
material fact required to be stated therein or necessary to make
the statements therein or previously made, in light of the
circumstance under which they were made, not misleading. The
Company further represents and warrants that to the extent any
projections are furnished, such projections will have been
prepared in good faith and will be based upon assumptions, which,
in light of the circumstances under which they are made, are
reasonable.
ESP agrees to keep all Information confidential except
Information that (i) is or becomes generally available to the
public (other than as a result of a disclosure by ESP), (ii) was
available to ESP or its representatives on a non-confidential
basis prior to its disclosure by the Company, (iii) becomes
available to ESP or its representatives on a non-confidential
basis from a person other than the Company who, to the knowledge
of ESP, is not bound by a confidentiality agreement with the
Company, or (iv) ESP or any of its representatives is requested
pursuant to, or required by law, regulation, legal process or
regulatory authority to disclose. The obligations of ESP under
the immediately preceding sentence shall terminate upon the
second anniversary of this letter agreement.
(b) You understand and agree that ESP's obligations to commence the
Private Placement may be subject to execution of a Placement
Agency Agreement on customary terms and incorporating the
principal terms hereof In the absence of such Placement Agency
Agreement, you agree that we may rely upon, and are a third party
beneficiary of, the representations and warranties, and
applicable covenants, set forth in any stock purchase agreement
or subscription agreement that you execute with investors in the
Offering. If requested by ESP, the Company will, at the closing
of the Offering, furnish ESP with the same favorable opinion of
its outside counsel as is furnished to the investors, addressed
to ESP or together with a letter from such counsel that ESP may
rely on its opinion as if directed to ESP. In addition, at the
closing of the Offering, the Company will provide ESP with the
same certificates of the officers of the Company as are furnished
to the investors and such other certification, opinions and
documents as ESP or its counsel may deem appropriate, in form and
substance satisfactory to ESP and its counsel, including any
updates of the Company's representations and warranties set forth
herein. Lastly, upon the reasonable determination by ESP that a
NASD Rule 2710 filing is required in
Martin Schacker,
Chairman of the Board
August 16, 2007
Page 4
connection with the registration statement relating to the resale
of the securities sold in the Offering, the Company will pay all
filing fees, costs and reasonable legal fees in connection with
such filing to be prepared by ESP's counsel (up to $7,500 of
legal fees)
(c) You also agree to provide us with due diligence materials as we
request or copies of due diligence materials which are provided
to investors in the Offering.
5. NO CONFLICT.
The Company represents, warrants and agrees, as of the date hereof,
that: (i) neither the execution and delivery of this Agreement by the
Company nor the consummation of the transactions contemplated hereby
will, directly or indirectly, with or without the giving of notice or
lapse of time, or both, (A) violate any provisions of the Certificate
of Incorporation or By-laws of the Company or (B) violate, or be in
conflict with, or constitute a default under, any agreement, lease,
mortgage, debt or obligation of the Company or require the payment,
any pre-payment or., other penalty with respect thereto; (ii) it has
all requisite power and authority to enter into and perform its
obligations under this Agreement; (iii) this Agreement has been duly
executed and delivered and constitutes valid and binding obligations
of the Company, enforceable against the Company in accordance with
their respective terms; and (iv) it has not engaged the services of
any other broker, agent, advisor or finder in connection with
corporate finance or investment banking services.
6. INDEMNIFICATION.
The Company and ESP agree to the indemnification provisions set forth
on Annex A. Said indemnification shall apply regardless of whether the
proposed offering is consummated.
7. GOVERNING LAW.
This agreement shall be governed by and construed in accordance with
the laws of the state of New York applicable to contracts executed and
to be wholly performed therein without giving effect to its conflicts
of laws principles of rules. This letter constitutes the entire
understanding of the parties with respect to the subject matter hereof
and may not be altered or amended except in writing signed by both
parties. This Agreement shall be deemed to have been made and
delivered in New York City and shall be governed as to validity,
interpretation, construction, affect and in all other respects by the
internal laws of the State of New York. The Company (1) agrees that
any legal suit, action or proceeding arising out of or relating to
this letter shall be instituted exclusively in New York State Supreme
Court, County of New York, or in the United States District Court for
the Southern District of New York, (2) waives any objection which the
Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction
of the New York State Supreme Court, County of New York, and the
United States District Court for the Southern District of New York in
any such suit, action or proceeding. The Company further agrees to
accept and acknowledge service of any and all process which may be
served in any such suit, action or proceeding in the New York State
Supreme Court, County of New York, or in the United States District
Court for the Southern District of New York and both parties agree
Martin Schacker,
Chairman of the Board
August 16, 2007
Page 5
that service and process may be performed in any manner prescribed by
New York law in any suit action or proceeding. THE PARTIES HERETO
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.
8. ANNOUNCEMENT OF OFFERING.
If the Offering is consummated, ESP may at its expense, and in
accordance with any applicable NASD and SEC regulations, place an
announcement in such newspapers and periodicals as ESP may desire. The
Company reserves the right to review and comment and pre-approve any
announcement that ESP intends to publish with respect to any financing
contemplated here under that clause.
9. ADVICE TO THE BOARD.
The Company acknowledges that any advice given by ESP to you is solely
for the benefit and use of the Board of Directors of the Company and
may not be used, reproduced, disseminated, quoted or referred to,
without our prior written consent, except as may be required by law or
in connection with any action or proceeding under paragraph 7.
10. CONFLICTING ENGAGEMENTS.
Nothing in this letter shall be construed to limit the ability of ESP
or its affiliates to pursue, investigate, analyze, invest in, or
engage in investment banking, financial advisory or any other business
relationship with entities other than the Company, notwithstanding
that such entities may be engaged in a business which is similar to or
competitive with the business of the Company, and notwithstanding that
such entities may have actual or potential operations, products,
services, plans, ideas, customers or supplies similar or identical to
the Company's, or may have been identified by the Company as potential
merger or acquisition targets or potential candidates for some other
business combination, cooperation or relationship.
11. INDEPENDENT CONTRACTOR.
In carrying out its responsibilities under this letter, ESP shall be
an independent contractor with complete supervision and control over
its own activities, and shall have no right or authority to assume or
create any obligation on behalf of the Company.
12. MISCELLANEOUS.
The parties acknowledge and agree that With respect to phrases
contained herein such as "as a results of our efforts," "introduced to
the Company by ESP" or similar language, such phrases are intended to
include any person or entity, introduced to the Company by the
undersigned. Thus, to the extent that the Company consummates any part
of the Offering with any person or entity, whose introduction to the
Company can be traced back to a person or entity who was originally
introduced to the Company by ESP or are persons or entities with which
ESP had otherwise had discussions or negotiations during the Term on
behalf of the Company, ESP is entitled to the compensation described
herein.
Martin Schacker,
Chairman of the Board
August 16, 2007
Page 6
This Agreement constitutes the entire understanding of the parties
with respect to the subject matter hereof and may not be altered or
amended except in a writing signed by both parties.
During the Term and the applicable tail periods referred to herein the
Company shall not negotiate, enter into or attempt to negotiate or
enter into any agreement, covenant or understanding, written or oral,
with any other person or entity, directly or indirectly, that could in
any manner be construed to be inconsistent with this agreement or
could undermine any of the rights or interests of ESP in, under or in
respect of this Agreement and agrees not to interfere with,
circumvent, frustrate or otherwise impede in any manner the
realization by ESP of any of the objectives it seeks or benefits
derived, or to be derived, from any of the foregoing.
The execution of this Agreement does not constitute a commitment by
ESP or the Company to consummate any transaction contemplated
hereunder and does not ensure the successful placement of securities
of the Company or the success of ESP with respect to securing any
financing on behalf of the Company. The Company's engagement of ESP is
not intended to confer rights upon any person not a party hereto
(including shareholders, directors, officers, agents, employees, or
creditors of the Company) as against ESP or its affiliates, or their
respective directors, officers, employees or agents, successors or
assigns. ESP's engagement by the Company is not intended to confer
rights upon any person not a party hereto (including shareholders,
directors, officers, agents, employees, or creditors of the Company)
as against the Company or its affiliates, or their respective
directors, officers, employees or agents, successors or assigns. No
promises or representations have been made except as expressly set
forth in this agreement and the parties have not relied on any
promises or representations except as expressly set forth in this
agreement. Nothing contained herein should be construed as creating
any fiduciary duties between the parties.
In the event that other services are required and/or transactions
which are the result of ESP's efforts that are not as contemplated
herein, the parties hereto shall negotiate in good faith to determine
a mutually acceptable level of compensation in such an eventuality.
The rights and obligations of either party under this Agreement may
not be assigned or delegated by such party without the prior written
consent of the other party (except by operation of law), and any other
purported assignment or delegation shall be null and void. This
Agreement shall be binding upon and inure to the benefit of the
parties and their respective permitted successors and assigns. If any
provision of this Agreement is determined to be invalid or
unenforceable in any respect, then such determination will not affect
such provision in any other respect or any other provision of this
Agreement, which will remain in full force and effect. No material
provision of this agreement shall be deemed waived and no breach
excused, unless such waiver or consent excusing the breach shall be in
writing and signed by the party to be charged with such waiver or
consent.
The Company represents, warrants and agrees, as of the date hereof,
that: (i) neither the execution and delivery of this Agreement by the
Company nor the consummation of the transactions contemplated hereby
will, directly or indirectly, with or without the giving of
Martin Schacker,
Chairman of the Board
August 16, 2007
Page 7
Notice or lapse of time or both, (A) violate any provision of the
Certificate of Incorporation or By-laws of the Company or (B) violate,
or be in conflict with, or constitute a default under, any agreement,
lease, mortgage, debt or obligation of the Company or require the
payment, any pre-payment or other penalty with respect thereto; (ii)
it has all requisite power and authority to enter into and perform its
obligations under this Agreement; (iii) this Agreement has been duly
executed and delivered and constitutes valid and binding obligations
of the Company, enforceable against the Company in accordance with
their respective terms; and (iv) it has not engaged the services of
any other broker, agent, advisor or finder in connection with
corporate finance or investment banking services.
We look forward to working with you and developing a long-term relationship
with the Company.
Very truly yours,
Equity Source Partners, LLC
By: /s/ Harvey Kohn
-----------------------------
Harvey Kohn
Authorized Signatory
Confirmed and accepted as of
The 21st day of August, 2007
Tetragenex Pharmaceuticals, Inc.
By: /s/ Martin Schacker
--------------------------------------
Name: Martin Schacker
Title: Chairman of the Board
Martin Schacker
Chairman of the Board
August 16, 2007
Page 8
ANNEX A
INDEMNIFICATION
The Company agrees to indemnify and hold harmless ESP and its affiliates
and their respective officers, directors, employees, agents and controlling
persons (ESP and each such person being an "Indemnified Party"), from and
against any losses, claims, damages and liabilities, joint or several, to which
such Indemnified Party may become subject under any applicable law, or
otherwise, which relate to or arise in any manner out of any transaction,
financing, or any other matter (collectively, the "Matters") contemplated by the
engagement letter of which this Annex A forms a part and the performance by ESP
of the services contemplated thereby, and will promptly reimburse each
Indemnified Party for all reasonable expenses (including reasonable fees and
expenses of legal counsel) as incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party
and whether or not such claim, action or proceeding is initiated or brought by
or on behalf of the Company. Notwithstanding the foregoing, the Company shall
not be liable under the foregoing to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by a court of competent
jurisdiction to have resulted solely from ESP's bad faith or gross negligence.
The Company also agrees that no Indemnified Party shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company or
its security holders or creditors related to, arising out of, or in connection
with, any Matters, the engagement of ESP pursuant to, or the performance by ESP
of the services contemplated by, the engagement letter, except to the extent any
loss, claim, damage, liability if found in a final judgment by a court of
competent jurisdiction to have resulted solely from ESP's bad faith or gross
negligence.
If the indemnification of an Indemnified Party provided for this letter
agreement is for any reason held unenforceable, although otherwise applicable in
accordance with its terms, the Company agrees to contribute to the losses,
claims, damages and liabilities for which such indemnification is held
unenforceable (i) in such proportion as is appropriate to reflect the relative
benefits to the Company, on the one hand, and ESP, on the other hand, of any
Matter (whether or not the Matter is consummated) or (ii) if (but only if) the
allocation provided for in clause (i) is for any reason held unenforceable, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) but also the relative fault of the Company, on the one
hand, and ESP, on the other hand, as well as any other relevant equitable
considerations. The Company agrees that for the purposes of this paragraph the
relative benefits to the Company and ESP of any contemplated Matter (whether or
not such Matter is consummated) shall be deemed to be in the same proportion
that the total value paid or received or to be paid or received by the Company
as a result of or in connection with any Matter, bears to the fees paid or to be
paid to ESP under the engagement letter; provided, however,- that, to the extent
permitted by applicable law, in no event shall the Indemnified Parties be
required to contribute an aggregate amount in excess of the aggregate fees
actually paid to ESP under the engagement letter of which this Annex A is a
part.
The Company agrees that it will not, without the prior written consent of
ESP, settle, compromise or consent to the entry of any judgment in any pending
or threatened claim, action or proceeding in respect of which indemnification
may be sought hereunder (whether or not ESP or any other Indemnified Party is an
actual or potential party to such claim, action or proceeding), unless such
settlement, compromise or consent includes an unconditional release of ESP and
each
Martin Schacker,
Chairman of the Board
August 16, 2007
Page 9
other Indemnified Party hereunder from all liability arising out of such claim,
action or proceeding.
If ESP or any other Indemnified Party is requested or required to appear as
a witness in any action brought by or on behalf of or against the Company in
which such party is not named as a defendant, the Company will reimburse ESP for
all reasonable expenses incurred in connection with such party's appearing and
preparing to appear as such a witness, including, without limitation, the fees
and disbursements of its legal counsel.
The provisions of this Annex A shall continue to apply and shall remain in
full force and effect regardless of any modification or termination of the
engagement or engagement letter of which this Annex A is a part or the
completion of ESP's services there under.