Sales Agency Agreement

EVERCEL, INC.


Shares of Preferred Stock
and Common Stock Purchase Warrants


SALES AGENCY AGREEMENT


December 16, 1999


Burnham Securities Inc. 1325 Avenue of the Americas, 17th Floor New York, New York 10019


Ladies and Gentlemen:


Evercel, Inc., a Delaware corporation (the "Company"), proposes to offer for sale in a private offering (the "Offering") pursuant to Rule 506 of Regulation D ("Regulation D") under the Securities Act of 1933, as amended (the "Act"), up to (i) 264,000 shares (each a "Primary Share") of Series A Cumulative Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock") and (ii) up to 132,000 shares (each an "Overcall Share" and together with a Primary Share, a "Share") of the Company's Series B Cumulative Convertible Preferred Stock, par value $0.01 per share (the "Series B Preferred Stock" and, together with the Series A Preferred Stock, the "Preferred Stock") pursuant to Section 2(b) hereof, together with warrants (the "Warrants," together with the Preferred Stock are hereinafter sometimes referred to as the "Securities") to purchase shares of the Company's common stock, $.01 par value per share (the "Common Stock"). The Preferred Stock is convertible into shares of Common Stock (the "Conversion Shares.") The Offering will be made solely to "accredited investors" as defined in Regulation D. This is to confirm our agreement concerning your acting as our exclusive placement agent (the "Placement Agent") in connection with the Offering.


1. Appointment of Placement Agent.
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On the basis of the representations and warranties contained herein, and subject to the terms and conditions set forth herein, the Company hereby appoints you as its Placement Agent and grants to you the exclusive 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, you hereby accept such appointment and agree to use your best efforts to secure subscriptions to purchase up to 264,000 Shares pursuant to the terms of this Agreement. The agency created hereby is not terminable by the Company except upon termination of the Offering contemplated hereby or upon expiration of the Offering Period (as defined below) in accordance with the terms of this Agreement.


2. Terms of the Offering.
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(a) The Primary Shares shall be offered for sale to prospective investors in this Offering (the "Prospective Investors") at a purchase price of $25.00 per share (the "Offering Price"). The minimum investment by a Prospective Investor shall be $12,5000 (500 Shares), unless otherwise agreed to by the Company and the Placement Agent. Officers, directors and employees of the Company, and the Placement Agent and its officers, directors and employees may purchase Shares on the same terms and conditions as other investors. All references herein to subscriptions from Prospective Investors shall be deemed to include such Shares.


(b) In addition, upon the basis of the warranties and representations and other terms and conditions herein set forth, at the purchase price per share set forth in paragraph (a) of this Section 2, the Company has an option to sell the Overcall Shares to the Prospective Investors who purchased securities at the Closing or at any Additional Closing. The option hereby granted will expire on August 31, 2000 and may be exercised once, in whole or in part, upon notice by the Company to the Placement Agent setting forth the number of Overcall Shares as to which the Company is then calling and the time and date of payment and delivery for such Overcall Shares.


(c) The Offering with respect to the Primary Shares shall commence on the date hereof (the "Commencement Date") and shall expire at 5:00 P.M., New York time, on December 20, 1999, unless extended from time to time for up to an aggregate of 90 days by mutual agreement of the Company and the Placement Agent. Such period, as the same may be so extended, shall hereinafter be referred to as the "Offering Period."


(d) Each Prospective Investor who desires to purchase Securities shall be required to deliver to the Placement Agent one copy of a subscription agreement, including the investor questionnaire and the other written materials required by the subscription instructions attached to such subscription agreement (collectively, a "Subscription Agreement"), and payment in the amount necessary to purchase the number of Shares such Prospective Investor desires to purchase. 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 or other form of payment delivered by any Prospective Investor in payment for the Securities.


(e) The Company has established a Special Account entitled "Evercel, Inc. - Escrow Account" (the "Special Account"). The Placement Agent shall deliver each check received from a Prospective Investor for deposit in the Special Account and shall deliver the executed copy of the Subscription Agreement received from such Prospective Investor to the Company. The Company shall notify the Placement Agent promptly of the acceptance or rejection of any subscription. The Company shall have the right, in its sole discretion, to reject any subscription; provided, however, that in the event the Company shall reject a subscription by a Prospective Investor meeting the investor suitability requirements specified in the Subscription Agreement and who has delivered payment and completed and executed a Subscription Agreement and whose ownership interest in the Company will not be detrimental to the Company's business interest in the reasonable judgment of the Company (a "Qualified Subscription"), the Company shall pay you a fee and issue you warrants in respect thereof in an amount equal to the sales commissions and Placement Agent's Warrants (as hereinafter defined) you would have otherwise received pursuant to Sections 4(a) and 4(b) from the sale of such Shares to such Prospective Investor.


(f) If Subscriptions to purchase a minimum of 200,000 Primary Shares are not received from Prospective Investors prior to the expiration of the Offering Period and accepted by the Company, unless otherwise mutually agreed by the Placement Agent and the Company, the Offering shall be canceled, all funds received by the Company shall be refunded in full, without interest and this Agreement and the agency created hereby shall be terminated without any further obligation on the part of either party, except as provided in Sections 7 and 10 hereof.


(g) You may engage other persons that are members of the National Association of Securities Dealers, Inc. ("NASD") or registered representatives of such members to assist you in the Offering (each such person being hereinafter referred to as a "Selected Dealer") and you may allow such persons such part of the compensation and payment of expenses payable to you hereunder as you shall determine. Each Selected Dealer shall be required to agree in writing to comply with the provisions of, and to make the representations, warranties and covenants contained in, Sections 5(b) and 6(b) by executing the form of Selected Dealer Agreement attached hereto as Exhibit III. On or prior to the Closing (as defined below), the Placement Agent shall deliver a copy of each executed Selected Dealer Agreement to the Company. By executing this Agreement, the Company hereby agrees to make, and is deemed to make, the representations and warranties to, and covenants and agreements with, each Selected Dealer (including an agreement to indemnify under Section 9 hereof) who has executed the Selected Dealer Agreement as is contained in this Agreement.


3. Closing.
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(a) Subject to the conditions set forth in Section 8 hereof, if Qualified Subscriptions to purchase a minimum of 200,000 Primary Shares have been received and cleared prior to the expiration of the Offering Period and accepted by the Company, the closing under this Agreement (the "Closing") shall be held at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York, at 10:00 A.M., New York time, on the third business day following the date upon which the Placement Agent receives notice from the Company that subscriptions to purchase a minimum 200,000 Primary Shares have been so accepted or at such other place, time, and/or date as the Company and the Placement Agent shall agree upon (the "Closing Time"). The Company shall provide the notice required by the preceding sentence as promptly as practicable. The date upon which the initial Closing is held shall hereinafter be referred to as the "Initial Closing Date."


(b) Subject to the conditions set forth in Section 8 hereof and with the consent of both the Company and the Placement Agent, if, subsequent to the Initial Closing Date and prior to the expiration of the Offering Period, additional subscriptions to purchase Primary Shares are received from Prospective Investors, which subscriptions are accepted by the Company, one or more additional closings under this Agreement (each, an "Additional Closing") shall be held at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York, at 10:00 A.M., New York time, on the fifth business day following the date upon which the Placement Agent receives notice from the Company that additional subscriptions have been so accepted, or at such other place, time or date as the Company and the Placement Agent shall agree upon. The Company shall notify the Placement Agent as promptly as practicable whether any additional subscriptions so received have been accepted. The date upon which any Additional Closing is held shall hereinafter be referred to as an "Additional Closing Date."


(c) If the Company elects to exercise its option pursuant to Section 2(b) hereof, the closing (the "Overcall Closing") of all or part of the Overcall Shares shall be held at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York, at 10:00 A.M., New York time, on the fifteenth business day following the date upon which the Placement Agent receives notice from the Company of such exercise, or at such other place, time or date as the Company and the Placement Agent shall agree upon. The date upon which the Overcall Closing is held shall hereinafter be referred to as the "Overcall Closing Date." The latest Closing Date is sometimes referred to herein as the "Final Closing Date."


(d) At the Closing, Additional Closing or Overcall Closing, as the case may be, the Company shall pay to the Placement Agent from the funds deposited in the Special Account in payment for Securities, the amount payable to the Placement Agent pursuant to Section 4(a) of this Agreement. Notwithstanding the foregoing, if any portion of the proceeds raised in the Offering are not paid to the Company at the Closing, Additional Closing or Overcall Closing, as the case may be, then the placement fee relating to such deferred proceeds shall only be paid by the Company upon receipt of such deferred proceeds. Promptly after the Initial Closing Date, Additional Closing Date or Overcall Closing Date, as the case may be, the Company shall deliver to the purchasers of Securities certificates representing the Shares and Warrants to which they are entitled, in the forms attached hereto as Exhibit I and Exhibit II, respectively.


4. Compensation.
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(a) You shall be entitled, as compensation for your services as Placement Agent under this Agreement, to an amount equal to 7% of the aggregate gross proceeds received by the Company from the sale of Securities to Prospective Investors, payable by the Company on the Initial Closing Date, Additional Closing Date or Overcall Closing Date, as the case may be, with respect to the Securities sold on such date to investors; provided, however, that any subscription meeting the requirements set forth in Section 2(d) shall be deemed to have been accepted for purposes of determining whether the Placement Agent is entitled to its compensation pursuant to this Section 4(a). In addition, the Company shall pay the Placement Agent an amount equal to 4% of the aggregate gross proceeds to the Company upon the exercise of any of the Warrants.


(b) As additional compensation for your services as Placement Agent under this Agreement, you and/or your designees shall become entitled to receive, on each of the Initial Closing Date, and each Additional Closing Date and Overcall Closing Date, if any, warrants (collectively, the "Placement Agent Warrants") to purchase shares of the Company's Common Stock, in an amount equal to 7% of the number of shares of Common Stock issuable upon the conversion of the Shares sold by the Company in the Offering on such Closing Date. Each Placement Agent Warrant will entitle the holder thereof, until the date which is five (5) years after the Initial Closing Date, Additional Closing Date or Overcall Closing Date, as the case may be, to purchase one share of Common Stock (such shares of Common Stock issuable upon the exercise of the Placement Agent Warrants are hereinafter referred to as the "Placement Agent Warrant Shares") and shall contain the same terms and conditions as the Warrants. The Company shall be obligated, under certain circumstances set forth in the Registration Rights Agreement made by the Company for the benefit of the purchasers of the Securities and the Placement Agent and its designees (the "Registration Rights Agreement"), to file a registration statement under the Act to permit the sale in the public trading market of the Placement Agent Warrant Shares and the shares of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") by the holders thereof. The Placement Agent Warrants and the Warrants shall be substantially in the form attached hereto as Exhibit II.


5. Representations and Warranties.
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(a) Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the Placement Agent that:


(i) Organization, Etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to conduct its business as it is now being conducted and to own, operate or lease the properties and assets it currently owns, operates or holds under lease. The Company is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction where the character of its business or the nature of its properties makes such qualification or licensing necessary, except where the failure to so qualify or be licensed would not have a material adverse effect


(ii) Capitalization. The SEC Reports (as defined below) set forth the capitalization of the Company. There are no shares of Common Stock held as treasury shares. The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of each class and series of authorized capital stock of the Company are as set forth in the Company's Certificate of Incorporation, and all such designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable and in accordance with all applicable laws. All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable. All of the outstanding securities of the Company were issued in compliance with all applicable Federal and state securities laws. None of such outstanding securities has been issued in violation of any preemptive rights, rights of first refusal or similar rights. Except as set forth in the SEC Reports, there are no outstanding options, warrants, convertible securities, calls, rights, commitments, preemptive rights or agreements or instruments or understandings of any character to which the Company is a party or by which the Company is bound, obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, contingently or otherwise, additional shares of its capital stock or any securities or obligations convertible into or exchangeable for such shares or to grant, extend or enter into any such option, warrant, convertible security, call, right, commitment, preemptive right or agreement. There are no outstanding obligations, contingent or other, of the Company to purchase, redeem or otherwise acquire any shares of its capital stock. There are no voting trust agreements or other contracts, agreements, arrangements, commitments, plans or understandings restricting or otherwise relating to voting, dividend or other rights with respect to the capital stock of the Company.


(iii) No Prior Sales. The Company has not, directly or indirectly, solicited any offer to buy or offered to sell any shares of Series A Preferred Stock or any other securities of the Company during the six-month period ending on the date hereof except for the securities as may be described in the SEC Reports, and has no present intention to solicit any offer to buy or to offer to sell any Series A Preferred Stock or any other securities of the Company other than pursuant to this Agreement or as described in the SEC Reports.


(iv) Authorization. The Company has all requisite corporate power and authority to enter into this Agreement, the Subscription Agreement and the Registration Rights Agreement (collectively, the "Transaction Documents"), to carry out its obligations under each of the Transaction Documents and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, the performance by the Company of its obligations hereunder and thereunder (other than its obligations to register shares of Common Stock under the Securities Act pursuant to the Registration Rights Agreement) and the authorization, designation, reservation, sale, issuance and delivery of the Shares, the Conversion Shares, the Warrants, the Placement Agent Warrants, the Warrant Shares and the Placement Agent Warrant Shares have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been, and each of the other agreements contemplated hereby, when executed and delivered by the Company, will have been, duly executed and delivered by the Company and constitute the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms (except as the enforceability thereof may be limited by any applicable bankruptcy, insolvency or other laws affecting creditors' rights generally or by general principles of equity, regardless of whether such enforceability is considered in equity or at law). The Shares, the Conversion Shares, the Warrants, the Placement Agent Warrants, the Warrant Shares and the Placement Agent Warrant Shares have been duly authorized and, when issued in accordance with this Agreement, the Shares, the Warrants and the Placement Agent Warrants will be validly issued, fully paid and nonassessable, with no personal liability attaching to the ownership thereof. The Conversion Shares, the Warrant Shares and the Placement Agent Warrant Shares have been duly reserved for issuance. Neither the issuance, sale nor delivery of the Shares, the Conversion Shares, the Warrants, the Placement Agent Warrants, the Warrant Shares or the Placement Agent Warrant Shares is subject to any preemptive right of stockholders of the Company or to any right of first refusal or other right in favor of any person which has not been waived in writing.


(v) No Violation. The execution and delivery of this Agreement and each other Transaction Document by the Company do not, and the consummation by the Company of the transactions contemplated hereby and thereby and compliance with the terms hereof and thereof will not, (a) conflict with, or result in any violation of or default or loss of any benefit under, any provision of the Company's Certificate of Incorporation or By-laws; (b) conflict with, or result in any violation of or default or loss of any benefit under, any permit, concession, grant, franchise, law, rule or regulation, or any judgment, decree or order of any court or other governmental agency or instrumentality to which the Company is a party or to which any of its property is subject; (c) conflict with, or result in a breach or violation of or default or loss of any benefit under, or accelerate the performance required by, the terms of any agreement, contract, indenture or other instrument to which the Company is a party or to which any of its property is subject, or constitute a default or loss of any right thereunder or an event which, with the lapse of time or notice or both, might result in a default or loss of any right thereunder or the creation of any Security Interest upon any of the assets or properties of the Company; or (d) result in any suspension, revocation, impairment, forfeiture or nonrenewal of any license.


(vi) Financial Statements and Other Information. (a) The Company has previously furnished to the Placement Agent the Company's Quarterly Reports on Form 10-QSB for the quarters ended January 31, 1999, April 30, 1999 and July 31, 1999, which contain the audited and unaudited financial statements of the Company (the "Financial Statements"). These statements ...