SUTRO & CO.
0000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 0000
XXXXXXX X. XXXXX Xxx Xxxxxxx, XX 00000
MANAGING DIRECTOR 310 | 914 0735
INVESTMENT BANKING 800 | 471 7799
310 | 000 0000 FAX
XXXXXX@XXXXX.XXX
October 11, 2000 CONFIDENTIAL
Xx. Xxxxx Xxxxxxxxxx
President
XxxxXxxxxXxxxxx.xxx, Inc.
00000 Xxxxx Xxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxx 00000
Dear Xxxxx:
This letter agreement sets forth the terms and conditions under which
XxxxXxxxxXxxxxx.xxx, Inc. (the "Company") has retained Sutro & Co. Incorporated
("Sutro") (i) to act as exclusive financial advisor with respect to various
transactions including potential Acquisitions (as defined below) and (ii) to act
as its exclusive agent with respect to the private placement(s) for
approximately $30 million, in one or several offerings in common stock (the
"Securities") with institutional and individual investors (the "Investors") for
the Company. Such placement(s) of the Securities shall be referred to as the
"Private Placement(s)" and our engagement pursuant to this letter agreement (the
"Agreement") shall be referred to as the "Engagement".
1) TERMS OF THE ENGAGEMENT. Sutro will assist the Company in effecting the
Private Placement on the terms and conditions of this Agreement. In
this regard, we propose to undertake the following activities, to the
extent each is appropriate, on your behalf:
i) Advising the Company as to the form and structure of the
Private Placement;
ii) Assisting the Company and its counsel in the preparation of a
Private Placement Memorandum (the "Memorandum") concerning the
Company and the Securities. Responsibility for the contents of
such Memorandum shall be solely that of the Company, and the
Memorandum shall not be made available to, or used in
discussions with, prospective investors until both the
Memorandum and its use for those purposes have been approved
by the Company;
iii) Identifying and introducing to, and consulting as to strategy
for initiating discussions with, potential Investors;
iv) Using its best efforts to privately-place the Securities in
one or more offerings with Investors;
v) Negotiating the sale of the Securities to Investors; and
vi) Assisting in the preparation of definitive closing
documentation for the Private Placement(s).
1.a. Company Information. In connection with Xxxxx's
engagement, the Company represents that all of the
data, material, and information concerning the
Company (the "Information") furnished to Sutro by it
and its advisors and agents shall be accurate and
complete in all
SUTRO & CO.
respects at the time furnished; and further agrees
that if any of such Information becomes inaccurate,
misleading or incomplete during the term of Xxxxx's
engagement hereunder, the Company shall promptly so
advise Sutro in writing and correct any such
inaccuracy or omission. The Company acknowledges that
is the exclusive source of such Information. The
Company recognizes and confirms that Sutro, in
advising the Company and undertaking the Engagement
assignment, will be using and relying on the
Information without independent verification or
investigation and without performing any appraisal of
the assets or business of the Company. The Company
authorizes Sutro to use and deliver the Information,
and any other data obtained by Sutro from reliable
published sources, to potential Investors. Sutro
agrees to keep any nonpublic information confidential
so long as it remains non-public, unless disclosure
is required by law or requested by any governmental
or regulatory agency or body, and Sutro will not make
any use thereof, except for Sutro's services for the
Company as described in this Agreement.
1.b. Private Placement Memorandum. Sutro will assist the
company and its counsel in the preparation of a
Memorandum, and the Company will provide Sutro with
the number of copies of such Memorandum, as Sutro
shall request. The Company shall represent that the
Memorandum and the Information are complete and
correct in all material respects and do not contain
any untrue statement of a 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,
other than information furnished to the Company by
Sutro.
2) EXCLUSIVITY. It is understood that the Company is engaging Sutro on an
exclusive basis to act as financial advisor and placement agent in
connection with the Private Placement for a period (the "Exclusivity
Period") commencing on September 22, 2000, and ending on March 22,
2001, provided, however, that such Exclusivity Period shall be
automatically renewed for successive three-month periods unless either
party gives notice to the other within 30 days of the expiration of the
Exclusivity Period of its desire to terminate this Engagement. In
addition, Sutro may, at its sole option, terminate this Engagement
without liability if, in the opinion of Sutro, a change has occurred in
the Company's financial condition, results of operations, properties,
business or prospects, market conditions or the composition of the
Compay's management or Board of Directors, which, in Sutro's sole
determination, has adversely affected the marketability of the
Securities.
It is expressly understood that the provisions in this Agreement
relating to the payment of all fees and expenses of Sections 3 and 4 of
this Agreement will survive any such termination of the Engagement or
completion of Sutro's services pursuant to this Agreement. The Company
shall be obligated to pay Sutro the Advisory Fee and the Warrant (as
these terms are defined in paragraph 3 below) if during the Exclusivity
Period or within the twelve month period following the termination of
this Engagement the Company receives commitments from any Investor (a)
identified to the Company by Sutro or (b) with which Sutro or the
Company had a discussion regarding the Private Placement, in any
instance, during the term of the Engagement and whether or not such
discussions were initiated by Sutro. From time to time during the
Engagement but not less than monthly, Sutro and the Company will
provide each other a complete list of their contacts. It is also
understood that the Company will notify Sutro of all solicitations and
conversations with potential investors in connection with the potential
purchase of the Securities. It is understood that Xxxxx's involvement
in the Private Placement is strictly on a best efforts basis and the
consummation of the Private Placement will be subject to, among other
things, prevailing market conditions.
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SUTRO & CO.
It is also expressly understood that Sutro may terminate this Agreement
without liability if the Company is unable to secure a lock-up and
escrow agreement satisfactory to Sutro for approximately 15,000,000
shares of Common Stock controlled by certain non-management
shareholders.
3) COMPENSATION. Sutro's compensation for its services performed pursuant
to this Agreement will be determined as follows:
a) A non-refundable retainer of $25,000 payable upon execution of
this Agreement and a retainer warrant (the "Retainer Warrant")
to purchase 75,000 of the outstanding common stock on a fully
diluted basis payable in warrants at a strike price of $0.01.
The warrants will be granted upon the execution of this
Agreement and have a ten- year term. The warrants shall
contain a cashless exercise provision. The holders of the
warrants shall be entitled to unlimited "piggyback"
registration rights during the first ten years following the
Private Placement. The Company shall bear all costs and
expenses in connection with such registrations. The cash
portion of the retainer shall be credited against any fees
payable to Sutro pursuant to paragraph 3(b).
b) An advisory fee (the "Advisory Fee") equal to seven percent
(7.0%) of the principal amount raised in the Private
Placement. In the event that shareholders of the Company sell
any of their interest in the Company as a result of the
Private Placement, the Advisory Fee shall be seven percent
(7%) on the amount paid to selling shareholders. The Advisory
Fee will be payable in cash upon the closing of the Private
Placement. In the event that the Company receives funding from
the following list of investors, the Advisory Fee shall equal
five percent (5.0%) on the portion of funds received from such
investors: Xxxxxx, Xxxxxxx & Company, ING Barings, General
Atlantic Partners, Xxxxxxx Xxxxx Credit Partners, Mellon
Ventures and Allete/Adess Corporation.
c) An acquisition fee (the "Acquisition Fee") equal to 3% of the
Aggregate Consideration (as defined below in Section 6) if
during the Term of this Agreement the Company consummates an
Acquisition (as defined below) or reaches a definitive
agreement which subsequently results in an Acquisition. The
Acquisition Fee will be payable in cash upon the Closing of
the Acquisition. However, if the Company identifies an
acquisition and does not utilize another investment bank or
other similar financial or consulting company to evaluate or
analyze the acquisition, then Sutro will not be entitled to a
fee. If, however, the Company identifies an acquisition and
utilizes Sutro's services, then Sutro shall be entitled to an
Acquisition Fee.
For purposes of this Agreement, the term "Acquisition" shall
be defined to include any merger, consolidation, purchase of
assets, tender or exchange offer, leveraged buy-out, formation
of a joint venture or partnership, reorganization or other
business combination pursuant to which the target (a "Target")
is combined with the Company.
d) A warrant ("Warrant") to purchase ten percent (10%) of the
securities sold in this Private Placement. The Warrant will be
granted upon the closing of the Private Placement. The Warrant
shall have a ten year term and shall have a strike price equal
to the price of shares issued in the Private Placement. The
Warrant shall contain a cashless exercise provision. The
holders of the warrant shall be entitled to unlimited
"piggyback" registration rights during the first ten years
following the Private Placement. The Company shall bear all
costs and expenses in connection with such registrations.
4) FEES AND EXPENSES. In addition to the foregoing fees, and regardless of
whether the transaction contemplated by this Agreement is consummated,
the Company agrees to promptly reimburse Sutro for all reasonable
out-of-pocket expenses not to exceed in total $50,000 without the
Company's prior written approval arising out of this Engagement,
including but not limited to, such costs as printing, travel,
accommodations, meals, telephone, facsimile, courier service, copying,
direct computer expenses and the
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SUTRO & CO.
fees and disbursements of Sutro's legal counsel, if any. The Company
also agrees to, prior to the mailing of any Memoranda to any Parties
and prior to the commencement of the Financing Roadshow, to (i)
reimburse to Sutro any billed but unpaid expenses, and (ii) make an
additional expense reimbursement payment of $25,000 so as to prefund
the Roadshow expenses to be incurred by Xxxxx. Additionally, the
Company agrees that Sutro is not responsible for the fees and
disbursements of special counsel for the Investors, whether or not this
transaction is completed. All such fees, expenses and costs will be
billed not more frequently than monthly and are payable by the Company
promptly upon receipt of Xxxxx's request. Upon termination or
expiration of the Agreement, any unreimbursed fees and expenses will be
immediately due and payable.
5) INDEMNIFICATION. In connection with the Engagement of Sutro hereunder,
the Company has entered into a separate letter agreement, dated as of
the date hereof (the "Indemnification Agreement"), providing for the
indemnification of Sutro and certain related parties by the Company.
6) OTHER TRANSACTIONS.
Sale Transaction. If during the Exclusivity Period, and prior to any
closing of the Private Placement, the Company consummates a Sale
Transaction (as defined below) or reaches a definitive agreement which
subsequently results in a Sale Transaction or a transaction that has
substantially similar effect, the Company agrees to pay or cause to be
paid to Sutro, a sale transaction fee (the "Sale Transaction Fee")
equal to three percent (3%) of the Aggregate Consideration (as defined
below). The Sale Transaction Fee will be payable in cash upon the
closing of the Sale Transaction. The term "Sale Transaction" shall be
defined to include any merger, consolidation, sale of assets, tender or
exchange offer, leveraged buy-out, formation of a joint venture or
partnership, reorganization or other business combination, or financing
transaction pursuant to which the business of the Company is combined
with that of an acquiring entity or any entity affiliated with one or
more acquirers (the "Party" or "Parties"), where the Party has at least
75% of the capital stock of the surviving company or has acquired the
majority of the Company's assets, or has acquired the right to take
control of the Company.
The term "Aggregate Consideration" shall be defined to include cash,
equity securities, the fair market value of revolving credit
facilities, straight and convertible debt instruments or other
obligations, and any other form of payment or assumption of obligations
made to the Company or its shareholders in connection with the Sale
Transaction. If any of the consideration to be received by the Company
is contingent upon future performance of the Company's operations (e.g.
revenues or income), the portion of the Sale Transaction fee
attributable to such contingent consideration shall be paid to Sutro at
such time or times as the Company receives such consideration.
7) RIGHT OF FIRST REFUSAL. In the event the Company proposes to hire an
investment banking firm, the Company hereby grants to Sutro the right
of first refusal during the Term and for a period of two year(s) from
the completion of the Private Placement to serve as a managing
underwriter on any public or private financing (debt or equity), or act
as an advisor on any merger, business combination, recapitalization or
sale of some or all of the equity or assets of the Company
(collectively, "Future Services"). In the event the Company notifies
Sutro of its intention to pursue an activity that would enable Sutro to
exercise its right of first refusal to provide Future Services, Sutro
shall notify the Company as soon as practicable of its election to
provide such Future Services. The Company agrees to pay, or cause to be
paid, to Sutro fees based upon Xxxxx's customary fees for the services
rendered provided, further, that the terms of the Indemnification
Agreement shall apply to any additional engagement.
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SUTRO & CO.
8) PRIVATE OFFERING. Sutro agrees that it intends to offer the securities
in a manner which will not impair the availability of the private
offering exemption from federal securities registration provided by
Section 4(2) of the Securities Act of 1933, and Regulation D
promulgated thereunder, and in accordance with all applicable
securities laws of the jurisdictions in which offers or sales of the
Securities are made. The Company shall conduct the Private Placement
and shall cooperate with Sutro to ensure that the Private Placement is
conducted, in compliance with the private offering exemption from
federal securities law registration provided by Section 4(2) of the
Securities Act of 1933, and Regulation D promulgated thereunder, and
the securities laws of the jurisdictions in which offers and sales of
the Securities are made by Sutro in accordance with this Agreement.
9) SUCCESSORS. This Agreement and all rights and obligations hereunder
shall be binding upon and inure to the benefit of each party's
successors, but may not be assigned without the written consent of the
other party, which consent shall not be unreasonably withheld.
10) ADDITIONAL SERVICES. It is understood that if Sutro is asked to provide
any additional investment banking services for the Company, then the
Company shall pay to Sutro additional fees based on Sutro's customary
fees for the services rendered and that the terms of the
Indemnification Agreement shall apply to any additional engagement.
11) CONTRACTUAL RELATIONSHIP. The Company expressly acknowledges that Sutro
has been retained as exclusive financial advisor and placement agent to
the Company only, and not as a financial advisor and placement agent
to, or agent of, any other person, and that the Engagement is not
intended to confer rights upon any persons not a party hereto
(including shareholders, employees or creditors of the Company) as
against Sutro, Sutro's affiliates or their respective directors,
officers, agents and employees.
It is understood that the Company is a sophisticated business entity
that has retained Sutro for the limited purposes set forth in the
Agreement, and the Company and Sutro acknowledge and agree that their
respective rights and obligations are contractual in nature. Company
and Sutro each disclaim any intention to impose fiduciary obligations
on the other by virtue of the Engagement contemplated by this
Agreement.
12) ENTIRE AGREEMENT/GOVERNING LAW. This Agreement and the Indemnification
Agreement constitute the entire agreement between Sutro and the Company
relating to this Engagement and supersede and take precedence over all
prior agreements or understandings whether oral or written, between
Sutro and the Company with respect to this Engagement and may only be
modified by written agreement which is signed by both parties. This
Agreement and the Indemnification Agreement shall be governed by and
construed in accordance with the laws of the State of California.
13) ARBITRATION. Any dispute arising from the interpretation, validity or
performance of this Agreement and the Indemnification Agreement or any
of their terms and provisions shall be submitted to binding arbitration
in accordance with the provisions of the Code of Arbitration Procedure
of the National Association of Securities Dealers, Inc. or the
Arbitration Rules of the New York Stock Exchange, and judgment upon the
award rendered by the arbitrators (or a majority of the arbitrators)
may be entered in any court having jurisdiction thereof. In the event
there is any dispute involving Sutro and the Company
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SUTRO & CO.
that is not arbitrated, each of the parties hereby waives its right to
a trial by jury. Such arbitration proceeding, or court proceeding if a
dispute is not arbitrated, shall take place in San Francisco,
California. In any such proceeding, the prevailing party shall be
entitled to recover from the other its costs and expenses incurred
therewith, including reasonable attorneys' fees.
14) SEVERABILITY. If any term, provision, covenant or restriction contained
in this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and
restrictions contained in this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
Please confirm that the foregoing correctly sets forth our agreement by signing
and returning to us the enclosed duplicate copy of this Agreement. We look
forward to working with you and to the successful conclusion of this Engagement.
This Agreement contains a predispute arbitration clause at Section 13.
Very truly yours,
SUTRO & CO. INCORPORATED
By: /s/ Xxxxxxx X. Xxxxx 10/11/00
------------------------------------ -----------------
Xxxxxxx X. Xxxxx Date
Managing Director
Accepted and Agreed to as of the date written above:
XXXXXXXXXXXXXXX.XXX, INC.
By: /s/ Xxxxx Xxxxxxxxxx
---------------------------------------------
Xx. Xxxxx Xxxxxxxxxx
President
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CONFIDENTIAL
October 11, 2000
INDEMNIFICATION AGREEMENT
In consideration of Sutro's agreement to act on behalf of XxxxXxxxxXxxxxx.xxx,
Inc. (the "Company"), in connection with the private placement, pursuant to the
engagement letter agreement of even date herewith (the "Agreement"), we hereby
agree to indemnify and hold harmless Sutro, its affiliates, the respective
partners, directors, officers, agents and employees of Sutro and its affiliates
and each person, if any, controlling Sutro or any of its affiliates within the
meaning of either Section 15 of the Securities Act of 1933 or Section 20 of the
Securities Exchange Act of 1934, (Sutro and each such other person are
hereinafter referred to as an "Indemnified Person"), from and against any such
losses, claims, damages, expenses and liabilities (or actions in respect
thereof), joint or several, as they may be incurred (including all legal fees
and other expenses incurred in connection with investigating, preparing,
defending, paying, settling or compromising any claim, action, suit, proceeding,
loss, damage, expense or liability, whether or not in connection with an action
in which any Indemnified Person is a named party) to which any of them may
become subject (including in settlement of any action, suit or proceeding, if
such settlement is effected with the Company's consent, which consent shall not
be unreasonably withheld), and which are related to or arise out of Sutro's
engagement, the transaction contemplated by such engagement or any Indemnified
Person's role in connection therewith, including, but not limited to, any
losses, claims, damages, expenses and liabilities (or actions in respect
thereof) arising out of, based upon or caused by any untrue statement or alleged
untrue statement of a material fact contained in the offering memorandum, or any
amendment or supplement thereto, or in any other document of the Company
furnished to any party or to Sutro in connection with the Financing Transaction,
or arising out of, based upon or caused by any omission or alleged omission to
state in any of them a material fact required to be stated therein or necessary
to make the statements in any of them not misleading. The Company will not,
however, be responsible under the foregoing provisions with respect to any loss,
claim, damage, expense or liability to the extent that a court having
jurisdiction shall have determined by a final judgment (not subject to further
appeal) that such loss, claim, damage, expense or liability resulted from
actions taken or omitted to be taken by Sutro due to its gross negligence or
willful misconduct. All capitalized terms not otherwise defined herein have the
same meaning as ascribed to them in the Agreement, unless the context indicates
or requires otherwise. Promptly after receipt by an Indemnified Person of notice
of the commencement of any action, such Indemnified Person will, if a claim in
respect thereof is to be made against the Company, notify the Company of the
commencement thereof; but the omission to notify the Company will not relieve it
from any liability which it may have to any Indemnified Person otherwise than
stated in this Indemnification Agreement. In case any such action is brought
against any Indemnified Person, and it notifies the Company of the commencement
thereof, the Company will be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such Indemnified Person; provided, however, that if the
defendants in any such action include both the Indemnified Person and the
Company and counsel for the Indemnified Person reasonably determines there is a
conflict of interest that cannot or should not be waived, the Company shall not
have the right to dierct the defense of such action on behalf of such
Indemnified Person and such Indemnified Person shall have the right to select
separate counsel to defend such action on behalf of such Indemnified Person.
After notice from the Company to such Indemnified Person of its election to
assume the defense thereof and approval by such Indemnified Person of counsel
appointed to defend such action, the Company will not be liable to such
Indemnified Person for any legal or other expenses, other than reasonable costs
of investigation, incurred by such Indemnified Person in connection with the
defense thereof, unless: (i) the Indemnified Person shall have employed separate
counsel in accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection
with such action the Company shall not be liable for the expenses of more than
one separate counsel (in addition to local counsel) in any one action or
separate but substantially similar actions in the same jurisdiction arising out
of the same general allegations or circumstances); or (ii) the Company has
authorized the employment of counsel for the Indemnified Person at the expense
of the Company. After any notice from the Company to such Indemnified Person,
the Company will not be liable for the costs and expenses of any settlement of
such action effected by such Indemnified Person without the consent of the
Company.
If the indemnity referred to above should be, for any reason whatsoever,
unenforceable, unavailable to or otherwise insufficient to hold harmless Sutro
and each Indemnified Person in connection with the transaction, each Indemnified
Person shall be entitled to receive from the Company, and the Company shall pay,
contributions for such losses, claims, damages, liabilities and expenses (or
actions in respect thereof) so that each Indemnified Person ultimately bears
only a portion of such losses, claims, damages, liabilities, expenses and
actions as is appropriate (i) to reflect the relative benefits received by Sutro
on the one hand and the Company on the other hand in connection with the
transaction or (ii) if the allocation on that basis is not permitted by
applicable law, to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of Sutro and the Company in connection
with the actions or omissions to act which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations; provided, however, that in no event shall the aggregate
contribution of all Indemnified Persons to all losses, claims, damages,
liabilities, expenses and actions exceed the amount of the fee actually received
by Sutro pursuant to the Agreement. The respective relative benefits received by
Xxxxx and the Company in connection with the transaction shall be deemed to be
in the same proportion as the aggregate fee paid to Sutro in connection with the
transaction bears to the total consideration of the transaction. The relative
fault of Sutro and the Company shall be determined by reference to, among other
things, whether the actions or omissions to act were by Sutro or the Company and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action or omission to act.
The indemnity, contribution and expense payment obligations of the Company
referred to above shall be in addition to any liability which the Company may
otherwise have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of any Indemnified
Person and the Company. The Company also agrees that the Indemnified Persons
shall have no liability to the Company or any person asserting claims on behalf
of or in right of the Company for or in connection with any matter referred to
in this letter except to the extent that any such liability results from the
gross negligence or willful misconduct of Sutro in performing the services that
are the subject of this letter and in no event shall such liability exceed the
amount of fees actually received by Sutro hereunder.
XXXXXXXXXXXXXXX.XXX, INC.
By: /s/ Xxxxx Xxxxxxxxxx 10/11/00
---------------------------------- ----------------------
Xxxxx Xxxxxxxxxx Date
President
Accepted and agreed to as of the date written above:
SUTRO & CO. INCORPORATED
By: /s/ Xxxxxxx X. Xxxxx
-------------------------------------
Xxxxxxx X. Xxxxx
Managing Director
