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EXHIBIT 10.38 -- AGREEMENT WITH THE OBERON GROUP, LLC
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February 12, 2004
Xx. Xxx Xxxxxxxxx
Xfone, Inc.
Xxxxxxxxx Xxxxx
000 Xxxx Xxxx
Xxxxxx, X00 0XX
Xxxxxx Xxxxxxx
Dear Guy:
This Agreement ("Agreement") will confirm the basis upon which Xfone Inc. and
its affiliates and assigns ("Client") have engaged The Oberon Group, LLC. ("The
Oberon Group") to assist Client explore, structure and negotiate financial
alternatives (particularly in the United States) such as joint ventures,
acquisitions, mergers, or otherwise, whether effected in a single transaction or
a series of related transactions, (hereafter "Transaction") in which the voting
power of a counterparty is combined with or transferred to Client.
1. The term of this Agreement shall be one year and shall be continuously
renewed unless cancelled in writing by either Client or Oberon ("Term").
However, Oberon's engagement hereunder may be terminated by either Client or
Oberon at any time after an initial six (6) month period, with or without cause,
upon written advice to that effect to the other party with a 30 day notice
period (Client may waive the 30 day notice should Oberon unilaterally request
such termination); provided, however, that Oberon shall be entitled to any and
all fees related to any Transaction as described herein in the event that (i) at
any time prior to the expiration of 24 months after such termination by Client,
a Transaction is consummated, subject to the conditions in paragraph 4; or (ii)
Client enters into an agreement during the term of this Agreement or during such
24 month period which results in a Transaction.
2. Client agrees to pay Oberon an initial retainer fee of $60,000 in cash for a
6 month period ending on August 12, 2004. Thereafter, Client shall pay Oberon a
monthly retainer payment of (i) $5,000 per month in cash; and (2) 1,500 5-year
warrants with a strike price of $5.50 per share. The initial retainer fee shall
be due upon signing of this Agreement and subsequent payments will be payable on
the 1st of the month (i.e. - the next payment shall be made on March 1, 2004)
each month thereafter until this Agreement is terminated.
3. In regards to any Transaction with any U.S. based counterparty, Client agrees
to pay Oberon (a) 7.0% of the 1st $1 million of Aggregate Consideration; plus
(b) 6.0% of the 2nd $1 million of Aggregate Consideration; plus (c) 5.0% of the
3rd $1 million of Aggregate Consideration; plus (d) 4.0% of the 4th $1 million
of Aggregate Consideration; plus (e) 3.5% of the remaining Aggregate
Consideration (i.e. - for a Transaction with an aggregate consideration of $5
million, Oberon's fee from this Section 3 would be equal to $255,000). For any
given Transaction, the consideration paid to Oberon will mirror the
consideration paid to any seller (i.e. - if Oberon is due a fee of $120,000 and
the consideration paid to the seller in a Transaction is 1/3 cash, 1/3 debt
(with an 8% annual coupon and a 2 year maturity) and 1/3 Client common stock,
Oberon's fee will be $40,000 in cash, $40,000 in debt (with an 8% annual coupon
and a 2 year maturity) and $40,000 in Client common stock.
4. For purposes of this Agreement, the term "Aggregate Consideration" shall mean
the total amount of cash and the fair market value on the date which is five
days prior to the consummation of the transaction of all other property paid or
payable directly or indirectly to Client or counterparty or any of its security
holders in connection with a Transaction, including (i) amounts paid to holders
of any warrants or convertible securities of counterparty and to holders of any
options or stock appreciation rights issued by Client or counterparty, whether
or not vested; (ii) the total amount of indebtedness for borrowed money or
similar non-trade liabilities or obligations (including unfunded pension
liabilities, guarantees, capitalized leases and the like) of Client or
counterparty repaid, retired, extinguished or assumed in connection with, or
which otherwise remains outstanding as of the closing of, a Transaction; and
(iii) the fair market value of any assets of Client or counterparty which are
retained by or otherwise distributed to its stockholders or affiliates in
anticipation of or in connection with a Transaction. Amounts allocated to
consulting agreements and covenants not to compete are to be considered part of
the Aggregate Value upon which Oberon's fee is based. Any negotiated payout of
the purchase price extending beyond closing date will not cause any change in
Client's obligation to pay Oberon its fee in full at closing, except in the
event of an earn out or incentive payment, said fee will be paid at the time a
consideration is actually paid.
5. In addition, upon the closing of a Transaction, Client will issue Oberon, or
its assigns, a warrant, valid for five years post closing, entitling its holder
to purchase a total of: (a) 7% of the 1st $1 million of Aggregate Consideration;
plus (b) 6% of the 2nd $1 million of Aggregate Consideration; plus(c) 5.0% of
any additional Aggregate Consideration. The warrants shall have an exercise
price equal to the market price of Client's common shares on the date of closing
of the Transaction. Any common shares throughout this Agreement or any shares
underlying the warrants throughout this Agreement shall entitle their holder to
one-time "piggyback" registration rights. All warrants may be exchanged without
the payment of any additional consideration for Client's stock based upon the
values of the warrant and the stock at the time of the exchange (i.e., net
issuance).
6. For any revenues paid to Client from parties introduced by Oberon to Client
during the period of three years from the entry into the first agreement or
purchase order with such third party ("Business Development"), The Oberon Group
shall receive 1.5% of such revenues ("Referral Fee"). Such referrals will
include any revenues derived from the sale of Client products or services to
such parties, any revenues derived from the sale of Client product or services
through the sales force of such parties, or any revenues derived by Client from
joint selling efforts with such parties to a 3rd party. Each Referral Fee is
payable upon the Client's receipt of such payment. Referral Fee shall not
include any value added or similar taxes, any refunds, any credit notes and any
other deductions from the consideration payable to Client.
7. Client agrees to reimburse Oberon for all reasonable out-of-pocket, legal and
travel related expenses associated with its engagement, provided such expenses
are appropriately documented in accordance with Client's internal policies and
procedures and, provided, further, that any expense in excess of $1,000 shall be
subject to the prior written approval of Client or shall not be subject to
reimbursement. Excluding any travel related expenses, Oberon will only xxxx
Client for individual expenses that are greater than $100 and have been approved
by Client.
8. Client and Oberon agree that Oberon shall act solely as an independent
contractor. Client and Oberon further agree that neither Oberon nor any person
representing Oberon shall be construed as having entered into any relationship
of employer and employee, principal and agent, trustee and beneficiary, partner,
joint venturer, or any other such association, with Client; and agree further,
that nothing in this agreement shall be construed by any person including the
parties hereto, as creating any such relationship between the parties; nor shall
the passage of money or other consideration between the parties, nor any other
action by them in respect of this agreement, be interpreted as establishing such
a relationship. In no case shall Oberon contact a potential target company
without prior approval from Client.
9. The parties hereto further understand and agree that neither party shall be
obligated to pay any income tax, excise tax, unemployment insurance tax,
property tax, business license fee, workers' compensation assessment, or other
similar tax, assessment or charge that may be payable by or chargeable to the
other party, under any past, present or future law, executive order or court
order of the United States, the State of New York or any other governmental
entity or agency whatever.
10. The Agreement shall be governed by and construed in accordance with the laws
of the State of New York without reference to principles of conflicts of law and
any disputes relating hereto shall be resolved solely and exclusively in the
State or Federal courts located in New York, New York. Each of Client and Oberon
irrevocably and unconditionally submits to the exclusive jurisdiction and venue
of any State or Federal court located in New York County over any action, suit
or proceeding arising out of or relating to this Agreement.
If the terms of our engagement as set forth in this Agreement (including the
attached Standard Terms and Conditions) are agreed to, kindly sign the enclosed
copy of this letter and return it to the undersigned. We look forward to working
with the Company on this assignment.
Sincerely,
THE OBERON GROUP, LLC.
By ________________________________
AGREED TO:
Xfone, Inc.
By ________________________________
STANDARD TERMS AND CONDITIONS
The following general terms and conditions shall be incorporated by reference
into the engagement letter agreement, dated February 6, 2004 between Xfone, Inc.
and Oberon to which these terms are attached (the Agreement). Capitalized terms
used below without definition shall have the meanings assigned to them in the
Engagement Letter and any references herein to the "Agreement" shall mean the
Engagement Letter Agreement together with these Standard Terms and Conditions.
These Standard Terms and Conditions will survive the termination of this
Agreement.
Section 1. Indemnification and Contribution.
(a) Client agrees (i) to indemnify and hold harmless Oberon and its
affiliates, and the respective members, managers, directors, officers, agents,
and employees of Oberon, its affiliates and its associated broker dealer (Oberon
and each such entity or person being referred to as an "Indemnified Person"),
and the respective heirs, representatives, successors and assigns of the
Indemnified Persons from and against any losses, claims, demands, damages or
liabilities of any kind relating to or arising out of activities performed or
services furnished pursuant to the Agreement, any Transaction or Oberon's role
in connection therewith, and (ii) to reimburse each Indemnified Person for all
reasonable expenses (including reasonable fees and disbursements of counsel)
incurred by such Indemnified Person in connection with investigating, preparing
or defending any investigative, administrative, judicial or regulatory action or
proceeding in any jurisdiction related to or arising out of such activities,
services, or role, whether or not in connection with pending or threatened
litigation to which any Indemnified Person is a party, in each case within a
reasonable time after such expenses are incurred or paid. Client will not,
however, be responsible for any such losses, claims, demands, damages,
liabilities or expenses to the extent that they are finally judicially
determined to have resulted primarily from Oberon's gross negligence or willful
misconduct. Client also agrees that no Indemnified Person shall have any
liability (whether direct or indirect, in contract, tort or otherwise) to Client
or any of its security holders or creditors for or in connection with the
Agreement, any Transaction or Oberon's role or services in connection therewith,
except to the extent that any such liability for losses, claims, demands,
damages, liabilities or expenses incurred by Client is finally judicially
determined to have resulted primarily from Oberon's gross negligence or willful
misconduct. In the event of such judicial determination, Oberon shall indemnify
and hold harmless Client and its affiliates, and the respective directors,
officers, agents, and employees of Client in the same manner as set forth in
this Section 1(a). In no event shall Client or any Indemnified Person be
responsible for any specialor consequential damages.
(b) Client shall not be liable for any settlement of any litigation
or proceeding effected without its prior written consent. Client will not,
without Oberon's written consent, settle, compromise, consent to the entry of
any judgment in or otherwise seek to terminate any claim, action or proceeding
in respect of which indemnity may be sought hereunder, whether or not any
Indemnified Person is an actual or potential party thereto, unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Person from any liabilities arising out of such claim,
action or proceeding. If Client enters into any agreement or arrangement with
respect to, or effects, any proposed sale, exchange, dividend or other
distribution or liquidation of all or a significant portion of its assets in one
or a series of transactions or any significant recapitalization or
reclassification of its outstanding securities, Client shall provide for the
assumption of its obligations under this Section 1 by another party reasonably
satisfactory to Oberon.
(c) If the foregoing indemnification is unavailable or insufficient
to hold an Indemnified Person harmless in respect of any losses, claims, damages
or liabilities referred to therein then, in lieu of indemnifying such
Indemnified Person hereunder, Client shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims, damages
or liabilities (and expenses relating thereto) in such proportion as is
appropriate to reflect the relative benefits to Client, on the one hand, and
Oberon, on the other hand, of the Transaction (whether or not the Transaction is
consummated) and also the relative fault of each of Client and Oberon, as well
as any other relevant equitable considerations; provided, however, that in no
event shall the Indemnified Persons be required to contribute an aggregate
amount in excess of the aggregate amount of fees actually received by Oberon
under the Engagement Letter. For the purposes of this Agreement, the relative
benefits to Client and Oberon of the Transaction shall be deemed to be in the
same proportion as (a) the total value paid or contemplated to be paid or
received or contemplated to be received by Client or its security holders, as
the case may be, in connection with the Transaction or Transactions that are the
subject of the Engagement Letter, whether or not any such Transaction is
consummated, bears to (b) the fees paid or to be paid to Oberon under the
Engagement Letter.
Section 2. Financial Advisory Role, Information, Reliance,
Confidentiality, etc.
(a) Client understands that Oberon is acting solely as a financial
advisor, is acting as an independent contractor and is not undertaking to
provide any legal, accounting or tax advice in connection with its engagement
under the Agreement and that Oberon's role in any due diligence will be limited
solely to assisting Client in coordinating the work of Client's other
professional advisers.
(b) Client agrees to provide to Oberon all information reasonably
requested by Oberon for the purpose of its engagement under the Agreement and to
provide access during regular business hours to employees and officers and
directors of Client as Oberon reasonably requests. Oberon shall be entitled to
rely upon and assume, without any obligation of independent verification, the
accuracy and completeness of all information that is publicly available and all
information that has been furnished to it by Client or the Target or otherwise
reviewed by Oberon, and Oberon shall not assume any responsibility or have any
liability therefore. Oberon has no obligation to conduct any appraisal of any
assets or liabilities.
(c) In order to enable Oberon to bring relevant expertise to bear on
its engagement under the Agreement among its global affiliates, Client agrees
that Oberon may share information obtained from Client hereunder with its
affiliates, and may perform the services contemplated hereby in conjunction with
its affiliates, and that any Oberon affiliates performing services hereunder
shall be entitled to the benefits and be subject to the terms of the Agreement;
provided, however, that the fee, if payable, shall be paid only to Oberon or its
associated broker/dealer and that no other affiliate shall have any claim or
demand against Client to receive any portion of its fee. Client agrees that,
following the closing of an investment or transaction, Oberon may, at its option
and expense, place an advertisement or announcement in such newspapers and
periodicals as it may determine describing Oberon's role as financial advisor to
Client, subject to the prior approval of Client and its legal counsel. Client
agrees that any press release it may issue announcing a Transaction will contain
a reference to Oberon's role as financial advisor to Client in connection with
such Transaction, and that Oberon shall review and pre-approve any reference to
it or its role as financial advisor under the Agreement in the first public
statement made by Client (such approval not to be unreasonably withheld,
conditioned or delayed).
(d) Oberon's financial advice is intended solely for the benefit and
use of the Board of Directors of Client in considering a Transaction, is not on
behalf of, and shall not confer rights or remedies upon, any shareholder or
creditor of Client or any other person, and may not be used or relied upon for
any other purpose. Client will treat Oberon's advice as confidential and will
not disclose it to any third party in any manner without Oberon's prior written
approval.
(e) In the event Client requests that Oberon deliver documents or
information relating to a Transaction via electronic transmissions or delivery
of such document or information is required by law or regulation to be made via
electronic transmissions, Client acknowledges and agrees that the privacy and
integrity of electronic transmissions cannot be guaranteed. To the extent that
any documents or information relating to Oberon's engagement under the Agreement
or a Transaction are transmitted electronically, Client agrees to release Oberon
from any loss or liability incurred in connection with the electronic
transmission of any such documents and information, including the unauthorized
interception, alteration or fraudulent generation and transmission of electronic
transmissions by third parties; provided, however, that Client shall not release
Oberon from such losses or liabilities to the extent that they are finally
judicially determined to have resulted from Oberon's gross negligence or willful
misconduct.
Section 3. Miscellaneous. The Agreement may not be assigned by Client or
Oberon without the prior written consent of the other. The Agreement constitutes
the entire understanding of the parties with respect to the subject matter
thereof, supersedes all prior agreements with respect thereto, may not be
amended except in writing signed by both of the parties, has been duly
authorized and executed by each of the parties hereto and constitutes the legal,
binding obligation of each such party. Notices permitted or required hereunder
shall be to the following addresses (or such other address as shall be notified
by a party hereto from time to time): if to Oberon- Oberon Group LLC, 79 Madison
Avenue., 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, XXX, Attn: Xxxx Xxxxxxxxxx; if to
Client - Xfone Inc., Britannia House, 000 Xxxx Xxxx, Xxxxxx, X00 0XX, Xxxxxx
Xxxxxxx, Attn: Xxx Xxxxxxxxx. Notice may be given (i) by registered or certified
mail, postage prepaid, return receipt requested, effective 7 days after posting,
(ii) by confirmed fax, effective on the next business day in recipient's
location, or (iii) by messenger or courier, effective upon receipt. The headings
in this agreement are for convenience only and are in no way intended to
describe, interpret, define, or limit the scope, extent, or intent of this
agreement or any of its provisions. This agreement may be executed in
counterparts, each of which, when taken together, shall constitute one duly
executed original agreement.