October 22, 1997
Augment Systems, Inc.
0 Xxxxxxx Xxxx
Xxxxxxxx, XX 00000-0000
Attention: Xxxxx Xxxx
Chief Financial Officer
Gentlemen:
This letter agreement (the "Agreement") confirms our understanding that
Augment Systems, Inc. (which together with its subsidiaries and affiliates is
hereinafter referred to as the "Company") has engaged Xxxxx Xxxxx & Son
Incorporated ("Gruss") to act as exclusive agent to the Company for a period of
six months commencing upon your acceptance of this Agreement in connection with
a private placement of between $5 and $10 million of securities (the
"Securities") (the "Proposed Financing") on a reasonable best efforts basis on
terms satisfactory to the Company.
Our services to the Company will include: (i) assistance in the
preparation of the Company's Offering Materials described below; (ii) assistance
in structuring the Proposed Financing and its terms; (iii) identifying and
contacting selected qualified purchasers (the "Purchasers") of the Proposed
Financing and furnishing them, on behalf of the Company, with copies of the
Offering Materials; and (iv) negotiating under your guidance the financial
aspects of the Proposed Financing. Gruss' undertaking is subject to our
continued satisfaction with the results of our ongoing review of the Company's
business and affairs.
As compensation for the services to be provided by Xxxxx hereunder, the
Company agrees to pay to Gruss (i) a cash fee equal to 10% of the gross proceeds
of the Proposed Financing (the "Success Fee"), (ii) a retainer fee of $10,000
upon the execution of this Agreement and $30,000 upon the receipt of interim
funding, such fee to be credited against the Success Fee, and (iii) warrants to
purchase a number of shares of common stock equal to 10% of the number of shares
sold (or 10% of the number of underlying common shares in the case of a
convertible security) in the Proposed Financing, which warrants shall be
exercisable for a period of four years from the date of the Proposed Financing
at a price per share equal to 165% of the price of the shares sold in the
Proposed Financing, and shall contain typical provisions concerning demand and
piggyback registration rights. Said warrants shall be payable upon the execution
of commitment letters or purchase agreements between the Company and the
Purchasers, and shall be paid at the closing (the "Closing") of the Proposed
Financing. In addition, the Company shall pay to Gruss an expense allowance on a
non-accountable basis equal to 3% of the gross proceeds of the Proposed
Financing. In the event the Proposed Financing is not consummated, then the
Company shall promptly reimburse Gruss for all out-of-pocket expenses (e.g.,
telephone, telecopier, facsimile, messenger,
Augment Systems, Inc.
October 22, 1997
Page 2
copying, mail and courier expenses) and for all travel and other reasonable
expenses incurred by it or its employees or agents in connection with services
rendered hereunder, including expenses incurred by counsel. In the event that up
to $1 million of the Proposed Financing is placed with an investor identified by
the Company, then the cash fee described in (i) above shall be reduced to 5%,
but all other terms of compensation shall remain the same.
The Company acknowledges and agrees that Xxxxx has been retained solely
to provide the advice or services set forth in this Agreement. Gruss shall act
as an independent contractor, and any duties of Gruss arising out of its
engagement hereunder shall be owed solely to the Company. As Gruss will be
acting on your behalf in such capacity, it is our firm practice to be
indemnified in connection with engagements of this type and the Company agrees
to the indemnification and other obligations as set forth in Schedule I hereto,
which Schedule is an integral part hereof.
It shall be the Company's obligation to bear all of its expenses in
connection with the Proposed Financing, including, but not limited to, the
following: filing fees, legal, business and environmental investigatory matters
and expenses, printing costs, postage and mailing expenses with respect to the
transmission of the Offering Materials, registrar and transfer agent fees,
issuer's and placement agent's counsel) and accounting fees, issue and transfer
taxes, if any, and Blue Sky counsel fees and expenses. It is agreed that Xxxxx'
outside counsel shall perform the required Blue Sky legal services. In this
connection, Blue Sky applications shall be made in such states and jurisdictions
as shall be requested by Gruss.
Please note that Gruss is a full service securities firm engaged in
securities trading and brokerage activities, as well as providing investment
banking and financial advisory services. In the ordinary course of our trading
and brokerage activities, Gruss or its affiliates may at any time hold long or
short positions, and may trade or otherwise effect transactions, for its or
their accounts or on the accounts of customers, in equity securities of the
Company or other entities that may be involved in the Proposed Financing. We
recognize our responsibility for compliance with Federal laws in connection with
any such activities.
The Company will prepare and furnish Gruss with a private placement
memorandum (which, together with the appendices and exhibits thereto and any
amendments or supplements thereto, is herein referred to as the "Offering
Materials") relating to the Proposed Financing. The Company authorizes Gruss to
transmit the Offering Materials to prospective Purchasers of the Proposed
Financing, and represents and warrants that the Offering Materials, at all times
through the Closing, will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading. The Company will not, without first obtaining
Gruss' approval, contact or solicit potential financing sources with respect to
the Proposed Financing and all inquiries and offers received by the Company with
respect thereto shall be referred to Gruss. The Company will also cause to be
furnished to Gruss at the Closing copies (addressed to Gruss if requested) of
such agreements, opinions, certificates and other documents delivered at the
Closing as Gruss may reasonably request including, without limitation, an
opinion of Company counsel to the effect that the placement of the Securities
was exempt from registration under the Securities Act.
Augment Systems, Inc.
October 22, 1997
Page 3
The Company will also make available to Gruss all financial and other
information concerning its business and operations and the Proposed Financing
which Gruss reasonably requests and will provide access to the Company's
officers, directors, employees, independent accountants and legal counsel. Gruss
shall be entitled to rely without investigation upon all information that is
available from public sources as well as all other information supplied to it by
or on behalf of the Company or its other advisors and shall not in any respect
be responsible for the accuracy or completeness of, or have any obligation to
verify, the same or to conduct any appraisal of assets. To the extent consistent
with legal requirements and except as otherwise set forth in the Offering
Materials, all information given to Gruss by the Company, unless publicly
available or otherwise available to Gruss without restriction or breach of any
confidentiality agreement ("Confidential Information"), will be held by Gruss in
confidence and will not be disclosed to anyone other than Gruss' agents and
advisors without the Company's prior approval or used for any purpose other than
those referred to in this Agreement; provided that nothing herein shall, in
itself, prevent Gruss from engaging in future transactions involving companies
in a similar industry to the Company or, provided no Confidential Information is
directly used in connection with such engagement, be deemed to violate any of
the terms hereof.
Any advice, written or oral, provided by Gruss pursuant to this
Agreement will be treated by the Company as confidential, will be solely for the
information and assistance of the Company in connection with the Proposed
Financing and may not be quoted, nor will any such advice or the name of Gruss
be referred to, in any report, document, release or other communication, whether
written (including, without limitation, the Offering Materials) or oral,
prepared, issued or transmitted by the Company or any affiliate, director,
officer, employee, agent or representative of any thereof, without, in each
instance, Xxxxx' prior written consent.
The Company has not taken, and will not take, any action, directly or
indirectly, so as to cause the transactions contemplated by this Agreement to
fail to be entitled to exemption under Section 4(2) of the Securities Act of
1933, as amended.
During the term of Gruss' engagement hereunder, Xxxxx shall have the
exclusive right (but not the obligation) (i) to act as managing underwriter in
the event that the Company determines to make a public offering of any of its
securities and (ii) if the Company determines to engage a financial or other
investment banking advisor in connection with any acquisition or disposition of
any subsidiary, assets or securities, to act as such exclusive financial or
investment banking advisor. In either of such events, the Company and Gruss will
enter into a customary underwriting agreement or engagement letter, as
applicable, containing customary terms and conditions and in form and substance
acceptable to Gruss and its counsel.
Upon completion of the Proposed Financing, the Company grants Gruss the
right of first refusal through December 31, 1998 to provide or arrange for any
future financings including the role of lead manager for any public offering of
the Company, placement agent for any private placement of the Company, and
investment banking advisor in any merger and acquisition transaction. During the
12 month period ending December 31, 1999 Gruss shall have the same rights,
except that in the event of a public offering of securities of the Company, then
Gruss shall have the right of first refusal to act as co-manager, and its
compensation as co-manager shall not be less that 40% of the total compensation
payable to the managing underwriters of such public offering. Gruss will have
Augment Systems, Inc.
October 22, 1997
Page 4
such exclusive right until Xxxxx has stated to the Company in writing that Gruss
will not provide or arrange for any such financing or services. If Gruss
provides any such additional services, the Company and Gruss will enter into a
separate agreement to be mutually agreed upon, including provision of additional
fees.
This Agreement may be terminated by either the Company or Gruss at any
time upon receipt of written notice to that effect by the other party. Upon the
expiration or termination of this Agreement, Xxxxx will be entitled to prompt
reimbursement of all its out-of-pocket expenses as described above. If at any
time prior to 6 months after the termination or expiration of this Agreement the
Company consummates a financing, including the Proposed Financing, with any
party, Gruss will be entitled to 50% of the compensation described in the third
paragraph of this Agreement.If at any time prior to 18 months after the
termination or expiration of this Agreement, the Company consummates a financing
transaction, including the Proposed Financing, with any party contacted
regarding the Proposed Financing during the term of our engagement, Xxxxx will
be entitled to payment in full of the compensation described in the third
paragraph of this Agreement. In the event that the Proposed Financing is
completed pursuant to this Agreement, then the preceeding two sentences are
void. Promptly following any termination or expiration of this Agreement, Gruss
will provide the Company with written notice of the parties contacted by Gruss
regarding the Proposed Financing during the term of our engagement. The Company
further agrees that it will not enter into any financing transaction described
in this paragraph unless, prior to or simultaneously with such transaction,
adequate provision is made with respect to the payment of all amounts payable to
Gruss hereunder. The indemnity and other provisions contained in Schedule I will
also remain operative and in full force and effect regardless of any expiration
or termination of this Agreement.
This Agreement shall not give rise to any express or implied commitment
by Gruss to purchase or place any securities of the Company.
This Agreement including Schedule I hereto incorporates the entire
understanding of the parties and supersedes all previous agreements relating to
the subject matter hereof and shall be governed by, and construed and enforced
in accordance with, the laws of the State of New York. This Agreement shall be
binding upon and inure to the benefit of the Company, Gruss, each Indemnified
Person (as defined in Schedule I hereto) and their respective successors and
assigns.
Augment Systems, Inc.
October 22, 1997
Page 5
After reviewing this Agreement, please confirm that the foregoing is in
accordance with your understanding by signing and returning the duplicate of
this letter attached hereto, whereupon it shall be our binding Agreement.
Very truly yours,
Xxxxx Xxxxx & Son Incorporated
By: /s/ Xxxxxxx XxXxxxx
------------------------
Xxxxxxx XxXxxxx
Managing Director
Accepted and agreed to
this 22nd day of October, 1997.
By: /s/ Xxxxx Xxxx
----------------------------
Xxxxx Xxxx
Chief Financial Officer
Augment Systems, Inc.
SCHEDULE I
This Schedule I is a part of and is incorporated into that certain
Agreement (together, the "Agreement") dated October 22, 1997 by and between
Augment Systems, Inc. (the "Company"); and Xxxxx Xxxxx & Son Incorporated
("Gruss ").
The Company will indemnify and hold harmless Gruss, its affiliates, and
the respective directors, officers, agents and employees of Gruss and its
affiliates (Gruss and each such entity or person, an "Indemnified Person") from
and against any losses, claims, damages, judgments, assessments, costs and other
liabilities (collectively "Liabilities"), and will reimburse each Indemnified
Person for all fees and expenses (including the reasonable fees and expenses of
counsel) (collectively, "Expenses") as they are incurred in investigating,
preparing, pursuing or defending any claim, action, proceeding or investigation
(collectively, "Actions"), (i) caused by, or arising out of or in connection
with, any untrue statement or alleged untrue statement of a material fact
contained in the Offering Materials (including any amendments thereof and
supplements thereto) or by any omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (other than untrue
statements or alleged untrue statements in, or omissions or alleged omissions
from, information relating to an Indemnified Person furnished in writing by or
on behalf of such Indemnified Person expressly for use in the Offering
Materials) or (ii) otherwise arising out of or in connection with advice or
services rendered or to be rendered by any Indemnified Person pursuant to this
Agreement, the transactions contemplated hereby or any Indemnified Person's
actions or inactions in connection with any such advice, services or
transactions; provided that, in the case of clause (ii) only, the Company will
not be responsible for any Liabilities or Expenses of any Indemnified Person
that are determined by a judgment of a court of competent jurisdiction which is
no longer subject to appeal or further review to have resulted solely from such
Indemnified Person's gross negligence or willful misconduct in connection with
any of the advice, actions, inactions or services referred to above. The Company
also agrees to reimburse each Indemnified Person for all Expenses as they are
incurred in connection with enforcing such Indemnified Person's rights under
this Agreement (including, without limitation, its rights under this Schedule
I).
Upon receipt by an Indemnified Person of actual notice of an Action
against such Indemnified Person with respect to which indemnity may be sought
under this Agreement, such Indemnified Person shall promptly notify the Company
in writing; provided that failure so to notify the Company shall not relieve the
Company from any liability which the Company may have on account of this
indemnity or otherwise, except to the extent the Company shall have been
materially prejudiced by such failure. The Company shall, if requested by Xxxxx,
assume the defense of any such Action including the employment of counsel
reasonably satisfactory to Gruss. Any Indemnified Person shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person, unless: (i) the Company has failed promptly to assume
the defense and employ counsel or (ii) the named parties to any such Action
(including any impleaded parties) include such Indemnified Person and the
Company, and such Indemnified Person shall have been advised by counsel that
there may be one or more legal defenses available to it which are different from
or in addition to those available to the Company; provided that the Company
shall not in such event be responsible hereunder for the fees and expenses of
more than one firm of separate counsel in connection with any Action in the same
jurisdiction, in addition to any local counsel. The Company shall not be liable
for any settlement of any Action effected without its written consent (which
shall not be unreasonably withheld). In addition, the Company will not, without
prior written consent of Xxxxx , settle, compromise or consent to the entry of
any judgment in or otherwise seek to terminate any pending or threatened Action
in respect of which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Person is a party thereto) unless such
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settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Person from all Liabilities arising out of such Action.
In the event that the foregoing indemnity is judicially determined to
be unavailable to an Indemnified Person (other than in accordance with the terms
hereof), the Company shall contribute to the Liabilities and Expenses paid or
payable by such Indemnified Person in such proportion as is appropriate to
reflect (i) the relative benefits to the Company and its shareholders, on the
one hand, and to Gruss, on the other hand, of the matters contemplated by this
Agreement or (ii) if the allocation provided by the immediately preceding clause
is not permitted by the applicable law, not only such relative benefits but also
the relative fault of the Company, on the one hand, and Gruss, on the other
hand, in connection with the matters as to which such Liabilities or Expenses
relate, as well as any other relevant equitable considerations; provided that in
no event shall the Company contribute less than the amount necessary to ensure
that all Indemnified Persons, in the aggregate, are not liable for any
Liabilities and Expenses in excess of the amount of fees actually received by
Gruss pursuant to this Agreement. For purposes of this paragraph, the relative
benefits to the Company and its shareholders, on the one hand, and to Gruss, on
the other hand, of the matters contemplated by this Agreement 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 the Company or the Company's
shareholders, as the case may be, in the transaction or transactions that are
within the scope of this Agreement, whether or not any such transaction is
consummated, bears to (b) the fees paid or to be paid to Gruss under this
Agreement.
The Company also agrees that no Indemnified Person shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company for or in connection with advice or services rendered or to be rendered
by any Indemnified Person pursuant to this Agreement, the transactions
contemplated hereby or any Indemnified Person's actions or inactions in
connection with any such advice, services or transactions except for Liabilities
(and related Expenses) of the Company that are determined by a judgment of a
court of competent jurisdiction which is no longer subject to appeal or further
review to have resulted primarily from such Indemnified Person's gross
negligence or willful misconduct in connection with any such advice, actions,
inactions or services.
If any term, provision, covenant or restriction contained in this
Schedule I 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.
The reimbursement, indemnity and contribution obligations of the
Company set forth herein shall apply to any modification of this Agreement and
shall remain in full force and effect regardless of any termination of, or the
completion of any Indemnified Person's services under or in connection with,
this Agreement.
Accepted and agreed to
this 22nd day of October, 1997.
By: /s/ Xxxxx Xxxx
-----------------------
Xxxxx Xxxx
Chief Financial Officer
Augment Systems, Inc.
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