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Exhibit 1
[CIBC OPPENHEIMER LETTERHEAD]
June 17, 1998
Automotive Performance Group, Inc.
0000 X. Xxxxxx Xxxx
Xxxxx, XX 00000
PERSONAL AND CONFIDENTIAL
Attention: Xx. Xxxxxx X. Xxxxx
Chairman
Dear Xx. Xxxxx:
This letter agreement ("Agreement") confirms the terms and conditions of
the engagement of CIBC Oppenheimer Corp. ("CIBC Oppenheimer") by Automotive
Performance Group, Inc., ("APG" or the "Company"), to render certain financial
advisory and investment banking services on an exclusive basis to the Company in
connection with the evaluation of the Company's financial and strategic
alternatives and one or more possible Transaction(s) (as hereinafter defined)
involving the Company.
1. Services. CIBC Oppenheimer agrees to perform services that include, but are
not limited to, the following:
(a) review the Company's overall business strategy, core competencies,
historical financial information and business operations, prospects
and forecasts of future financial results in order to render financial
advice and assistance to the Company with regard to its financial and
strategic alternatives and to Transaction opportunities;
(b) prepare a presentation for the Company's Board of Directors outlining
strategic and financial alternatives for the Company and relevant
valuation considerations;
(c) assist the Company in identifying and evaluating Transaction
opportunities with a view towards maximizing shareholder value;
(d) with the assistance of the Company, develop, update and review on an
ongoing basis a list of parties which might be interested in a
Transaction with the Company ("Interested Parties") and, with the
approval of the Company, contact such Interested Parties;
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(e) assist the Company in negotiating a Transaction with any Interested
Party(ies); and
(f) if a Financing (as hereinafter defined) is proposed by the Company,
assist the Company with (i) the preparation of a prospectus (in the
event of a public offering) or a descriptive memorandum (in the event
of a private placement), (ii) the dissemination of such materials to
prospective investors identified by CIBC Oppenheimer and the Company,
and (iii) the negotiations of the terms of a Financing.
In the context of this Agreement, "Transaction" is defined and understood
to include (i) the purchase by the Company, either through a direct acquisition
or other arrangement, in whole or in part, of all or a substantial portion of a
business operation from any party ("Acquisition"); (ii) any joint venture or
partnership arrangement or other similar transaction with any party(ies)
regarding joint marketing or business development arrangements (a "Strategic
Partnering Arrangement"); (iii) the sale of common shares or securities
convertible into common shares of the Company representing less than 50% of the
fully diluted shares outstanding of the Company to any third party ("Minority
Interest"); (iv) a merger or consolidation, or any other business combination of
the Company with another party involving the disposition of a significant or
material portion of the common shares or securities convertible into common
shares representing 50% or more of the fully diluted shares outstanding,
businesses or assets of the Company (a "Merger"); (v) any financing of the
Company, or its subsidiaries, including the sale of equity and/or debt
securities (including, without limitation, senior or subordinated secured or
unsecured debt as well as bank loan arrangements) through a private placement or
public offering (a "Financing"); and (vi) any other fundamental corporate
transaction (an "Other Transaction") including, without limitation, a
reorganization or recapitalization of the Company; the acquisition by the
Company of any other company, business or product; or any other meaningful
corporate arrangement entered into by the Company that is outside of the normal
course of business.
2. Exclusivity. The Company agrees to retain CIBC Oppenheimer on an exclusive
basis during the term of this Agreement to perform the services described
in Paragraph 1 in connection with a Transaction involving any Interested
Party(ies). If the Company or any of its management or directors receives
an inquiry concerning a possible Transaction that the Company is interested
in pursuing, they will promptly inform CIBC Oppenheimer of the party's
prospective interest in order that CIBC Oppenheimer can assess that party's
interest and assist the Company in any resulting negotiations.
3. Term. The term of this engagement shall extend for twelve (12) months from
the date of this Agreement and will be renewed automatically for successive
monthly periods unless either party informs the other in writing, that it
chooses to terminate the Agreement. Either party may terminate this
Agreement at any time during the initial or renewal periods by giving the
other party at least thirty (30) business days prior written notice of such
termination at which time, subject to the limitations set forth herein, the
Company shall pay CIBC Oppenheimer (i) any and all reasonable out-of-pocket
expenses incurred up to the date thereof, as set forth in Paragraph 8, and
(ii) any remaining amount of the Retainer, as described in Paragraph 7(a),
that was to be paid during the initial or renewal periods, as the case may
be, of the engagement. The Company agrees to pay CIBC Oppenheimer a
Transaction Fee if the Company enters into a Transaction with any
Interested Party which was identified and contacted in connection with a
possible Transaction during the term of this Agreement or within twelve
(12) months of the termination or expiration of this Agreement. Any
obligation pursuant to this Paragraph 3 shall survive the termination or
expiration of this Agreement.
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4. Due Diligence. It is understood that CIBC Xxxxxxxxxxx'x assistance in any
Financing will be subject to the satisfactory completion of such
investigation and inquiry into the affairs of the Company as CIBC
Oppenheimer deems appropriate under the circumstances (such investigation
hereinafter to be referred to as "Due Diligence"), absence of material
adverse changes in the Company, and the approval of Xxxxxxxxxxx'x
Commitment Committee. CIBC Oppenheimer shall have the right in its sole
discretion not to participate in a Financing if the outcome of the Due
Diligence is not satisfactory to CIBC Oppenheimer or if approval of the
Commitment Committee is not obtained ("Early Termination"). In addition,
neither the Company nor CIBC Oppenheimer will be obligated to proceed with
any public Financing unless and until the underwriting agreement is
executed.
5. Best Efforts. It is understood that Xxxxxxxxxxx'x involvement in any
Transaction is strictly on a best efforts basis and that the consummation
of any Transaction will be subject to, among other things, market
conditions.
6. Information. The Company recognizes and confirms that in providing it
services under this Agreement, CIBC Oppenheimer will be using and relying
upon data, material and other information furnished by the Company, its
employees and representatives ("Information") without independent
verification thereof or independent evaluation of any of the assets or
liabilities of the Company. The Company hereby agrees and represents that
all Information furnished to CIBC Oppenheimer in connection with this
Agreement shall be accurate and complete in all material respects at the
time furnished and that if such Information, in whole or in part, becomes
materially inaccurate, misleading or incomplete during the term of
Xxxxxxxxxxx'x engagement hereunder the Company shall so advise CIBC
Oppenheimer in writing and correct any such inaccuracy or omission.
Financial projections or estimates provided to CIBC Oppenheimer will be
reasonable and will be based on the Company's best estimate of the future
results of operations of the Company. Accordingly, CIBC Oppenheimer assumes
no responsibility for the accuracy and completeness of such Information and
financial projections. All Information that is not publicly available will
be treated in strict confidence and will not be revealed by CIBC
Oppenheimer unless legally compelled, as determined in good faith by
counsel to CIBC Oppenheimer and only upon reasonable prior notice to the
Company.
Inasmuch as it may be necessary to prepare and disseminate a memorandum
(the "Memorandum") describing, among other things, the Company and its
operations, historical and projected performance and product development
status, in order to consummate a Transaction, the Company is responsible
for preparing such Memorandum with the assistance of its counsel and CIBC
Oppenheimer, and will provide CIBC Oppenheimer a copy of such Memorandum
prior to dissemination. The Company will advise CIBC Oppenheimer in writing
that the Memorandum is accurate in all material respects and does not
contain an untrue statement of material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements
therein in light of the circumstances under which they are made, not
misleading. Such Memorandum will not be distributed without the Company's
prior approval of the prospective recipients of the Memorandum.
7. Fees. The Company agrees to pay CIBC Oppenheimer non-refundable cash fees
(the "Fees") as follows:
(a) a non-refundable retainer (the "Retainer") equal to $250,000 and
payable as follows: (i) $50,000 upon the signing of this Agreement,
and (ii) $100,000 on December, 1998 and $100,000 on June 1, 1999; and
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(b) a transaction fee (the "Transaction Fee") payable upon closing of a
Transaction involving Interested Parties as calculated using the
Transaction Fee schedule contained in Appendix A, attached hereto.
If this Agreement is renewed pursuant to Paragraph 3 herein, the Company
will pay to CIBC Oppenheimer an additional Retainer of $20,000 per month.
Such payment will be due on the first day of each month of the renewal
period. All retainer payments in excess of $200,000 shall be creditable
against any Transaction Fee(s).
If a Transaction is not consummated, but the Company receives a "break-up"
fee or any other payment as a result of the termination or cancellation of
the Company's or an Interested Party's efforts to effect a Transaction, a
judgment for damages or an amount in settlement of any dispute relating to
a Transaction or an Interested Party's investment in the Company, or any
payment to the Company not otherwise described in this Paragraph 7, then
the Company shall also pay to CIBC Oppenheimer a cash fee equal to 20% of
such fee, payment, judgment or amount.
8. Expenses. In addition to any fees that may be payable to CIBC Oppenheimer,
and regardless of whether a Transaction is consummated during the term of
this Agreement, the Company hereby agrees to reimburse CIBC Oppenheimer for
all of its reasonable out-of-pocket expenses arising out of Xxxxxxxxxxx'x
engagement hereunder. Reasonable out-of-pocket expenses include, but are
not limited to such costs as, telephone, telex, courier service, copying,
accommodations, travel, and fees and disbursements for consultants and
legal counsel.
All such fees and expenses will be billed monthly and are payable when
invoiced. Upon the earlier of the termination or expiration of this
Agreement, or the consummation of a Transaction, any outstanding fees and
expenses shall be due and payable as provided for in Paragraph 3 herein.
9. Indemnification. In addition to the payment of fees and reimbursement of
expenses provided for above, and regardless of whether a Transaction is
consummated, the Company agrees to indemnify CIBC Oppenheimer with regard
to matters contemplated herein, as set forth in Appendix B, attached
hereto, which is incorporated by reference as if fully set forth herein.
This Paragraph 9 shall survive the termination or expiration of this
Agreement.
10. Disclosure. The services or advice to be provided by CIBC Oppenheimer under
this Agreement shall not be disclosed publicly or made available to third
parties not affiliated with the Company without Xxxxxxxxxxx'x prior written
approval, except as required by law. Notwithstanding, CIBC Oppenheimer
shall be permitted to advertise the services it provided in connection with
a Transaction subsequent to the consummation of a Transaction.
11. Governing Law. This agreement shall be governed by, and construed in
accordance with, the laws of the state of New York and may not be amended
or modified except in writing signed by both parties.
12. Independent Contractor. CIBC Oppenheimer is an independent contractor and
has no authority, nor will CIBC Oppenheimer represent that CIBC Oppenheimer
has any authority, to bind the Company or to assume or to create any
obligation or responsibility, express or implied, on behalf of the Company
or in the Company's name.
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13. Successors. This Agreement and all rights and obligations thereunder
shall be binding upon and inure to the benefit of each party's successors,
but may not be assigned without the prior written consent of the other
party, which shall not be unreasonably withheld or delayed.
14. No Brokers. The Company represents and warrants to CIBC Oppenheimer that
there are no brokers, representatives, or other persons which have an
interest in fees due to CIBC Oppenheimer from any Transaction contemplated
herein.
Please confirm that the foregoing is in accordance with your understanding
by signing the enclosed letters in the space provided and returning them to us
for execution, whereupon we will send you a fully executed original letter
which shall constitute a binding agreement as of the above date.
We look forward to working with you on this assignment.
Very truly yours,
CIBC Xxxxxxxxxxx Corp.
By: /s/XXXX X. XXXXXXX, XX.
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Xxxx X. Xxxxxxx, Xx.
Executive Director
Agreed and Accepted
as of the above date
Automotive Performance Group, Inc.
By: /s/ XXXXXX X. XXXXX
-----------------------------------
Xx. Xxxxxx X. Xxxxx
Chairman
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APPENDIX A
Transaction Fee Schedule
The following represents the fees to be paid by the Company to CIBC
Oppenheimer upon the successful completion of any of the respective Transactions
with Interested Parties. All Transaction Fees shall be due and payable at the
earlier of the consummation of the Transaction and the first time any
Consideration, which is used to calculate such Fees, is paid to or received by
the Company or its shareholders.
Public Financing/Private Financing
In the event that CIBC Oppenheimer assists the Company with a Financing,
the Company agrees to pay CIBC Oppenheimer the following fees:
(a) A "gross spread" of six percent (6%)(non-IPO) of the gross
proceeds raised by the Company through the public sale of any of
its equity securities.
(b) Four percent (4%) of the gross proceeds raised by the Company
through a private placement of any of its equity securities;
(c) Three percent (3%) of the gross proceeds raised by the Company
through the sale of any subordinated debt securities; and
(d) Mutually agreeable fees based on correct market conditions of the
gross proceeds raised by the Company in the form of senior
secured debt.
If, within twelve (12) months following the termination or expiration of
this Agreement, the Company sells any of its securities to any party contracted
by CIBC Oppenheimer, CIBC Oppenheimer will be due a Transaction Fee equal to the
amounts provided for in (a) and (b) above.
Acquisition, Strategic Partnering Arrangement, Minority Interest or Merger
In the event that CIBC Oppenheimer assists the Company in consummating
a(n) Acquisition, Strategic Partnering Arrangement, Minority Interest or Merger,
the Company agrees to pay to CIBC Oppenheimer the following fees based on the
Transaction Value (as hereinafter defined) paid to, received by or paid by the
Company or its shareholders equal to the greater of:
(a) $250,000 or;
(b) One percent (1%) of the Transaction Value.
Other Transactions
If the Company requests CIBC Oppenheimer to provide financial advisory or
financial consulting services (including a fairness opinion) or assist in
arranging a transaction that is not otherwise covered by the provisions of this
Agreement, the Company agrees to pay CIBC Oppenheimer mutually acceptable
compensation taking into account, among other things, the results obtained and
the custom and practice among investment bankers acting in similar transactions.
CIBC Oppenheimer will not perform services not covered by the provisions of this
Agreement unless first so requested by the Company, but in any event shall not
be compelled to provide such services.
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Definition of Transaction Value
In the context of this Agreement, "Transaction Value" means the
aggregate value of the Consideration (as hereinafter defined) paid to, payable
to, received by, receivable by, paid by or payable by the Company or its
stockholders upon the closing of a Transaction which occurs during the term of
this Agreement. "Consideration" means cash, securities (including, but not
limited to stock, warrants or notes) and any other form of consideration
(including earnout payments, royalty interests, non-competition payments,
licensing payments, consulting payments, the assumption, directly or indirectly
(by operation of law or otherwise), or refinancing of debt, the fair market
value of any other property and any other form of consideration or compensation)
paid to, payable to, received by, receivable by, paid by, or payable by the
Company or its stockholders. If part of the Consideration is contingent upon the
occurrence of some event subsequent to the closing of the Transaction
(including, but not limited to, the realization of earnings projections and
actual product sales and the meeting of certain milestones), then the Company
will pay to CIBC Oppenheimer in cash that portion of the Transaction Fee related
to such contingency based upon the present value of the reasonably expected
maximum amount of such contingent future payments (as such amount is determined
in good faith between the Company and CIBC Oppenheimer) using a discount rate of
10% (the "Contingency Payment Calculation").
If part or all of the Consideration paid or received in a Transaction is
represented by securities (the "Securities") publicly traded prior to the
consummation of such Transaction, the value thereof shall be determined by the
average last sale price for such securities for the twenty (20) trading days
prior to the consummation of the Transaction. If part or all of the
Consideration paid or received is newly-issued Securities, the average last sale
price for such Securities for the first twenty (20) trading days subsequent to
the consummation of such Transaction shall be used in determination of the
Consideration for the purpose of computing that portion of the Transaction Fee
which shall be due and payable on the twenty-first trading day subsequent to the
consummation of such Transaction. In the event that part or all of the
Consideration paid is newly-issued Securities for which no market exists, the
fair value of such Securities as determined in good faith by the parties shall
be used in the determination of the Consideration, for the purpose of computing
that portion of the Transaction Fee. In the event that the value of the
Securities component of the Consideration is valued subsequent to such closing
pursuant hereto, then the Transaction Fee will be adjusted accordingly. Any such
adjustment will be due and payable upon demand. Any inability to agree upon the
value of the Securities described in the foregoing or the Contingency Payment
Calculation will be resolved through submission to binding arbitration in New
York City before the New York Stock Exchange, Inc. or the National Association
of Securities Dealers Inc.
All payment made hereunder to CIBC Oppenheimer shall be made in U.S.
dollars to Xxxxxxxxxxx'x account in New York City or as CIBC Oppenheimer shall
otherwise designate.
Automotive Performance Group, Inc. CIBC Xxxxxxxxxxx Corp.
By: /s/ XXXXXX X. XXXXX By: /s/ XXXX X. XXXXXXX, XX.
----------------------------- -----------------------------
Xx. Xxxxxx X. Xxxxx Xxxx X. Xxxxxxx, Xx.
Chairman Executive Director
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APPENDIX B
Indemnification
The Company agrees to indemnify CIBC Oppenheimer, its employees, directors,
officers, agents, affiliates, and each person, if any, who controls it within
the meaning of either Section 20 of the Securities Exchange Act of 1934 or
Section 15 of the Securities Act of 1933 (each such person, including CIBC
Oppenheimer, is referred to as "Indemnified Party") from and against any
losses, claims, damages and liabilities, joint or several (including all legal
or other expenses reasonably incurred by any Indemnified Party in connection
with the preparation for or defense of any threatened or pending claim, action
or proceeding, whether or not resulting in any liability) ("Damages"), to which
such Indemnified Party, in connection with its services or arising out of its
engagement hereunder, may become subject under any applicable Federal or state
law or otherwise, including, but not limited to, liability (i) caused by or
arising out of an untrue statement or an alleged untrue statement of a material
fact or the omission or the alleged omission to state a material fact necessary
in order to make a statement not misleading in light of the circumstances under
which it was made (ii) caused by or arising out of any act or failure to act or
(iii) arising out of Xxxxxxxxxxx'x engagement or the rendering by any
Indemnified Party of its services under this Agreement; provided, however, that
the Company will not be liable to the Indemnified Party hereunder to the extent
that any Damages are found in a final non-appealable judgement by a court of
competent jurisdiction to have resulted from the gross negligence, bad faith or
willful misconduct of the Indemnified Party seeking indemnification hereunder.
These indemnification provision shall be in addition to any liability which the
Company may otherwise have to any Indemnified Party.
If for any reason other than a final non-appealable judgment finding an
Indemnified Party liable for Damages for its gross negligence, bad faith or
willful misconduct the foregoing indemnity is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless, then the Company
shall contribute to the amount paid or payable by an Indemnified Party as a
result of such Damages in such proportion as is appropriate to reflect not only
the relative benefits received by the Company and its shareholders on the one
hand and CIBC Xxxxxxxxxxx on the other, but also the relative fault of the
Company and the Indemnified Party as well as any relevant equitable
considerations. subject to the limitation that in no event shall the total
contribution of all Indemnified Parties to all such Damages exceed the total
amount of fees actually received and retained by CIBC Xxxxxxxxxxx hereunder.
Promptly after receipt by the Indemnified Party of notice of any claim or of
the commencement of any action in respect of which indemnity may be sought, the
Indemnified Party will notify the Company in writing of the receipt or
commencement thereof and the Company shall have the right to assume the defense
of such claim or action (including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of fees and expenses of
such counsel), provided that the Indemnified Party shall have the right to
control its defense if, in the opinion of its counsel, the Indemnified Party's
defense is unique or separate to it as the case may be, as opposed to a defense
pertaining to the Company. In any event, the Indemnified Party shall have the
right to retain counsel reasonably satisfactory to the Company, at the
Company's expense, to represent the Indemnified Party in any claim or action in
respect of which indemnity may be sought and agrees to cooperate with the
Company and the Company's counsel in the defense of such claim or action, it
being understood, however, that the Company shall not, in connection with any
one such claim or action or separate but, substantially similar or related
claims or action in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for all the Indemnified Parties
unless the defense of one Indemnified Party is unique or separate from that of
another Indemnified Party subject to the same claim or action. In the event
that the Company does not promptly assume the defense of a claim or action, the
Indemnified Party shall have the right to employ counsel reasonably satisfactory
to the Company, at the Company's expense, to defend such claim or action. The
omission by an Indemnified Party to promptly notify the Company of the receipt
or commencement of any claim or action in respect of which indemnity may be
sought will relieve the Company from any liability the Company may have to
such Indemnified Party only to the extent that such a delay in notification
materially prejudices the Company's defense of
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such claim or action. The Company shall not be liable for any settlement of any
such claim or action effected without its written consent, which shall not be
unreasonably withheld or delayed. Any obligation pursuant to this Appendix
shall survive the termination or expiration of this Agreement.
Automotive Performance Group, Inc. CIBC Xxxxxxxxxxx Corp.
By: /s/ XXXXXX X. XXXXX By: /s/ XXXX X. XXXXXXX, XX.
----------------------------------- -------------------------------------
Xx. Xxxxxx X. Xxxxx Xxxx X. Xxxxxxx, Xx.
Chairman Executive Director
