August 24, 2006
Exhibit
10.10
August
24, 2006
Xx.
Xxxx
Xxxxx
US
Dry
Cleaning Corporation
000
X
Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxx
Xxxxxxx, XX 00000
This
letter sets forth an Engagement Agreement (“Agreement”) between Marino Capital
Partners, Inc., a California corporation (“MCP”) and US Dry Cleaning
Corporation, a Delaware corporation (“USDC” or “Company”).
1.
Investment
Banking and Advisory Services.
MCP
will
provide a range of investment banking and advisory services to USDC, which
may
include, however, are not limited to: (a) Underwriting.
Upon
USDC filing an SB-2 for a secondary registration of shares, MCP will enter
into
an LOI that will utilize such filing for a firm commitment primary issuance.
Proposed Terms of such offering are attached as Exhibit
“C”;
(b)
Private
Offering.
Raising
up to $5 million in capital from institutional investors or other accredited
investors either pursuant to terms proposed by the investor or in a Private
Offering which shall begin upon delivery of an Offering Circular (“OC”), to be
attached as Exhibit
“B”, that
is
satisfactory to MCP, including at minimum the items listed in Section 8 of
this
Agreement. Completion of the offering will be in 45 days or less from the time
the OC is available; in any case, in the event that the Company goes into
registration prior to the completion of the offering, upon written notice by
the
Company such offering will close within 3 business days. Proposed Terms of
such
offering are attached as Exhibit
“D”. Use
of
proceeds from the offering are to fund EBITDA profitable acquisitions totaling
at least $5 million in annualized run rate revenues, based on last trailing
quarter’s revenues, and for accounting and legal expenses related to the filing
of the SB-2 and underwriting; (c) Debt.
Raising
up to $5 million in debt from institutional investors or other accredited
investors on terms acceptable to Company; (d) introducing USDC to other
investment banking and underwriting firms; (e) if requested, recommending
potential suitable candidates to help enhance the Board of Directors and
Management Team of USDC; and (f) assisting in the negotiation of identified
potential acquisition candidates (Al Philips-HI, Delphi Management, Boston
Cleaners-Riverside and Team-Fresno), as well as, at the Company’s request,
additional acquisition candidates on a going-forward basis.
2. Exclusive
Engagement.
With
the
exception of the carve-outs described in 4.(c) and specifically listed in
Exhibit
“G”, MCP’s
engagement shall be exclusive for
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the
period specified in paragraph 3, below, such that only MCP shall have the right
to provide investment banking services to USDC, and to earn compensation in
connection with any transaction or any investment by any investors, including
with respect to transactor parties, lenders or investors identified by USDC
and
not necessarily introduced to USDC by MCP. As lead investment banker, MCP shall
be permitted to engage other NASD member firms in a selling syndicate and/or
third-party finders, provided that all compensation to such parties shall be
paid out of the total fees payable to MCP hereunder. No directors or officers
of
USDC shall receive any additional or separate compensation for their role in
any
transaction or the sale of USDC securities.
3. Engagement
Period / Termination.
(a)
The
term of this Agreement (the “Engagement Period”) will expire upon the earlier to
occur of (i) 1 year from the date this engagement agreement is executed, or
(ii)
the mutual written agreement of USDC and MCP.
(b)
If,
on the date that would otherwise be the termination date of this Agreement,
Escrow is open for a scheduled Closing of any transaction or offering, this
Agreement shall automatically be extended until that scheduled
Close
of
Escrow.
(c) Notwithstanding any other provisions of this Agreement, if at any time
during the 12-month period after termination of this Agreement, USDC completes
a
transaction with a prospective party, lender or investor (or an affiliate of
any
such entity), that was introduced by MCP to USDC during the Engagement Period,
upon the Closing of any such transaction, USDC will be obligated to pay the
fees
otherwise due to MCP under this Agreement.
(d) If, during the term of this engagement, USDC is presented with an
opportunity to raise capital by another investment bank or agent, while MCP
reserves the right of first refusal to lead that effort, MCP agrees to operate
in good faith to serve the needs of the Company and, if deemed necessary in
its
sole judgment, waive its rights to participate or be compensated, should the
terms of that effort fall outside MCP’s area of expertise or limitations of its
personnel.
4.
MCP
Compensation.
(a)
Commitment
Fee. In
exchange for MCP’s role in preparing for the equity and/or debt capital raise
and providing the additional advisory services, including management structure,
capital structure and merger and acquisition, USDC hereby agrees to pay MCP
a
non-refundable commitment fee of $45,000 or $30,000 upon execution of the
Agreement with an additional $20,000 due 30 days thereafter.
(b)
Equity
and Debt Investments. In
exchange for equity and/or convertible debt investments in USDC, collectively
referred to herein as “gross investment”, MCP shall receive the following
compensation: (i) a success fee equal to 10 percent (10%) of the gross
investment, payable in cash at Closing, (ii) a non-accountable expense allowance
equal to three percent (3%) of the gross investment, payable in cash at Closing,
and (iii) warrants to acquire USDC common stock equal to ten percent (10%)
of
the gross investment, with an exercise price of one hundred percent (100%)
of
the price per share established in the transaction, exercisable for five (5)
years from the effective date, and containing net issuance, anti-dilution
provisions for split adjustments and “piggyback”
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registration
rights, all as mutually agreed to by the parties within sixty (60) days from
the
date of this Agreement, and (iv) additionally, to the extent that securities
sold in any offering include warrants to the investor, upon the exercise of
any
such warrants, MCP shall be entitled to receive 9% of the gross proceeds
received by USDC as a result of such exercise. Provided that MCP stands ready
and demonstrates capability to assist in the management of the warrant exercise
process, MCP shall be entitled to such compensation even in the event the
Company chooses to engage another firm or to manage the process in house. Such
management of the warrant exercise process shall not be unreasonably withheld
by
the Company in order to avoid payment of such fees.
Performance
Warrants:
In
addition to the foregoing, USDC hereby agrees to pay MCP one warrant for each
two dollars raised up to the first $1 million in funding, or upon the Closing
of
any M&A transaction involving MCP, for a total of 500,000 warrants. Such
warrants shall have an exercise price of .25, be exercisable for five (5) years
from the effective date, and contain net issuance, anti-dilution provisions
for
split adjustments and “piggyback” registration rights, such that the shares
underlying the warrants are included in the aforementioned SB-2 Filing.
(c) Carve
Outs.
Upon
execution of this Agreement, USDC agrees to provide a list of its current
shareholders as well as those that have been presented with an investment
opportunity in USDC and attach it to this agreement as Exhibit
“G”.
MCP
hereby waives its rights to its 10% success fee, reduces its warrant
compensation to 5%, and remains entitled to its 3% non-accountable expense
fee
on investments completed by those listed on Exhibit
“G”. Nonetheless,
upon request, MCP shall use its best efforts to assist USDC in its attempts
to
solicit investments (to the extent not prohibited by NASD regulations) from
the
individuals or entities on this list.
(d) Purchase
or Sale. (M&A):
(1.)
Purchase
Transaction. For
transactions involving USDC’s purchase of the majority outstanding capital stock
or assets of another company, where USDC has requested MCP’s assistance,
including, but not limited to Al Philips-HI, Delphi Management Group,
Team-Fresno, Boston Cleaners-Riverside and National Dry Cleaners, MCP shall
receive upon each closing: (i) a success fee, payable in cash, equal to 2%
of
the aggregate consideration and (ii) warrants to acquire USDC common stock
(or
any successor-in-interest to USDC) equal to ten percent (10%) of the aggregate
consideration, with an exercise price of one hundred percent (100%) of the
price
per share established by the lesser of the 20 day VWAP, or if not so quoted
during such period, then the share price of the equity at the last private
sale
of securities by the Company, exercisable for five (5) years from the effective
date, and containing net issuance, anti-dilution provisions for split
adjustments and “piggyback” registration rights, all as mutually agreed to by
the parties within sixty (60) days from the date of this Agreement.
(2.) Sale
Transaction. For
any
transaction involving a sale of the majority outstanding capital stock of USDC,
MCP shall receive upon each closing a success fee, payable in kind as if and
when Company receives its cash or kind, MCP shall be paid its prorata portion
within 5 business days, equal to 1% of the aggregate consideration.
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For
purposes of this Agreement, aggregate consideration is defined as the greater
of, (1) the total amount actually paid to USDC or payable by Acquirer, less
any
debt repaid or remaining on the books of Company, or (2) the enterprise value
assigned to any such transaction by either party thereto, whether due at closing
or deferred by the parties, all classes of securities issued and transferred,
the principal amount of any notes, the aggregate amounts payable pursuant to
any
consulting agreements, employment agreements, agreements not to compete and
similar agreements, and the aggregate amount of value assigned to any bank
or
term loans or other debts assumed or refinanced as part of the transaction
(the
interpretation of which shall not be limited by any book value assigned to
assets or liabilities, or any characterization thereof for tax purposes).
(e) Underwriting.
For any
primary issuance of corporate securities in an underwritten public offering
involving MCP, MCP shall receive an underwriting fee equal to 2% of the gross
proceeds; a management fee equal to 2% of the gross proceeds; a non-accountable
expense allowance equal to 2% of the gross proceeds, and a selling concession
equal to 6% of the gross proceeds, and warrants equal to 10% of the shares
issued, with an exercise price equal to 20% greater than the price of the shares
offered in the underwriting (such warrants shall be exercisable for five (5)
years from the effective date, and contain net issuance, anti-dilution
provisions for split adjustments and “piggyback” registration rights). The
foregoing fees are to be distributed among the underwriters and syndicate
members at MCP’s sole discretion. Additionally, upon the exercise of any
warrants issued to the investors, MCP shall be entitled to receive 5% of the
gross proceeds received by USDC as a result of such exercise. At MCP’s
discretion, up to 50% of the 9% fee may be allocated to participating syndicate
members who assist in managing the warrant exercise process. Provided that
MCP
stands ready and demonstrates capability to assist in the management of the
warrant exercise process, MCP shall be entitled to such compensation even in
the
event the Company chooses to engage another firm or to manage the process in
house. Such management of the warrant exercise process shall not be unreasonably
withheld by the Company in order to avoid payment of such fees.
5.
Break-Up
Fees. In
the
event MCP has arranged for an investor, lender, sale of securities, or
Subscription Agreement deemed acceptable to USDC,
and
USDC
then determines not to conclude the transaction or accept the funds, USDC will
nevertheless owe MCP break-up fees or liquidated damages, equal to fifty percent
(50%) of the total compensation under this Agreement payable in addition to
any
retainer amounts paid, as well as remain obligated to reimburse MCP for its
direct expenses. Notwithstanding any of the above, no Break-Up fees or
liquidated damages will be payable in the event that USDC (i) has advised MCP
to
cease the services referenced in this paragraph prior to MCP concluding such
services or (ii) has determined, in the exercise by its board of its fiduciary
duties, that such investment or investor breaches the USA Patriot Act of 2001,
the current Anti-Money Laundering compliance guidelines for NASD member firms,
or is a competitor the company.
6. Future
Rights. Upon
MCP
successfully raising a minimum of $3 million in cash equity for Company or
upon
the occurrence of an event referenced in section (i) of the
proviso in paragraph 5, above, USDC hereby agrees to retain/engage MCP in an
advisory capacity for a monthly fee of $10,000 per month for services to include
general
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business
consulting, investment banking and Mergers and Acquisitions for a 12 month
period. MCP agrees to make available a full-time, experienced M&A
professional to assist USDC with diligence, negotiation and analysis on an
as
needed basis; and, upon successful completion of any part of this engagement,
MCP shall have the right, at its option, to participate as a Manager or
co-Manager in any capital transaction, corporate merger or acquisition,
underwriting or offering involving USDC during the subsequent 1 year period,
and
to earn market fees associated therewith. In the event that another Investment
Banker desires to become involved, MCP will negotiate in good faith with the
Investment Banker and use commercially reasonable efforts to meet the needs
of
all parties.
7. Standard
Terms. The
“Standard Terms Included in the Marino Capital Partners, Inc. Engagement
Agreement with US Dry Cleaning Corporation” attached hereto as Exhibit
“A” are
hereby incorporated by reference into this Agreement.
8.
Company
Duties Upon Execution of this Agreement. Promptly
following the execution of this Agreement, Company agrees to:
(a) Provide MCP with additional information needed to complete an Offering
Circular containing a complete review of the business and up to date internally
prepared financial affairs of Company through June 30, 2006, including, but
not
limited to a Balance Sheet, Income Statement, and Statement of Cash flows,
proforma financials on acquisition targets that are under LOI or contemplated
with USDC; 12 month projections including such acquisitions and any contemplated
to be completed as part of the use of proceeds of the offerings contemplated
herein, management contracts must be in place for key executives, board of
directors must consist of at least 60% non-management board members with
relevant experience. Such memorandum must be reviewed and be reasonably
acceptable to Company counsel.
(b)
Notify its attorneys, accountants and bookkeepers, that MCP is USDC’s exclusive
investment banker who should be provided full access and knowledge of all
documents and communications relevant to the proposed capital raise, excluding
any communication covered by attorney-client privilege.
(c) CEO must be available for road-shows and corporate presentations both live
and telephonically during periods of capital raising upon adequate notice.
(d) Deliver complete audits and SEC Filings (10KSBs and 10QSBs) through the
Quarter ended June 30, 2006 by September 30, 2006.
(e) Deliver a non-binding Letter of Intent to acquire Al Philips the Cleaners’
Hawaiian operations on terms consistent with those previously discussed with
MCP
and which do not require financial statement disclosure in any SEC Filing by
the
Company.
(f) Secure options to acquire Delphi Management Group (Arizona), Team Cleaners
(Fresno, CA) and Boston Cleaners (Riverside, CA) on terms consistent with those
previously discussed with MCP and which do not require financial statement
disclosure in any SEC Filing by the Company.
(g) File SB-2 by September 30, 2006, in order to ensure possibility of Q4 2006
underwriting.
(h) Deliver up to date fully diluted capitalization table including current
management structure and contemplated changes along with attendant stock option
plans that may accompany such management changes.
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(i) Management and members of the Board to complete Questionnaire for Directors,
Officers, Key Employees and Principal Shareholders, attached as Exhibit
“E”
(j) Complete MCP Due Diligence Checklist, attached as Exhibit
“F”
If the terms and conditions of this Agreement are acceptable to you, then please
execute this Agreement where indicated below and return an originally executed
Agreement to me, together with the retainer. Until signed by USDC, this letter
is an offer by MCP that expires on August 28, 2006.
SIGNATURE
PAGE FOR AUGUST 24, 2006 ENGAGEMENT AGREEMENT
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Sincerely,
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ACCEPTANCE:
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Marino
Capital Partners, Inc.
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US
Dry Cleaning Corporation
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a
California corporation
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a
Delaware corporation
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/s/ Xxxxx
Xxxxxx
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/s/ Xxxx
Xxxxx
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By:
Xxxxx Xxxxxx
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By:
Xxxx Xxxxx
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Its:
Chief Executive Officer
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Its:
Chief Executive Officer
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