July 3, 2000
Mr. Xxxxx Xx, President
Xxxxx.xxx, Inc.
00-00 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxx, Xxx Xxxx 00000
Re: Agreement Respecting Future Legal Services
Dear Mr. He,
This letter will confirm that the law firm of Xxxxxxxx & Xxxxx has been
engaged to serve as general counsel to Xxxxx.xxx, Inc., a New York Corporation
("Yifan"). We are aware that Xxxxx is presently negotiating a transaction
whereby the stockholders of Yifan will exchange their Yifan shares for newly
issued shares of Smart Games Interactive, Inc., an inactive public shell
controlled by Capston Network Company ("Capston").
As you know, our firm has represented Capston for several years. We have
also served as general counsel for Smart Games since April 2000. As counsel for
Xxxxxxx and Smart Games, we have assisted in the negotiation and documentation
of the transactions that gave Xxxxxxx control over the affairs of Smart Games.
We have also assisted in subsequent settlement negotiations with the former
creditors of Smart Games. Lastly, we have borne primary responsibility for
drafting various corporate and regulatory filings for Smart Games and assisted
Xxxxxxx in its preliminary negotiations with Xxxxx.
In our discussions over the last several weeks, it has become clear that
Yifan will require the services of competent commercial and securities counsel
in connection with the completion of the business combination with Smart Games.
You will also require the services of competent commercial and securities
counsel in connection with the future activities of Xxxxx. It is expected that
such services will include, but not be limited to:
o preparation of all required reports to the SEC under the Securities
Exchange Act of 1934;
o preparation of all necessary contracts;
o assistance in negotiations with respect to acquisitions of additional
properties;
o assistance in negotiations with respect to strategic relationships;
o assistance in negotiations with respect to additional financing;
o preparation of documents associated with property acquisitions,
strategic relationships and financing;
o assistance with respect to strategic planning; and
o general legal services in areas other than litigation and patent law.
At your request, I have discussed the future needs of Yifan with Xxxxxxx
and advised Xxxxxxx that Xxxxx would like to hire our law firm as its general
counsel. I have also discussed the following issues with Xxxxxxx:
o Our desire to continue as legal counsel for Xxxxxxx in connection with
other matters;
o Our desire to withdraw as legal counsel for Capston in connection with
the Yifan transaction;
o Our desire to continue as legal counsel for Smart Games in connection
with the Yifan transaction
o Our desire to assume the role of general counsel for the combined
Yifan/Smart Games companies;
o Our obligation to protect the confidences of Capston, Smart Games and
Xxxxx; and
o Our obligation to diligently pursue the best interests of Capston,
Smart Games and Yifan;
Based on these discussions, we are willing to assume the role as general counsel
for Xxxxx and the combined Yifan/Smart Games companies on the following
conditions:
o The effective date of our engagement as general counsel for Xxxxx and the
combined Yifan/Smart Games companies will be July 1, 2000.
o It is understood that we cannot be involved in negotiations to alter or
change the fundamental terms of the proposed Yifan/Smart Games transaction
after this date.
o Our activities on behalf of Xxxxxxx will be kept in strict confidence to the
extent that they relate to projects other than the Smart Games takeover and
the Yifan/Smart Games transaction.
o Capston will waive all rights to confidentiality on matters relating to the
Smart Games takeover, negotiations with Smart Games' creditors and the
Yifan/Smart Games transaction.
o In connection with the documentation and closing of the Yifan/Smart Games
transaction we will continue to bear primary responsibility for document
preparation, but Xxxxxxx will have all such documents reviewed by other
attorneys.
o In connection with future negotiations between Capston, Smart Games and
Yifan, we will represent the best interests of Smart Games and Xxxxx, and
Xxxxxxx acknowledges that we are not acting as legal counsel for Capston in
connection with such negotiations.
o We will be permitted to issue opinions on behalf of Xxxxx and Smart Games in
connection with the closing of the Yifan/Smart Games transaction, but Xxxxxxx
will have all such opinions reviewed by other attorneys.
o After the effective date of our engagement as general counsel for Xxxxx and
the combined Yifan/Smart Games companies, Yifan will be entitled to all of
the client protections and privileges of the Code of Professional Conduct.
o In the event a dispute arises between Xxxxx and Xxxxxxx that relates in any
way to the Yifan/Smart Games transaction, we will refrain from acting as
legal counsel for either party in connection with the dispute and cooperate
fully with both parties in the resolution of the dispute.
Subject to the foregoing, the law firm of Xxxxxxxx & Xxxxx agrees to become
general counsel for Xxxxx.xxx, Inc. and Smart Games Interactive, Inc effective
July 1, 2000. Yifan and Smart Games are collectively referred to from time to
time as the "Yifan Companies." Our representation and assistance will
specifically include the following:
(1) We will assist the Yifan Companies in the development of a holding
company structure whereby Smart Games Interactive will acquire all of the
outstanding stock of Xxxxx.xxx, Inc. and the stockholders of Xxxxx.xxx, Inc., as
a group, will acquire an equity interest in Smart Games equal to not less than
92%. We shall, also assist the Yifan Companies in any "corporate cleanup"
activities necessary to complete the proposed business combination, including
the preparation of the necessary directors resolutions and other documents.
(2) In connection with the business combination we will assist the Yifan
Companies in the preparation of such regulatory reports, contracts, minutes of
meetings and other documents as may be necessary, convenient or desirable to
enable the Yifan Companies to complete the business combination in accordance
with the requirements of the Securities Act of 1933 (the "Securities Act"), the
Securities Exchange Act of 1934 (the "Exchange Act") and Delaware law.
Subsequently, we will assist in the preparation of the following SEC filings:
o Current Report on Form 8-K relating to the business combination
transaction
o Information Statement Pursuant to Section 14(f) of the Exchange Act;
o Information Statement Pursuant to Section 14(c) of the Exchange Act;
o All required Quarterly and Annual Reports and Proxy Statements under
the Exchange Act;
o All required registration statements under the Securities Act;
o Miscellaneous filings under the Securities Act and the Exchange Act
In connection with each such SEC filing, we will assist in the preparation of
such contracts, minutes of meetings as other documents as may be necessary,
convenient or desirable to enable the Yifan Companies to lawfully maintain an
active trading market on the NASD's Electronic Bulletin Board, the Nasdaq Stock
Market or an appropriate regional or national securities exchange, all in
accordance with the requirements of the Exchange Act.
(3) In connection with the future corporate financing activities of the
Yifan Companies we will explain to responsible officers and directors of the
Yifan Companies their responsibilities under the applicable provisions of state
and Federal securities laws and regulations including, in general terms, the
possible civil and criminal consequences associated with a failure to comply
with such requirements. The appropriate officers and directors of the Yifan
Companies must devote adequate time and attention to the review of any documents
prepared by us because the applicable securities laws place upon them
responsibility for assuring that all necessary disclosure documents are not
materially false, misleading or incomplete. They should further understand that
we, as lawyers, cannot relieve the Yifan Companies or their officers, directors
and principal stockholders of their individual responsibilities under the law
although we can assist them in fulfilling them. All information respecting the
Yifan Companies, and all biographical information on the officers and directors
of the Yifan Companies, shall be furnished to us in writing. We shall be
entitled to rely on the accuracy and truthfulness of all written information
furnished by the Yifan Companies and their respective officers and directors,
and the the Yifan Companies and their respective officers and directors shall
jointly and severally indemnify and hold the law firm of Xxxxxxxx & Xxxxx
harmless from and against all claims arising out of or resulting from material
misrepresentations or omissions contained in such written information. In
addition to (and not as a limitation to) the foregoing, the Yifan Companies and
their respective officers and directors shall execute a Representation Agreement
which will be supplied by us prior to the closing of any future financing
transaction.
(4) We will discuss with the appropriate officers and directors of the
Yifan Companies their need to create procedures which will enable them to
develop the information reasonably necessary to meet the requirements of the
Securities Act and the Exchange Act, and to create a reasonable timetable and
assignment of responsibilities for developing such information. In each case,
the officers and directors of the Yifan Companies shall be responsible for
assigning responsibility for developing particular types of information to those
persons most knowledgeable about such matters. Particularly, all officers and
directors should be given a timely opportunity to review the necessary
disclosure documents and discuss them with those persons who are directly
involved in their preparation and to whom the officers and directors have
assigned responsibility.
(5) We will perform legal review and analysis of matters which may be
required to be passed upon by us in connection with any opinion which must be
given because it is required by law, requested by a party to a transaction
involving the Yifan Companies, or has been requested by the Yifan Companies.
This would include for example, a check of due formation of Xxxxx.xxx, Inc. and
Smart Games, the valid authorization of the securities being issued and other
securities of the same class and the revision of any documents which may
directly affect the proposed transaction. Our review and analysis might also
include in our discretion inquiry concerning titles, important contracts,
pending litigation and the impact of laws having a special effect on the Yifan
Companies. To the extent we deem it prudent to consult with counsel for the
Yifan Companies for advice or opinions on matters pertaining to litigation,
patent law or other matters outside of our area of expertise, we are authorized
to do so with the prior approval of the Yifan Companies. All fees and expenses
of such counsel shall be the sole and direct responsibility of the Yifan
Companies.
(6) We will assist the Yifan Companies on the basis of information
furnished to us by the Yifan Companies. The responsibility for decisions as to
whether a fact is material or whether there is a material inaccuracy in any
statement shall remain with the officers and directors of the Yifan Companies.
We are not obligated to search all the files and records of the Yifan Companies
to discover, for example, all material contracts or other documents but shall be
entitled to rely, outside of certain legal matters, on interrogations of and
reports and compilations prepared by others, including auditors and other
lawyers. In particular, we are not being retained to furnish accounting or
economic advice.
(7) We will assist the Yifan Companies in the drafting of the various
documents that will be filed with the Securities and Exchange Commission by the
Yifan Companies to the end that in his opinion, these documents reflect what the
Yifan Companies intend them to say, are not ambiguous and are written in a
manner that is designed to protect the Yifan Companies from later claims of
overstatement, misleading implications, omissions or other deficiencies due to
the manner in which the documents in question have been written. However, you
are cautioned merely because we have assisted you in this endeavor, this will
not insure such documents will be free from all misleading, unclear or ambiguous
statements. However, all information properly furnished to us will be provided
in the in the format required. Again, the ability to determine the substance or
context of any document filed with the SEC rests solely with the Yifan
Companies.
(8) We will not be required to nor will we make statements that could give
a mistaken impression we have passed upon matters which we have not nor that we
take responsibility for the accuracy and completeness of any document prepared
on behalf of the Yifan Companies. We will advise the Yifan Companies with
respect to certain matters under the Federal securities law that may arise and
not relate directly to the preparation of any offering document, report or
regulatory filing. We will advise the Yifan Companies as to the procedures and
requirements involved in the processing and distribution of regulatory reports,
proxy statements, news releases and other investor relations material. We will
also assist the Yifan Companies in the preparation of any notices or other
applications which may be required to be filed with the National Association of
Securities Dealers, any Stock Exchanges upon which the Yifan Companies will seek
to list their securities and the securities regulatory authority of the
applicable states and will advise and assist the Yifan Companies in responding
to any comments from such authorities.
(9) We will advise Yifan Companies in the preparation of any notices,
forms, qualifications and other documents that may be necessary to notify the
Securities and Exchange Commission, the securities regulatory authority of any
states, and any other person or regulatory authority of any of the proposed
transactions, will advise and assist Xxxxx Companies in responding to any
comments from such regulatory authorities.
(10) We will advise the Yifan Companies in the negotiation and preparation
of any contracts that are necessary or desirable for the future operations of
the Yifan Companies including, but not limited to, employment contracts, stock
incentive plans, contracts for the acquisition of tangible property,
intellectual property and other intangible property, contracts for the
acquisition of business activities or assets, contracts for the creation of
strategic relationships and contracts associated with the future financing
activities of the Yifan Companies.
The foregoing undertakings are contingent upon the Yifan Companies
promptly advancing, upon request, all costs and expenses and fees when due and
owing. Costs and expenses include, but are not limited to, travel, printing,
filing fees, photocopy, telephone, document preparation charges, courier,
Federal Express, postage and other expenses. The Yifan Companies further
acknowledge that we may be required to resign this engagement if our failure to
do so would result in a violation of the Code of Professional Responsibility, or
any Disciplinary Rule promulgated thereunder, such as those prohibiting counsel
from knowingly advising or assisting his client to engage in an illegal or
fraudulent act.
In recognition of the fact that the financial resources of the Yifan
Companies are currently limited and the Yifan Companies intend to aggressively
control their future out-of-pocket costs, we have agreed to serve as general
counsel under a compensation structure that is equity-based, rather than
fee-based. As compensation for the services to be rendered in connection with
the business combination and all required regulatory filings for a period of one
year thereafter, we shall receive a fee consisting of 360,000 shares of the
$0.008 par value common stock of the combined Yifan/Smart Games companies. This
equity position will represent approximately 2.7% of the post-transaction equity
of the combined Yifan/Smart Games companies. These shares will be fully earned
upon the execution of the reorganization documents relating to the Yifan/Smart
Games business combination and shall have an agreed value of $0.89 per share, an
amount which is equal to the price paid by the last person to purchase shares of
Xxxxx.xxx, Inc. for cash. These shares will be issuable to us upon the
effectiveness of an amendment to the Company's Certificate of Incorporation that
authorizes the issuance of such $0.008 par value common stock.
The Yifan Companies will have the right to terminate our engagement as
general counsel at any time. In the event that the Yifan Companies elect to
retain another firm of lawyers to serve as counsel at any time during the first
year of our engagement, we shall be obligated to reimburse the Yifan Companies
for one-half of the total xxxxxxxx rendered by such other firm, but only to the
extent such xxxxxxxx specifically relate to services that would otherwise be
covered by this agreement. Notwithstanding the generality of the foregoing, our
maximum liability to the Yifan Companies with respect to the fees charged by
successor legal counsel shall not exceed one-half of the fair market value of
the 360,000 shares received by us. For purposes of this limitation, the fair
market value of the shares will be determined based on the average closing bid
price of the Yifan Companies common stock during the 30 day period commencing 90
days after completion of the business combination transaction.
In addition to the fixed fee set forth in the preceding paragraph which
relates solely to services rendered as general counsel to the Yifan Companies,
we shall be entitled to receive the following contingent compensation on
specific transactions effected by the Yifan Companies during the term of our
engagement.
o If we serve as legal counsel for the Yifan Companies in connection with
the acquisition of additional properties, assets or businesses, our fee
for serving as counsel for the Yifan Companies in connection with the
transaction will be 2.7% of the consideration actually paid by the
Yifan Companies in connection with the transaction. If the
consideration to be received by the other parties to the transaction
consists of equity securities of the Yifan Companies or deferred or
contingent payments, our fees shall likewise be paid in equity
securities of the Yifan Companies or deferred or contingent payments.
The Yifan Companies shall have no duty to use our firm as its legal
counsel in connection with any acquisition transaction.
o If we serve as legal counsel for the Yifan Companies in connection a
future financing transaction, our fee for serving as counsel for the Yifan
Companies in connection with the transaction will be 1.35% of gross
proceeds received by the Yifan Companies in connection with the
transaction. The Yifan Companies shall have no duty to use our firm as its
legal counsel in connection with any financing transaction.
All shares issuable pursuant to this agreement shall be issuable 50% to Xxxx X.
Xxxxxxxx and 50% to Xxxxxx X. Xxxxx. To the extent they may lawfully do so, the
Yifan Companies shall file a Registration Statement under the Securities Act
with respect to all shares issuable to us as compensation, but only if the Yifan
Companies are then eligible to file a short form Registration Statement on Form
S-8. If the Yifan Companies are not eligible to file a Form S-8 Registration
Statement, then such shares shall be issued pursuant to SEC Regulation D.
We hereby agree that (a) the shares provided for herein will be issued to
us compensation for bona fide legal services rendered to the Yifan Companies,
(b) this agreement relates solely to day-to-day legal services as general
counsel for the Yifan Companies and our compensation for any future "capital
raising transactions" will be established by a separate transaction-specific
retainer agreement (c) we have paid no cash consideration to the Yifan Companies
for the shares that will be issued to us pursuant to the terms of this letter
and no portion of the proceeds from any resale of such shares will be remitted
to the Yifan Companies or used directly or indirectly for the payment of any
expenses of the Yifan Companies or any of their affiliates, (d) we will not be
involved, except as securities counsel, in any activity that promotes or
otherwise maintains a market for the securities of the Yifan Companies, (e) as
long as we are the beneficial owner of any securities of the Yifan Companies, we
will not engage in "buy-side" trading activities, hedging transactions or other
activities that could reasonably be expected to influence the market price of
such securities, (f) we will not sell any shares in a transaction that is
effected at a price lower than the quoted bid price of the securities at the
time of sale, (g) if we engage in multiple sales in any five consecutive
business days, we will not sell any shares in a transaction that is effected at
a price lower than the last price received by us for the same securities, and
(h) we will not sell more than 10% of the shares issued to us in any calendar
month.
If the foregoing terms meet with your approval, please execute one copy of
this letter in the space provided below and return the signed copy at your
earliest convenience. We appreciate this opportunity to serve your needs and
look forward to a long and productive relationship. Please call if you have any
questions or comments regarding the terms set forth above.
Very truly yours,
Xxxxxxxx & Xxxxx
/s/
By Xxxx X. Xxxxxxxx
Accepted and agreed to this 3rd day of July 1999.
Xxxxx.xxx, Inc. Smart Games Interactive, Inc.
By: /s/ By: /s/
-------------------------- -------------
Its President Its President
Capston Network Company
By: /s/
-------------
Its President
