1
EXHIBIT 10.41
XXXXX BROWN XXXXXX & COMPANY, LLC
INVESTMENT BANKERS
Xxx Xxxxxxxx Xxxxx, Xxx Xxxxxxxxx, XX 00000
(000) 000-0000 FAX (000) 000-0000
PERSONAL & CONFIDENTIAL
-----------------------
May 12, 1999
Xxxxxx X. Xxx
CEO
XXX.Xxx, Inc.
00000 XX 00xx Xxxxxx
Xxxxx Xxxxxxx, XX 00000
Dear Bob:
We are pleased to confirm the understanding and agreement under which
Xxxxx Brown Xxxxxx & Company, LLC, a Delaware limited liability company
("VBW&C"), is engaged by XXX.Xxx, Inc., a Delaware corporation (the "Company").
1. ENGAGEMENT.
A. SCOPE OF ENGAGEMENT. The Company hereby engages VBW&C as the
Company's exclusive placement agent in connection with the proposed
offering by private placement of securities of the Company (the
"Offering") and as the Company's financial advisor in connection
with a possible Combination Transaction. For purposes of this
engagement letter, the term "Combination Transaction" shall mean any
transaction or series of related transactions whereby, directly or
indirectly, 50% or more of the voting stock of the Company is, or
all or substantially all of the business or assets of the Company
are, acquired in a purchase or exchange of stock or assets, or a
merger, consolidation or similar transaction.
It is currently understood that the final terms of the Offering will
be negotiated between the Company and the investors who purchase
securities (the "Stock") in the Offering, and will depend on a
variety of factors, including without limitation general economic
and market conditions existing at the time of the Offering. VBW&C
hereby accepts such engagement on a "best efforts" basis; this
engagement letter shall not give rise to any commitment by VBW&C to
purchase any of the Stock.
VBW&C shall not act as an agent of fiduciary and shall have no
authority to bind the Company.
B. SERVICES PROVIDED BY VBW&C. To the extent required or desirable in
connection with the Offering, the services provided by VBW&C to the
Company shall consist of the following:
i. Consulting with the Company's management regarding the form of
private placement memorandum, including any amendments or
supplements thereto, to be used in connection with the Offering
(the "Offering Memorandum");
ii. Identifying potential investors to participate in the Offering;
iii. Assisting the Company in structuring and negotiating the terms
of the Offering; and
iv. Performing certain other appropriate and customary placement
activities.
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May 12, 1999
Page 2
In addition, to the extent requested by the Company and required or
desirable in connection with a Combination Transaction, the services
provided by VBW&C to the Company will include:
v. Reviewing with the Board of Directors and members of management
the Company's financial plans, strategic plans, and business
alternatives;
vi. Assisting the Company in preparing an information memorandum for
distribution and presentation to potential purchasers and merger
candidates (collectively, "Potential Acquirors");
vii. Assisting the Company in the screening of interested Potential
Acquirors;
viii. Assisting the Company in structuring and negotiating the
financial aspects of the Combination Transaction;
ix. Performing certain other appropriate and customary financial
advisory services in connection with a Combination Transaction;
and
x. Being available to meet with the Company's Board of Directors.
C. CONFIDENTIALITY OF ADVICE. Any written or oral advice provided by VBW&C
to the Company in connection with VBW&C's engagement hereunder is
exclusively for the information of the Board of Directors and
management of the Company, and may not be disclosed to or relied upon
by any other party without the prior written consent of VBW&C. For
purposes of the preceding sentence, written or oral advice shall not
include any offering or other marketing materials intended for
distribution to third parties. Any description of or reference to VBW&C
in the Offering Memorandum or other materials provided to prospective
investors or other third parties must be approved by VBW&C prior to its
use, which approval will not be unreasonably withheld.
D. OTHER DISCUSSIONS AND NEGOTIATIONS. During the term of VBW&C's
engagement hereunder, the Company will notify VBW&C promptly following
any discussion with any party regarding any transaction similar to the
Offering or Combination Transaction or any transaction that, if
consummated, could have a material effect on the consummation of the
Offering or Combination Transaction. Furthermore, as part of this
engagement with VBW&C, the Company agrees to notify VBW&C of any
currently existing discussions with third parties regarding any
transaction that, if consummated, could have a material effect on the
consummation of the Offering or Combination Transaction. During the
term of VBW&C's engagement hereunder, the Company will promptly inform
VBW&C of any inquiry received by the Company from any party regarding
any transaction similar to the Offering or Combination Transaction,
that, if consummated, could have a material effect on the consummation
of the Offering or Combination Transaction. It is understood and agreed
that at all times, the Company shall have the right to approve or
disapprove the terms and conditions of the Offering, any Combination
Transaction or any other transaction.
E. OTHER ACTIVITIES OF VBW&C. VBW&C and its affiliates are engaged in
investment banking, financial advisory services, securities trading and
brokerage activities. In the ordinary course of business, subject to
compliance with applicable law, VBW&C or its affiliates may at any time
hold long or short positions, and may trade or otherwise effect
transactions, for their own accounts or the accounts of others, in
securities of a potential investor, a potential acquiror or any other
entity. Following the public announcement of the proposed Offering or
Combination
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May 12, 1999
Page 3
Transaction, VBW&C may place advertisements in financial and other
newspapers and publications at its own expense describing its services
to the Company hereunder.
2. COMPENSATION AND EXPENSES.
A. FEES. As compensation for the services provided by VBW&C hereunder,
the Company shall pay the following fees ("Fees") to VBW&C:
i. Upon execution of this engagement letter, an initial Fee of
$50,000, it being understood and agreed that such initial Fee
will be credited against any other compensation due VBW&C under
Section 2.A.ii;
ii. Upon each closing of the Offering, a Fee equal to 6.0% (six
percent) of the total value of the consideration received by
the Company (including without limitation the amount of bridge
loans or other indebtedness of the Company converted into
Stock) in such closing ("Gross Proceeds");
iii. Upon the closing of a Combination Transaction during the term
of VBW&C's engagement hereunder or at any time within twelve
(12) months following the termination of such engagement, an
additional fee based upon the Aggregate Value of the
Combination Transaction, as set forth below, it being
understood and agreed that (i) the payment of such fee shall be
made a condition to the closing of the Combination Transaction,
which condition shall be for the benefit of VBW&C and shall not
be waived by the Company and (ii) in no event shall such fee be
less than $750,000.
AGGREGATE VALUE OF COMBINATION
TRANSACTION
(IN MILLIONS) FEE PERCENTAGE
---------------------------------- -------------------------
up to $200 1.25 %
plus, for amounts > $200 and <$400 1.0 %
plus, for amounts >$400 0.75 %
"Aggregate Value" shall mean the value, at the date of the
closing of the Combination Transaction, of all cash, securities
and other property to be received by the Company or its
stockholders in connection with the Combination Transaction,
including the total amounts received by holders of warrants,
convertible securities, options or stock appreciation rights of
the Company, whether vested or unvested, and all amounts paid
to holders of any debt of the Company. Aggregate Value shall
also include any indebtedness for money borrowed that is
assumed in connection with the Combination Transaction, as well
as any earnout or contingent payment. The earnout or contingent
payment will be valued at closing based on the basecase
financial plan put forth by the Company. In calculating
Aggregate Value, the value of any securities that are freely
tradeable in an established public market will be determined on
the basis of the average of the closing prices of such
securities for the five trading days ending on the third
trading day prior to the closing date, and the value of any
other securities will be determined based on the fair market
value of such securities on the closing date, as determined in
good faith and upon mutual agreement of VBW&C and the Company.
In the event that the Combination Transaction is the result of
a combination or series of transactions, the Aggregate Value of
all such transactions shall be determined and the applicable
fee paid on the first closing date of the series of
transactions. All present value calculations will utilize a
discount rate equal to the prime rate announced in THE WALL
STREET JOURNAL on the third business day preceding the closing
date.
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May 12, 1999
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All such amounts shall be payable by check or wire transfer of
immediately available funds to VBW&C. The amounts due VBW&C hereunder
shall not be reduced as a result of any obligation the Company may now
or hereafter incur to any other financial advisor, broker or finder.
In addition, in connection with any other private financing that is not
the subject of a separate engagement letter with VBW&C and which is
engaged in by the Company at any time within eighteen (18) months
following the completion of a private placement and termination of
VBW&C's engagement hereunder or within 3 months following a termination
by VBW&C where a private placement had not been completed, VBW&C will
receive a Fee determined in accordance with Section 2.A.ii with respect
to securities purchased by investors who invested in a private
placement completed during the term of VBW&C's engagement or with whom
VBW&C had contact during the term of VBW&C's engagement hereunder.
All of the above compensation shall be payable when due by check or
wire transfer of immediately available funds to VBW&C. The amounts due
VBW&C hereunder shall not be reduced as a result of any obligation the
Company may or hereafter incur to any other placement agent, broker or
finder.
B. WARRANTS. Upon each closing of the Offering, the Company will issue to
VBW&C warrants to purchase shares of Stock at the price of the shares
issued in the Offering with an aggregate strike price totaling 3.0% of
the Gross Proceeds for an offering of up to or equal to $10.0 million,
2.5% of the Gross Proceeds for an offering of greater than $10 and less
than or equal to $20.0 million, and 2.0% of the Gross Proceeds for an
offering of greater than $20 million received by the Company. Such
warrants will have a term of five (5) years, will have the same
registration rights as are granted with respect to the Stock sold in
the closing, will be exercisable in whole or in part for cash or by net
exercise. In addition, in connection with any other private financing
that is not the subject of a separate engagement letter with VBW&C and
which is engaged in by the Company at any time within eighteen (18)
months following the completion of a private placement and termination
of VBW&C's engagement hereunder or within 3 months following a
termination by VBW&C where a private placement had not been completed,
VBW&C will receive a Fee determined in accordance with Section 2.A.ii
with respect to securities purchased by investors who invested in a
private placement completed during the term of VBW&C's engagement or
with whom VBW&C had contact during the term of VBW&C's engagement
hereunder.
C. EXPENSES. Whether or not the Offering or any Combination Transaction is
consummated, the Company will reimburse VBW&C for all reasonable
out-of-pocket costs and expenses incurred by VBW&C in connection with
the services to be rendered by VBW&C hereunder, including without
limitation fees and expenses of legal counsel and other professional
advisors and travel expenses; provided, however, that in no event shall
such expenses exceed an aggregate of $20,000 without prior approval of
the Company. In addition, if VBW&C or any of its personnel becomes
involved in any judicial, administrative or other action, suit,
hearing, investigation or similar proceeding in connection with the
Offering or VBW&C's engagement hereunder other than a proceeding for
which reimbursement is provided under the indemnification provisions
hereof, the Company will reimburse VBW&C for all reasonable
out-of-pocket costs and expenses incurred in connection therewith, and
will also pay to VBW&C a per diem charge of $2,000 per person per day.
The foregoing costs, expenses and charges will be paid by the Company
to VBW&C promptly upon receipt by the Company of an invoice(s) from
VBW&C setting forth in reasonable detail the items requiring
reimbursement or payment.
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XXX.Xxx, Inc.
May 12, 1999
Page 5
3. OFFERING TO PROSPECTIVE INVESTORS; COMPLIANCE WITH SECURITIES LAWS.
The Company reserves the right to reject an investment from any prospective
investor. The Company will provide VBW&C with a list of the name and state of
residence of each person to whom an offer to participate in the Offering is to
be made by or on behalf of the Company, other than by VBW&C, prior to the making
of any such offer. Each of the Company and VBW&C agrees to conduct the Offering
in a manner intended to qualify for the exemption from the registration
requirements of Section 5 of the Securities Act of 1933, as amended (the
"Securities Act"), provided by Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder. Each of the Company and VBW&C agrees to
limit offers to sell, and solicitations of offers to buy, securities of the
Company in connection with the Offering to persons reasonably believed by it to
be "accredited investors" within the meaning of Rule 501(a) of the Securities
Act. Each of the Company and VBW&C agrees to conduct the Offering in a manner
intended to comply with the registration or qualification requirements, or
available exemptions therefrom, under applicable state "blue sky" laws and
applicable securities laws of other jurisdictions. The Company will not, for a
period of six months following the closing date of the Offering, offer for sale
or sell any securities unless, in the opinion of the Company's legal counsel,
concurred with by VBW&C or its counsel, such offering will not cause the
issuance of securities pursuant to the Offering to be subject to the
registration or qualification requirements of applicable federal securities
laws, state "blue sky" laws or the securities laws of any other jurisdiction (by
integration with any other offering of securities or otherwise). Other than as
previously disclosed to VBW&C in writing, the Company has not engaged in any
offer or sale of securities during the six months prior to the date of this
engagement letter.
4. DUE DILIGENCE.
The Company shall cooperate with VBW&C in connection with, and shall make
available to VBW&C such documents and other information as VBW&C shall
reasonably request to satisfy, its due diligence requirements.
5. CLOSING DOCUMENTS.
The Company will, at each closing of the Offering, furnish VBW&C with the same
favorable opinion of its counsel as is furnished to the investors participating
in such closing, together with a letter from such counsel that its opinion to
investors may be relied upon by VBW&C as if addressed to VBW&C. In addition, at
each closing the Company will provide VBW&C with the same certificates of the
officers of the Company as are furnished to the investors and such other
certification and documents as VBW&C or its counsel may reasonably request, in
form and substance satisfactory to VBW&C and its counsel.
6. INFORMATION PROVIDED TO VBW&C.
The Company will cooperate with and make available to VBW&C all information that
VBW&C reasonably requests in connection with the Offering, Combination
Transaction and VBW&C's engagement hereunder, including without limitation
information concerning the Company's business, assets, operations, financial
condition and plans. It is understood and agreed that in performing its services
hereunder, VBW&C will rely upon the accuracy and completeness of, and shall have
no duty to investigate or verify, public reports of the Company and information
provided to VBW&C, whether in written, oral or other form, by or on behalf of
the Company.
7. TERMINATION.
VBW&C's engagement hereunder shall continue from the date hereof until
terminated by either party, with or without cause, by written notice to the
other party of such termination. The termination of such engagement shall not
result in any liability or obligation of either party to the other. In addition,
in connection with any other private financing that is not the subject of a
separate engagement letter with VBW&C and which is engaged in
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XXX.Xxx, Inc.
May 12, 1999
Page 6
by the Company at any time within eighteen (18) months following the completion
of a private placement and termination of VBW&C's engagement hereunder or
within 3 months following a termination where a private placement had not been
completed, VBW&C will receive a Fee determined in accordance with Section
2.A.ii with respect to securities purchased by investors who invested in a
private placement completed during the term of VBW&C's engagement or with whom
VBW&C had contact during the term of VBW&C's engagement hereunder.
8. INDEMNIFICATION.
VBW&C and the Company hereby agree to the terms set forth in EXHIBIT A hereto,
which is expressly made a part of this engagement letter.
9. MISCELLANEOUS.
A. Notices. All notices or communications hereunder will be in writing
and mailed or delivered as follows:
If to VBW&C: Xxxxx Brown Xxxxxx & Company, LLC
Xxx Xxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx
If to the Company: XXX.Xxx, Inc.
00000 XX 00xx Xxxxxx
Xxxxx Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxx
B. SURVIVAL. Notwithstanding anything herein to the contrary, the
representations, warranties and covenants set forth herein will
remain in full force and effect regardless of any investigation made
by or on behalf of VBW&C, any investor or any other entity or
persons and will survive delivery of any payment for the Stock; and
the compensation, reimbursement, indemnification, contribution and
confidentiality provisions hereof shall survive any expiration or
termination of VBW&C's engagement hereunder.
C. GOVERNING LAW. This engagement letter, including the exhibits
hereto, shall be governed by and construed in accordance with the
internal laws of the State of Delaware applied to contracts made and
to be performed in California between California residents, without
regard to any conflict of laws provisions.
D. CAPTIONS. The captions in this engagement letter are used for
convenience only, and shall not be considered in interpreting this
engagement letter.
E. COUNTERPARTS. This engagement letter may be executed in
counterparts, all of which together shall constitute a binding
agreement between VBW&C and the Company.
F. DATE OF ENGAGEMENT LETTER. All references herein to the date of this
engagement letter shall be deemed to mean the date on which this
letter is executed by the Company as set forth below.
G. ENTIRE AGREEMENT. This engagement letter, together with the exhibits
hereto, contains the entire agreement between the Company and VBW&C
concerning the subject matter hereof and supersedes any prior
understanding or agreement between them with respect thereto. Any
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XXX.Xxx, Inc.
May 12, 1999
Page 7
waiver of any right or obligation hereunder must be in writing
signed by the party against whom enforcement is sought.
Please confirm your agreement to the foregoing by signing and
returning to us the enclosed duplicate copy of this letter.
Sincerely,
XXXXX BROWN XXXXXX & COMPANY, LLC
By: /s/ (ILLEGIBLE)
-----------------------
Date: 5/19/99
-----------------------
ACCEPTED AND AGREED:
XXX.Xxx, Inc.
By: /s/ R. May
--------------------------
Title: CEO
--------------------------
Date: 5/29/99
--------------------------
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XXX.Xxx, Inc.
May 12, 1999
Page 8
EXHIBIT A
This Exhibit A is entered into pursuant to, and is made a part of, the
attached engagement letter between VBW&C and the Company. Capitalized terms used
and not defined in this Exhibit A shall have the meanings assigned to them in
the engagement letter.
The Company agrees to indemnify and hold harmless VBW&C, its
affiliates, and each of their respective partners, directors, officers, agents,
consultants, employees, advisors, representatives and controlling persons (each
an "Indemnified Person") from and against any claims, losses, damages, expenses
or liabilities (collectively, "Losses"), including without limitation legal fees
(subject to the limitations set forth below), incurred in connection with
investigating, preparing, defending, paying, settling or compromising any
action, claim or proceeding (whether or not in connection with any pending or
threatened litigation in which any Indemnified Person is a named party) to which
any Indemnified Person may become subject and which is related to or arises out
of the engagement letter or the transactions contemplated thereby. The Company
will not, however, be responsible to an Indemnified Person with respect to any
Losses to the extent that a court of competent jurisdiction shall have
determined by a final judgment that such Losses resulted primarily from actions
taken or omitted to be taken by such Indemnified Person due to the Indemnified
Person's gross negligence or bad faith.
The Company will reimburse each Indemnified Person for Losses as such
Losses are incurred or paid, notwithstanding the absence of judicial
determination as to the proprietary or enforceability of the Company's
obligation to reimburse such Indemnified Person for such Losses and the
possibility that such payments might later be held by a court of competent
jurisdiction to have been improper. To the extent that any such interim
reimbursement is so held to have been improper, the Indemnified Person shall
promptly return it to the Company, together with interest, compounded annually,
equal to the prime rate announced from time to time by Bank of America, San
Francisco, California.
If the indemnification provided for herein should be, for any reason
whatsoever, unenforceable, unavailable or otherwise insufficient to hold each
Indemnified Person harmless, the Company shall pay to or on behalf of each
Indemnified Person contributions for Losses so that the Indemnified Person
ultimately bears only a portion of such Losses as is appropriate (i) to reflect
the relative benefits received by such Indemnified Person on the one hand and
the Company on the other hand in connection with the engagement letter and the
transactions contemplated thereby or (ii) if the allocation on the basis set
forth in clause (i) above is not permitted by applicable law, to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Indemnified Person and the Company as well as any other relevant
equitable considerations; provided, however, that in no event shall the
aggregate contribution of all Indemnified Persons to all Losses exceed the
amount of the fees actually received by VBW&C pursuant to the engagement letter.
The respective relative benefits received by all Indemnified Persons and the
Company shall be deemed to be in the same proportion as the aggregate fee paid
to VBW&C pursuant to the engagement letter bears to the total consideration paid
or contemplated to be paid or received by the Company or its stockholders, as
the case may be, in connection with the Combination Transaction or any similar
transaction referred to in the engagement letter, whether or not such
transaction is consummated. The relative fault of each Indemnified Person and
the Company shall be determined by reference to, among other things, whether the
actions or omissions to act were by such Indemnified Person or the Company, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action or omission to act. Notwithstanding the
foregoing, no Indemnified Person shall have any obligation to investigate or
verify the information provided to VBW&C in connection with the provision of its
financial advisory services under the engagement letter, and the Company shall
be solely liable for any Losses related to or arising out of the use of such
information that is inaccurate for any reason in connection with the services
provided under the engagement letter.
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XXX.Xxx, Inc.
May 12, 1999
Page 9
The Company also agrees that no Indemnified Person shall have any
liability to the Company or its affiliates, directors, officers, employees,
agents, consultants, advisors, representatives, control persons or stockholders,
directly or indirectly, related to or arising out of the engagement letter or
the transactions contemplated thereby, except Losses incurred by the Company to
the extent a court of competent jurisdiction shall have determined by a final
judgment that such losses resulted primarily from actions taken or omitted to be
taken by such Indemnified Person due to such Indemnified Person's gross
negligence or bad faith. In no event, regardless of the legal theory advanced,
shall any Indemnified Person be liable for any consequential, indirect,
incidental or special damages of any nature.
In case any proceeding shall be instituted involving any Indemnified
Person, such Indemnified Person shall promptly notify the Company in writing.
The failure of an Indemnified Person to provide such prompt notice shall not
reduce such Indemnified Person's right to indemnification or contribution
hereunder to the extent that such failure does not materially prejudice the
ability to defend such proceeding. Upon the request of VBW&C, the Company shall
retain counsel reasonably satisfactory to VBW&C to represent the Indemnified
Parties and any others the Company may designate in such proceeding and shall
pay the fees and disbursements of such counsel related to such proceeding. In
any such proceeding, any Indemnified Person shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Person, except to the extent that (i) the Company and
Indemnified Person shall have mutually agreed to the retention of such counsel
at the Company's expense or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company or any others the
Company may designate and one or more Indemnified Persons, and representation of
the Indemnified Persons and such other parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. In
any case in which one or more Indemnified Parties are entitled to separate
counsel due to such actual or potential differing interests, the Company shall
not be liable for the expenses of more than one separate counsel, and such
counsel shall be designated in writing by VBW&C. The Company shall not be liable
for any settlement of any proceeding effected without its written consent, which
consent will not be unreasonably withheld. The Company shall not, without the
prior written consent of the Indemnified Person, effect any settlement of, or
consent to the entry of any judgment in connection with, any pending or
threatened proceeding in respect of which such Indemnified Person is or could
have been a party and indemnity or contribution could have been sought hereunder
by such Indemnified Person, unless such settlement or judgment includes an
unconditional release of such Indemnified Person from all liability on claims
that are the subject matter of the proceeding.
The obligations of the Company referred to above shall be in addition
to any rights that any Indemnified Person may otherwise have and shall inure to
the benefit of and be binding upon any successors, assigns, heirs and personal
representatives of any Indemnified Person or the Company.
XXXXX BROWN XXXXXX & COMPANY, LLC
By: /s/ (ILLEGIBLE)
-------------------------
Date: 5/19/99
-----------------------
AGREED AND ACCEPTED:
XXX.Xxx, Inc.
By: /s/ R. May
----------------------
Title: CEO
----------------------
Date: 5/29/99
----------------------
