[LETTERHEAD]
CONFIDENTIAL
------------
March 24, 1998
Conductus, Inc.
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxxxxx, President and Chief Executive Officer
-------------------------------------------------------------
Dear Xxxxxxx:
This letter agreement sets forth the terms and conditions under which
Conductus, Inc. ("Conductus" or the "Company") has retained Sutro & Co.
Incorporated ("Sutro") to act as its exclusive financial advisor with respect
to the private placement (the "Financing") of equity or equity-related
securities (the "Securities") on a best efforts basis on terms satisfactory
to the Company and in compliance with Section 4(2) of the Securities Act of
1933 as amended, and other federal and state securities laws.
1. SERVICES TO BE RENDERED - Sutro will assist the Company in effecting the
Financing on the terms and conditions of this letter agreement. In this
regard, we propose to undertake certain activities including, if
appropriate, the following:
(a) Advising the Company as to the form and structure of the Financing;
(b) Assisting in the preparation of a Private Placement Memorandum (the
"Memorandum") describing the Company, the transaction and the
securities offered in connection therewith (the "Securities").
Responsibility for the contents of such Memorandum shall be solely
that of the Company, and the Memorandum shall not be made available
to or used in discussions with prospective investors (the "Party"
or "Parties") by Sutro until both the Memorandum and its use for
that purpose have been approved by the Company;
(c) Identifying, introducing to, and consulting as to strategy for
initiating discussions with, potential investors;
(d) Negotiating the sale of the Securities to investors;
(e) Assisting in the preparation of definitive documentation for the
Financing.
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2. RETAINER - Sutro shall be paid a nonrefundable retainer in the amount of
$25,000 which shall be deemed compensation hereunder and which shall be
credited against any fees payable pursuant to paragraph 3(a) upon
completion of the Financing.
3. COMPENSATION - Upon completion of the Financing, the Company agrees to
pay Sutro:
(a) A cash placement fee (the "Placement Fee") equal to the greater of
$200,000 or six percent (6%) of the Securities sold to new investors and
three percent (3%) of the Securities to sold to existing shareholders and
certain investors listed on Attachment A. The Placement Fee is paid upon
consummation of, and out of the proceeds of, the proposed Financing.
Notwithstanding the above, Sutro will not be due a Placement Fee on the
first $400,000 raised from Asset Management Company or on Securities sold
to current Directors of the Company. The Placement Fee will be payable
regardless of the size of the Financing and whether or not the Financing
occurs in one transaction or a series of transactions.
4. SUTRO'S EXPENSES - In addition to the foregoing fees, and regardless of
whether the Financing contemplated by this letter agreement is
consummated, the Company agrees, upon request from time to time, to
promptly reimburse Sutro for all reasonable out-of-pocket expenses up to
limit of $25,000, including, but not limited to, such costs as
(i) printing, telephone, fax, courier service, copying, accommodations,
travel, and direct computer expenses, secretarial overtime and fees and
(ii) disbursements of legal counsel, if required. In the event, the
above expenses exceed $25,000; the Company will approve expenses in
advance, which approval shall not be unreasonably withheld.
5. TERM AND TERMINATION RIGHTS - It is understood that the Company hereby
engages Sutro on an exclusive basis for investment banking services
relating to the Financing for a term (the "Term") commencing on the date
hereof and ending on September 30, 1998. The Term shall be automatically
renewed for successive 30 day periods unless either party gives written
notice to the other within 30 days of the expiration of the Term of its
desire that this engagement expire.
Notwithstanding the foregoing, either Sutro or the Company may terminate
its obligation hereunder without liability if, in the reasonable opinion
of either party, a change has occurred in the Company's financial
condition, results of operations, properties, business prospects, or the
composition of the Company's management or Board of Directors, which has
adversely effected the marketability of the Company. The remaining
provisions of this letter relating to the payment of expenses incurred
prior to the end of the Term and the Indemnification Agreement shall
survive any termination or expiration of the engagement.
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If during the Term, or within the six months following the expiration
thereof, (a) a financing transaction or transactions occur for the
benefit of the Company which involves a Party (i) identified to the
Company by Sutro or (ii) with whom the Company or Sutro had a discussion
regarding the Financing during the engagement and whether or not such
discussions were initiated by Sutro, or (b) the Company enters into a
definitive agreement with any such Party specified in (i) or (ii) above
which subsequently results in a financing transaction or transactions,
then the Company will be obligated to pay Sutro the fees and expenses of
Sections 3 and 4.
6. SALE TRANSACTION - If during the Term, the Company consummates a Sale
Transaction (as defined below) or reaches a definitive agreement which
subsequently results in a Sale Transaction, the Company agrees to pay or
cause to be paid to Sutro, a sale transaction fee (the "Sale Transaction
Fee") equal to the lesser of three percent (3%) of the Aggregate
Consideration (as defined below) or $750,000. The Sale Transaction Fee
will be payable in cash upon the closing of the Sale Transaction.
The term "Sale Transaction" shall be defined to include any merger,
consolidation, sale of assets, tender or exchange offer, leveraged
buy-out, formation of a joint venture or partnership, reorganization or
other business combination, pursuant to which the business of the
Company is combined with that of an acquiring entity or any entity
affiliated with one or more acquirers (the "Party" or "Parties"), where
the Party has at least 50% of the capital stock of the surviving company.
The term "Aggregate Consideration" shall be defined to include cash,
equity securities, the fair market value of revolving credit facilities,
straight and convertible debt instruments or other obligations, and any
other form of payment or assumption of obligations made to the Company
or its shareholders in connection with the Sale Transaction. If any of
the consideration to be received by the Company is contingent upon
future performance of the Company's operations (e.g. revenues or
income), the portion of the fee attributable to such consideration shall
be paid to Sutro at such time or times as the Company receives such
consideration.
7. DUE DILIGENCE - In connection with Xxxxx's engagement, the Company and
its advisors will furnish Sutro with all data, material, and information
concerning the Company (the "Information") which Sutro reasonably
requests, all of which will be accurate and complete in all material
respects, except with respect to the Company's financial statements
which shall present fairly the financial position of the Company, to the
best of the Company's knowledge, at the time furnished. The Company
recognizes and confirms that in advising it and in undertaking the
assignment, Sutro will be using and relying on the Information and
financial and other information furnished to Sutro by potential
interested Parties, without independent verification. Moreover, Sutro
will not perform any appraisal of the assets or businesses of the
Company or any Party. Sutro is hereby authorized to use and deliver the
Information, and any other data obtained by Sutro from reliable
published sources, to prospective interested Parties. In connection with
the engagement of Sutro hereunder, the Company has entered into a
separate letter agreement, dated as of the date hereof, providing for
the indemnification of Sutro and certain related parties by the Company
(the "Indemnification Agreement").
8. RIGHT OF FIRST REFUSAL - The Company will provide Sutro with the right
of first refusal for one year to serve as a managing underwriter on any
public or private financing (debt or equity), or act as an advisor on
any merger, business combination, recapitalization or sale of some or
all of the equity or assets of the Company (collectively, "Future
Services"). In the event the Company notifies Sutro of its intention to
pursue an activity that would enable Sutro to exercise its right of
first refusal to provide Future Services, Sutro shall notify the Company
of its election to provide such Future Services,
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including notification of the compensation and other terms to which
Xxxxx claims to be entitled, within twenty (20) days of written notice
by the Company. In the event Sutro is engaged by the Company to provide
such Future Services, Sutro will be compensated as is reasonable and
customary within the industry PROVIDED; HOWEVER, that the terms of the
Indemnification Agreement shall apply to any additional engagement.
9. CALIFORNIA LAW - This letter agreement and the related indemnification
agreement referred to above shall be deemed made in California. Such
agreements shall be governed by the laws of the state of California,
without regard to such state's rules concerning conflicts of laws.
Should suit be brought to enforce this letter agreement or the
Indemnification Agreement, the prevailing party shall be entitled to
recover from the other reimbursement for reasonable attorneys' fees. Any
dispute arising from the interpretation, validity or performance of this
letter agreement or any of its terms and provisions shall be submitted
to binding arbitration with the National Association of Securities
Dealers.
10. Upon execution of this engagement letter, Sutro and the Company will
exchange mutually acceptable Confidentiality Agreements.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to us the enclosed duplicate copy of this letter
agreement along with the retainer. We look forward to working with you and to
the successful conclusion of this assignment.
Very truly yours,
SUTRO & CO. INCORPORATED
By: /s/ Xxxx X. Xxxxxx
---------------------------------
Xxxx X. Xxxxxx
Managing Director
Accepted and Agreed to
as of the date written above:
CONDUCTUS, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxxx
President and Chief Executive Officer
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[LETTERHEAD]
Attachment A
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL
------------
March 24, 1998
Sutro & Co. Incorporated
00000 Xxxxx Xxxxxx Xxxx.
Suite 1500
Los Angeles, CA 90025
Gentlemen:
In consideration of Sutro's agreement to act on behalf of Conductus, Inc.
(the "Company"), in connection with the private placement, pursuant to the
engagement letter of even date herewith (the "Engagement Letter"), we hereby
agree to indemnify and hold harmless Sutro, its affiliates, the respective
partners, directors, officers, agents and employees of Sutro and its
affiliates and each person, if any, controlling Sutro or any of its
affiliates within the meaning of either Section 15 of the Securities Act of
1933 or Section 20 of the Securities Exchange Act of 1934, (Sutro and each
such other person are hereinafter referred to as an "Indemnified Person"),
from and against any such losses, claims, damages, expenses and liabilities
(or actions in respect thereof), joint or several, as they may be incurred
(including all legal fees and other expenses incurred in connection with
investigating, preparing, defending, paying, settling or compromising any
claim, action, suit, proceeding, loss, damage, expense or liability, whether
or not in connection with an action in which any Indemnified Person is a
named party) to which any of them may become subject (including in settlement
of any action, suit or proceeding, if such settlement is effected with the
Company's consent, which consent shall not be unreasonably withheld), and
which are related to or arise out of Sutro's engagement, the transaction
contemplated by such engagement or any Indemnified Person's role in
connection therewith, including, but not limited to, any losses, claims,
damages, expenses and liabilities (or actions in respect thereof) arising out
of, based upon or caused by any untrue statement or alleged untrue statement
of a material fact contained in the offering memorandum, or any amendment or
supplement thereto, or in any other document of the Company furnished to any
party or to Sutro in connection with the Financing Transaction, or arising out
of, based upon or caused by any omission or alleged omission to state in any
of them a material fact required to be stated therein or necessary to make
the statements in any of them not misleading. The Company will not, however,
be responsible under the foregoing provisions with respect to any loss,
claim, damage, expense or liability to the extent that a court having
jurisdiction shall have determined by a final judgment (not subject to
further appeal) that such loss, claim, damage, expense or liability resulted
from actions taken or omitted to be taken by Sutro due to its gross
negligence or willful misconduct. All capitalized terms not otherwise defined
herein have the same meaning as ascribed to them in the Engagement Letter,
unless the context indicates or requires otherwise.
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Promptly after receipt by an Indemnified Person of notice of the commencement
of any action, such Indemnified Person will, if a claim in respect thereof is
to be made against the Company, notify the Company of the commencement
thereof; but the omission to notify the Company will not relieve it from any
liability which it may have to any Indemnified Person otherwise than stated
in this Indemnification Agreement. In case any such action is brought against
any Indemnified Person, and it notifies the Company of the commencement
thereof, the Company will be entitled to participate therein and, to the
extent that it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Person; provided, however, that
if the defendants in any such action include both the Indemnified Person and
the Company and counsel for the Indemnified Person reasonably determines
there is a conflict of interest that cannot or should not be waived, the
Company shall not have the right to direct the defense of such action on
behalf of such Indemnified Person and such Indemnified Person shall have the
right to select separate counsel to defend such action on behalf of such
Indemnified Person. After notice from the Company to such Indemnified Person
of its election to assume the defense thereof and approval by such
Indemnified Person of counsel appointed to defend such action, the Company
will not be liable to such Indemnified Person for any legal or other
expenses, other than reasonable costs of investigation, incurred by such
Indemnified Person in connection with the defense thereof, unless: (i) the
Indemnified Person shall have employed separate counsel in accordance with
the proviso to the next preceding sentence (it being understood, however,
that in connection with such action the Company shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in
any one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances);
or (ii) the Company has authorized the employment of counsel for the
Indemnified Person at the expense of the Company. After any notice from the
Company to such Indemnified Person, the Company will not be liable for the
costs and expenses of any settlement of such action effected by such
Indemnified Person without the consent of the Company.
If the indemnity referred to above should be, for any reason whatsoever,
unenforceable, unavailable to or otherwise insufficient to hold harmless
Sutro and each Indemnified Person in connection with the transaction, each
Indemnified Person shall be entitled to receive from the Company, and the
Company shall pay, contributions for such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) so that each
Indemnified Person ultimately bears only a portion of such losses, claims,
damages, liabilities, expenses and actions as is appropriate (i) to reflect
the relative benefits received by Sutro on the one hand and the Company on
the other hand in connection with the transaction or (ii) if the allocation
on that basis 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 Sutro and the Company in connection with the actions or omissions to
act which resulted in such losses, claims, damages, liabilities or expenses,
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, claims, damages, liabilities, expenses and actions exceed the
amount of the fee actually received by Sutro pursuant to the engagement
letter. The respective relative benefits received by Xxxxx and the Company in
connection with the transaction shall be deemed to be in the same proportion
as the aggregate fee paid to Sutro in connection with the transaction bears
to the total consideration of the transaction. The relative fault of Sutro
and the Company shall be determined by reference to, among other things,
whether the actions or omissions to act were by Sutro or the Company and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action or omission to act.
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The indemnity, contribution and expense payment obligations of the Company
referred to above shall be in addition to any liability which the Company may
otherwise have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of any Indemnified
Person and the Company. The Company also agrees that the Indemnified Persons
shall have no liability to the Company or any person asserting claims on
behalf of or in right of the Company for or in connection with any matter
referred to in this letter except to the extent that any such liability
results from the gross negligence or willful misconduct of Sutro in
performing the services that are the subject of this letter and in no event
shall such liability exceed the amount of fees actually received by Sutro
hereunder.
Very truly yours,
CONDUCTUS, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxxx
President and Chief Executive Officer
Accepted and Agreed to
as of the date written above:
SUTRO & CO. INCORPORATED
By: /s/ Xxxx X. Xxxxxx
-------------------------------
Xxxx X. Xxxxxx
Managing Director
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