October 1, 1998
CONFIDENTIAL
SkyLynx Communications, Inc.
000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx 00000
Attention: Xxxx Xxxxxxx, Chief Executive Officer
Ladies and Gentlemen:
Xxxxxx Xxxxxx Xxxxxxxx & Co., Inc., ("GKM") is pleased to have been
selected to serve as the investment banker for SkyLynx Communications, Inc.
and its affiliates (the "Company"). This letter agreement (the "Agreement")
confirms the terms of our engagement.
GKM intends to work toward a firm commitment underwriting to effect
a public offering of common stock of the Company (the "Securities"). GKM's
intention is subject to satisfactory completion of its due diligence, the
Company reporting financial results consistent with the estimates the Company
has provided GKM, formal approval of GKM's commitment committee, no adverse
change in the condition (financial or otherwise) of the Company or in general
economic or financial market conditions, or in the price of the Company's
publicly traded common stock, execution of an underwriting agreement (the
"Underwriting Agreement") satisfactory to GKM and agreement on the price and
terms of the offering.
In order that GKM may work toward a firm commitment underwriting as
described herein, the Company will use its best efforts to register the
Securities under the Securities Act of 1933 and to register or qualify the
Securities under the various state Blue Sky laws.
In connection herewith, the Company shall pay to GKM a non-
refundable retainer fee of $25,000 which is payable on the date of this
agreement. This fee will be deducted from any expense allowance to which GKM
is entitled.
With regard to the terms of the offering, it is GKM's present
intention, subject to the conditions listed above, to pursue an offering of
approximately $25,000,000 to $40,000,000 in common stock. This amount does
not include an underwriter's over-allotment option (which may be exercised on
more than one occasion) of 15% of the securities offered, which option will be
granted to GKM by the Company and will remain open for a period of 45 days.
The underwriting commission for the offering will be 7% of the price of the
Securities to the public. The actual pricing of the Securities to be sold in
the public offering will be determined by GKM and the Company at the time of
the offering, subject to then existing market and other conditions.
Except as otherwise set forth in this Agreement, the Company will be
responsible for all of the expenses of the offering of the Securities
(regardless of whether or not the offering is consummated), including the
following:
a) the fees and disbursements of the Company's counsel and
independent accountants;
b) the cost of printing the registration statement (and any
amendments or supplements thereto), prospectuses (including
preliminary and final prospectuses, and any amendments or
supplements thereto, and any term sheets as contemplated by SEC
Rule 434), underwriting documents (including the Underwriting
Agreement) and Blue Sky memoranda;
c) the filing fees paid to the Securities and Exchange Commission,
the National Association of Securities Dealers (the "NASD"),
state Blue Sky commissioners;
d) the fees and disbursements of underwriter's counsel in
connection with state Blue Sky filings and filings with the
NASD;
e) the cost of listing the Securities on Nasdaq;
f) any costs associated with settlement in same day funds, if
desired by the Company;
g) any costs associated with preparing certificates for the
Securities, and the fees of any transfer agent or registrar;
and
h) any travel and other out-of-pocket expenses of Company
personnel.
In addition, the Company agrees to pay GKM an expense allowance
equal to 1% of the gross proceeds of the Offering on a non-accountable basis.
It is understood that GKM may enter into other agreements with brokers/dealers
who shall act as co-underwriters and/or dealers in connection with the
offering of the Securities.
The Underwriting Agreement shall provide that the Company and each
of its present and future subsidiaries and affiliates will grant to GKM a
right of first refusal for the period of two years after the closing date of
the offering to act as lead-managing underwriter or lead-managing placement
agent, as the case may be, for any public or private sale of any equity
securities to be made by the Company or any of its present or future
subsidiaries or affiliates; provided, however, that the material terms and
conditions of GKM's retention are competitive with (a) the material terms and
conditions customary for similar public or private offerings, as applicable,
for similar companies in Company's sector or (b) if more favorable to the
Company than the terms described in (a), the material terms and conditions
contained in a bona fide proposal for a public or private offering from
another prospective underwriter of which GKM shall have been informed. With
respect to each sale, the Company agrees that (i) GKM's name shall appear on
the cover of each prospectus at the top left of any list of co-managers and
(ii) GKM shall have the right to "run the books" for the underwriters of such
sale.
The Underwriting Agreement shall provide that the Company and each
of its present and future subsidiaries and controlled affiliates will grant to
GKM a right of first refusal for the period of two years after the closing
date of the offering to act as underwriter or placement agent, as the case may
be, for any public or private sale of any debt securities to be made by the
Company or any of its present or future subsidiaries or controlled affiliates;
provided, however, that, subject to the last sentence of this paragraph, the
material terms and conditions of GKM's retention are competitive with (a) the
material terms and conditions customary for similar public or private
offerings, as applicable, for similar companies in the Company's sector or (b)
if more favorable to the Company than the terms described in (a), the material
terms and conditions contained in a bona fide proposal for a public or private
offering from another prospective underwriter of which GKM shall have been
informed. To the extent that GKM exercises the right of first refusal
contained in this paragraph, the Company agrees that GKM shall receive a
minimum of 20% of the gross underwriting or placement fees, including any non-
accountable expenses, associated with any such sale of debt securities and
that (i) GKM's name shall appear on the cover of each prospectus at the top
left of any list of co-managers and (ii) GKM shall have the right to "run the
books" for the underwriters of such sale.
If a business combination involving the Company or any of its
subsidiaries, including, without limitation, a merger or consolidation, a sale
or purchase of assets of or formation of a joint venture, or an exchange or
tender offer involving outstanding securities (a "Business Combination")
occurs during the term of this Agreement, as amended or extended, or during
the year after the expiration of such term, with any person identified to the
Company by GKM or to whom GKM rendered any services under this Agreement, then
the Company shall pay GKM an amount equal to 2% of the Total Consideration (as
hereinafter defined) of the Business Combination. If the Company or any of
its subsidiaries sells, or enters into any agreement to sell, in a public
offering or private placement, any of its securities ("Sale") during the term
of this Agreement, as amended or extended, or during the year after the
expiration of such term, to any person identified to the Company by GKM or to
whom GKM rendered any services under this Agreement, then the Company shall
pay GKM an amount equal to 7% of the Total Consideration.
For purposes of the preceding paragraph, "Total Consideration" is
defined as the total value of all property (real or personal), cash,
securities and other benefits, directly or indirectly, received or receivable
by the Company or its officers, directors, subsidiaries, affiliates or
shareholders. Total Consideration shall include, without limitation, the
aggregate of all amounts payable pursuant to (i) any warrants, options, stock
appreciation rights, convertible securities, stock purchase rights, whether or
not vested, (ii) covenants not to compete, earn-out or contingent payment
rights, or (iii) any other agreements, arrangements or understandings (other
than bona fide employment, consulting or similar agreements, arrangements or
understandings). Property shall be valued at the fair market value thereof as
agreed by the parties hereto or, if the parties hereto are unable to so agree,
as determined by a mutually acceptable independent appraiser, the cost of
which shall be borne equally by the Company and GKM. Securities which are
publicly traded shall be valued at the closing price of such securities as
reported on a national exchange or the Nasdaq National Market if so listed or
quoted or, if not so listed or quoted, the average of the closing ask prices
as reported by Nasdaq, in either event for the last day prior to the closing
date of such Sale or Business Combination; provided, however, that if the
securities are not so listed or quoted, the securities shall be valued in the
same manner as property. All debt instruments and other evidences of
indebtedness and all obligations referred to in clauses (ii) or (iii) above
shall be valued at the aggregate amount payable thereunder, irrespective of
whether such payments are absolute or contingent, and irrespective of the
period or uncertainty of payment, the rate of interest, if any, or the
contingent nature thereof. All amounts payable pursuant to the preceding
paragraph are due and payable to GKM, in cash or by certified check, at the
closing of such Business Combination or Sale.
The Company agrees to the indemnification and other agreements set
forth in the Indemnification Agreement attached hereto, the provisions of
which are incorporated herein by reference.
The Company shall not, and shall cause each of its executive
officers, directors and each beneficial owner of more than 5% of the
outstanding shares of Common Stock to enter into agreements to the effect that
they shall not, for a period of 180 days after the commencement of the public
offering of the Shares, without the prior written consent of GKM, offer to
sell, sell, contract to sell, grant any option to sell, or otherwise dispose
of, or require the Company to file with the Commission a registration
statement under the Act to register, any shares of Common Stock or securities
convertible into or exchangeable for Common Stock or warrants or other rights
to acquire shares of Common Stock of which the undersigned is now, or may in
the future become, the beneficial owner (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended), other than pursuant to
employee stock option plans or in connection with other employee incentive
compensation arrangements.
GKM's engagement hereunder may be terminated by either the Company
or GKM at any time after one year from the date of this Agreement, upon
written notice to that effect to the other party, it being understood that the
expense, indemnification, reimbursement and contribution obligations of the
Company shall survive any such termination. If GKM's services are terminated
without just Cause (as defined herein), the Company shall pay to GKM (a) an
aggregate fee of $50,000 ("Break-up Fee") (b) all reasonable out-of-pocket
expenses incurred by GKM in connection with its services to be rendered
hereunder, including all reasonable fees, disbursements and other charges of
GKM's counsel and (c) all travel and other out-of-pocket expenses incurred by
GKM (including fees and expenses of counsel) prior to, or as a result of, the
determination not to proceed or breach of the said provisions hereof. For
purposes hereof, "Cause" shall mean gross negligence, willful malfeasance,
illegal actions, repeated failure (after notice) by GKM to discharge its
obligations hereunder, or other acts or omissions of similar gravity.
While this Agreement sets forth the present intentions of the
Company and GKM with respect to the proposed offering, except for the
obligations of the Company set forth in the next sentence, the obligations of
the Company with regard to Business Combinations and the provisions relating
to the payment of fees and expenses and indemnification, this Agreement does
not constitute a legally binding agreement, and neither the Company nor GKM
shall be legally bound until such time as a definitive Underwriting Agreement
satisfactory to the parties is entered into. In the event the offering is not
consummated due to any action or inaction of the Company or if GKM declines to
enter into the Underwriting Agreement on the basis of a material adverse
change in market conditions or in the business or financial results, financial
condition or business prospects of the Company, the Company will reimburse
GKM, upon request, for all of its out-of-pocket expenses incurred in
connection with the public offering, including the fees, disbursements and
other charges of its legal counsel.
The Company represents and warrants to GKM that the consummation of
the transactions contemplated hereby will not, as of the effective date of the
offering of the Securities, result in a material breach of any of the terms,
provisions or conditions of any agreement or understanding to which it is, or
may become prior to such date, a party. The Company further agrees that, as
of such effective date, there will be no legal basis for any claims or
payments for services by any party (engaged by it) in the nature of a finder's
fee with respect to the proposed offering of the Securities. During the term
of this Agreement, the Company agrees not to enter into any agreement with, or
engage, any other underwriter relating to a possible public offering of
securities of the Company or any of its subsidiaries, or to effect any such
transaction.
This Agreement (including the attached Indemnification Agreement)
sets forth the entire agreement between the parties, supersedes and merges all
prior written or oral agreements with respect to the subject matter hereof,
may only be amended in writing and shall be governed by the laws of the State
of New York applicable to agreements made and to be performed entirely within
such State. Each party hereto hereby irrevocably submits for purposes of any
action arising from this Agreement brought by the other party hereto to the
jurisdiction of the courts of New York State located in the Borough of
Manhattan and the U.S. District Court for the Southern District of New York.
The Company (for itself, anyone claiming through it or in its name, and on
behalf of its equity holders) and GKM each hereby irrevocably waive any right
they may have to a trial by jury in respect of any claim based upon or arising
out of this Agreement or the transactions contemplated hereby. This Agreement
may not be assigned by either party without the prior written consent of the
other party.
Please confirm that the foregoing correctly sets forth our
understanding by signing and returning to GKM the enclosed duplicate copy of
this letter.
Very truly yours,
XXXXXX XXXXXX XXXXXXXX & CO., INC.
By:____________________________________
Name:
Title:
Accepted and Agreed to as of
the date first written above
SKYLYNX COMMUNICATIONS, INC.
By:_________________________
Name:
Title:
