EXHIBIT 10.41
ENGAGEMENT AGREEMENT
LIFERATE SYSTEMS, INC.
(the "COMPANY")
This Engagement Agreement (the "Agreement") confirms the COMPANY's retention of
Manchester Financial Group, Inc. ("MFGI"), for a minimum period of six months
from the date hereof, as its exclusive agent to assist it with a merger, sale,
exchange, combination, or any similar transaction related to the COMPANY, and as
its non-exclusive agent with respect to financing transactions. After six
months, MFGI will proceed on a month-to-month basis until the COMPANY provides
MFGI with written 30-day notice of termination of this Agreement.
Notwithstanding the foregoing, this Agreement will terminate upon completion of
a Transaction, as defined below.
1. MFGI'S PERFORMANCE. Throughout the course of its engagement, MFGI will
follow all Process Guidelines set forth in Exhibit A.
2. TYPES OF TRANSACTIONS COVERED. Transactions covered under this Agreement
(individually, a "Transaction" and collectively, "Transactions") include
any financing, sale, exchange or other disposition of all or a material
(more than 25 percent) portion of the COMPANY, whether accomplished by a
sale of assets or stock by or through the COMPANY and/or its shareholders
(in a single transaction or one or more series of related transactions),
and shall include without limitation any merger, tender or exchange offer,
joint venture, equity investment, or recapitalization, or any other
transaction, the effect of which is to change the control or ownership of
the COMPANY. If a Transaction is completed during the term of this
Agreement, MFGI shall be entitled to its Accomplishment Fee provided
herein.
3. EQUITABLE AGENCY PROTECTION PERIOD. If within a period of twelve (12)
months following termination of this Agreement, the COMPANY or its
shareholders enter into an agreement in principle to consummate a
Transaction with an MFGI Prospect, MFGI Accomplishment Fee shall be due
and payable in full upon closing of such Transaction pursuant to section 6
below. For purposes of record keeping and monitoring only, within
approximately 30 days of the expiration of this Agreement, MFGI will
provide the COMPANY with a protective list of MFGI Prospects.
4. MFGI PROSPECT DEFINED. For purposes of this Agreement, "MFGI Prospect"
includes any party or parties: (i) whom MFGI contacts on the COMPANY's
behalf hereunder; (ii) with whom the COMPANY or its shareholders have any
discussions relative to a possible Transaction during the term of this
Agreement or the one-year period prior to the date of the Agreement; or
(iii) who participate in a Transaction wherein the services of MFGI are
utilized by the COMPANY or its shareholders. MFGI Prospects also include
companies and individuals affiliated with any party
described in (i), (ii), (iii) above. The COMPANY agrees to provide to MFGI
the names of all parties who have contacted the COMPANY or, to the
COMPANY's knowledge, any of its shareholders have contacted relative to a
possible Transaction in the one-year term prior to the date of this
Agreement, or during the period of this Agreement for the purpose of
pursuing a Transaction.
5. ACCOMPLISHMENT FEE AND TOTAL CONSIDERATION. The Accomplishment Fee payable
by COMPANY to MFGI at closing of a Transaction shall be calculated as
provided on Exhibit B. The retainer paid pursuant to Section 7 shall be
credited against the Accomplishment Fee. MFGI's Accomplishment Fee shall
be based upon the total consideration ("Total Consideration") provided,
paid or payable directly or indirectly to the COMPANY and/or its
shareholders (including holders of options or other stock rights), in
connection with, or in anticipation of, the Transaction, regardless of how
allocated or the form of consideration, and shall specifically include
without limitation:
(e) Cash paid and securities transferred to the COMPANY and/or its
shareholders at closing;
(f) In the case of a sale of stock by the COMPANY'S shareholders,
all long-term debt and capital lease obligations of the
COMPANY including the current portions thereof. In the case of
a sale of assets, all liabilities of the COMPANY, other than
trade payables and accrued operating expenses, which are
assumed by the buyer;
(g) In the case of a Joint Venture, the COMPANY's pro rata equity
interest in the enterprise value of the joint Venture
calculated as the sum of (i) the Joint Venture's debt and (ii)
the fair market value of the partners' capital contributions
to the Joint Venture. For purposes of this section, "Joint
Venture" shall mean any joint undertaking between the COMPANY
and a MFGI Prospect involving the pooling of assets of efforts
for a shared economic goal;
(h) In the case of a Reverse Merger in which the stockholders of
the COMPANY continue to own shares of the COMPANY, the product
of the fully diluted shares held by those shareholders of the
COMPANY who were shareholders of the COMPANY at the time of
the Transaction and the average closing price of those shares
during the four weeks (20 trading days) immediately following
the closing of the Transaction. For purposes of this section,
"Reverse Merger" shall mean the statutory combination of one
or more entities with and into the COMPANY, with the surviving
entity being the COMPANY;
(i) The net present value (applying a discount rate equal to the
then prevailing prime rate as quoted in THE WALL STREET
JOURNAL) of scheduled payments provided for in any leases by
the purchaser of assets owned and retained by the COMPANY, its
shareholders, or any affiliates thereof;
(j) All deferred installments of the purchase price including
promissory notes;
(k) Any portion of the Total Consideration held in escrow
subsequent to closing;
(l) All non-compete compensation and the like;
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(m) Future payments that are contingent on the future earning or
operations of the COMPANY, with such payments included in
Total Consideration based on the net present value of such
payment stream by application of a 15 percent per annum
discount rate;
(n) The value of any retained or acquired interest in the COMPANY
or its successor, or the right to acquire such interest; and
(o) Any extraordinary compensation to be paid to COMPANY and/or
its shareholders or affiliates thereof for services rendered
subsequent to closing.
6. PAYMENT OF ACCOMPLISHMENT FEE. Except as otherwise provided below, MFGI's
Accomplishment Fee shall be paid in cash at closing. In the event that all
or a portion of the Total Consideration includes capital stock, securities
or other property (other than installment notes), the portion of MFGI's
Accomplishment Fee attributable thereto, shall be payable at closing in
cash, based on the fair market value of such non-cash items as determined
by mutual agreement of the parties. In the event the parties are unable to
agree on the fair market value, MFGI shall have the option to receive
payment in like kind, or to cause an independent appraiser acceptable to
the COMPANY to determine fair market value, the expense of which appraisal
shall be shared equally by the parties. In the event the Transaction is a
Reverse Merger, payment of the estimated Accomplishment Fee (based on the
closing price for those shares on the date of closing), shall be made at
closing, with a final adjustment to occur 30 days following the closing of
the Transaction.
7. RETAINERS AND EXPENSES. The COMPANY shall pay MFGI a retainer, monthly in
advance, of $10,000 per month for the term of this Agreement. The COMPANY
shall also reimburse MFGI monthly for all reasonable out-of-pocket
expenses incurred on behalf of the COMPANY within 30 days of request by
MFGI. MFGI shall provide detailed monthly itemized summaries of expenses
and supporting documents for which reimbursement is requested by MFGI. The
COMPANY agrees that any unpaid payment (or portion thereof) of any fee,
expense, retainer, or other amount payable to MFGI shall bear interest
payable at the highest rate of interest permissible by law, but not to
exceed 12 percent per annum, from the date that such payment is due
hereunder to the date that said payment is paid in full.
8. INDEMNIFICATION. The COMPANY agrees not to assert claims against or
recover from MFGI (which term, for purposes of this paragraph, includes
its affiliates, directors, officers, shareholders and employees) for
losses, claims, damages or liability to the COMPANY or its shareholders,
arising out of or in connection with this engagement or performance by
MFGI of services hereunder, and to indemnify and hold MFGI harmless
against and from all losses, claims, damages or liabilities, and all
actions, claims, proceedings and investigations in respect thereof
(collectively, "Losses"), arising out of or in connection with this
engagement or the performance by MFGI of services hereunder, and to
reimburse MFGI for all reasonable legal and other out-of-pocket expenses
as incurred by MFGI in connection with investigating, preparing or
defending any such Losses, whether or not MFGI is names as a party
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thereto; provided, however, that the COMPANY shall not be liable to the
extent such Losses are finally determined by arbitration as herein
provided to have arisen out of MFGI gross negligence or willful
misconduct. If such indemnification is insufficient or unavailable, the
COMPANY agrees to make contributions to any Losses paid or payable such
that MFGI will not be liable for more than the Accomplishment Fee paid to
MFGI.
9. RELIANCE AND CONFIDENTIALITY. In performing its services hereunder, MFGI
shall be entitled to rely without investigation upon all information that
is available from public sources as well as all other information supplied
to it by or on behalf of the COMPANY or its advisors and shall not in any
respect be responsible for the accuracy or completeness of, or have any
obligation to verify, the same or to conduct any appraisal of assets. To
the extent consistent with legal requirements, all information given to
MFGI by the COMPANY, unless publicly available or otherwise available to
MFGI without restriction or breach of any CONFIDENTIALITY AGREEMENT, will
be held by MFGI in confidence and will not be disclosed to anyone other
than MFGI and MFGI's advisors without the COMPANY's prior approval or used
for any purpose other than those referred to in this Agreement.
10. ARBITRATION. The COMPANY and MFGI both agree that any dispute between them
in any way relating to this Agreement shall be determined and settled by
binding arbitration in accordance with the rules of the American
Arbitration Association by a single arbitrator. All costs associated with
any such disputes (including both parties' legal fees) shall be allocated
between the parties by the arbitrators. All decisions and awards of the
arbitrators shall be final and binding on both parties, and may be
enforced by any court with jurisdiction.
11. CONFLICT OF INTEREST. The COMPANY hereby acknowledges that the Chairman of
its Board of Directors is Chairman and Chief Executive Officer of
Manchester Companies, Inc. which is the majority shareholder of MFGI. The
COMPANY further acknowledges that it has consulted with its legal counsel
regarding this potential conflict of interest.
12. REPRESENTATIONS. The COMPANY will in good faith use its best efforts to
conduct any offer, offer for sale, and sale of securities in a manner
intended to be in compliance with federal and state securities laws, rules
and regulations. It is expressly intended that MFGI shall not be acting as
a broker-dealer but is assisting the COMPANY in the management of its
business affairs. MFGI is not a member of the National Association of
Securities Dealers, Inc. and is not licensed as a broker-dealer in any
state.
13. MISCELLANEOUS. This Agreement is transferable and assignable by MFGI to
any corporation under common control and ownership with MFGI. Further,
MFGI shall have the right to assign all or any part of its obligations
under this Agreement with the consent of the COMPANY, such consent not to
be unreasonably withheld, in the
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event MFGI determines that part of the functions to be performed under
this Agreement are required to be performed by a broker-dealer registered
pursuant to federal or state law. Except as set forth in the preceding
sentences, MFGI may not transfer or assign this Agreement. All questions
arising hereunder shall be determined according to Minnesota Law.
Facsimile copies of the Agreement signed in counterpart shall be
considered for all purposes, including delivery, as originals. Any term or
provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. The provisions of this paragraph
and Paragraphs 3, 6, 8, 9 and 10 will survive the termination of this
Agreement.
Executed and agreed to this 20th day of August, 1998 by:
LIFERATE SYSTEMS, INC. MANCHESTER FINANCIAL GROUP, INC.
By: /s/ Xxxxxx X. Xxxxx By: /s/ Xxxxxxx Wittz
--------------------------------- ---------------------------------
Its: Board of Directors Its: Managing Director
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EXHIBIT A
to
Engagement Agreement
MANCHESTER FINANCIAL GROUP, INC.
and
LIFERATE SYSTEMS, INC.
PROCESS GUIDELINES
I. ALL SERVICES:
(a) Maintain strict confidentiality of all financial and other
proprietary information, data, and materials relating to the COMPANY
except as provided below.
(b) Familiarize itself with the business, operations, physical assets,
financial condition and prospects of the COMPANY.
(c) Not share with any MFGI Prospect any confidential information
relating to the COMPANY unless the MFGI Prospect has executed a
CONFIDENTIALITY AGREEMENT in a form pre-approved by the COMPANY.
(d) Prepare an EXECUTIVE SUMMARY for the COMPANY, and other analyses and
data as may be reasonably requested by MFGI Prospects, the final
drafts of which will be presented to the COMPANY for its approval;
provided, however, that the EXECUTIVE SUMMARY prepared by MFGI is
the sole property of MFGI and may not be reproduced or distributed
to parties other than the COMPANY's shareholder, officers,
directors, employees and representatives without Agents prior
written consent.
(e) Not make any representations regarding the COMPANY or provide any
written information regarding the COMPANY, with the exception of
documents filed with the Securities and Exchange Commission, without
the prior approval of the COMPANY.
II. SALE SERVICES:
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(a) Assist the COMPANY in developing a list of potential buyers whom is
believed in good faith to be financially qualified and potentially
interested in participating in a Transaction.
(b) Contact MFGI Prospects on the COMPANY's behalf and, as appropriate,
arrange for and orchestrate meetings between MFGI Prospects and the
COMPANY.
(c) Work in the capacity outlined above with the COMPANY's legal
counsel, accountants, and other advisors as reasonably requested and
directed by the COMPANY.
(d) Present to the COMPANY all proposals from MFGI Prospects and make
recommendations as to the COMPANY's appropriate negotiating strategy
and course of conduct.
(e) Assist in all negotiations and in all document review as reasonably
requested and directed by the COMPANY.
(f) THE COMPANY OR ITS SHAREHOLDERS HAVE THE RIGHT TO REJECT ANY AND ALL
OFFERS SUBMITTED TO MFGI.
III. FINANCING SERVICES:
(a) Assist the COMPANY in identifying prospective institutional
lenders/investors.
(b) Contact institutional lenders/investors on the COMPANY's behalf and,
as appropriate, arrange for and orchestrate meetings between the
COMPANY and the institutional lenders/investors.
(c) Work with the COMPANY's legal counsel, accountants, and other
advisors as reasonable requested and directed by the COMPANY.
(d) Present to the COMPANY all proposals from institutional
lenders/investors and make recommendations as to the COMPANY's
appropriate negotiating strategies and course of conduct.
(e) Assist in negotiations, due diligence and document review as
reasonable directed and requested by the COMPANY.
(f) THE COMPANY OR ITS SHAREHOLDERS HAVE THE RIGHT TO REJECT ANY AND ALL
PROPOSAL SUBMITTED TO MFGI.
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EXHIBIT B
to
ENGAGEMENT AGREEMENT
MANCHESTER FINANCIAL GROUP, INC.
and
LIFERATE SYSTEMS, INC.
FEE STRUCTURE
If a Transaction, other than a financing, is completed the following fee shall
be paid to MFGI.
5 percent (5%) of the first $2 million of Total Consideration.
4 percent (4%) of the second $2 million of Total Consideration.
3 percent (3%) of the third $2 million of Total Consideration.
2 percent (2%) of the fourth $2 million of Total Consideration.
1 percent (1%) of Total Consideration over $8 million.
In the event the Transaction is a sale to Medtronic, Inc. pursuant to the
existing contractual rights of first offer or first refusal, MFGI shall be paid
an Accomplishment Fee equal to three percent (3%) of the Total Consideration.
FINANCING ACCOMPLISHMENT FEE
If the Transaction involves debt or equity financing the following introduction
fee shall be paid to MFGI:
(i) Two percent (2%) of all senior debt.
(ii) Five percent (5%) of all junior debt.
(iii) Eight percent (8%) of all equity or equity equivalent capital.
