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Xxxxxxxxxx
PERSONAL AND CONFIDENTIAL
November 18, 1996
CrossComm Corporation
000 Xxxxxx Xxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Attention: Xx. Xxxxxxx Xxxxxxxxx
Chairman
Dear Tad:
We are pleased to have been selected to assist you in the sale you are
contemplating. This letter will set forth the understanding and agreement
between Xxxxxxxxxx Securities ("us" or "Montgomery") and CrossComm Corporation
("you" or the "Company").
You are engaging us as your exclusive representative and financial adviser
for the purpose of identifying opportunities for maximizing shareholder value,
which may include a sale of the Company or one of its four Divisions,
Enterprise Products, Carrier Products, Services and Ethernet Switches (each, a
"Division"); advising you concerning such opportunities; and if requested by
you, participating on your behalf in negotiations resulting from these
opportunities. For purposes of this agreement, the sale of the Company or a
Division shall mean any transaction or related series or combination of
transactions whereby, directly or indirectly, control of all or substantially
all of the business or assets of the Company or a Division is acquired by a
third party in a sale or exchange of stock, merger or consolidation, sale of
assets or other similar transaction. The sale of a Division shall include the
distribution or other transfer of the business or assets of the Division to the
shareholders of the Company, by a dividend (i.e. spin-off) or otherwise.
We will render to you whatever services are mutually agreeable in order to
assist you in connection with these opportunities. In particular, we will assist
you in the preparation of a descriptive memorandum concerning the Company or any
Division with the understanding that you will be solely responsible for the
contents of the memorandum and the memorandum shall not be made available to
or used in discussions with prospective purchasers of the Company or a Division
or their representatives by us until both the memorandum and its use for that
purpose have
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been approved by you. We will develop, update from time to time, and review
with you on an on-going basis a list of parties which might be interested in
acquiring the Company or a Division and contact only parties which are approved
by you. We will consult with and advise you concerning opportunities for the
sale of the Company or a Division and, if requested by you, participate on your
behalf in negotiations concerning the sale. We will also consult with you
regarding the financial structure of any transaction. Further, we will develop
and administer a "bidding" process if we both agree to such a process, will
consult with you with respect to both competing bids, if any, and the financial,
strategic and tactical aspects of the transaction as described in the agreements
effecting the transaction and will assist you in the administration of the
closing of any transaction.
Finally, we will, if requested by you, render to the Company's board of
directors our opinion with respect to the fairness from a financial point of
view to the shareholders of the Company of the consideration to be received by
such shareholders in a sale of the Company (or to the Company of the
consideration to be received by the Company in a sale of a Division or
Divisions) as of the date of the opinion (any such opinions being referred to
herein as the "Opinion"). We will render the Opinion as of the date of the
meeting of your board of directors to finally approve the sale of the Company
(or Division, if applicable) and, if we mutually agree, as of the date of the
mailing of the proxy statement and/or prospectus soliciting the approval of your
shareholders and the date of the consummation of the sale of the Company. If
this agreement expires or is terminated and a sale of the Company or all of the
Divisions has not been consummated, we will provide the Company with a written
report covering a summary of processes undertaken by us, potential buyers
contacted, and the results of those efforts.
In order for us to advise you effectively, it is necessary that you make
available to us all information which we reasonably request in connection with
the performance of our services, including information concerning the business,
assets, operations or financial condition of the Company and the Divisions. You
agree that we may rely upon the accuracy and completeness of such information
without independent verification and are authorized to make appropriate use of
such information.
In addition, you agree to furnish to us the names of all parties with which
you have had discussions or contacts concerning an acquisition of the Company or
a Division within one year before or during the term of this engagement.
Further, you agree to conduct any transaction in a manner which will comply
in all respects with the applicable provisions of the Securities Act of 1933,
the Securities Exchange Act of 1934 and all other applicable federal and state
statutes, rules and regulations and also agree to be responsible for the
completeness, accuracy and format of all information furnished to any
prospective purchaser and furnish to a prospective
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purchaser any appropriate information which may be required by it in order to
make a purchase decision.
The term of our engagement will extend for one year from the date hereof;
provided, however, that subject to the provisions regarding fees, either party
may terminate our engagement at any time on 10 days prior written notice.
As compensation for our services hereunder, you will pay us a retainer fee
of $50,000 upon execution of this letter agreement. This retainer fee will be
credited against the fee due to us upon consummation of the sale of the Company
or a Division.
Upon the delivery of any Opinion, you will pay us a fee in the amount of
$100,000. Such fee will be credited against any fee due to us upon consummation
of the sale of the Company or any Division, as provided in the paragraph below.
If the sale of the Company or a Division or a minority interest in the
Company or a Division is consummated, or if you reach a definitive agreement for
a sale of the Company or a Division or a minority interest in the Company or a
Division, during this engagement or at any time prior to one year following the
termination date of this engagement, you will pay us a fee equal to the
following amounts or percentages of the consideration involved in the sale, as
the case may be:
Consideration Fee
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(i)Sale of the Company:
a)For the amount of consideration from the sale up $400,000
to the Company's cash and cash equivalents; plus
b)For the Amount of Consideration (if any) Greater 3.5% of the Consideration
than the Company's cash and cash equivalents. above the amount of
Consideration equal to the
Company's cash and cash
equivalents.
(ii) For the sale of the Divisions of the Company,
per Division:
Sale of Enterprise Products Division $400,000
Sale of Carrier Products Division $400,000
Sale of Services Division $300,000
Sale of Ethernet Switches Division $300,000
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For example, if the Company as a whole is sold for $100,000,000 and the
cash and cash equivalents are $50,000,000 at the closing of the sale, then the
fee would be $400,000 plus 3.5% of $50,000,000 (i.e. $1,750,000), in which case
the total fee would be $2,150,000 (i.e., $400,000 plus $1,750,000).
Alternatively, if the Enterprise Products and Services Divisions were sold, the
fee would be $400,000 plus $300,000, for an aggregate fee of $700,000. If the
Enterprise Products Division were sold in one transaction and the rest of the
Company were sold (including the cash and cash equivalents) in a separate
transaction, then the fee would be $400,000 plus 3.5% of the consideration from
the two sales in excess of the cash and cash equivalents. If the four Divisions
were sold and the cash from these transactions as well as the cash and cash
equivalents were then distributed to shareholders, the total fee would be
$1,400,000 (the sum of $400,000, $400,000, $300,000 and $300,000). In cash case,
our fee shall be payable in cash at the time a sale is consummated and shall be
based upon consideration and cash and cash equivalents determined at that time.
Our compensation is to be free and clear of any obligation that you may have to
any other broker or finder.
Consideration shall mean the sum of (i) the cash, market value of
marketable equity securities, interests, options or warrants, fair value of
unmarketable equity securities, interests, options or warrants, face amount of
straight and convertible debt instruments or obligations issued or issuable
(including any amounts paid into escrow) to you, your shareholders and
optionholders, or a Division or any entity affiliated with you, your
shareholders and optionholders, or a Division in connection with the sale, (ii)
the amount of long-term indebtedness of the Company or a Division assumed
directly or indirectly by an acquiring party or any entity affiliated with an
acquiring party in connection with the sale, and (iii) the fair value of future
payment obligations, absolute and contingent (e.g., earn-outs), arising in
connection with the sale. Consideration shall be determined at the time the sale
is consummated. For purposes of computing any fees payable to us hereunder,
non-cash consideration shall be valued as follows: (a) publicly traded
securities shall be valued at the average of their closing prices (as reported
in the Wall Street Journal) for the five trading days prior to the closing of
any transaction, and (b) any other non-cash consideration shall be valued at the
fair market value thereof as mutually agreed upon by you and us.
In addition to the foregoing fees, you agree to reimburse us for all
reasonable out-of-pocket costs and expenses (including reasonable counsel fees)
incurred by us in connection with the services to be rendered by us hereunder,
whether or not a transaction is consummated or our services are terminated or
completed. These expenses shall be billed by us and payable by you quarterly. In
addition, in the event we are requested to appear at a judicial or
administrative hearing in connection with this engagement, you will pay us a per
diem fee of $2,000 per person per day and reimburse our reasonable out-of-pocket
expenses in connection with such appearance.
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As we are acting on your behalf, it is our practice to obtain an
indemnification and contribution agreement from you. That agreement is attached
and incorporated by reference. The obligations contained in that agreement will
remain operative regardless of any termination or completion of our services
hereunder.
We understand that you may request any Opinion be disclosed in a
registration statement under the Securities Act of 1933 and/or a proxy statement
in compliance with the Securities Exchange Act of 1934 prepared in connection
with the transaction to which such Opinion relates. You are hereby authorized to
disclose any such Opinion in full and refer to it in such documents provided
that we expressly approve all statements in such documents with respect to us or
relating to such Opinion. You agree to include in any such disclosure a
statement that we do not admit that we are experts with respect to the
registration statement or proxy statement/prospectus within the meaning of the
term "experts" as used in the Securities Act of 1933. The Opinion will not be
used or referred to by you, quoted or disclosed to any person (other than the
Company's directors, executive officers and attorneys) in any manner for any
other purpose without our express prior written consent.
All notices or communications hereunder, except as otherwise provided by
written notice, will be in writing and mailed or delivered as follows:
If to Xxxxxxxxxx Securities:
Xxxxxxxxxx Securities ATTN: Xxxx X. Xxxxx, Esq.
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
If to the Company:
CrossComm Corporation ATTN: Xxxxxxx Xxxxxxxxx
000 Xxxxxx Xxxxx Xxxx. Chairman
Marlboro, MA 01752
Copy to:
Xxxx and Dorr ATTN: Xxxxxx X. Xxxxxxxx
00 Xxxxx Xxxxxx Xxxxxxx
Xxxxxx, XX 00000
This engagement agreement, together with the attached agreement on
indemnification and contribution, contains our entire agreement concerning the
proposed transaction and supersedes any prior understandings and agreements.
This engagement agreement is made and shall be construed under and in accordance
with
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the laws of the State of California (without reference to any principle of the
conflict of laws). Any waiver of any right or obligation hereunder must be in
writing signed by the party against whom such xxxxxx is sought to be enforced.
If the foregoing correctly sets forth out understanding and agreement,
please sign in the space below and return it to us. We thank you for the
opportunity to share in your business endeavors and are looking forward to a
successful and mutually beneficial relationship.
Very truly yours,
XXXXXXXXXX SECURITIES
By: /s/ X. Xxxxxxxx Xxxx
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X. Xxxxxxxx Xxxx, Managing Director
Accepted and Agreed to on this 18th day of November, __1996:
CROSSCOMM CORPORATION
By: /s/ X. Xxxxxxxxx
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Xxxxxxx Xxxxxxxxx, Chairman
