Exhibit 10.42
XXXX XXXXXXXXX XXXXXXXX & CO.
One Galleria Tower
00000 Xxxx Xxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
December 11, 1998
STB Systems, Inc.
0000 Xxxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxx
Chief Executive Officer and Chairman of the Board of Directors
Gentlemen:
This letter agreement confirms the terms and conditions of the engagement (the
"Engagement") of Xxxx Xxxxxxxxx Xxxxxxxx & Co. ("HBW") by STB Systems, Inc. and
its subsidiaries and affiliates (collectively the "Company") as the Company's
exclusive financial advisor in connection with the possible combination of the
Company with 3Dfx Interactive, Inc. ("TDFX") by way of merger, purchase of all
or a portion of the assets of the Company, or the purchase of or exchange for
all or a portion of the stock of the Company or otherwise (a "Transaction").
1. HBW shall provide financial advisory services, including assistance in
developing appropriate strategies and tactics to effect a Transaction, to
include the determination of exchange ratios, evaluating proposals
presented by TDFX, providing financial analysis and modeling services, and
negotiating the terms of a Transaction. If requested, HBW will render a
fairness opinion to the Board of Directors of the Company relating to the
fairness of the Transaction, from a financial standpoint, to the
shareholders of the Company (the "Fairness Opinion"). The decision to
complete a Transaction shall be at the sold discretion of the Company.
2. The Company shall make available to HBW, on a timely basis, all financial
and other information concerning its business and operations that HBW
reasonably requests. HBW shall be entitled to rely, without investigation,
upon all information supplied by the Company or TDFX as well as all
information derived from public sources.
Furthermore, HBW shall bear no responsibility to the Company, TDFX, any
creditors, stockholders, employees, or any other parties for the accuracy,
completeness, or legal sufficiency of any financial statements, memoranda,
or other documentation prepared by, or on behalf of, the Company or for
verifying any of the information contained therein. Appropriate officers
of the Company shall be
STB Systems, Inc.
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December 11, 1998
responsible for reviewing any memorandum or other documentation prior to
its use to determine that it does not contain any material omissions or
inaccuracies.
3. The Company shall indemnify and hold harmless HBW and its affiliates and
their respective officers, directors, employees, and agents (each an
"Indemnified Party") against and from any losses, claims, damages, or
liabilities, joint or several, or actions in respect thereof, to which such
Indemnified Party may become subject in connection with the services
rendered pursuant to, or matters which are the subject of or arise out of,
the Engagement (collectively, a "Claim") and agrees to reimburse each
Indemnified Party for any legal or other expenses incurred by such
Indemnified Party in connection with investigating or defending any such
Claim as such expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such
Claim resulted primarily from an Indemnified Party's bad faith or gross
negligence. Such right to indemnification (i) shall survive the
termination or expiration of the Engagement or the consummation,
termination, or abandonment of any Transaction and (ii) shall not limit any
other rights that an Indemnified Party may have at common law or otherwise.
4. For services rendered in connection with the engagement, the Company shall
pay HBW the following:
A. Upon the execution of this letter agreement, a non-refundable
retainer of $15,000 per month for each month of this engagement
(the "Retainer Fee").
B. Upon the closing of a Transaction with the Seller, a cash success
fee (the "Success Fee") equal to two-thirds of one percent
(.0067) of the Aggregate Consideration.
The Success Fee shall be paid by wire transfer at the time the Transaction is
closed. The Success Fee due and payable HBW upon closing of the Transaction
shall be reduced by the Retainer Fee paid HBW pursuant to this engagement.
For purposes of this letter agreement, "Aggregate Consideration" means the
fair market value of all payments of any type (including cash, notes,
securities, in-kind service commitments, payments into escrow, or any other
form of property) made in connection with a Transaction received by the
Company or an affiliate of the Company, or by the Company's shareholders,
from TDFX. If a Transaction includes the assumption of any long-term debt or
other non-current liability or obligation by TDFX, Aggregate Consideration
shall include the face amount of such debt or non-current liability.
If any of the Aggregate Consideration to be received is (i) contingent upon
the future performance of the business or assets being sold (E.G., revenues
or income) or (ii) scheduled to be received in installments, the portion of
the Success Fee attributable to
STB Systems, Inc.
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December 11, 1998
such Aggregate Consideration shall be estimated and paid to HBW upon closing
of the Transaction, unless it shall be impracticable to estimate such portion
of the Success Fee and the Company and HBW shall be unable to agree upon an
appropriate payment to be received in respect thereof, in which case such
portion of the Success Fee shall be paid to HBW at such time or times as such
Aggregate Consideration is received.
In the event that the Aggregate Consideration received in the Transaction is
received in whole or in part in non-cash consideration, the value of such
payment for purposes of calculating the Success Fee shall be determined as
follows: (i) if received in the form of nonconvertible debt securities, the
value of such securities shall be the face value thereof, (ii) if received in
the form of publicly traded capital stock, the value thereof shall be
determined by the average of the last sale prices for such stock received by
the Company or its shareholders on the last 20 trading days thereof prior to
such closing, (iii) if received in the form of one or more non-competition
agreements, the value thereof shall be the present value of the aggregate
amounts payable over the life of such agreements, and (iv) if received in the
form of capital stock which is not publicly traded or in the form of any
other securities or property, the value thereof shall be the fair market
value as established by HBW and the Company in good faith.
5. The Company shall reimburse, on a monthly basis, all accountable out-of-
pocket expenses (including any legal fees and expenses and direct or
allocated charges for computer data base services, if any) incurred by HBW
in connection with the Engagement. Such expenses shall not exceed $10,000
without the approval of the Company.
6. The term of the Engagement shall commence from the date of the Company's
acceptance of this letter and shall expire one year from such date, unless
extended by agreement of the Company and HBW. The Engagement may be
terminated by the Company or HBW at any time upon written notice to the
other party. HBW, however, shall be entitled to reimbursement of all
accountable, out-of-pocket expenses incurred prior to termination and
payment in full amount of the Success Fee in the event that at any time
within two (2) years after the termination or expiration of the Engagement
a Transaction is consummated by the Company with TDFX.
7. After the closing of the Transaction, HBW shall have the right, at HBW's
option and expense, to advertise its services to the Company in connection
with the Engagement.
8. This letter agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
If this letter agreement is acceptable to the Company, please acknowledge by
signing both copies of the letter agreement and returning one copy to HBW.
Sincerely,
STB Systems, Inc.
Page 4
December 11, 0000
XXXX XXXXXXXXX XXXXXXXX & CO.
/s/ Xxxxxxx X. Xxxxxxxx
By: --------------------------
Xxxxxxx X. Xxxxxxxx
Managing Director
ACCEPTED AND AGREED TO THIS 11TH DAY OF DECEMBER, 1998.
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STB SYSTEMS, INC.
BY: /s/ Xxxxx Xxxxxxx
--------------------------
Xxxxx Xxxxxxx
TITLE: Vice President/CFO
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