Exhibit 10.10 to the Form 10-KSB for year ended 1999
{Letterhead of Sutro & Co.}
CONFIDENTIAL
December 13, 1999
Xx. Xxxx Xxxxxxxxxxx
Chairman and Chief Executive Officer
xxxxx.xxx, Inc.
0000 Xxxxx Xxxxx Xxxx
Xxxxx 000
Xxxxxxx, XX 00000
Dear Rich:
This letter agreement sets forth the terms and conditions under which xxxxx.xxx,
Inc. (the "Company") has retained Sutro & Co. Incorporated ("Sutro") (i) to act
as its exclusive financial advisor in regards to a possible business combination
with Talisman Entertainment Inc., its affiliates or successors ("TEI"), and (ii)
to act as its exclusive placement agent with respect to the private placement(s)
(the "Financing") of equity or equity-related securities or debt securities,
including, but not limited to securities which are convertible into common stock
or have warrants attached to purchase common stock (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 (the "Act"), and other
federal and state securities laws. This letter agreement is in addition to the
letter agreement between the Company and Sutro dated June 30, 1999.
1. Financial Advisory Services - Sutro will assist the Company in
effecting a form of a business combination whether it be (i) a
strategic alliance, (ii) an exchange of technologies, intellectual
properties, or business practices, and/or (iii) an exchange of
ownership interests between TEI and the Company (the "Business
Combination"). The Company acknowledges that Sutro introduced the
Company to TEI. Additionally, Sutro will, as part of the financial
advisory services, introduce the Company to additional potential
partners up until the contemplated public offering outlined in the
letter agreement between the Company and Sutro dated June 30, 1999. In
the advisory function relating to TEI, Xxxxx proposes to undertake
certain activities, including, if appropriate, the following:
(a) Advising the Company as to the form, terms and structure of
the Business Combination;
(b) Assisting in the preparation of any documentation evidencing
the Business Combination; and
(c) Analyzing the potential impacts and implications of the
Business Combination on the Company.
2. Placement Agent Services - Sutro will assist the Company in effecting
the Financing. In this regard, we proposed 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. 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; and
(e) Assisting in the preparation of definitive documentation for
the Financing.
3. Compensation - Sutro's compensation for its role as financial advisor
shall be determined as follows:
(a) An advisory fee of $300,000 payable in cash upon consummation
of the Business combination and as a condition to the closing
of the Business Combination.
(b) Fully paid and non-assessable common stock of TEI equal to
7.5% of the TEI common stock received by the Company as a
result of the Business Combination.
Sutro's compensation for its role as placement agent shall be determined as
follows:
(c) A non-refundable retainer of $25,000 payable upon execution of
this Agreement. This retainer shall be credited against any
fees pursuant to paragraph 3(d) in the event a Financing
occurs.
(d) A placement fee (the "Placement Fee") equal to the sum of (i)
seven percent (7%) of the principal amount of any preferred
stock or common stock, (ii) five percent (5%) of the principal
amount of subordinated notes and/or convertible notes and
(iii) one and a half percent (1 1/2%) of the principal amount
of any secured revolving credit facility or other senior
secured debt. 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. The
Placement Fee shall be payable in cash upon consummation of,
and out of the proceeds of, the proposed Financing and as a
condition to the closing of such Financing.
(e) Warrants to purchase a fraction of the Company's equity equal
to three percent (3%) of the common shares or common share
equivalents sold in the Financing (the "Warrants"). The
Warrants shall be granted upon the closing of the Financing
and shall be exercisable for a five-year period commencing one
year from their date of issuance at an aggregate exercise
price equal to 125% of the price of the equity raised in the
Financing with "cashless" exercise provisions. The percentage
of equity to be purchased shall be subject to customary
anti-dilution provisions. The holders of the Warrants shall be
entitled to one demand registration right and unlimited
"piggy-back" registration rights. The Company shall bear all
costs and expenses in connection with such registrations.
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 to promptly reimburse Sutro for all
reasonable out-of-pocket expenses, including, but not limited to, such
costs as printing, telephone, fax, courier service, copying,
accommodations, roadshow, travel, and direct computer expenses,
secretarial overtime and fees and disbursements of Sutro's legal
counsel, if any. Total reimbursements for expenses related to the
Financing shall not exceed $100,000. Expenses will be billed monthly
and payable within 15 days of receipt of such billing. The Company also
agrees to, prior to the mailing of any Memorandums to any Parties and
prior to the commencement of the Financing roadshow, to (i) reimburse
to Sutro any billed but unpaid expenses, and (ii) make an additional
expense reimbursement payment of $25,000 so as to prefund the Roadshow
expenses to be incurred by Sutro. Additionally, the Company agrees that
Sutro is not responsible for the fees and disbursements of special
counsel for the investors, whether or not these transactions are
completed. The
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Company agrees to promptly reimburse Sutro for all reasonable
out-of-pocket expenses, provided however that all outstanding
out-of-pocket expenses shall be payable in cash upon consummation of
the proposed Financing.
5. Term and Termination Rights - It is understood that the Company hereby
engages Sutro on an exclusive basis for investment banking services for
a term (the "Term") commencing on the date hereof and ending on March
31, 2000. The Term shall be automatically renewed for successive 90-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, Sutro may at its sole option, terminate
its obligation hereunder without liability if, in the reasonable
opinion of Sutro, 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, in Sutro's sole determination has adversely effected the
marketability of the Company. The remaining provisions of this letter
relating to the payment of fees earned and expenses incurred prior to
the end of the Term and the Indemnification Agreement shall survive any
termination or expiration of the engagement or the completion of
Sutro's services.
If during the Term, or within the twelve 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. Information - 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").
7. Confidentiality - Sutro will keep confidential and not disclose to any
third party any confidential information of the Company made available
to Sutro pursuant to Section 7 hereof by the Company, and will use the
confidential information only in connection with the engagement
hereunder; provided, however, such confidential information shall not
include any information already available to or in the possession of
Sutro prior to the date of its disclosure to Sutro by the Company, any
information in the Memorandum or in other investor materials or
generally available to the public, or any information which becomes
available to Sutro on a non-confidential basis from a third party who
is not bound by a confidentiality obligation to the Company; and
provided further, that such confidential information may be disclosed
(i) to partners, employees, agents, advisors and representatives in
connection with its engagement hereunder, who shall be informed of the
confidential nature of the information and that such information is
subject to a confidentiality agreement (ii) to any person with the
written consent of the Company, including to any prospective investors;
or (iii) if, upon the advice of counsel, Xxxxx is compelled to disclose
such information.
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8. Governing Law - This letter agreement and the Indemnification Agreement
constitute the entire agreement between us and supersede and take
precedence over all prior agreements or understandings whether oral or
written, between Sutro and the Company with respect to the Financing
and may only be modified by written agreement which is signed by both
parties. 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 in Los Angeles, California.
Please confirm that the foregoing correctly sets forth our agreement by signing
and returning to us the enclosed duplicate copy of this letter agreement. We
look forward to working with you and to the successful conclusion of this
assignment.
Very truly yours,
Sutro & Co. Incorporated
By: /s/ Xxxxx X. Xxxxxxxx
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Xxxxx X. Xxxxxxxx
Director of Investment Banking
Accepted and Agreed to as of the date written above:
xxxxx.xxx, Inc.
By: /s/ Xxxx Xxxxxxxxxxx
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Xxxx Xxxxxxxxxxx
Chairman and Chief Executive Officer
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