EXHIBIT 10.1
September 23, 2002
Xx. Xxxxxx X. Xxxxx
Chief Executive Officer
Natural Golf Corporation
0000 Xxxx Xxxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xx. Xxxxxxxx, XX 00000
Dear Xx. Xxxxx:
This letter agreement (the "Letter Agreement") confirms our understanding that
Natural Golf Corporation ("Natural Golf" or the "Company") has engaged Xxxxxxx
Investments, LLC ("Xxxxxxx") to provide certain financial advisory and
investment banking services.
1. ENGAGEMENT. Xxxxxxx will perform such of the following financial advisory
services on the Company's behalf as the Company may reasonably request:
x. Xxxxxxx shall act as the Company's exclusive Placement Agent and
Financial Advisor in connection with a reverse acquisition (the
"Reverse Acquisition") of a blank check company ("Blank Check
Company") to be introduced by Xxxxxxx.
x. Xxxxxxx shall act as Placement Agent in connection with the proposed
bridge loan (the "Bridge") of between $750,000-$1,250,000. The terms
of the Bridge are as follows:
i. One-year secured notes (the "Bridge Notes") in a form acceptable
to Natural Golf. Natural Golf shall provide collateral in the
form of inventory for the Bridge Notes. The Company agrees to
file a Form UCC-1 pledging the Company's inventory as security in
the event of a default. Xxxxxxx acknowledges that Natural Golf
will also be pledging its inventory for security of a loan of up
to $600,000 from individuals or entities ("Other Lenders") other
than Xxxxxxx investors. Xxxxxxx investors and the Other Lenders
will both have a first security interest in the inventory, which
will be subject to a credit and security agreement to both
Xxxxxxx investors and the Other Lenders.
ii. Ten percent (10%) interest per year, payable at maturity.
iii. 20,000 5-year warrants ("Warrants") with an exercise price h of
$5.00 per $100,000 principal amount of the Bridge Notes. The
Warrants shall have a cashless exercise feature provided a public
market exists, and standard provisions concerning anti-dilution,
and registration rights as approved by Natural Golf.
iv. Within nine (9) months of the Bridge investment, the Company may
extinguish the Bridge Notes including the Warrants described in
subparagraph (iii) above by paying the Bridge investors 133.33%
of the Bridge Notes principal plus accrued interest up to the
repayment date. Upon termination of the Bridge, the Bridge Notes
will be cancelled and the parties' obligations under this
Agreement shall end unless mutually agreed otherwise in writing.
c. UponKeating's placement of (y) at least $250,000 of the Bridge by
October 15, 2002; AND (z) at least $750,000 of the Bridge by December
31, 2002; and Natural Golf's acceptance of said funds under both
subparagraphs (y) and (z);, Natural Golf agrees to enter into good
faith negotiations with Xxxxxxx and the Blank Check Company regarding
acquisition by a Blank Check Company to be introduced by Xxxxxxx via a
Reverse Acquisition transaction subject to Natural Golf's right to
conduct due diligence with respect to the Blank Check Company's
operation, business, history, properties and financial condition. The
Company agrees to file a post-effective amendment to the Blank Check
Company registration statement with the SEC within sixty days
following the placement of at least $750,000 of the Bridge by December
31, 2002.
x. Xxxxxxx shall act as exclusive Placement Agent in connection with the
proposed issuance, offering and sale by the Company (the "Follow-On
Offering") of up to $15 million of the Company's Common Stock. It is
anticipated that the valuation of the Follow-On Offering shall be
approximately 1x 2003 projected sales. The Company shall have final
approval with respect to the price of the Common Stock to be issued in
the Offering.
x. Xxxxxxx will familiarize itself to the extent it deems appropriate and
feasible with the business, historic, current and prospective
operations, properties and financial condition of the Company, it
being understood that
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Xxxxxxx shall, in the course of such familiarization, rely entirely upon
publicly available information and such other information as may be
supplied by the Company without assuming any responsibility for independent
investigation or verification thereof.
x. Xxxxxxx will advise and assist the Company in identifying and/or
evaluating various financial alternatives that may be available to the
Company, including without limitation, a public or private sale of
equity or debt securities of the Company, or such other form of
financial transaction that Xxxxxxx believes may be of possible
interest to the Company.
x. Xxxxxxx will render such other financial advisory and
investment-banking services as may from time to time be agreed upon by
Xxxxxxx and the Company in writing.
h. The obligation of Natural Golf to proceed hereunder shall be subject
to approval of the Company's shareholders of additional authorized
stock as required to effectuate this transaction.
2. INFORMATION PROVIDED BY THE COMPANY.
a. The Company shall make available to Xxxxxxx all information concerning
the business, operations, properties, prospects and financial
condition of the Company, as applicable, that Xxxxxxx requests in
connection with the rendering of services hereunder, and shall provide
Xxxxxxx with reasonable access to the Company's officers, directors,
employees, independent accountants and other advisors and agents as
Xxxxxxx shall xxxx appropriate.
b. The Company recognizes and confirms that Xxxxxxx will use and rely
upon the information provided by or on behalf of the Company and its
advisors and agents and upon publicly available information in
performing the services contemplated hereby. It is understood that in
performing under this engagement, Xxxxxxx may assume and rely upon the
accuracy and completeness of, and is not assuming any responsibility
for independent investigation or verification of, such publicly
available information and the information so furnished.
3. FEES.
a. Upon signing a definitive acquisition agreement, the Company shall pay
to Xxxxxxx a non-refundable investment banking fee retainer of $25,000
in cash. An additional investment banking fee of $75,000 shall be
deemed earned upon the closing of the Follow-On Offering and shall be
paid to Xxxxxxx from the proceeds of the Follow-On Offering at the
time of the closing.
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b. Upon the closing of the Acquisition, the Company shall promptly issue
a combined total of three percent (3%) of the fully diluted shares of
Natural Golf Common Stock then outstanding to Xxxxxxx and the Blank
Check Company's stockholders. The Company agrees to register for
resale the shares issued to Xxxxxxx on the first registration
statement that the Company files with the SEC subsequent to the
closing of the Reverse Acquisition, subject to Natural Golf's existing
registration rights agreements.
c. Upon the closing of the Follow-On Offering, Xxxxxxx shall be paid up
to an additional 3% of the fully diluted Natural Golf shares then
outstanding based on the following formula: Payment = N/$5,000,000,
where N is equal to the $ amount of Common Stock placed by Xxxxxxx.
Example: $10 million placed = an additional 2% of Natural Golf Common
Stock.
d. The Company shall pay promptly to Xxxxxxx for its services hereunder a
cash placement fee equal to 10% of the securities placed by Xxxxxxx
upon the closing of any offering of the Companies securities. The
Company shall also promptly pay to Xxxxxxx, in connection with the
provision of services hereunder, a non-accountable expense allowance
equal to 3% of the total amount of the securities placed by Xxxxxxx
upon the closing of any offering. In addition, the Company shall issue
five-year Warrants entitling Xxxxxxx to purchase up to 10% of the
securities placed by Xxxxxxx at an exercise price of 100% of the per
share price of the placement. The placement and Warrant fees shall be
reduced by any amount paid to a third party as a commission, selling
concession or finder's fee, but in any case shall not fall below a 3%
placement fee and 3% Warrant fee. The Company shall provide Xxxxxxx
with piggyback registration rights on terms acceptable to Natural Golf
and subject to Natural Golf's existing registration rights agreements.
e. With respect to the Bridge only, Xxxxxxx'x fees shall not be deemed to
include or be based upon any funds raised by any individual or entity
other than Xxxxxxx or introduced by Xxxxxxx. In no event shall any fee
be due to Xxxxxxx on any funds raised by the Company's directors and
officers in connection with the Bridge.
f. In the event no funds are raised or accepted by Natural Golf by
December 31, 2002, pursuant to the Bridge and Xxxxxxx has performed
its services hereunder in a commercially reasonable manner, then
Xxxxxxx shall receive 20,000 five-year Warrants at $5.00 per share as
Xxxxxxx'x sole compensation hereunder upon cancellation of this Letter
Agreement.
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g. Payment for further services provided hereunder shall be as mutually
agreed between the Company and Xxxxxxx.
h. NASD Rule 2460 specifically prohibits broker-dealers such as Xxxxxxx
from accepting any payment or other consideration, directly or
indirectly, from an issuer of a security, or any affiliate or promoter
thereof, for publishing a quotation, acting as market maker in a
security, or submitting an application in connection therewith.
Xxxxxxx maintains full compliance with this rule at all times, and the
services to be provided hereunder are "bona fide services" as
permitted by Rule 2460. Compensation paid to Xxxxxxx in connection
with the financial advisory services provided for in this Letter
Agreement is not intended to be, and should not be construed to be,
for the provision of any market-making services.
i. Indemnity. The Company agrees to the provisions of Exhibit A hereto
which provide for certain indemnification by the Company of Xxxxxxx
and certain related persons. Such indemnification is an integral part
of this Letter Agreement and the terms thereof are incorporated by
reference herein. Such indemnification shall survive any termination,
expiration or completion of Xxxxxxx'x engagement hereunder.
4. BREAK-UP FEE. Upon placement of at least $250,000 of the Bridge by October
15, 2002 and at least $750,000 of the Bridge by December 31, 2002, the
Company agrees to enter into a Reverse Acquisition with a Blank Check
Company to be introduced by Xxxxxxx. In the event that the Company either
(a) enters into a Transaction (defined below) other than a Reverse
Acquisition arranged by Xxxxxxx; or (b) does not enter into a Transaction
or Reverse Acquisition, then Xxxxxxx shall be entitled to a break-up fee as
set forth below:
a. If the Company enters into a Transaction other than a Reverse
Acquisition arranged by Xxxxxxx, the Company agrees to pay Xxxxxxx a
fee in cash equal to three percent (3%) of the value of the
Transaction occurring within six (6) months of the date of termination
of this Agreement. A Transaction shall be defined as any initial
public offering, merger, sale of all or substantially all assets in
one transaction, or sale of all or substantially all stock in one
transaction, strategic partnership/alliance, or joint venture.
b. If the Company does not enter into a Transaction or a Reverse
Acquisition, the Company agrees to pay Xxxxxxx a break-up fee of
$1,000,000. At least $250,000 of the break-up fee must be paid in cash
at the maturity of the Bridge Notes. At the sole discretion of the
Company, the remaining $750,000 of the break-up fee may be paid in any
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combination of the Company's Common Stock (in kind) and cash. If the
Company elects to pay in kind, for each $250,000 of the break-up fee
due to Xxxxxxx, the Company agrees to issue to Xxxxxxx the number of
shares of the Company's Common Stock equal to one percent (1%) of the
fully diluted shares then outstanding. For example, if the Company had
four million fully diluted shares outstanding and wanted to pay the
break-up fee half in cash and the other half in kind, Xxxxxxx would be
owed $500,000 in cash and 80,000 shares of the Company's Common Stock
([$500,000/$250,000=2] x 1% x 4,000,000 shares) in kind.
5. TERM. The initial term of this Agreement will be through December 31, 2002.
Upon placement of at least $250,000 of the Bridge by October 15, 2002 and
at least $750,000 of the Bridge by December 31, 2002, Xxxxxxx'x appointment
as Financial Advisor shall be extended through December 31, 2003. This
Letter Agreement and Xxxxxxx'x engagement hereunder may be terminated by
either the Company or Xxxxxxx upon thirty days' prior written notice
thereof to the other party; or by the Company's extinguishment of the
Bridge within the time period set forth in paragraph 1(b)(iv); provided,
however, that termination of this Letter Agreement shall not affect the
Company's continuing obligation to indemnify Xxxxxxx and certain related
persons as provided in EXHIBIT A and its continuing obligations under
Section 8 hereof.
6. MATTERS RELATING TO ENGAGEMENT.
a. The Company acknowledges that Xxxxxxx has been retained solely to
provide the services set forth in this Letter Agreement. In rendering
such services, Xxxxxxx shall act as an independent contractor, and any
duties of Xxxxxxx arising out of its engagement hereunder shall be
owed solely to the Company. The advice (oral or written) rendered by
Xxxxxxx pursuant to this Letter Agreement is intended solely for the
benefit and use of the Board of Directors of the Company in
considering the matters to which this Letter Agreement relates, and
the Company agrees that such advice may not be relied upon by any
other person, used for any other purpose or reproduced, disseminated,
quoted or referred to at any time, in any manner or for any purpose,
nor shall any public references to Xxxxxxx be made by the Company,
without the prior written consent of Xxxxxxx.
b. The Company acknowledges that Xxxxxxx works in a variety of capacities
for various entities and that such entities may be direct or indirect
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competitors of the Company. The Company's engagement of Xxxxxxx
pursuant to this Letter Agreement shall in no way preclude Xxxxxxx
from working in any capacity for other parties, or on behalf of
itself, or its affiliates, including in matters in which the Company
is or may become involved. The Company also acknowledges that Xxxxxxx
and its affiliates have no obligation to use in connection with the
transactions contemplated by this Letter Agreement, or to furnish to
the Company, confidential information obtained from other companies.
x. Xxxxxxx and Natural Golf agree to enter into appropriate
confidentiality agreements as requested by either party hereunder.
7. GOVERNING LAW AND SUBMISSION TO JURISDICTION.
a. This Letter Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, without giving effect to the
conflicts of laws principles thereof.
b. Each of the parties hereto irrevocably agrees that, except as
otherwise set forth in this paragraph, any state or federal court
sitting in the City of Chicago shall have exclusive jurisdiction to
hear and determine any suit, action or proceeding and to settle any
dispute arising out of or relating to this Letter Agreement and, for
such purposes, irrevocably submits to the jurisdiction of such courts.
8. MISCELLANEOUS.
a. If any term, provision, covenant or restriction contained in this
Letter Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable or against public policy, the remainder
of the terms, provisions, covenants and restrictions contained herein
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
b. This Letter Agreement contains the entire agreement between the
parties relating to the subject matter hereof and supersedes all oral
statements and prior writings with respect thereto. This Letter
Agreement may not be amended or modified except by a writing executed
by each of the parties. The provisions of this Letter Agreement,
including, without limitation, the obligations set forth in Sections 3
and 4 above and EXHIBIT A hereto, shall be binding on the Company and
its successors and assigns.
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c. Section headings herein are for convenience only and are not a part of
this Letter Agreement. This Letter Agreement may be executed in
counterparts, each of which will be deemed an original, but all of
which taken together will constitute one and the same instrument.
If the foregoing correctly sets forth the understanding and agreement between
Xxxxxxx and the Company, please so indicate by signing the enclosed copy of this
letter whereupon it shall become a binding agreement between the parties hereto
as of the date first written above.
Very truly yours,
XXXXXXX INVESTMENTS, LLC
By: /S/ Xxxxxxx X. Xxxxxxx
-----------------------------------
Xxxxxxx X. Xxxxxxx
President
Accepted and agreed to as of
the day first written above;
NATURAL GOLF CORPORATION
By: /S/ Xxxxxx X. Xxxxx
-------------------------------
Xxxxxx X. Xxxxx
Chief Executive Officer
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EXHIBIT A
Natural Golf Corporation (the "Company") shall indemnify and
hold harmless Xxxxxxx Investments, LLC ("Xxxxxxx") and its affiliates, counsel
and other professional advisors, and the respective directors, officers,
controlling persons, agents and employees of each of the foregoing (Xxxxxxx, and
all of such other persons collectively, the "Indemnified Parties"), from and
against any losses, claims or proceedings including stockholder actions,
damages, judgments, assessments, investigation costs, settlement costs, fines,
penalties, arbitration awards, other liabilities, costs, fees and expenses
(collectively, "Losses") (but excluding from the definition of any "Losses", any
claims relating to lost profits, consequential, incidental or punitive damages)
(i) related to or arising out of (A) oral or written information provided by the
Company, the Company's employees or other agents, which either the Company or
Xxxxxxx provides to any persons, or (B) other action or failure to act by the
Company, the Company's employees or other agents or Xxxxxxx at the Company's
request or with the Company's consent, or (ii) otherwise related to the
Company's breach of its obligations under this Letter Agreement or any
transaction or conduct in connection therewith, except for losses due to the
Indemnified Party's negligence, gross negligence, willful misconduct, or bad
faith.
The Company shall further reimburse any Indemnified Party
promptly for, any legal or other fees or expenses as they are incurred (i) in
investigating, preparing or pursuing any action or other proceeding (whether
formal or informal) or threat thereof, whether or not in connection with pending
or threatened litigation or arbitration and whether or not any Indemnified Party
is a party (an "Action") and (ii) in connection with enforcing such Indemnified
Party's rights under this Letter Agreement (including, without limitation, its
rights under this EXHIBIT A); except for Losses due to any Indemnified Party's
negligence, gross negligence, willful misconduct, or bad faith.
The Company shall, if requested by Xxxxxxx, assume the defense
of any such Action including the employment of counsel reasonably satisfactory
to Xxxxxxx and will not settle, compromise, consent or otherwise resolve or seek
to terminate any pending or threatened Action (whether or not any Indemnified
Party is a party thereto) unless it obtains the prior written consent of Xxxxxxx
or an express, unconditional release of each Indemnified Party from all
liability relating to such Action and the engagement of Xxxxxxx under this
Letter Agreement. Any Indemnified Party shall be entitled to retain separate
counsel of its choice and participate in the defense of any Action in connection
with any of the matters to which this EXHIBIT A relates, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless the Company has failed promptly to assume the defense and employ counsel.
The rights of the Indemnified Parties hereunder shall be in
addition to any other rights that any Indemnified Party may have at common law,
by statute or otherwise. Except as otherwise expressly provided for in this
EXHIBIT A, if any term, provision, covenant or restriction contained in this
EXHIBIT A is held by a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy, the remainder of
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the terms, provisions, covenants and restrictions contained in this Letter
Agreement all remain in full force and effect and shall in no way be affected,
impaired or invalidated. The reimbursement, indemnity and contribution
obligations of the Company set forth herein shall apply to any modification of
this Letter Agreement and shall remain in full force and effect regardless of
any termination of, or the completion of any Indemnified Person's services under
or in connection with, this Letter Agreement.
Notwithstanding anything to the contrary contained herein, in no event shall the
Company's indemnification obligation exceed the net proceeds received by the
Company as a result of the services provided by Xxxxxxx plus Xxxxxxx'x
reasonable attorneys fees.
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