EXHIBIT 10.5
MANCHESTER ENGAGEMENT AGREEMENT
TELIDENT, 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 (6)
months from the date hereof, to assist it with the acquisition of certain target
companies ("Target Companies") or any similar transaction related to the
COMPANY. MFGI will proceed on a month-to-month basis until the COMPANY provides
MFGI with written 30-day notice of termination of this Agreement.
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
the acquisition of one or more Target Companies, whether accomplished by a
purchase of assets or stock by or through the COMPANY, an affiliate of the
COMPANY and/or it 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,
recapitalization, or any other transaction, the effect of which is to
change the financial structure, 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, an affiliate
of the COMPANY or its shareholders enter into an agreement in principle to
consummate a Transaction with any Target Companies identified during the
term of this Agreement or the six (6) month period prior to the date of
this Agreement, MFGI's Accomplishment Fee shall be due and payable in full
upon closing of such Transaction pursuant to section 5 below. For purposes
of record keeping and monitoring only, within approximately thirty (30)
days of the expiration of this Agreement, MFGI will provide the COMPANY
with a protective list of Target Companies.
4. ACCOMPLISHMENT FEE AND TOTAL CONSIDERATION. The Accomplishment Fee payable
by COMPANY to MFGI at the closing of each Transaction shall be calculated
as provided on Exhibit B. MFGI's Accomplishment Fee shall be based upon
the total consideration ("Total Consideration") paid or payable directly
or indirectly by the COMPANY, an affiliate of 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 including
without limitation:
(a) Cash paid and securities transferred by the COMPANY, an affiliate of
the COMPANY and/or its shareholders at closing;
(b) In the case of an acquisition or deemed acquisition of stock by the
COMPANY or an affiliate of the COMPANY all liabilities of the Target
Companies, other than trade payables and accrued operating expenses.
In the case of an acquisition or deemed acquisition of assets, all
liabilities of the Target Companies, other than trade payables and
accrued operating expenses, which are assumed by the COMPANY or an
affiliate of the COMPANY.
(c) 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 the Target Companies involving
the pooling of assets of efforts for a shared economic goal;
(d) All deferred installments of the purchase price including promissory
notes;
(e) Any portion of the Total Consideration held in escrow subsequent to
closing;
(f) All non-compete compensation and the like;
(g) Future payments that are contingent on the future earnings or
operations of the Target Companies, 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;
(h) Any extraordinary compensation to be paid to Target Company and/or
its shareholders or affiliates thereof for services rendered
subsequent to closing.
5. 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. The COMPANY, at its option, may
pay 1.5% of the cash Accomplishment Fee in Company common stock. The stock
price to be used to determine the number of common shares to be
transferred, if the COMPANY chooses this option, will be the average price
of the COMPANY's common stock during the ten (10) trading days before the
announcement of the respective Transaction to the public. The COMPANY
common stock transferred shall be registered stock without any trading
restrictions.
6. RETAINERS AND EXPENSES. The COMPANY shall pay MFGI a retainer, monthly in
advance, of $6,500 per month for the term of this Agreement. Also, upon
execution of this Agreement MFGI or its designees will be granted a
Warrant or Warrants to purchase 50,000 shares of the COMPANY's common
stock at an exercise price equal to the closing price of the COMPANY's
stock on the date of this Agreement, and with such other terms set forth
in Exhibit B hereto. The COMPANY shall also reimburse MFGI monthly in
arrears for all reasonable out-of-pocket expenses incurred on behalf of
the COMPANY. MFGI shall provide detailed monthly itemized summaries of
expenses 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.
7. 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 named as a party
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.
8. 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 or the Target
Companies 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 agents and
advisors without the COMPANY's prior approval or used for any purpose
other than those referred to in this Agreement.
9. 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
arbitration in accordance with the rules of the American Arbitration
Association. 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.
10. 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 is has consulted with its legal counsel
regarding this potential conflict of interest.
11. REPRESENTATIONS. The COMPANY will in good faith use its best efforts to
conduct any offer, offer for sale, and sale of COMPANY stock 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 its management of the
acquisitions. MFGI is not a member of the National Association of
Securities Dealers, Inc. and is not licensed as a broker-dealer in any
state.
12. MISCELLANEOUS. This Agreement is transferable and assignable by MFGI to
any corporation under common control and ownership with MFGI. In addition,
MFGI may assign part or all of the services to be performed under this
Agreement to a third party with the consent of the COMPANY, which consent
will not be unreasonably withheld. 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, 5, 7, and 9 will survive
the termination of this Agreement.
Read and agreed to this June 13, 1998 by:
TELIDENT, INC. MANCHESTER FINANCIAL GROUP, INC.
By: /s/ W. Xxxxxx XxXxxxxxxx By: /s/ Xxxxxxx X. Xxxxx
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Its: President and CEO Its: Managing Director
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EXHIBIT A
to
Engagement Agreement
MANCHESTER FINANCIAL GROUP, INC.
and
TELIDENT, INC.
PROCESS GUIDELINES
In the course of MFGI engagement hereunder, MFGI will exercise its best efforts
to:
(a) Maintain strict confidentiality of all financial and other proprietary
information, data, and materials relating to the COMPANY and the Target
Companies except as provided below.
(b) Familiarize itself with the business, financial condition and prospects of
Target Companies identified by the COMPANY and believed by the COMPANY to
be viable acquisition targets.
(c) Not share with the Target Companies any confidential information relating
to the COMPANY unless the Target Companies has executed a CONFIDENTIALITY
AGREEMENT in a form pre-approved by the COMPANY.
(d) Contact Target Companies, identified by the COMPANY on the COMPANY's
behalf and, as appropriate, arrange for and orchestrate meetings between
Target Companies and the COMPANY.
(e) Work with the COMPANY's legal counsel, accountants, and other advisors as
reasonably requested and directed by the COMPANY.
(f) Present to the COMPANY all proposals from any Target Companies and make
recommendations as to the COMPANY's appropriate negotiating strategy and
course of conduct.
(g) Assist in all negotiations, in due diligence and in all document review as
reasonably requested and directed by the COMPANY.
(h) The COMPANY or its shareholders have the right to reject any and all
proposals submitted to MFGI.
EXHIBIT B
to
Engagement Agreement
MANCHESTER FINANCIAL GROUP, INC.
and
TELIDENT, INC.
Fee Structure
3.0 percent of the Total Consideration, paid by COMPANY, or an affiliate
of the COMPANY to each Target Company or its shareholders.
In addition, with regard to each Transaction, MFGI or its designees will be
granted a Warrant or Warrants to purchase 100,000 shares of the COMPANY's common
stock (the "Warrants"). Such Warrants will be exercisable at any time for a
period of five (5) years from the date of issuance at an exercise price equal to
the average closing price of the COMPANY's stock during the ten (10) trading
days before the announcement of the respective Transaction to the public but in
no event less than $2.50. The Warrants shall contain a net exercise provision,
customary anti-dilution provisions and shall provide for participation of the
shares underlying the Warrants on a "piggy-back" basis in any registration by
the COMPANY during the Warrants duration and two (2) years thereafter, and
registration to be at the expense of the COMPANY. The Warrants will also contain
ratchet-down provisions which will result in the repricing of the Warrants in
the event that shares, options or warrants are subsequently issued by the
COMPANY at a lower price. The form of such Warrant is attached hereto.
