ALEX. XXXXX & SONS INCORPORATED
0000 XXXXXX XX XXX XXXXXXXX, 10TH FLOOR * XXX XXXX, XXX XXXX 00000 * TELEPHONE:
(000) 000-0000 * TELEX: 198186
ALEX. XXXXX
AMERICA'S OLDEST INVESTMENT BANKING FIRM
ESTABLISHED 1800
as of August 13, 1997
PERSONAL AND CONFIDENTIAL
Xx. Xxxxx X. Xxxx
Chairman, President & Chief Executive Officer
Network Imaging Corporation
000 Xxxxxxx Xxxx Xxxxx
Xxxxxxx, XX 00000
Dear Xx. Xxxx:
This letter agreement (the "Agreement") confirms the understanding and
agreement between Alex. Xxxxx & Sons Incorporated ("Alex. Xxxxx" or the
"Financial Advisor") and Network Imaging Corporation ("IMGX" or the "Company").
Assignment Scope:
1. The Company hereby retains Alex. Xxxxx as sole and exclusive
financial advisor to provide the Company with general restructuring advice on
the terms and conditions set forth herein. The Company currently has
approximately 1.6 million shares of Series A Cumulative Preferred Stock (the
"Preferred Stock") outstanding with a liquidation preference of $25.00 per
share. Such proposed restructuring may include an exchange offer involving new
securities (the "Restructuring"), the issuance of new securities (the
"Refinancing"), the sale or disposition of assets, or other similar transactions
or series of transactions (the "M&A Transaction"), and is hereinafter referred
to as the "Transaction". In connection with the Transaction, our work may
include services related to any or all of the above described transactions.
Restructuring Services:
2. With respect to the Restructuring, the services performed by the
Financial Advisor will include, as necessary:
(a) A review and analysis of the Company's business,
operations and financial projections;
(b) Assisting in the determination of an appropriate
capital structure for the Company;
(c) Rendering financial advice to the Company and
participating in any meetings or negotiations with
the holders of the Company's Preferred Stock in
connection with any restructuring, modification or
refinancing of the Company's existing Preferred
Stock;
(d) Advising the Company on the timing, nature, and terms
of any new securities, other consideration or other
inducements to be offered pursuant to the
Restructuring;
(e) Advising the Company on specific tactics and
strategies for negotiating with the Preferred
Stockholders;
(f) Assisting the Company in preparing any documentation
required in connection with the Restructuring of the
existing Preferred Stock;
(g) Assessing the possibilities of bringing in new
investors and/or lenders to replace, repay or settle
with the existing investors and/or lenders.
(h) Providing the Company with other general restructur-
ing advice, as appropriate.
3. As consideration for the Financial Advisor's services set forth in
Section 2, the Company shall pay the Financial Advisor certain fees as follows:
(a) Commencing on the date hereof, the Company shall pay
the Financial Advisor a retainer fee of $80,000,
consisting of $25,000 in cash and $55,000 in the form
of common stock and common stock warrants. The
retainer will be fully creditable to any success fee
associated with the Restructuring, Refinancing, or
M&A Transaction. See Addendum B for a detail of the
calculation of the amount of stock and warrants to be
granted to the Financial Advisor.
(b) Upon consummation of a successful Restructuring, the
Company shall pay the Financial Advisor a success fee
consisting of (i) 155,844 shares of common stock and
warrants exercisable into 277,778 shares of common
stock and (ii) $364,701 in cash payable as follows:
Actual Amount
Date / Event Base Amount Payable
------------------------- ------------------------- ------------------
Restructuring $100,000 $100,000
Feb. 20, 1998 (1) $100,000 $104,060
May 20, 1998 (1) $75,000 $80,410
Aug. 20, 1998 (1) $75,000 (2) $55,231
(1) Reflects accrual of pay-in-kind interest of 1% per month beginning Oct. 20,
1997
(2) Includes $25,000 cash retainer to be credited against this amount
A successful Restructuring means a Restructuring
where there is a closing or signing of execution
documents evidencing a Restructuring or other similar
event. See Addendum B for a detail of the calculation
of the amount of stock and warrants to be granted to
the Financial Advisor.
(c) In addition to any fees that may be payable to the
Financial Advisor, the Company shall promptly re-
imburse the Financial Advisor for all: (i) reason-
able out-of-pocket expenses (including travel and
lodging, data processing and communications charges,
courier services and other appropriate expenditures)
and (ii) other fees and expenses, including expenses
of counsel, of any, to the extent described in the
Addendum A. Alex. Xxxxx will provide the Company with
periodic summaries of its expenses and will not incur
any expenses in expenses in excess of $10,000 in any
one month without the prior approval of the Company.
(d) As part of the compensation payable to the Financial
Advisor hereunder, the Company agrees to the
indemnification and contribution provisions (the
"Indemnification Provisions") attached to this
Agreement as Addendum A and incorporated herein in
their entirety.
Merger & Acquisition Related Services:
4. If during the term of this Agreement at the Company's request, Alex.
Xxxxx assists the Company in obtaining an investment from a third party or in a
Business Combination that results in a change of control transaction (the "M&A
Transaction"), the Company shall pay Alex. Xxxxx a success fee based on the
transaction value as follows:
Aggregate Consideration Incremental Fee %
--------------------------------- ----------------------------------
$0 - $50 1.5000%
$51 - $250 0.7500%
$251 - $1,000 0.3750%
$1,001 - above 0.1875%
$ in millions
As used in this letter, the term "Business Combination" means any transaction or
series of transactions other than in the ordinary course of business involving
(a) an acquisition, merger, consolidation, or other business combination
pursuant to which the business or assets of the Company are combined with
another company or any of its subsidiaries; (b) the acquisition, directly or
indirectly, by a buyer (which term shall include a "group" of persons as defined
in Section 13(d) of the Securities Exchange Act of 1934, as amended), of equity
interests or options, or any combination thereof constituting a majority of the
then outstanding stock of the Company or possessing a majority of the then
outstanding voting power of the Company (except as may occur as a result of the
Restructuring); (c) any similar purchase or other acquisition by a buyer of
significant assets of the Company (executive of purchases transacted during a
forced, piecemeal liquidation of the Company's assets) or (d) the formation of a
joint venture or partnership with the Company for the purpose of effecting a
transfer of control of or a material interest in, the Company.
As used in this letter, "Aggregate Consideration" shall mean the value of all
cash, securities and other property paid by an acquiring party to a selling
party in connection with a Business Combination plus all amounts paid by the
Company or an acquiring party to holders of options or stock appreciation
rights, whether vested or not vested. In this connection, the value of
securities (whether debt or equity) that are freely tradable in an established
public market will be determined on the date of payment (the "Valuation Date");
and the value of securities that are not freely tradable (or have no established
public market) or other property will be the fair market value of such
securities or other property on such Valuation Date. Aggregate Consideration
shall also be deemed to include any indebtedness for money borrowed.
Financing Services;
5. If during the term of this Agreement, the Company determines to
utilize an investment banker or other advisor in raising new capital in an
amount greater than or equal to $10 million through the issue of public or
private debt or equity securities for the purpose of refinancing the operations
of the Company, the Company hereby retains the Financial Advisor as sole
placement agent or lead manager in connection with such transaction. In the
event of the successful completion of such a transaction, the Company will pay
the Financial Advisor a fee of 6.0% of the principal amount raised in the
Refinancing.
Other:
6. If requested by the Board of Directors of the Company, the Financial
Advisor will provide a Fairness Opinion to the Board that the Restructuring, or
any other transaction in which the Company may engage, is fair to the
shareholders of the Company. The nature and scope of the investigation which we
would conduct in order to be able to render our opinion will be such as we would
consider appropriate, and such opinion will be subject to appropriate
assumptions and qualifications. If requested, our opinion will be in written
form. Such opinion shall be solely for the use of the Board of Directors in
considering any proposed Restructuring or other transaction. Such opinion shall
be subject to the final terms of the Restructuring or other transaction and
approval of the Financial Advisor's Opinion Letter Committee and any other
conditions the Financial Advisor deems appropriate. If the Financial Advisor
issues such opinion, the Company agrees to pay the Financial Advisor a fee of
$100,000 payable in cash upon rendering such opinion.
7. The Financial Advisor and the Company acknowledge and agree that the
Company is entering into this Agreement in reliance on the Financial Advisor's
experience and expertise in performing the services to be provided hereunder and
that the Financial Advisor shall perform such services and its obligations
hereunder using its best efforts, in a prompt and professional manner and in
accordance with the highest standards of its industry.
8. In order to coordinate our efforts on behalf of the Company during
the period of our engagement hereunder, in the event the Company receives an
inquiry concerning any potential business combination or strategic partnership,
the Company will promptly inform Alex. Xxxxx of such inquiry so that we can
assess such inquiry and any resulting negotiations. In the event that Alex.
Xxxxx receives an inquiry concerning any such type of transaction, we will
promptly inform the Company of such inquiry.
9. The Company will cooperate with the Financial Advisor and will
furnish the Financial Advisor with all information, documents and data
concerning the Company and other parties as appropriate (the "Information")
which the Financial Advisor deems appropriate and will provide the Financial
Advisor with access to the Company's officers, director, employees, independent
accountants and legal counsel. The Company will use its best efforts to ensure
that all Information made available to the Financial Advisor by the Company
will, at all times during the period of the engagement of the Financial Advisor
hereunder, be to the knowledge of the Company substantially correct in all
material respects and will promptly advise the Financial Advisor as soon as the
Company becomes aware that any information is inaccurate or incomplete. The
Company represents and warrants that any projections provided by it to the
Financial Advisor will have been prepared in good faith and will be based upon
fully disclosed assumptions which, in light of the circumstances under which
they are made, will be reasonable. The Company acknowledges and agrees that, in
rendering its services hereunder, the Financial Advisor will be using and
relying on the Information without independent verification thereof by the
Financial Advisor or independent appraisal by the Financial Advisor of any of
the Company's assets. The Financial Advisor does not and will not assume
responsibility for the accuracy or completeness of the Information made
available to the Financial Advisor by the Company.
10. In consideration of our services as the Company's Financial Advisor
under this Agreement, the Company agrees to indemnify and hold harmless Alex.
Xxxxx and each of its directors, officers, agents, employees and controlling
persons (with the meaning of the Securities Act of 1933, as amended) to the
extent and as provided in Addendum A attached hereto and incorporated herein by
reference. The provisions of this section and Addendum A incorporated herein by
reference shall survive the termination of Alex. Xxxxx'x engagement under this
Agreement and shall be binding upon any successors or assigns of the Company.
11. Unless the parties hereto agree otherwise in writing, this
Agreement shall automatically be terminated on that date which is twelve (12)
months from the date on which the Company accepts the terms of this Agreement by
executing and delivering a duplicate of this letter to the Financial Advisor as
provided below. This Agreement may be terminated by the Company or the Financial
Advisor, with or without cause, effective thirty days subsequent to receipt of
written notice. Notwithstanding termination of this Agreement, the Financial
Advisor will be entitled to: (i) receive reimbursement of all out-of-pocket
expenses paid or incurred through the effective date of termination and the full
benefit of the indemnity and reimbursement provisions detailed in Addendum A
which shall remain in full force and effect. In addition, if within twelve
months after termination by the Company, the Company completes a Restructuring
or other transaction substantially similar to a restructuring or transactions
recommended by the Financial Advisor, then the Financial Advisor will receive
the full fees outlined above. This shall include any Business Combinations with
any prospective acquirors and/or investors identified or contacted by Alex.
Xxxxx as to which the Company has previously been notified in writing.
12. The terms and provisions of this letter are solely for the benefit
of the parties hereto and the other indemnified persons and their respective
successors, assigns, heirs and personal representatives, and no other person
shall acquire or have any right by virtue of this letter. In this connection it
is understood that Alex. Xxxxx is being engaged solely to provide the services
described herein to the Company and that Xxxx Xxxxx is not acting as an agent or
fiduciary of, and shall have no duties or liability to the equity holders of the
Company.
13. This letter shall be governed by, and construed in accordance with,
the laws of the state of New York State without regard to the principle of
conflicts of law, and may be amended, modified or supplemented only by written
instrument by the parties hereto.
If the foregoing letter is in accordance with your understanding of the
terms of our engagement, please sign and return to us the enclosed duplicate
hereof.
Very truly yours,
ALEX. XXXXX & SONS INCORPORATED
By: /s/ Xxxxx X. Xxxxxxx
------------------------
Xxxxx X. Xxxxxxx
Managing Director
Accepted and Agreed to as of the date first written above:
NETWORK IMAGING CORPORATION
By: /s/ Xxxxx X. Xxxx
------------------------
Xxxxx X. Xxxx
Chairman, President & Chief Executive Officer
ADDENDUM A
In connection with our engagement described in the foregoing letter
agreement to which this Addendum A is attached, Network Imaging Corporation (the
"Company") agrees to indemnify and hold harmless Alex. Xxxxx & Sons Incorporated
(the "Financial Advisor") and each of its directors, officers, agents, employees
and controlling persons (within the meaning of the Securities Act of 1933, as
amended) against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) related to or arising out of our engagement, and
will reimburse the Financial Advisor and each other person indemnified hereunder
for all legal and other expenses as incurred in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding whether
or not in connection with pending or threatened litigation in which the
Financial Advisor or any of its directors, officers, agents, employees and
controlling persons is a party; provided, however, that the Company will not be
liable in the event of any losses, claims, damages, liabilities (or actions or
proceedings in respect thereof) or expenses to the extent that they result from
actions taken or omitted to be taken by the Financial Advisor, or any other
indemnified party hereunder, resulting directly from the sole or gross
negligence or willful misconduct of the Financial Advisor or any other
indemnified party hereunder.
In case any proceeding shall be instituted involving any person in
respect of whom indemnity may be sought, such person (the "indemnified party")
shall promptly notify the Company and the Company, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the Company
may designate in such proceeding and shall pay as incurred the fees and expenses
of such counsel related to such proceeding. In any such proceeding, the Company
and any indemnified party shall have the right to retain its own counsel at its
own expense, except that the Company shall pay as incurred the fees and expenses
of counsel retained by the indemnified party in the event that the Company and
the indemnified party shall have mutually agreed to the retention of such
counsel or the named parties to any such proceeding (including any impleaded
parties) include both the Company and the indemnified party and representation
of both parties by the same counsel would be inappropriate, in the reasonable
opinion of the indemnified party, due to actual or potential conflicts of
interests between them.
The Company shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there is a final judgment for the plaintiff, the Company agrees to indemnify the
indemnified party to the extent set forth in this Addendum A. In addition the
Company will not, without the prior written consent of the Financial Advisor,
settle or compromise or consent to the entry or any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not the Financial Advisor or any indemnified
party is an actual or potential party to such claim, action, suit or proceeding)
unless such settlement, compromise or consent includes an unconditional release
of the Financial Advisor and each other indemnified party hereunder from all
liability arising out of such claim, action, suit or proceeding.
ADDENDUM B
Retainer Due to Alex. Xxxxx $55,000
Average IMGX Trading Price $1.44
Common Shares to Alex. Xxxxx 19,048
Value per Warrant $0.81
Warrants to Alex. Xxxxx 33,951
Success Fee Due to Alex. Xxxxx $450,000
Average IMGX Trading Price $1.44
Common Shares to Alex. Xxxxx 155,844
Value per Warrant $0.81
Warrants to Alex. Xxxxx 277,778
Assumptions:
1. Warrant price from Company according to E&Y calculation method
2. Warrants: nonexercisable for 1 year from the date of this letter; exercis-
able into registered shares
3. Common stock: no sale of stock during the 1 year period beginning from the
date of this letter
4. All holding requirements cease upon a change in control of the Company
5. Alex, Xxxxx will have the right to "piggy-back" its shares/warrants with any
offering of the common stock of the Company
Last 5 Closing Prices
13-Aug-97 $1.53
12-Aug-97 $1.56
11-Aug-97 $1.44
08-Aug-97 $1.38
07-Aug-97 $1.31
Average $1.44
If the indemnification provided for in this Addendum A is determined to
be unenforceable by a final judgment of a court of competent jurisdiction then
the Company, in lieu of indemnifying such indemnified party, agrees that it
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities, or expenses in such amount
as is appropriate to reflect the relative benefits received by the Company on
one hand, and by the indemnified party on the other hand from the services
rendered hereunder and the relative fault of the Company on the one hand and of
the indemnified party on the other, as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Addendum A, the
indemnified parties, in the aggregate, shall not be required to contribute any
amount in excess of the amount of fees received by the Financial Advisor under
this Agreement.
This indemnification shall apply to the original engagement as set
forth in the Agreement and any modification of the original engagement and the
indemnification provided herein shall survive termination of the Financial
Advisor's engagement and shall be binding upon any successors or assigns of the
Company.
