November 11, 2002
PERSONAL & CONFIDENTIAL
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RTX SECURITIES CORPORATION ADVISORY AGREEMENT
Dear Xx. Xxxxxxx:
RTX Securities Corporation ("RTX") is pleased to act as financial advisor to
Citadel Security Software Inc. (the "Company"). We will provide financial and
capital market advisory services to the Company which may include: (i) review of
financial statements and non-public internal business plans, (ii) evaluation of
strategic alternatives based on Company objectives and RTX industry expertise,
(iii) advice on appropriate capital structure and strategies to achieve maximum
return to shareholders and (iv) sponsorship for and introductions to
institutional investors. The purpose of this letter is to memorialize the terms
of our engagement by the Company.
1. Services. In connection with this engagement, RTX will perform the
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following services:
a. Review of Financial Condition/Capital Structure: RTX will review
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both publicly available documents and confidential Company
materials to determine if the Company has an appropriate capital
structure given its market opportunity. RTX may advise changes in
capital structure as a result of this review and present
strategies to effect such changes. In the event that specific
transactions are identified, RTX will execute additional
engagement letters to specify the compensation and
responsibilities of RTX in each case.
b. Strategic/Competitive Analysis: RTX will help the Company assess
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its strategic positioning within its industry sector and advise
the Company on appropriate corporate development strategies
including potential acquisition, merger and sale strategies. In
the event that specific transactions are identified, RTX will
execute additional engagement letters to specify the compensation
and responsibilities of RTX in each case.
c. Institutional Marketing: RTX will review the Company's Investor
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Presentations (Power Point presentations, handouts, letters to
shareholders, etc.) and advise the Company on any recommended
changes. RTX will also introduce Company management to its
institutional sales force and select institutional investor
clients for group and individual meetings.
2. Information Provided to RTX. In connection with our engagement, the
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Company has agreed to furnish to RTX, on a timely basis, all relevant
information needed by RTX to perform under the terms of this
agreement. During our engagement, it may be necessary for us: to
interview the management of, the auditors for, and the consultants and
advisors to, the Company; to rely (without independent verification)
upon data furnished to us by them; and to review any financial and
other reports relating to the business and financial condition of the
Company as we may determine to be relevant under the circumstances. In
this connection, the Company will make available to us such
information as we may request, including information with respect to
the assets, liabilities, earnings, earning power, financial condition,
historical performance, future prospects and financial projections and
the assumptions used in the development of such projections of the
Company. We agree that all nonpublic information obtained by us in
connection with our engagement will be held by us in strict confidence
and will be
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000 Xxxx Xxxxxx, Xxxxx 000, Xxx Xxxxxxxxx, XX 00000 tel: (000) 000-0000
fax: (000) 000-0000
Citadel Security Software Inc.
November 11, 2002
Page 2
used by us solely for the purpose of performing financial advisory
services and will not be used for institutional marketing, sales,
trading or market making.
We do not assume any responsibility for, or with respect to, the accuracy,
completeness or fairness of the information and data supplied to us by the
Company or its representatives. In addition, the Company acknowledges that we
will assume, without independent verification, that all information supplied to
us with respect to the Company will be true, correct and complete in all
material respects and will not contain any untrue statements of material fact or
omit to state a material fact necessary to make the information supplied to us
not misleading. If at any time during the course of our engagement the Company
becomes aware of any material change in any of the information previously
furnished to us, it will promptly advise us of the change.
3. Scope of Engagement. The Company acknowledges that we will not make,
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or arrange for others to make, an appraisal of any physical assets of
the Company. Nonetheless, if we determine after review of the
information furnished to us that any such appraisal or appraisals are
necessary or desirable, we will so advise the Company and, if approved
by the Company in writing, the costs incurred in connection with such
appraisal(s) will be borne by the Company.
RTX has been engaged by the Company only in connection with the matters
described in this letter agreement and for no other purpose. We have not made,
and will assume no responsibility to make any representation in connection with
our engagement as to any legal matter.
4. Term of Engagement. This agreement will be effective for one year from
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the date this letter agreement is executed. Either party may terminate
the relationship, at any time, upon thirty days written notice to the
other party. However, Company hereby agrees to a six-month minimum
engagement with RTX (the "Initial Term"). In the event of termination
or expiration of this agreement, RTX's financial advisory fee and
expenses incurred through the date of termination will be payable in
full.
5. Fees and Expenses. As compensation for our professional services, RTX
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will receive a non-refundable financial advisory fee of $10,000 upon
execution of this letter agreement by the Company. This payment will
be in consideration of the first month of services provided by RTX.
RTX will receive a financial advisory fee of $10,000 for each month of
its engagement by the Company. Company agrees to a six-month minimum
obligation. ($60,000 total.) The Company also agrees to reimburse our
reasonable out-of-pocket expenses (including, but not limited to,
messenger, overnight courier, printing, travel and counsel fees) on a
monthly basis, up to a maximum of $2,500 without written consent of
the Company. During each month that this agreement is effective, RTX
shall receive a warrant to purchase 10,000 shares of common stock of
the Company at an exercise price equal to the closing price of the
Company's common stock as reported by the appropriate exchange. The
first monthly-warrant will be priced on the effective date first
stated above. Subsequent monthly-warrant grants will be made to RTX,
for each month this agreement is effective, and will be price on the
11th day in the subsequent month(s). The number of shares of each
warrant will be adjusted for stock splits or other dilutive events.
The warrants will also include registration rights, a net exercise
provision, will be fully exercisable on their issuance date and will
have a term of five years from the issuance date.
6. Indemnity and Contribution. The parties agree to the terms of RTX's
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standard indemnification agreement, which is attached hereto as
Appendix A and incorporated herein by reference. The provisions of
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this paragraph 6 shall survive any termination of this Agreement.
7. Other Business. For one year from the effective date of this
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agreement, the Company and RTX agree that if RTX is asked to act for
the Company in any other formal additional capacity relating to this
engagement but not specifically addressed in this letter, then such
activities shall constitute separate
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000 Xxxx Xxxxxx, Xxxxx 000, Xxx Xxxxxxxxx, XX 00000 tel: (000) 000-0000
fax: (000) 000-0000
Citadel Security Software Inc.
November 11, 2002
Page 3
engagements and the terms and conditions of any such additional
engagements will be embodied in one or more separate written
agreements, containing provisions and terms to be mutually agreed
upon, including without limitation appropriate indemnification
provisions. The indemnity provisions in Appendix A shall apply to any
such additional engagements, unless superseded by an indemnity
provision set forth in a separate agreement applicable to any such
additional engagements, and shall remain in full force and effect
regardless of any completion, modification or termination of RTX's
engagement(s).
8. Other RTX Activities. RTX is a securities firm engaged in securities
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trading and brokerage activities as well as corporate financial
advisory services. In the ordinary course of our trading and brokerage
activities, RTX or its affiliates may hold positions, for its own
account or the accounts of customers, in equity, debt or other
securities of the Company.
THIS AGREEMENT MAKES NO REPRESENTATION; NOR DOES IT SUGGEST, IMPLY OR
GUARANTEE THAT AN RTX SECURITIES ANALYST WILL PUBLISH A REPORT
REGARDING THE COMPANY. FURTHER, IF AN RTX SECURITIES ANALYST SHOULD
CHOOSE TO PREPARE A REPORT REGARDING THE COMPANY; THIS AGREEMENT MAKES
NO REPRESENTATION; NOR DOES IT SUGGEST, IMPLY OR GUARANTEE THAT SUCH
REPORT WILL CAST THE COMPANY IN A FAVORABLE LIGHT, NOR RECOMMEND
PURCHASE OF THE COMPANY'S STOCK.
9. Compliance with Applicable Law. In connection with this engagement,
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the Company and RTX will comply with all applicable federal, state and
foreign securities laws and other applicable laws.
10. Independent Contractor. RTX is and at all times during the term hereof
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will remain an independent contractor, and nothing contained in this
letter agreement will create the relationship of employer and employee
or principal and agent as between the Company and RTX or any of its
employees. Without limiting the generality of the foregoing, all final
decisions with respect to matters about which RTX has provided
services hereunder shall be solely those of the Company, and RTX shall
have no liability relating thereto or arising therefrom. RTX shall
have no authority to bind or act for the Company in any respect. It is
understood that RTX responsibility to the Company is solely
contractual in nature and that RTX does not owe the Company, or any
other party, any fiduciary duty as a result of its engagement.
11. Successors and Assigns. This letter agreement and all obligations and
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benefits of the parties hereto shall bind and shall inure to their
benefit and that of their respective successors and assigns. The
indemnity and contribution provisions incorporated into this letter
agreement are for the express benefit of the officers, directors,
employees, consultants, agents and controlling persons of RTX and
their respective successors and assigns.
12. Announcements. The Company grants to RTX the right to place customary
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announcement(s) of this engagement in certain newspapers and to mail
announcement(s) to persons and firms selected by RTX, and all costs of
such announcement(s) will be borne by RTX.
13. Arbitration. Any dispute between the parties concerning the
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interpretation, validity or performance of this letter agreement or
any of its terms and provisions shall be submitted to binding
arbitration in San Francisco County, California if the dispute is
brought by the Company, and in Dallas County, Texas if brought by RTX,
before the American Arbitration Association, and the prevailing party
in such arbitration shall have the right to have any award made by the
arbitrators confirmed by a court of competent jurisdiction.
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000 Xxxx Xxxxxx, Xxxxx 000, Xxx Xxxxxxxxx, XX 00000 tel: (000) 000-0000
fax: (000) 000-0000
Citadel Security Software Inc.
November 11, 2002
Page 4
14. General Provisions. No purported waiver or modification of any of the
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terms of this letter agreement will be valid unless made in writing
and signed by the parties hereto. Section headings used in this letter
agreement are for convenience only, are not a part of this letter
agreement and will not be used in construing any of the terms hereof.
This letter agreement constitutes and embodies the entire
understanding and agreement of the parties hereto relating to the
subject matter hereof, and there are no other agreements or
understandings, written or oral, in effect between the parties
relating to the subject matter hereof. No representation, promise,
inducement or statement of intention has been made by either of the
parties hereto which is to be embodied in this letter agreement, and
none of the parties hereto shall be bound by or liable for any alleged
representation, promise, inducement or statement of intention, not so
set forth herein. No provision of this letter agreement shall be
construed in favor of or against either of the parties hereto by
reason of the extent to which either of the parties or its counsel
participated in the drafting hereof. If any provision of this letter
agreement is held by a court of competent jurisdiction to be invalid,
illegal or unenforceable, the remaining provisions hereof shall in no
way be affected and shall remain in full force and effect. In case of
any litigation or arbitration between the parties hereto, the
prevailing party shall be entitled to its reasonable legal fees. This
letter agreement is made and entered in the State of California, and
the laws of that state relating to contracts made in, and to be
performed entirely in, the State shall govern the validity and the
interpretation hereof. This letter agreement may be executed in any
number of counterparts and by facsimile signature.
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000 Xxxx Xxxxxx, Xxxxx 000, Xxx Xxxxxxxxx, XX 00000 tel: (000) 000-0000
fax: (000) 000-0000
Citadel Security Software Inc.
November 11, 2002
Page 5
If the foregoing correctly sets forth your understanding of our agreement,
please sign the enclosed copy of this letter and return it to RTX, whereupon it
shall constitute a binding agreement between us.
Very truly yours,
RTX Securities Corporation
By: /s/ Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx
President
The undersigned hereby accepts, agrees to and becomes party to the
foregoing letter agreement, effective as of the date first written above.
Citadel Security Software Inc.
By: /s/ Xxxxxx X. Xxxxxxx
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Xxxxxx X. Xxxxxxx, CEO
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000 Xxxx Xxxxxx, Xxxxx 000, Xxx Xxxxxxxxx, XX 00000 tel: (000) 000-0000
fax: (000) 000-0000
APPENDIX A-INDEMNIFICATION AGREEMENT
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The Company agrees to indemnify and hold harmless RTX and its officers,
directors, employees, consultants, attorneys, agents and controlling persons
(within the meaning of Section 15 of the Securities Act of 1933, as amended, or
Section 20 of the Securities Exchange Act of 1934, as amended) (RTX and each
such other persons are collectively and individually referred to below as an
"Indemnified Party") from and against any and all loss, claim, damage, liability
and expense whatsoever, as incurred, including, without limitation, reasonable
costs of any investigation, legal and other fees and expenses incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted, to which the Indemnified Party may become
subject under any applicable federal or state law (whether in tort, contract or
on any other basis) or otherwise, and related to the performance by the
Indemnified Party of the services contemplated by this letter agreement and will
reimburse the Indemnified Party for all expenses (including legal fees and
expenses) as they are incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or any action or
proceeding arising therefrom, whether or not the Indemnified Party is a party
and whether or not such claim, action or proceeding is initiated or brought by
the Company. The Company will not be liable under the foregoing indemnification
provision to the extent that any loss, claim, damage, liability or expense is
found in a final judgment by a court or arbitrator, not subject to appeal or
further appeal, to have resulted from the Indemnified Party's bad faith, willful
misconduct or gross negligence. The Company also agrees that the Indemnified
Party shall have no liability (whether direct or indirect, in contract, tort or
otherwise) to the Company related to, or arising out of, the engagement of the
Indemnified Party pursuant to, or the performance by the Indemnified Party of
the services contemplated by, this letter agreement except to the extent that
any loss, claim, damage, liability or expense is found in a final judgment by a
court or arbitrator, not subject to appeal or further appeal, to have resulted
from the Indemnified party's bad faith, willful misconduct or gross negligence.
If the indemnity provided above shall be unenforceable or unavailable for any
reason whatsoever, the Company, its successors and assigns, and the Indemnified
Party shall contribute to all such losses, claims, damages, liabilities and
expenses (including, without limitation, all costs of any investigation, legal
or other fees and expenses incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted) (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and RTX under the terms of this letter agreement or (ii) if the
allocation provided for by clause (i) of this sentence is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i), but also the relative fault of the
Company and RTX in connection with the matter(s) as to which contribution is to
be made. The relative benefits received by the Company and RTX shall be deemed
to be in the same proportion as the fee the Company actually pays to RTX bears
to the total value of the consideration paid or to be paid to the Company and/or
the Company's shareholders in the Capital Raising Transaction or Sale
Transaction, as the case may be, or the Target in an Acquisition Transaction.
The relative fault of the Company and RTX shall be determined by reference to,
among other things, whether any untrue or alleged untrue statement of material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company or by RTX and the Company's and RTX's
relative intent, knowledge, access to information and opportunity to correct.
The Company and RTX agree that it would not be just or equitable if contribution
pursuant to this paragraph were determined by pro rata allocation or by any
other method of allocation which does not take into account these equitable
considerations. Notwithstanding the foregoing, to the extent permitted by law,
in no event shall the Indemnified Party's share of such losses, claims, damages,
liabilities and expenses exceed, in the aggregate, the fee actually paid to the
Indemnified Party by the Company.
The Indemnified Party will give prompt written notice to the Company of any
claim for which it seeks indemnification hereunder, but the omission to so
notify the Company will not relieve the Company from any liability which it may
otherwise have hereunder except to the extent that the Company is damaged or
prejudiced by such omission or from any liability it may have other than under
this Appendix A. The Company shall have the right to assume the defense of any
claim, lawsuit or action (collectively an "action") for which the Indemnified
Party seeks indemnification hereunder, subject to the provisions stated herein
with counsel reasonably satisfactory to the Indemnified Party. After notice
from the Company to the Indemnified Party of its election so to assume the
defense thereof, and so long as the Company performs its obligations pursuant to
such election, the Company will not be liable to the Indemnified Party for any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation. The Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof at its own
expense; provided, however, that the reasonable fees and expenses of such
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counsel shall be at the expense of the Company if the named parties to any such
action (including any impleaded parties) include both the Indemnified Party and
the Company and the Indemnified Party shall have reasonably concluded, based on
advice of counsel, that there may be legal defenses available to the Indemnified
Party which are different from, or in conflict with, any legal defenses which
may be available to the Company (in which event the Company shall not have the
right to assume the defense of such action on behalf of the Indemnified Party,
it being understood, however, that the Company shall not be liable for the
reasonable fees and expenses of more than one separate firm of attorneys
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000 Xxxx Xxxxxx, Xxxxx 000, Xxx Xxxxxxxxx, XX 00000 tel: (000) 000-0000
fax: (000) 000-0000
for all Indemnified Parties in each jurisdiction in which counsel is needed).
Despite the foregoing, the Indemnified Party shall not settle any claim without
the prior written approval of the Company, which approval shall not be
unreasonably withheld, so long as the Company is not in material breach of this
Appendix A. Also, each Indemnified Party shall make reasonable efforts to
mitigate its losses and liabilities. In addition to the Company's other
obligations hereunder and without limitation, the Company agrees to pay monthly,
upon receipt of itemized statements therefor, all reasonable fees and expenses
of counsel incurred by an Indemnified Party in defending any claim of the type
set forth in the preceding paragraphs or in producing documents, assisting in
answering any interrogatories, giving any deposition testimony or otherwise
becoming involved in any action or response to any claim relating to the
engagement referred to herein, or any of the matters enumerated in the preceding
paragraphs, whether or not any claim is made against an Indemnified Party or an
Indemnified Party is named as a party to any such action.
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Appendix A
