Exhibit 10.7
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, Lufkin & ▇▇▇▇▇▇▇▇ Securities Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ o (▇▇▇) ▇▇▇-▇▇▇▇
July 23, 1999
PRIVATE AND CONFIDENTIAL
Hydrant Acquisition Corp.
▇▇▇▇▇▇▇ Group, Inc.
c/o DLJ Merchant Banking II, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Mr. ▇▇▇▇▇▇▇▇ ▇▇▇▇
Ladies and Gentlemen:
This letter agreement (the "Agreement") confirms our understanding that
Hydrant Acquisition Corp. and ▇▇▇▇▇▇▇ Group, Inc. (collectively, the "Company")
have engaged ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Securities Corporation ("DLJ") to act
as exclusive financial advisor (i) to it for a period of 24 months commencing
upon your acceptance of this Agreement, with respect to the possible acquisition
from Tyco International Ltd. and its subsidiaries (collectively, the "Seller")
(and any related matters such as financings) of the businesses conducted by
▇▇▇▇▇▇▇ Holdings Corp. and its subsidiaries, ▇. ▇. ▇▇▇▇▇ Mfg. Co. and Tyco
International of Canada Ltd., and the ▇▇▇▇▇▇▇▇ Supply Sales Division and the
▇▇▇▇▇▇▇▇ Manufacturing Division of Seller (collectively, the "Businesses") in
one or a series of transactions, by merger, consolidation or any other business
combination, by purchase involving all or a substantial amount of the business,
securities or assets of or related to the Businesses, or otherwise (the
"Acquisition"), and (ii) to the Company following the closing of the
Acquisition, and continuing until the earlier of (i) the fifth anniversary of
the closing of the Acquisition and (ii) the date that the DLJ Merchant Banking
funds no longer own in aggregate more than 50% of the equity of the Company or
any successor thereto (whether by merger, consolidation, securities purchase or
otherwise) (such period, the "Engagement Period"), with respect to the review
and analysis of financial and structural alternatives available to the Company
with a view to meeting its long term strategic objectives.
As discussed, we propose to undertake certain services on your behalf, to
the extent requested by you, which shall consist of the following: (i) assisting
you in evaluating the Businesses, their operations, historical performance and
future prospects; (ii) advising on a proposed purchase price and form of
consideration; (iii) assisting you in structuring the Acquisition; (iv)
negotiating the financial
Mr. ▇▇▇▇▇▇▇▇ ▇▇▇▇
Hydrant Acquisition Corp.
▇▇▇▇▇▇▇ Group, Inc.
Page 2
July 23, 1999
aspects of any Acquisition under your guidance and (v) assisting you, from time
to time, in analyzing the Company's operations, historical performance and
future prospects.
As compensation for the services to be provided by DLJ hereunder, the
Company agrees, jointly and severally, (i) to pay to DLJ (a) a fee of $6 million
upon consummation of the Acquisition (the "Acquisition Fee") and (b) an annual
advisory fee of $500,000, payable quarterly in equal installments of $125,000 on
the first business day of each three month period commencing on the closing of
the Acquisition, and (ii) upon request by DLJ from time to time, to reimburse
DLJ promptly for all out-of-pocket expenses (including the reasonable fees and
expenses of counsel) incurred by DLJ in connection with its engagement
hereunder, whether or not the Acquisition or a Transaction (as defined below) is
consummated. As DLJ will be acting on your behalf, the Company agrees, jointly
and severally, to the indemnification and other obligations set forth in
Schedule I attached hereto, which Schedule is an integral part hereof.
The Acquisition Fee shall be payable in cash promptly upon consummation of
the Acquisition. For purposes of this Agreement, the Acquisition shall be deemed
to have been consummated upon the earliest of any of the following events to
occur: (a) the acquisition by the Company or any of its affiliates of at least
fifty one percent (51.0%) of the outstanding equity securities of the
subsidiaries of Seller engaged in the Businesses, calculated on a fully-diluted
basis; (b) a merger or consolidation of the subsidiaries of Seller engaged in
the Businesses with the Company or an affiliate of the Company; (c) the
acquisition by the Company or any of its affiliates of assets of the
subsidiaries of Seller engaged in the Businesses representing at least fifty one
percent (51.0%) of the book value of the assets of the Businesses or (d) in the
case of any other Acquisition, the consummation thereof.
In connection with any debt or equity financing (including bank financing)
by the Company or any subsidiary of the Company (i) the proceeds of which are
used to finance all or a portion of the Acquisition or (ii) which is effected at
any time within 12 months following consummation of the Acquisition, DLJ shall
have the right but not the obligation to act as exclusive private placement
agent, lead initial purchaser or sole managing underwriter to the Company or
such subsidiary, provided that the fees of DLJ for such services shall be
competitive with, those customarily charged by DLJ and other investment banks in
similar transactions. In connection with such financings, the Company or such
subsidiary shall take such action as is necessary or desirable to facilitate the
public or private sale of such securities, including. the preparation of any
documents required to be filed with the Securities and Exchange Commission and
shall enter into a private
Mr. ▇▇▇▇▇▇▇▇ ▇▇▇▇
Hydrant Acquisition Corp.
▇▇▇▇▇▇▇ Group, Inc.
Page 3
July 23, 1999
placement agreement, purchase agreement or underwriting agreement with DLJ
which shall contain, normal and customary provisions for such agreements in
which DLJ acts as placement agent, initial purchaser or managing underwriter,
as the case may be.
As further compensation, the Company agrees that in the event the Company
determines to pursue any Transaction (as hereinafter defined) during the
Engagement Period, DLJ shall have the right to act as the Company's exclusive
financial advisor, sole placement agent, sole initial purchaser, sole managing
underwriter or sole dealer-manager, as the case may be, with respect to each
such Transaction, provided that the fees of DLJ for such services shall be
competitive with those customarily charged by DLJ and other investment banks in
similar transactions.
For purposes of this letter, the term "Transaction" shall include each of
the following: (i) the sale, merger, consolidation or any other business
combination, in one or a series of transactions, involving any material portion
of the business, securities or assets of the Company; (ii) the acquisition,
other than the Acquisition, (and any related matters such as financings,
divestitures, etc.), in one or a series of transactions, of all or a portion of
the business, securities or assets of another entity or person; (iii) any
recapitalization, refinancing, repurchase or restructuring of the Company's
equity or debt securities or indebtedness or any amendments or modifications to
the Company's debt securities or indentures whether or not in connection
therewith, involving, by or on behalf of the Company, an offer to purchase or
exchange for cash, property, securities, indebtedness or other consideration, or
a solicitation of consents, waivers of authorizations with respect thereto; (iv)
any spin-off, split-off or other extraordinary dividend of cash, securities or
other assets to stockholders of the Company; or (v) any sale of securities of
the Company effected pursuant to a private sale or an underwritten public
offering.
If the Company determines to pursue any such Transaction, DLJ and the
Company will enter into an agreement appropriate to the circumstances,
containing provisions for, among other things, compensation, indemnification,
contribution and representations and warranties, which are usual and customary
for similar agreements entered into by DLJ or other investment bankers of
international standing acting in similar transactions. DLJ shall have no
obligation to act as placement agent, initial purchaser, underwriter or dealer
manager to the Company or to place or purchase any securities of the Company,
except to the extent that such obligations arise out of a placement agent
agreement, purchase agreement, underwriting agreement or dealer-manager
agreement, as the case may
Mr. ▇▇▇▇▇▇▇▇ ▇▇▇▇
Hydrant Acquisition Corp.
▇▇▇▇▇▇▇ Group, Inc.
Page 4
July 23, 1999
be, with respect to a particular Transaction executed and delivered by both DLJ
and the Company.
The Company shall make available to DLJ all financial and other
information concerning its business and operations that DLJ reasonably requests
as well as any other information relating to the Acquisition and any
Transaction prepared by the Company or any of its other advisors. In performing
its services hereunder, DLJ 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 Seller 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 any of the Company's or the Seller's assets or
liabilities. To the extent consistent with legal requirements, all information
given to DLJ by the Company, unless publicly available or otherwise available
to DLJ without restriction or breach of any confidentiality agreement, will be
held by DLJ in confidence and will not be disclosed to anyone other than DLJ's
agents and advisors without the Company's prior approval or used for any
purpose other than those referred to in this Agreement.
Any advice, written or oral, provided by DLJ pursuant to this Agreement
will be treated by the Company as confidential, will be solely for the
information and assistance of the Company in connection with its consideration
of the Acquisition or a Transaction and will not be reproduced, summarized,
described or referred to, or furnished to any other party or used for any other
purpose, except in each case with our prior written consent.
The Company acknowledges and agrees that DLJ has been retained solely to
provide the advice or services set forth in this Agreement. DLJ shall act as an
independent contractor, and any duties of DLJ arising out of its engagement
hereunder shall be owed solely to the Company.
This Agreement may be terminated by DLJ at any time or by the Company upon
expiration of the Engagement Period upon receipt of written notice to that
effect by the other party. Upon any termination or expiration of this
Agreement, DLJ will be entitled to prompt payment of all fees accrued prior to
such termination or expiration and reimbursement of all out-of-pocket expenses
as described above. The indemnity and other provisions contained in Schedule I
will also remain operative and in full force and effect regardless of any
termination or expiration of this Agreement.
Mr. ▇▇▇▇▇▇▇▇ ▇▇▇▇
Hydrant Acquisition Corp.
▇▇▇▇▇▇▇ Group, Inc.
Page 5
July 23, 1999
This Agreement shall be binding upon and inure to the benefit of the
Company, DLJ, each Indemnified Person (as defined in Schedule I) and their
respective successors and assigns.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York.
The Company irrevocably and unconditionally submits to the exclusive
jurisdiction of any State or Federal court sitting in New York City over any
suit, action or proceeding arising out of or relating to this Agreement
(including Schedule I). The Company hereby agrees that service of any process,
summons, notice or document by U.S. registered mail addressed to the Company
shall be effective service of process for any action, suit or proceeding
brought in any such court. The Company irrevocably and unconditionally waives
any objection to the laying of venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or
proceeding brought in such a court has been brought in an inconvenient forum.
The Company agrees that a final judgment in any such suit, action or proceeding
brought in any such court shall be conclusive and binding upon the Company and
may be enforced in any other courts to whose jurisdiction the Company is or may
be subject, by suit upon such judgment.
If any term, provision, covenant or restriction contained in this
Agreement, including Schedule I, is held by a court of competent jurisdiction
or other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
After reviewing this Agreement, please confirm that the foregoing is in
accordance with your understanding by signing and returning to me the duplicate
of this Agreement attached hereto, whereupon it shall be our binding Agreement.
Very truly yours,
▇▇▇▇▇▇▇▇▇, LUFKIN & ▇▇▇▇▇▇▇▇
SECURITIES CORPORATION
By:
-----------------------------------
Name: Herald ▇. ▇▇▇▇▇
Title: Managing Director
Mr. ▇▇▇▇▇▇▇▇ ▇▇▇▇
Hydrant Acquisition Corp.
▇▇▇▇▇▇▇ Group, Inc.
Page 6
July 23, 1999
Accepted and Agreed
This day of , 1999
---- -----------
HYDRANT ACQUISITION CORP.
By:
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▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ GROUP, INC.
By:
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▇▇▇▇▇▇▇▇ ▇▇▇▇
SCHEDULE I
This Schedule I is a part of and is incorporated into that certain letter
agreement (together, the "Agreement") dated July 23, 1999 by and between
Hydrant Acquisition Corp. and ▇▇▇▇▇▇▇ Group, Inc. (collectively, the "Company")
and ▇▇▇▇▇▇▇▇▇, Lufkin & ▇▇▇▇▇▇▇▇ Securities Corporation ("DLJ").
The Company will, jointly and severally, indemnify and hold harmless DLJ
and its affiliates, and the respective directors, officers, agents and
employees of DLJ and its affiliates (DLJ and each such entity or person, an
"Indemnified Person") from and against any losses, claims, damages, judgments,
assessments, costs and other liabilities (collectively "Liabilities"), and will
reimburse each Indemnified Person for all fees and expenses (including the
reasonable fees and expenses of counsel) (collectively, "Expenses") as they are
incurred in investigating, preparing, pursuing or defending any claim, action,
proceeding or investigation, whether or not in connection with pending or
threatened litigation or arbitration and whether or not any Indemnified Person
is a party (collectively, "Actions"), arising out of or in connection with
advice or services rendered or to be rendered by any Indemnified Person
pursuant to this Agreement, the transactions contemplated hereby or any
Indemnified Person's actions or inactions in connection with any such advice,
services or transactions; provided that the Company will not be responsible for
any Liabilities or Expenses of any Indemnified Person that are determined by a
judgment of a court of competent jurisdiction which is no longer subject to
appeal or further review to have resulted solely from such Indemnified Person's
gross negligence or willful misconduct in connection with any of the advice,
actions, inactions or services referred to above; it being understood and
agreed that for purposes of this Schedule I, the term "Indemnified Person"
shall specifically exclude the Company. The Company also agrees to reimburse
each Indemnified Person for all Expenses as they are incurred in connection
with enforcing such Indemnified Person's rights under this Agreement
(including, without limitation, its rights under this Schedule I).
Upon receipt by an Indemnified Person of actual notice of an Action
against such Indemnified Person with respect to which indemnity may be sought
under this Agreement, such Indemnified Person shall promptly notify the Company
in writing; provided that failure so to notify the Company shall not relieve
the Company from any liability which the Company may have on account of this
indemnity or otherwise, except to the extent the Company shall have been
materially prejudiced by such failure. The Company shall, if requested by DLJ,
assume the defense of any such Action including the employment of counsel
reasonably satisfactory to DLJ. Any Indemnified Person shall have the right to
employ separate counsel in any such action and participate in the defense
thereof but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person, unless: (I) the Company has failed promptly to assume
the defense and employ counsel or (ii) the named parties to any such Action
(including any impleaded parties) include such Indemnified Person and the
Company, and such Indemnified Person shall have been advised by counsel that
there may be one or more legal defenses available to it which are different
from or in addition to those available to the Company; provided that the
Company shall not in such event be responsible hereunder for the fees and
expenses of more than one firm of separate counsel in connection with any
Action in the same jurisdiction, in addition to any local counsel. The Company
shall not be liable for any settlement of any Action effected without its
written consent. In addition, the Company will not, without prior written
consent of DLJ, settle, compromise or consent to the entry of any judgment in
or otherwise seek to terminate any pending or threatened Action in respect of
which indemnification or contribution may be sought hereunder (whether or not
any Indemnified Person is a party thereto) unless such settlement, compromise,
consent or termination including an unconditional release. of each Indemnified
Person from all Liabilities arising out of such Action.
In the event the foregoing indemnity is unavailable to an Indemnified
Person other than in accordance with this Agreement, the Company shall
contribute to the Liabilities and Expenses paid or payable by such Indemnified
Person in such proportion as is appropriate to reflect (i) the relative
benefits to the Company and its shareholders, on the one hand, and to DLJ, on
the other hand, of the matters contemplated by this Agreement or (ii) if the
allocation provided by the immediately preceding clause is not permitted by the
applicable law, not only such relative benefits but also the relative fault of
the Company, on the one hand, and DLJ, on the other hand, in connection with
the matters as to which such Liabilities or Expenses relate, as well as any
other relevant equitable considerations; provided that in no event shall the
Company contribute less than the amount necessary to ensure that all
Indemnified Persons, in the aggregate, are not liable for any Liabilities and
Expenses in excess of the amount of fees actually received by DLJ pursuant to
this Agreement. For purposes of this paragraph, the relative benefits to the
Company and its shareholders, on the one hand, and to DLJ, on the other hand,
of the matters contemplated by this Agreement shall be deemed to be in the same
proportion as (a) the total value paid or contemplated to be paid or received
or contemplated to be received by the Company or the Company's shareholders, as
the case may be, in the transaction or transactions that are within the scope
of this Agreement, whether or not any such transaction is consummated, bears to
(b) the fees paid or to be paid to DLJ under this Agreement.
The Company also agrees that no Indemnified Person shall have any
liability (whether direct or, indirect, in contract or tort or otherwise) to
the Company for or in connection with advice or services rendered or to be
rendered by any Indemnified Person pursuant to this Agreement, the transactions
contemplated hereby or any Indemnified Person's actions or inactions in
connection with any such advice, services or transactions except for
Liabilities
(and related Expenses) of the Company that are determined by a judgment of a
court of competent jurisdiction which is no longer subject to appeal or further
review to have resulted solely from such Indemnified Person's gross negligence
or willful misconduct in connection with any such advice, actions, inactions or
services.
The reimbursement, indemnity and contribution obligations of the Company
set forth herein shall apply to any modification of this 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 Agreement.
