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EXHIBIT 4.16
FINANCIAL ADVISORY AND INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into this 12th day of June 2000
between Josephthal & Co. Inc. ("Josephthal") and Chromatics Color Sciences
International, Inc. (the "Company").
In consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Company hereby engages Josephthal upon the terms and conditions as set
forth herein as its non-exclusive financial advisor to render financial and
other general advice to the Company as an investment banker with respect to
Transactions and Financings (as defined below) and similar matters and
Josephthal hereby accepts such engagement upon the terms and conditions set
forth herein Specifically, Josephthal will assist the Company in
identifying, analyzing, structuring, negotiating and financing suitable
business opportunities which the Company may take advantage of by purchase
or sale of stock or assets, assumption of liabilities, merger,
consolidation, tender offer, joint venture, financing arrangement or any
similar transaction or combination thereof. Additionally, Josephthal
contemplates providing advice, to the Company including but not limited to
the following: positioning the Company's business plans and strategies,
arranging for the Company to be introduced to appropriate potential
investors, recommending potential providers of research coverage, and
evaluating, analyzing and reviewing any Transaction and/or Financing
proposed by others. Josephthal agrees to obtain the consent of the Company
prior to contacting any potential participants in a Transaction or
Financing.
2. Except as otherwise specified in Paragraph 6 hereof, this Agreement shall
be effective for an initial period of twelve (12) months, unless terminated
sooner as provided below, commencing upon the date hereof and shall
continue thereafter unless and until terminated on thirty (30) days written
notice by either party to the other party.
3. During the term of this Agreement, Josephthal shall provide the Company
with such regular and customary advice as is reasonably requested by the
Company, provided that Josephthal shall not be required to undertake duties
not reasonably within the scope of the financial advisory or investment
banking services contemplated by this Agreement. It is understood and
acknowledged by the parties that the value of Josephthal's advice is not
readily quantifiable, and that Josephthal shall be obligated to render
advice upon the request of the Company, in good faith, but shall not be
obligated to spend any specific amount of time in so doing.
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4. Josephthal shall render such other financial and investment and/or
investment banking services as may from time to time be agreed upon in
writing by Josephthal and the Company.
5. In consideration for the services rendered by Josephthal to the Company
pursuant to this Agreement (and in addition to the expenses provided for in
Paragraph 7 hereof), the Company shall compensate Josephthal as follows:
(a) a non-refundable retainer fee of $100,000, payable in cash upon
the execution of this Agreement and credited against any fees
arising and owing to Josephthal under sections (b) and (c) of this
paragraph 5. Additionally, the Company shall issue to Josephthal
200,000 warrants (individually a "Warrant" and collectively, the
"Warrants") to purchase common stock of the Company at an exercise
price of $6.99 per share of the common stock of the Company. Each
Warrant is exercisable at the option of the holder at any time
during the period of five years from the date of execution of this
Agreement. The terms of the Warrants shall be set forth in one or
more agreements (the "Warrant Agreements") in form and substance
reasonably satisfactory to Josephthal and the Company. The Warrant
Agreements shall contain customary terms, including, without
limitation, cashless exercise, weighted average price
anti-dilution, and customary demand and piggyback registration
rights.
(b) The Company shall pay to Josephthal upon the closing of any
Transaction, except for a Transaction arranged by ▇▇▇▇▇▇ Brothers,
a cash fee equal to the greater of two hundred and fifty thousand
($250,000) or three percent (3.0%) of the Aggregate Consideration
(as defined below) of such Transaction.
(c) The Company shall pay to Josephthal upon the closing of each
Financing arranged by Josephthal which occurs during the term of
this agreement, or thereafter as provided in Paragraph 6 below, a
cash fee equal to the greater of (i) one hundred and fifty
thousand dollars ($150,000), or (ii) the sum of one and one-half
percent (1.5%) of all secured debt funds raised or, four and
one-half percent (4.5%) of all unsecured debt funds, or eight
percent (8%) of the Aggregate Consideration raised through the
placement and sale of equity securities in such Financing; and
(iii) shall issue to Josephthal warrants (the "Financing
Warrants") to purchase such number of shares of the common stock
of the Company equal to ten percent (10%) of the aggregate number
of fully diluted and/or converted equity securities as are
purchased by investors in the first Financing consummated and five
percent (5%) of the aggregate number of fully diluted and/or
converted equity securities as are purchased by the investor for
any other Financing consummated during the engagement period
hereunder (after giving effect to any increase in shares under a
ratchet or similar provision pursuant to which the number of
shares initially purchased is subsequently increased) on the same
terms and conditions as the investor in such financing. The
Financing Warrants shall be purchased for a
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nominal sum and shall be exercisable for a period of five years from
the date of closing of the relevant financing with an exercise price
per share equal to the effective per share price paid by the investors
for the securities in the relevant Financing. The terms of the
Financing Warrants shall be set forth in one or more agreements (the
"Financing Warrant Agreements") in form and substance reasonably
satisfactory to Josephthal and the Company. The Financing Warrant
Agreements shall contain customary terms, including without
limitation, provisions for "cashless" exercise, change of control,
weighted average price based anti-dilution, and customary demand and
piggyback registration rights.
For the purposes of this Agreement, the term "Financing" shall mean any
debt financing or equity investment in the Company other than a Transaction
as set forth herein, or any combination thereof (i.e., where the funds are
received by the Company, as distinct from funds received by selling
shareholders). The fair market value of consideration paid in securities
for which there is a recognized trading market shall be based on the
closing "offer" price of the securities on the day immediately preceding
the closing of the Financing and shall be computed as if the securities
were freely tradable.
For the purpose of this Agreement "Transaction" shall mean any merger,
business combination or reorganization, purchase or sale of some or all of
the stock or assets of any other entity, or of True Technologies, Inc., by
the Company not in the ordinary course of business, joint venture,
licensing agreement, royalty agreement, distribution agreement or any
similar transaction or combination thereof to which the Company is party.
"Aggregate Consideration" shall mean the total consideration (stock, cash,
assets and all other property (real or personal, tangible or intangible)
plus debt assumed), paid, exchanged or received, or to be exchanged or
received directly or indirectly by the Company in connection with any such
Transaction. Transaction Fees shall be paid by the Company to Josephthal at
the first closing of any Transaction, provided that the fee due to
Josephthal as a result of consideration which is contingent upon the
occurrence of some future event (e.g. earnout or the realization of
earnings projections) shall be paid by the Company to Josephthal at the
time of the receipt of such consideration by the Company.
Josephthal's fee in connection with any Financing shall be based upon the
percentages set forth above of the gross total proceeds before any
deductions, including but not limited to fees, deposits, transaction
expenses, reserves, insurance or other amounts withheld or paid by the
investor or party providing the funds in such Financing. Financing shall be
deemed to include total value of equity or debt Securities sold directly or
indirectly, in connection with the Financing, including proceeds received
by the Company upon exercise of options, warrants and/or similar securities
(collectively, the "Options"), and any amounts paid into escrow and any
amounts payable in the future whether or not subject to any contingency. If
the
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consideration received by the Company in connection with any Financing is
to be paid in whole or in part through installment payments, such
installment payments shall be valued on a discounted present value basis
using a discount rate of 10% per annum. To the extent such future payments
are not currently ascertainable or relate to the exercise of Options, the
portion of Josephthal's Financing fee relating thereto shall be calculated
and paid when and as such contingent payments are made. If the
consideration received by the Company in connection with any financing is
paid in whole or in part in the form of securities or other non-cash
consideration, such consideration shall be valued at the fair market value
thereof, as the Company and Josephthal shall agree, on the day, prior to
the date of closing of such Financing (or later date on which a contingent
payment is made), provided, however, that if such consideration consists of
securities with an existing trading market, such securities shall be valued
at the average of the last sales price for such securities on the five
trading days prior to the date of closing of such Financing (or later date
on which a contingent payment is made). Financing shall not include: (a)
working capital financing provided by commercial bank loan departments; or
(b) extensions, renewals, modifications or refinancings with existing
creditors; provided that such financings are initiated by the Company
without the assistance of or materials prepared by Josephthal. Public
offerings, if any, shall be subject to a separate letter agreement and are
expressly not addressed in this Agreement.
For the purposes of this Agreement, consideration paid or to be paid other than
in cash shall be valued at the fair market value, except that liabilities
assumed and notes issued will be valued at the face amount thereof. The fair
market value of consideration paid in securities for which there is a recognized
trading market shall be based on the closing "offer" price of the securities on
the day immediately preceding the closing of the Transaction and shall be
computed as if the securities were freely tradable.
6. In the event that this Agreement shall not be renewed or if terminated for
any reason, notwithstanding any such renewal or termination, Josephthal
shall be entitled to a full fee as provided under Paragraph 5 hereof, for
any Transaction or Financing for which the discussions with an entity or
person arranged by Josephthal were conducted during the term of this
Agreement by the Company or by Josephthal on behalf of the Company which is
consummated within a period of twelve (12) months after non-renewal or
termination of this Agreement. Upon termination of this Agreement,
Josephthal shall provide the Company with a written list of parties with
whom it had discussions.
7. In addition to the fees payable, and regardless whether any Transaction or
Financing set forth in Paragraph 5 hereof is proposed or consummated, the
Company shall reimburse Josephthal for all reasonable fees and
disbursements of Josephthal's outside counsel and Josephthal's reasonable
travel and out-of-pocket expenses incurred in connection with the services
performed by Josephthal pursuant to this Agreement, including without
limitation, hotel, food and associated expenses; provided that to the
extent such reimbursements referenced in this Paragraph 7 exceed
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$1,000 in the aggregate, they shall be subject to the Company's prior
written approval.
8. The Company acknowledges that all opinions and advice (written or oral)
given by Josephthal to the Company in connection with Josephthal's
engagement are intended solely for the benefit and use of the Company and
its Board in considering the Transaction or Financing to which they relate,
and the Company agrees that no person or entity other than the Company and
its Board shall be entitled to make use of or rely upon the advice of
Josephthal to be given hereunder, and no such opinion or advice shall be
used for any other purpose or reproduced, disseminated, quoted or referred
to at any time, in any manner or for any purpose, nor may the Company make
any public references to Josephthal, or use Josephthal's name in any annual
reports or any other reports or releases of the Company without
Josephthal's prior written consent, which shall not be unreasonably
withheld.
Josephthal and the Company agree and acknowledge that the decision to
consummate a Financing and/or Transaction shall be in the Company's sole
and absolute discretion.
9. The Company acknowledges that Josephthal and its affiliates are in the
business of providing financial services and advice to others. Nothing
herein contained shall be construed to limit or restrict Josephthal in
conducting such business with respect to others, or in rendering such
advice to others.
Josephthal agrees that all information supplied to it by the Company will
be used by Josephthal solely for the purpose of performing its duties
hereunder, will be kept confidential by Josephthal and will not be used to
disclose to any third party (other than Josephthal's counsel) without the
consent of the CEO of the Company. Josephthal further agrees that the fact
of its engagement hereunder and the terms of such engagement shall not be
disclosed by Josephthal without the consent of the CEO of the Company. In
the event that the period of Josephthal's engagement hereunder terminates,
Josephthal shall promptly return to the Company all written materials
containing or reflecting any information relating to the Company, its
business and affairs supplied by the Company to Josephthal and Josephthal
shall not retain any copies, extracts or reproductions in whole or in any
part of such written materials.
10. The Company recognizes, acknowledges and agrees that in performing its
services under this agreement, Josephthal will use and rely upon the data,
material and other information supplied by the Company without
independently verifying its accuracy, completeness or veracity, except to
the extent Josephthal has actual knowledge to the contrary. The Company
represents and warrants to Josephthal that all such information concerning
the Company provided by the Company in response to requests made by
Josephthal or otherwise, will be true and accurate in all material respects
as of the date of the information and will not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements therein not misleading in light of the circumstances
under which such
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statements are made. Josephthal shall be under no obligations to make an
independent appraisal of assets or an investigation or inquiry as to any
information regarding, or any representations of, any other participant in
a Transaction or Financing, and shall have no liability with regard
thereto. The Company acknowledges and agrees that Josephthal will be using
and relying upon such information supplied by the Company and its officers,
agents and others and any other publicly available information concerning
the Company without any independent investigation or verification thereof
or independent appraisal by Josephthal of the Company or its business or
assets. Josephthal does not provide legal, tax or accounting services and
does not render such advice. If, in Josephthal's opinion after completion
of its due diligence process, the condition of the Company, financial or
otherwise, and its prospects are not substantially as represented,
Josephthal shall have the sole discretion to review and determine its
continued interest in proposed Financings and/or Transactions.
11. Since Josephthal will be acting on behalf of the Company in connection with
its engagement hereunder, the Company and Josephthal have entered into a
separate indemnification agreement in the form attached hereto as Schedule
A and dated the date hereof, providing for the indemnification of
Josephthal by the Company. Josephthal has entered into this Agreement in
reliance on the indemnities set forth in such indemnification agreement.
12. Josephthal shall perform its services hereunder as an independent
contractor and not as an employee of the Company or an affiliate thereof.
It is expressly understood and agreed to by the parties hereto that
Josephthal shall have no authority to act for, represent or bind the
Company or any affiliate thereof in any manner, except as may be agreed to
expressly by the Company in writing from time to time.
13. A. This Agreement and the Schedule A attached hereto constitute the
entire agreement and understanding of the parties hereto, and supersede any
and all previous agreements and understandings, whether oral or written,
between the parties with respect to the matters set forth herein.
B. Any notice or communication permitted or required hereunder shall be
in writing and shall be deemed sufficiently given if hand-delivered or sent
(i) postage prepaid by registered mail, return receipt requested, or (ii)
by facsimile to the respective parties as set forth below, or to such other
address as either party may notify the other of in writing:
if to the Company, to: Chromatics Color Sciences International, Inc.
▇ ▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
President & CEO
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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if to Josephthal, to: Josephthal & Co. Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇' ▇▇▇▇▇
Managing Director
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Josephthal & Co. Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
C. This Agreement shall be binding upon and inure to the benefit of each of
the parties hereto and their respective successors, legal representatives
and permitted assigns. Neither party may assign its rights hereunder
without prior written consent of the other party.
D. This Agreement may be executed in any number of counterparts, each of
which together shall constitute one and the same original document.
E. No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
F. This Agreement shall be construed in accordance with and governed by the
laws of the State of New York, without giving effect to its conflict of law
principles. The parties hereby agree that any dispute which may arise
between them arising out of or in connection with this Agreement shall be
adjudicated before a court located in New York City, and they hereby submit
to the exclusive jurisdiction of the courts of the State of New York
located in New York, New York and of the federal courts in the Southern
District of New York with respect to any action or legal proceeding
commenced by any party, and irrevocably waive any objection they now or
hereafter may have respecting the venue of any such action or proceeding
brought in such a court or respecting the fact that such court is an
inconvenient forum, relating to or arising out of this Agreement, and
consent to the service of process in any such action or legal proceeding by
means of registered or certified mail, return receipt requested, in care of
the address set forth in Paragraph 13B hereof.
The parties hereby waive trial by jury in any action or proceeding involving,
directly or indirectly, any matter in any way arising out of or in connection
with this Agreement.
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If the foregoing correctly sets forth the understanding between Josephthal and
the Company with respect to the foregoing, please so indicate your agreement by
signing in the place provided below, at which time this letter shall become a
binding contract.
JOSEPHTHAL & CO. INC.
By:
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▇▇▇▇ ▇. ▇' ▇▇▇▇▇
Managing Director
Accepted and Agreed:
Chromatics Color Sciences International, Inc.
By:
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: President & CEO
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Schedule A
INDEMNIFICATION PROVISIONS
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In connection with the engagement of Josephthal & Co. Inc. ('Josephthal") by
Chromatics Color Sciences International, Inc. (the "Company") pursuant to a
letter agreement dated June 2000 between the Company and Josephthal as it may be
amended from time to time (the "Letter Agreement"), the Company, hereby agrees
as follows:
1. In connection with or arising out of or relating to the engagement of
Josephthal under the Letter Agreement, or any actions taken, services
performed or matters contemplated by or in connection with the Letter
Agreement, the Company agrees to indemnify Josephthal, its affiliates and
their respective directors, officers, employees, agents and controlling
persons (each an "Indemnified Party") from and against any and all
out-of-pocket losses, claims, damages and liabilities, join or several, to
which any Indemnified Party may become subject, including any amount paid
in settlement of any litigation or other action (commenced or threatened)
to which the Company shall have consented in writing (such consent not to
be reasonably withheld), whether or not any Indemnified Party is a party
and whether or not liability resulted relating to the transaction
contemplated by the Letter of Agreement (collectively a claim); provided,
however, that the Company shall not be liable pursuant to this sentence in
respect of any loss, claim, damage or liability relating to any claim to
the extent that a court or other agency having competent jurisdiction shall
have determined by final judgement (not subject to further appeal) that
such loss, claim, damage or liability was incurred as a direct result of
the willful misconduct or gross negligence of such Indemnified Party.
In addition, the Company agrees to advance to any Indemnified Party upon
demand and in advance of the final resolution of the Claim the amount of
such Indemnified Party's actual out of pocket expenses (including
reasonable attorneys' fees) incurred in connection with investigating,
preparing for or defense of any Claim subject to receipt of a written
undertaking from such Indemnified Party to return such advances if it is
ultimately determined that the Indemnified Party is not entitled to such
advances.
2. An Indemnified Party shall have the right to approve, which approval shall
not be unnecessarily withheld, the legal counsel selected by the Company,
to conduct the defense and all related matters in connection with any
Claim. The Company shall pay the fees and expenses of such legal counsel.
3. The Company will not, without the prior written consent of each Indemnified
Party settle, compromise or consent to the entry of any judgement in any
pending or threatened Claim in respect of which indemnification may be
reasonably sought hereunder (whether or not any Indemnified Person is an
actual or potential party to such Claim), unless such settlement,
compromise or consent includes an unconditional, irrevocable release of
each Indemnified Person against whom such Claim may be brought hereunder
from any and all liability arising out of such Claim.
4. In the event the indemnity provided for in paragraphs 1 and 2 hereof is
unavailable or insufficient to hold any Indemnified Party harmless, then
the Company shall contribute to amounts paid or payable by an Indemnified
Party in respect of such Indemnified Party's losses, claims, damages and
liabilities as to which the indemnity provided for in paragraphs 1 and 2
hereof is unavailable or insufficient (i) in such portion as appropriately
reflects the relative benefits received by the Company, on the one hand,
and the Indemnified Party, on the other hand, in connection with the
matters as to which losses, claims, damages or liabilities relate, or (ii)
if the allocation provided by (i) above is not permitted by applicable law,
in such proportion as appropriately reflects not only the relative benefits
referred to in clause (i) but also the relative fault of the Company, on
the one hand, and the Indemnified Parties, on the other hand, as well as
any other equitable considerations. The amounts paid or payable by a party
in respect
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of losses, claims, damages and liabilities referred to above shall be
deemed to include any reasonable legal or other out-of-pocket fees and
expenses incurred in defending any litigation, proceeding or other action
or claim. Notwithstanding the provisions hereof, Josephthal's share of the
liability hereunder shall not be in excess of the amount of fees actually
received by Josephthal under the Letter Agreement (excluding any amounts
received as reimbursement of expenses by Josephthal).
5. It is understood and agreed that, in connection with Josephthal's
engagement by the Company under the Letter Agreement, Josephthal may also
be engaged to act for the Company in one or more additional capacities, and
that the terms of any such additional engagement may be embodied in one or
more separate written agreements. These Indemnification Provisions shall
apply to the engagement under the Letter Agreement and to any such
additional engagement and any modification of such additional engagement;
provided, however, that in the event that the Company engages Josephthal to
act as a dealer manager in an exchange or tender offer or as an underwriter
in connection with the issuance of securities by the Company or to furnish
an opinion letter, such further engagement may be subject to separate
indemnification and contribution provisions as may be mutually agreed upon.
6. These Indemnification Provisions shall remain in full force and effect in
connection with the transaction contemplated by the Letter Agreement
whether or not consummated, and shall survive the expiration of the period
of the Letter Agreement, and shall be in addition to any liability that the
Company might otherwise have to any Indemnified Party under the Letter
Agreement or otherwise.
7. Each party hereto consents to personal jurisdiction and service of process
and venue in any court in the State of New York in which any claim for
indemnity is brought by any Indemnified Person.
Chromatics Color Sciences International, Inc.
By:
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: President & CEO
Confirmed and agreed to:
JOSEPHTHAL & CO. INC.
By:
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▇▇▇▇ ▇. ▇'▇▇▇▇▇
Managing Director
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