INVESTMENT BANKING ENGAGEMENT LETTER
CONFIDENTIAL
Date_______________
Ladies and Gentlemen:
This letter confirms the understanding and agreement (the “Agreement”) between
______________________________________________(the “Company”) and
______________________________________________(“Investment Bank”) as follows:
ENGAGEMENT SERVICES. The Company hereby retains Investment Bank as its exclusive
financial advisor in connection with any Transaction. “Transaction” shall mean:
Any merger, consolidation, reorganization, recapitalization, business combination,
license agreement or other transaction pursuant to which the Company, its assets, whether
tangible or intangible, including, but not limited to any of its intellectual property, know
how or technology, its operations, or any material portion thereof, is acquired by, or
combined with, any person, group of persons, partnership, corporation or other entity
(including, without limitation, existing creditors, employees, affiliates, and/or
shareholders) (collectively, an “Investor”).
Each acquisition, directly or indirectly by an Investor(s) (or by one or more persons
acting together with an Investor pursuant to a written agreement or otherwise), in a single
transaction or a series of transactions, of all, or any material portion of, the assets or
operations of the Company, including any transaction where an Investor obtains control,
directly or indirectly, of the Company.
Any transaction or series of transactions that effectuates any reorganization,
recapitalization, consolidation, business combination, merger, or other transaction
pursuant to which any material portion of the Company’s indebtedness is converted into
equity or otherwise compromised or modified.
Each of the Transactions described in clauses (a), (b) and (c), above, whether consummated out-
of-court, via a court approved licensing or similar agreement, through a court approved sale
transaction under Section 363 of Title 11 of the United States Code (the “Bankruptcy Code”), or
similar mechanism, and/or pursuant to a plan under the Bankruptcy Code (a “Plan”), shall
constitute a Transaction hereunder.
Investment Bank’s services will include, if appropriate or if reasonably requested by the
Company: (a) reviewing the Company’s financial condition, operations, competitive
environment, prospects, and related matters for potential investors; (b) preparing the information
package or confidential information memorandum; (c) soliciting, coordinating, and evaluating
indications of interest and proposals regarding a Transaction; (d) advising the Company as to the
structure of a Transaction; and (e) providing such other financial advisory and investment
banking services reasonably necessary to accomplish the foregoing. The Company hereby
authorizes Investment Bank to send prospective purchasers the information package and other
pertinent information and legal agreements concerning the Transaction.
If requested by the Company, Investment Bank will render an opinion (“Opinion”) as to whether
or not the consideration to be paid in the Transaction is fair, from a financial point of view, to the
Company. No separate or additional fees shall be payable in connection with the rendering of
such opinion. The Company agrees that neither it, its equity holders or other affiliates, nor its
management will initiate any discussions regarding a Transaction during the term of this
Agreement, except through Investment Bank. In the event that the Company, its equity holders
or other affiliates, or its management receives any inquiry regarding a Transaction, Investment
Bank will be promptly informed of such inquiry so that it can evaluate such party and its interest
in any Transaction and assist the Company in any resulting negotiations. In the event that the
Company consummates a Transaction with any party during the period covered by this
Agreement, Investment Bank shall be paid the full Transaction Fee and expenses, as described
more fully below.
TERM. This Agreement shall have a term of______________ from the date of this Agreement
set forth above. The Company may terminate this Agreement at any time, with or without cause,
on written notice to Investment Bank. Investment Bank may terminate this Agreement at any
time if the Company is in material breach of this Agreement, on written notice to the Company.
Notwithstanding the foregoing, no expiration or termination of this Agreement shall affect: (a)
the Company’s indemnification, reimbursement, contribution, and other obligations as set forth;
(b) the confidentiality provisions set forth herein; (c) Investment Bank’s right to receive, and the
Company’s obligation to pay, any fees and expenses due, whether or not any Transaction shall
be consummated before or after the effective date of termination, all as more fully set forth in
this Agreement; and (d) the agreements of the Company and Investment Bank with respect to
choice of law and forum.
In the event of any termination of this Agreement (other than by the Company for material
breach by Investment Bank or by Investment Bank for material breach by the Company),
Investment Bank shall be entitled to the applicable Transaction Fee if the Company enters into
an agreement prior to the date of termination of this Agreement with an entity first referred to the
Company by Investment Bank before the termination of this Agreement, provided that such
agreement subsequently results in the consummation of a Transaction. Not more than
______________business days after termination, Investment Bank shall provide to the Company
in writing a list of any parties introduced to the Company by Investment Bank, which list shall be
binding unless the Company provides a written objection notice within 10 days after receipt.
FEES—RETAINER FEES. The Company shall pay Investment Bank a (select one)
☐one-time ☐monthly
nonrefundable retainer fee of $____________________; provided, however, that such amount
shall be credited against any Transaction Fee that may be payable as provided below. Upon entry
into a definitive agreement with investors in a Transaction, Investment Bank shall receive an
initial payment of $_____________________, which amount shall also be credited against any
Transaction Fee that may be payable as provided below.
In the event that, after termination of this Agreement, the Company receives a reasonable offer
that fulfills the original criteria for which Investment Bank was engaged, but the Company
decides not to accept any offer, the Company shall pay a Transaction Fee of $_________.
FEE—TRANSACTION. In the event that Investment Bank’s exclusive financial advisory role
involves a Transaction, Investment Bank shall receive a cash transaction fee (a “Transaction
Fee”) equal to the greater of;
(a) a minimum fee of $_____________________________________ or
(b) the sum of:
(i)______% of the Transaction Value (defined below) for amounts up to and including
$___________________,
(ii)_____% of the Transaction Value for amounts in excess of $________________and including
$________________________, and
(iii) _______% of the Transaction Value for amounts in excess of $______________________.
For the purpose of calculating the Transaction Fee, “Transaction Value” shall mean the total
value of all cash, securities, or other property paid at the closing of the Transaction to the
Company or its shareholders or to be paid in the future to them with respect to the Transaction as
provided below (other than payments of interest or dividends) in respect of (a) the assets of the
Company, (b) the capital stock of the Company (and any securities convertible into options,
warrants, or other rights to acquire such capital stock), or (c) the assumption, directly or
indirectly (by operation of law or otherwise), of any indebtedness of the Company for borrowed
money, less all cash and cash equivalents held by the Company at closing.
Any amounts payable to the Company, any affiliate of the Company, or any shareholder of the
Company in connection with a noncompetition agreement or any employment, consulting,
licensing, supply, or other agreement, to the extent that such amounts payable are greater than
what would customarily be paid on an arm’s-length basis to an employee, consultant, licensee, or
supplier who had not been acquired, shall be deemed to be part of the “Transaction Value.”
In the event a Transaction is consummated in one or more steps, any additional consideration
paid or to be paid in any subsequent step in the Transaction, including without limitation,
payments in accordance with promissory notes delivered to the Company in connection with a
Transaction or any Contingent Payments in respect of the items set forth in (a)–(c) above, shall
be included in the definition of “Transaction Value.” “Contingent Payments” shall mean
consideration received or receivable by the Company, its employees, former or current equity
holders, or any other parties in the form of deferred performance-based payments, “earn-outs”,
indemnity holdbacks, or other contingent payments based on the future performance of the
Company or any of its businesses or assets.
For purposes of valuing consideration included in Transaction Value other than cash payable at
closing: (a) the assumption of any indebtedness for borrowed money will be valued at the unpaid
principal amount of such assumed liability; (b)
Transaction Fees based on Contingent Payments shall be paid to Investment Bank based on the
rate applicable to the total Transaction Fee at the same times as the Contingent Payments are
received by the Company;
(c) the value of any purchase money or other promissory notes shall be deemed to be the face
amount thereof; (d) any securities (other than a promissory note) will be valued at the time of the
closing of the Transaction (without regard to any restrictions on transferability) as follows: (i) if
such securities are traded on a stock exchange, the securities will be valued at the average last
sale or closing price for the 10 trading days immediately prior to the closing of the Transaction;
(ii) if such securities are traded primarily in over-the-counter transactions, the securities will be
valued at the mean of the closing bid and asked quotations similarly averaged over a 10-trading-
day period immediately before the closing of the Transaction; and (iii) if such securities have not
been traded before the closing of the Transaction, the value of such securities shall be as
mutually agreed in good faith by the Company’s Board of Directors and Investment Bank; and
(e) any assets other than cash or the assets described in the foregoing clauses shall be valued as
mutually agreed in good faith by the Company’s Board of Directors and Investment Bank.
EXPENSES. Additionally, and regardless of whether any Transaction is consummated,
Investment Bank shall be entitled to reimbursement of its reasonable out-of-pocket expenses
incurred from time to time during the term of this Agreement in connection with the services to
be provided under this Agreement, promptly after invoicing the Company therefor; provided,
however, that unless the Company otherwise consents in writing in advance, such expenses shall
not exceed $____________________ in the aggregate.
INFORMATION. The Company will furnish Investment Bank with such information regarding
the business and financial condition of the Company as is reasonably requested, all of which will
be, to the Company’s best knowledge, accurate and complete in all material respects at the time
furnished. The Company will promptly notify Investment Bank if it learns of any material
misstatement in, or material omission from, any information previously delivered to Investment
Bank. Investment Bank agrees that all nonpublic information obtained in connection with its
engagement will be held by it in strict confidence and will be used by it solely for the purposes
of performing its obligations relating to its engagement, provided that nothing herein shall
prevent Investment Bank from disclosing any such information (a) in accordance with an order
of any court or administrative agency or in any pending legal or administrative proceeding, or (b)
to the extent that such information (i) was or becomes publicly available other than by reason of
disclosure by Investment Bank in violation of this Agreement or (ii) was or becomes available to
Investment Bank or its affiliates from a source that is not known by Investment Bank to be
subject to a confidentiality obligation to the Company. This undertaking by Investment Bank
shall automatically terminate ____________[specify time period] following the last to occur of
the completion of a Transaction or termination of the engagement hereunder. At the request of
the Company, Investment Bank will execute a commercially reasonable nondisclosure agreement
in connection with the delivery and use of such information. At Company’s request, Investment
Bank will promptly return to the Company, or destroy, any and all materials containing such
confidential information except to the extent that Investment Bank is required to maintain such
information in accordance with legal or regulatory requirements.
Investment Bank may rely, without independent verification, on the accuracy and completeness
of all information furnished by the Company or any other potential party to any Transaction. The
Company understands that Investment Bank will not be responsible for independently verifying
the accuracy of such information, and shall not be liable for any inaccuracies therein. The
Company further acknowledges that Investment Bank has not made and will not make any
physical inspection or appraisal of the properties or assets of the Company, and that, with respect
to any financial forecasts that may be furnished to or discussed with Investment Bank by the
Company, Investment Bank will assume that such forecasts have been reasonably prepared and
reflect the best then currently available estimates and judgments of the Company’s management
as to the expected future financial performance of the Company.
Except as may be required by law or court process, any opinions or advice (whether written or
oral) rendered by Investment Bank under this Agreement are intended solely for the benefit and
use of the Company, and may not be publicly disclosed in any manner or made available to third
parties (other than the Company’s management, directors, advisors, accountants, and attorneys)
without the prior written consent of Investment Bank, which consent shall not be unreasonably
withheld.
INDEMNIFICATION AND STANDARD OF CARE. The Company agrees to provide
indemnification, contribution, and reimbursement to Investment Bank and certain other parties in
accordance with, and further agrees to be bound by, the provisions set forth in Schedule A
attached to, incorporated in, and made an integral part of, this Agreement by this reference.
CONFLICTS. The Company acknowledges that Investment Bank and its affiliates may have
and may continue to have investment banking or other relationships with parties other than the
Company, in which Investment Bank may acquire information of interest to the Company.
Investment Bank shall have no obligation to disclose such information to the Company or to use
such information in connection with this Agreement.
ATTORNEY FEES. If any party to this Agreement brings an action directly or indirectly based
on this Agreement or the matters contemplated hereby against another party, the prevailing party
shall be entitled to recover, in addition to any other appropriate amounts, its reasonable costs and
expenses in connection with such proceeding, including without limitation, reasonable attorney
fees and court costs.
PUBLICITY. Following the announcement of any Transaction by the Company, Investment
Bank may, at its own expense, place announcements in financial and other newspapers and
periodicals (such as customary “tombstone” advertisements) describing its services in connection
therewith. Investment Bank shall provide the Company with a draft of any announcement that it
proposes to place and shall make such revisions to the announcement as the Company reasonably
may request within 2 business days after the Company’s receipt of the draft announcement.
MISCELLANEOUS. This Agreement shall be binding on the parties hereto and their respective
successors and permitted assigns. However, nothing in this Agreement, express or implied, is
intended to confer or does confer on any person or entity, other than the parties hereto and their
respective successors and permitted assigns and, to the extent expressly set forth in Schedule A,
the Indemnified Parties, any rights or remedies under or by reason of this Agreement or as a
result of the services to be rendered by Investment Bank hereunder. The invalidity or
unenforceability of any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and effect in
accordance with the terms hereof. The Company agrees that it will be solely responsible for
ensuring that any Transaction complies with applicable law.
This Agreement incorporates the entire understanding of the parties regarding the subject matter
hereof and supersedes all previous agreements or understandings regarding the same, whether
written or oral. This Agreement may not be amended, and no portion hereof may be waived,
except in a writing duly executed by the parties. Each party hereby irrevocably (a) agrees that
any suit or other legal proceeding arising out of or relating to this Agreement may be brought
only in a court of the State of _______________ or in the United States District Court, located in
______________ County, California, (b) consents, for itself and in respect of its property, to the
jurisdiction of each such court in any such suit or proceeding, and (c) waives any objection that it
may have to the laying of venue of any such suit or proceeding in any of such courts and any
claim that any such suit or proceeding has been brought in an inconvenient forum.
This Agreement shall be governed by the laws of the state of ________________________,
without regard to such state’s rules concerning conflicts of laws. EACH OF INVESTMENT
BANK AND THE COMPANY (ON ITS OWN BEHALF AND, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ON BEHALF OF ITS EQUITY HOLDERS)
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE)
RELATED TO OR ARISING OUT OF THE ENGAGEMENT OF INVESTMENT BANK
UNDER, OR THE PERFORMANCE BY INVESTMENT BANK OF THE SERVICES
CONTEMPLATED BY, THIS AGREEMENT.
We look forward to working with you on this assignment. Please confirm that the foregoing
terms are in accordance with your understanding by signing and returning the enclosed copy of
this Agreement, together with the initial retainer payment in the amount of
$_____________________.
Very truly yours,
INVESTMENT BANK
Signature: _________________________
Printed Name: _________________________
Title: _________________________
Accepted and agreed effective as of the date of this Agreement.
COMPANY
Signature: _________________________
Printed Name: _________________________
Title: _________________________
SCHEDULE A
This Schedule A is attached to, and constitutes a material part of, that certain agreement dated
________________________, addressed to __________________________ [name of company]
by Investment Bank (the “Agreement”). Unless otherwise noted, all capitalized terms used herein
shall have the meaning set forth in the Agreement. As a material part of the consideration for the
agreement of Investment Bank to furnish its services under the Agreement, the Company agrees
to indemnify and hold harmless Investment Bank and its affiliates, and their respective past,
present, and future directors, officers, shareholders, employees, agents, and controlling persons
within the meaning of either Section 15 of the Securities Act of 1933, as amended (15 USC
§77o), or Section 20 of the Securities Exchange Act of 1934, as amended (15 USC §78t)
(collectively, the “Indemnified Parties”), to the fullest extent lawful, from and against any and all
losses, claims, damages, or liabilities (or actions in respect thereof), joint or several, arising out
of or related to the Agreement, any actions taken or omitted to be taken by an Indemnified Party
(including acts or omissions constituting ordinary negligence) in connection with the Agreement,
or any Transaction (or proposed Transaction) contemplated thereby. In addition, the Company
agrees to reimburse the Indemnified Parties for any legal or other expenses reasonably incurred
by them in respect thereof at the time such expenses are incurred; provided, however, that the
Company shall not be liable under the foregoing indemnity and reimbursement agreement for
any loss, claim, damage, or liability that is finally judicially determined to have resulted
primarily from the willful misconduct or gross negligence of any Indemnified Party.
The Indemnified Parties will give prompt written notice to the Company of any claim for which
they seek indemnification hereunder, but the omission to so notify the Company will not relieve
the Company from any liability that it may otherwise have hereunder except to the extent that the
Company is damaged or prejudiced by such omission. The Company shall have the right to
assume the defense of any action for which the Indemnified Parties seek indemnification
hereunder, subject to the following provisions, with counsel reasonably satisfactory to the
Indemnified Parties. After notice from the Company to the Indemnified Parties of its election to
assume the defense thereof, and so long as the Company performs its obligations in accordance
with such election, the Company will not be liable to the Indemnified Parties for any legal or
other expenses subsequently incurred by the Indemnified Parties in connection with the defense
thereof other than reasonable costs of investigation. The Indemnified Parties shall have the right
to employ separate counsel in any such action and to participate in the defense thereof at their
own expense.
If for any reason the foregoing indemnification is unavailable to any Indemnified Party or is
insufficient to hold it harmless, the Company shall contribute to the amount paid or payable by
the Indemnified Party as a result of such losses, claims, damages, liabilities, or expenses in such
proportion as is appropriate to reflect the relative benefits received (or anticipated to be received)
by the Company, on the one hand, and Investment Bank, on the other hand, in connection with
the actual or potential Transaction and the services rendered by Investment Bank. If, however,
the allocation provided by the immediately preceding sentence is not permitted by applicable law
or otherwise, then the Company shall contribute to such amount paid or payable by any
Indemnified Party in such proportion as is appropriate to reflect not only such relative benefits,
but also the relative fault of the Company, on the one hand, and Investment Bank, on the other
hand, in connection therewith, as well as any other relevant equitable considerations.
Notwithstanding the foregoing, the aggregate contribution of all Indemnified Parties to any such
losses, claims, damages, liabilities, and expenses shall not exceed the amount of fees actually
received by Investment Bank under the Agreement.
The Company shall not effect any settlement or release from liability in connection with any
matter for which an Indemnified Party would be entitled to indemnification from the Company,
unless such settlement or release contains a release of the Indemnified Parties reasonably
satisfactory in form and substance to Investment Bank and does not include any admission of
fault on the part of any Indemnified Person. The Company shall not be required to indemnify any
Indemnified Party for any amount paid or payable by such party in the settlement or compromise
of any claim or action without the Company’s prior written consent.
The Company further agrees that neither Investment Bank nor any other Indemnified Party shall
have any liability, regardless of the legal theory advanced, to the Company or any other person
or entity (including the Company’s equity holders and creditors) related to or arising out of
Investment Bank’s engagement, except for any liability for losses, claims, damages, liabilities, or
expenses incurred by the Company that are finally judicially determined to have resulted
primarily from the willful misconduct or gross negligence of any Indemnified Party.
Each Indemnified Person shall make reasonable efforts to mitigate its losses and liabilities. The
indemnity, reimbursement, contribution, and other obligations and agreements of the Company
set forth herein shall apply to any modifications of the Agreement, shall be in addition to any
liability that the Company may otherwise have, and shall be binding on and inure to the benefit
of any successors, assigns, heirs, and personal representatives of the Company and each
Indemnified Party. The foregoing provisions shall survive the consummation of any Transaction
and any termination of the relationship established by the Agreement.
Before entering into any agreement or arrangement with respect to, or effecting, any merger,
statutory exchange or other business combination or proposed sale or exchange, dividend or
other distribution, or liquidation of all or a significant portion of its assets in one or a series of
transactions or any significant recapitalization or reclassification of its outstanding securities that
does not directly or indirectly provide for the assumption of the obligations of the Company set
forth herein, the Company will notify Investment Bank and, if requested by Investment Bank,
shall arrange in connection therewith alternative means of providing for the obligations of the
Company set forth herein on terms and conditions satisfactory to Investment Bank.
To the extent that officers or employees of Investment Bank appear as witnesses, are deposed, or
otherwise are involved in or assist with any action, hearing, or proceeding related to or arising
from any transaction or proposed transaction contemplated by this Agreement or Investment
Bank’s engagement hereunder, or in a situation where such appearance, involvement, or
assistance results from Investment Bank’s engagement hereunder, the Company will pay
Investment Bank, in addition to the fees set forth above, Investment Bank’s reasonable and
customary per diem charges. In addition, if any Indemnified Person appears as a witness, is
deposed, or otherwise is involved in any action relating to or arising from any transaction or
proposed transaction contemplated by this Agreement or Investment Bank’s engagement
hereunder, or in a situation where such appearance, involvement, or assistance results from
Investment Bank’s engagement hereunder, the Company will reimburse such Indemnified Person
for all reasonable out-of-pocket expenses (including fees and expenses of counsel) incurred by it
by reason of it or any of its personnel being involved in any such action.
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