Engagement Agreement - AdStar.com Inc. and RCG Capital Markets Group Inc.
ENGAGEMENT AGREEMENT
March 7, 2000
Ms. Leslie Bernhard
President and CEO
AdStar.com, Inc.
4553 Glencoe Avenue, Suite 300
Marina del Rey, CA 90292
1. This letter agreement will confirm the understanding between AdStar.com,
Inc. and/or its affiliates and successors (the "Company" or "AdStar") and
RCG Capital Markets Group, Inc. ("RCG') with respect to the matters set
forth herein. RCG will provide consulting and other services, as more
particularly described herein and in the attachment hereto entitled
Financial Relations Services Attachment (the "Financial Relations
Services"), to the Company and will represent the Company during the
engagement as Financial Relations Consultants with respect to the
Financial Relations Services, on the terms and conditions set forth herein
and in the attachments hereto, all of which are incorporated herein by
reference and form a part hereof. The period during which RCG will perform
the Financial Relations Services for the Company will commence on the date
set forth above (the "Commencement Date") and, unless otherwise terminated
as provided in this paragraph or in paragraph nine of this letter
agreement, will terminate on the date which is the first anniversary of
the Commencement Date (the "Termination Date"). The period beginning on
the Commencement Date and ending on the Termination Date is hereafter
referred to as the "Engagement Term".
2. During the Engagement Term, the Company agrees to furnish or cause to be
furnished to RCG all information concerning the Company as RCG reasonably
requests and deems appropriate for purposes of providing the Financial
Relations Services. The Company represents that all information
represented as being complete, with respect to the Company, provided to
RCG will be complete and correct in all material respects 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 statements are
made. RCG understands that in order to facilitate communications, AdStar
may provide information in draft form to RCG as to which no representation
is made. AdStar understands that in rendering the Financial Relations
Services required hereunder, RCG will be using and relying on publicly
available information and the information furnished to RCG by AdStar
without independent verification thereof. RCG will treat as confidential
any non-public information (including information provided in draft form)
provided to it hereunder and will not disclose the same to third parties
at any time unless required by applicable law. In the event disclosure has
been or will be made by RCG, RCG will use its best efforts to cooperate as
reasonably requested by the Company in minimizing any potential loss or
injury to the Company as a consequence of any such necessary disclosure.
In addition, RCG will comply with all applicable state and Federal
securities laws in the performance of this agreement.
3. During the Engagement Term, RCG and its employees, consultants and
contractors will be available to AdStar in connection with its rendering
of the Financial Relations Services. Specifically, RCG (a) will outline,
develop and implement a financial relations program to assist the Company
in creating and/or enhancing a positive and more visible public image with
the professional investment community (b) may contact existing and future
shareholders, broker/dealers, potential investors, registered
representatives, institutions, mutual fund managers, investment banking
sources, securities analysts, independent portfolio managers, and other
professional investment community contacts for the purpose of enhancing
the Company's public image and perceived value, (c) will assist the
Company in the creation, production and distribution of certain financial
markets and investor/shareholder corporate image materials, including
corporate profiles, due diligence materials and investor packages; (d)
assist the Company in its endeavor to secure research analyst coverage
through a targeted securities professionals campaign and (e) otherwise
perform the services described in the Financial Relations Services
Attachment.
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4. During the Engagement Term, the Company will afford RCG an opportunity to
review and/or comment on any disclosure, prior to its release, which the
Company plans to make to any of the sources described in paragraph (3) and
which relates to the Financial Relations Services to be provided
hereunder. In addition, at the request of the Company, RCG will be
responsible for assisting AdStar in writing and/or editing, producing,
coordinating and disseminating all financial industry press releases. RCG
agrees that it will not release or distribute any press release without
the Company's prior consent.
5. In consideration of RCG's services hereunder, the Company agrees to pay
RCG, promptly when due, the Compensation as described by and in strict
accordance with the attachment hereto entitled Financial Relations
Compensation Attachment. Should RCG and the Company determine to extend
the Engagement Term or change the scope of the engagement, then a mutually
acceptable amendment or supplement to that attachment shall be promptly
executed by RCG and Company. Absent any such amendment, all terms and
conditions of this letter agreement shall be binding to the parties.
NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, ADSTAR SHALL
NOT BE OBLIGATED TO PAY ANY OF THE COMPENSATION TO RCG AFTER THIS LETTER
AGREEMENT HAS BEEN TERMINATED EXCEPT THAT ADSTAR SHALL ISSUE ANY OPTIONS
THAT HAVE VESTED PRIOR TO SUCH TERMINATION PURSUANT TO THE TERMS HEREOF
AND RCG'S REGISTRATION RIGHTS WITH RESPECT TO ANY OPTION SHARES UNDERLYING
VESTED OPTIONS SHALL BE UNAFFECTED BY SUCH TERMINATION.
6. RCG shall be entitled to such additional fees as may be mutually agreed
upon by separate agreement between the parties hereto, for additional
consulting services not anticipated in this letter agreement rendered
during the Engagement Term.
7. As more particularly set forth in the Financial Relations Compensation
Attachment, the Company agrees to pay all of RCG's out-of-pocket expenses
reasonably incurred in connection with the performance of the Financial
Relations Services. As set forth in the Financial Relations Compensation
Attachment, an expense escrow deposit shall be utilized for this purpose.
8. The Company and RCG agree to indemnify each other (the indemnifying party
hereafter being referred to as the "Indemnity", and the party entitled to
indemnification hereafter being referred to as the "Indemnity") as
follows: Indemnity agrees to defend, indemnify and hold harmless
Indemnity, and its officers, directors, and employees against any and all
losses, claims, demands, suits, actions, judgments, awards, damages,
liabilities, costs, reasonable attorneys' fees, and expenses incurred in
investigating, preparing or defending any such action or claim, directly
or indirectly caused by, related to, or asserted by a third party, based
upon or arising out of (a) the Indemnity's breach of or the incorrectness
of any of its representations, warranties, agreements or covenants
contained in this letter agreement; and/or (b) any of the Financial
Relations Services rendered by RCG. Notwithstanding the foregoing, the
lndemnitor shall have no obligation to indemnify or hold the Indemnitee
harmless with regard to Indemnitee's negligence, willful misconduct, or
the material breach of or the incorrectness of any representation,
warranty or covenant of lndemnitee contained in this letter agreement.
9. (a) Either party hereto may terminate this letter agreement at any time
after June 30, 2000 upon thirty (30) days prior written notice to the
other party.
(b) A party to this letter agreement may terminate this letter agreement
prior to June 30, 2000 Date, if the other party to this letter agreement
commits a "Terminable Act". A Terminable Act shall mean: (i) a material
breach of any term or provision of this letter agreement by such other
party and such breach remains unremedied for a period of thirty (30) days
following the receipt of notice from the nonbreaching party setting forth
in reasonable detail the circumstances of such breach ;provided however,
if such breach cannot be remedied, termination shall be immediate; (ii)
the negligence, willful misconduct, fraud or misrepresentation of such
other party; (iii) the failure of such other party to materially comply
with any applicable law or regulation relating to the Financial Relations
Services being provided; (iv) if such other party shall plead guilty or
nolo contendere to any violation of the securities laws of the United
States or any state; and (v) upon the filing by or against such other
party of a petition to have such party adjudged as bankrupt or a petition
for reorganization or arrangement under any law relating to bankruptcy,
and where any such involuntary petition is not dismissed within 90 days.
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(c) Upon termination under subparagraphs (a) or (b) of this paragraph 9,
the Company shall have no liability to RCG for Compensation accruing after
such termination, and RCG shall have no further entitlement thereto. Upon
such termination, RCG shall be entitled to receive and retain only accrued
Compensation and vested Options to the date of such termination, to the
extent it is unpaid, together with expenses not yet reimbursed.
(d) If this letter agreement is not terminated by either party prior to
the Termination Date, it shall renew automatically on a month to month
basis until specifically renewed in writing or terminated upon thirty (30)
days prior written notice. Such renewal on month to month basis shall be
on the same terms and conditions contained herein.
10. RCG hereby fully discloses that certain associates, affiliates, officers
and employees of RCG are:
(a) Licensed as Registered Securities Principals issued by the
National Association of Securities Dealers ('^NASD"); and/or
(b) Licensed as Registered Representatives issued by the NASD.
All NASD registrations are carried by SWS Financial Services, Inc.,
which is a non-RCG affiliated NASD-registered broker/dealer.
RCG represents and warrants that RCG is NOT a broker/dealer
registered with the NASD or any other regulatory agency and its
performance of Financial Relations Services under the terms and
conditions of this agreement shall not be considered to be acting in
any broker/dealer or underwriting capacity and therefore RCG is not
receiving any compensation from the Company as such.
11. The Company understands and acknowledges that RCG provides other and
similar consulting services to companies which may or may not conduct
business and activities similar to those of the Company. RCG is not
required to devote its full time and attention to the performance of its
duties detailed in this agreement, and may devote only so much of its time
and attention as is reasonable or necessary. RCG represents and warrants
that it does not currently represent nor does it perform services to or
for any individual, partnership, limited liability company, sole
proprietorship, corporation or any other entity engaged in the business of
developing, licensing, selling, marketing or distributing internet and
software applications to or for the classified advertising industry. RCG
further covenants and agrees that throughout the Engagement Term and any
extension thereof it will not represent or provide services to or for any
individual, partnership, limited liability company, sole proprietorship,
corporation or any other entity engaged in the business of developing,
licensing, selling, marketing or distributing internet or software
applications to or for the classified advertising industry.
12. The terms of this letter agreement shall be governed by and interpreted in
accordance with the laws of the State of California.
13. For the convenience of the parties, this letter agreement may be executed
in separate counterparts. Each such counterpart shall be deemed to be an
original instrument, but both such counterparts taken together shall
constitute one and the same letter agreement.
If the foregoing correctly sets forth our agreement, please sign the enclosed
copy of the letter in the space provided and return it to us, whereupon both
parties will be bound by the terms of this engagement.
Confirmed and agreed to as of the date first above written.
RCG Capital Markets Group, Inc. AdStar.com, Inc.
By: _______________________________ By: _______________________________
Title: ____________________________ Title: ____________________________
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FINANCIAL RELATIONS
SERVICES ATTACHMENT
At the Commencement Date of this letter agreement as defined in Paragraph I of
the letter agreement to which this Attachment is appended, RCG Capital Markets
Group, Inc. CRCG") will serve as Financial Relations Consultant for AdStar.com
("AdStar" or the "Company"). RCG anticipates the following services will be
attempted and/or implemented within the scope of this engagement:
o Outline, define, establish and implement a well-coordinated
"Financial Relations" campaign.
o Create, produce, or enhance existing, and distribute high-quality,
due diligence and marketing materials, which specifically include,
but are not limited to a "Corporate Profile" document and the
Company's "Investor Package".
o Specifically develop, proactively execute and maintain a targeted
securities professionals telecommunications and information campaign
specifically directed toward retail brokers, institutional
investors, third-party portfolio managers and small/mid-cap mutual
funds, buy and sell side analysts. At the Company's request, RCG
will allocate and utilize its proprietary securities industry,
small/mid cap company oriented, databases and fax-line
communications programs. (This will include responding to all
incoming investment community inquiries and fulfillment of
information and data requests.)
o RCG will attempt to secure investment recommendations and on-going
corporate research coverage from national or regional investment
banking or research firms and/or an endorsement by an investment
news letter publication.
o Plan, arrange and coordinate specific follow-on road-show
presentations to strategically targeted primary metropolitan
financial markets.
o At the Company's request, RCG will be responsible for the
origination and release of financial industry data on behalf of
AdStar. Also at the Company's request, RCG will be responsible for
editing (or writing) all press releases and coordinating information
disseminated to all media sources relating to the securities
industry and capital markets.
o At the Company's request, RCG will organize, monitor and follow-up
all conference calls between the Company and RCG's targeted segment
of the investment community, in conjunction with material press
releases, through a teleconferencing service. (RCG will be
responsible for faxing and/or emailing the invitations and will
follow up with calls to the recipients in an effort to expand the
conference call participation.)
o Plan, arrange and coordinate periodic registered representative,
institutional and/or other securities professionals meetings,
luncheons, dinners or special gatherings.
o Implement periodic direct mailings which may include the most recent
statistical information reports, and any appropriate articles or
press releases that have been released during the last reported
quarter.
o Update all due diligence and marketing materials. RCG anticipates
updating Company information on a regular basis as required when
there are material changes or events that should be disseminated to
the investment community.
o Implement an AdStar lnternet Site on RCG's Internet Home Page, RCG
Online (the "AdStar Page"). RCG Online will also create an Internet
link to the Company's home page. The purpose of these inclusions
will be to provide the investment community a 24-hour access site to
obtain up-to-date information about the Company.
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RCG intends to perform the services and accomplish the specified goals within
the scope of this engagement. However, due to the nature and type of services
being performed, RCG cannot guarantee, nor can it be assumed that certain
specific results will be realized with reference to increased market valuation
of AdStar securities.
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FINANCIAL RELATIONS
COMPENSATION ATTACHMENT
In consideration of the Financial Relations Services to be rendered pursuant
hereto, AdStar agrees to pay RCG the following compensation (the
"Compensation"):
A. Cash Compensation. AdStar shall pay RCG (1) the sum of $350 per month for
the RCG Online service beginning with the month the AdStar Page is
available online, and (2) a monthly retainer of $6,000 for each month
beginning July 1, 2000 of the Engagement Term, payable monthly in advance
of services rendered: provided, however, AdStar may continue to pay, at
its option, the Equity Compensation specified in paragraph C hereof in
lieu of the Cash Compensation specified in this paragraph A.t.
B. Expense reimbursement In addition, RCG shall be reimbursed for all direct
and certain indirect prorated out-of-pocket incurred in connection with
the performance of the Financial Relations Services pursuant hereto.
AdStar, will remit $5,000 to RCG, which RCG will utilize as an escrow
deposit for the express purpose of indemnifying RCG in the event of late
payment of monthly expenses by the Company. RCG will provide the Company
with a detailed breakdown of all reimbursable expenses incurred in the
previous month by approximately the twentieth (20th) day of the following
month of service. AdStar agrees to reimburse RCG within 15 days of receipt
of detailed invoice each month. If AdStar is delinquent in timely
reimbursement of expenses as defined above, RCG will have the fight to
withdraw from the escrow account the applicable dollar amount to fully
reimburse RCG. If reimbursement is not received by RCG by the 25th day
after the date of the invoice, AdStar will then be immediately required to
remit to RCG an amount equal to the expenses in question. RCG will then
replenish the escrow account for the amount withdrawn to cover the
delinquency. RCG can at its discretion discontinue all representation
activities on behalf AdStar, if RCG deems AdStar to be routinely
delinquent in the timely payment of expenses and/or the monthly fees as
stated above. Such discontinuance does not extinguish the Company's
obligation for reimbursement and payment of retainer fees.
RCG will obtain prior approval from the Company for all specific expense
items and any single miscellaneous expense item in excess of $500. RCG
acknowledges and understands that the Company will have specific amounts
budgeted for these expenditures and will attempt to ensure those budget
amounts are not exceeded.
C. Equity Compensation. On the Commencement Date, the Company shall pay RCG
an engagement fee of 1,200 shares of its unregistered common stock. For
the period commencing on the Commencement Date and terminating on the date
when the monthly retainer specified in paragraph A hereof is paid in cash,
AdStar shall pay RCG a monthly fee of 700 shares of its unregistered
common stock. Payments of the monthly fees shall be due at the beginning
of each month; provided, however the first four payments (2,800 shares)
shall be paid on the Commencement Date.
D. Stock Options. As additional compensation for Financial Relations
Services, RCG requests non-forfeitable granted options/warrants to
purchase 25,000 shares of AdStar common stock (the "Signing Options"). The
Signing Options shall be granted as consideration for RCG agreeing to take
compensation in equity rather than cash for the initial period of this
engagement and shall be immediately vested upon execution of this
agreement. Additional options/warrants to purchase 15,OO0 shares of AdStar
common stock (the "Additional Options") are also granted. The Additional
Options will vest and become exercisable at the expiration of five years
from the date of grant provided that RCG is still providing services to
the Company on that date and provided further that such options shall vest
and become earlier exercisable on a performance basis as outlined below:
3,750 shall become exercisable upon confirmation of an average 5%
increase per calendar month in the average daily trading
volume of AdStar for any period of 90 calendar days;
provided, however, in no event shall any Additional
Options vest if the average daily trading volume in
AdStar common stock is less than 5,000 shares. (The
baseline average
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shall be determined as the average daily trading volume
calculated for the 20 trading days prior to the
Commencement Date.)
3,750 shall become exercisable upon confirmation of corporate
research coverage from a buy- or sell-side analyst at a
reputable national or regional investment banking firm
having institutional clients and at least 50 retail
brokers.
3,750 shall become exercisable upon securing confirmation of two (2)
new institutional investors or third-party portfolio
managers positioning at least 2% of the Company's issued
and outstanding stock. (Vesting to be prorated at 1,875
Additional Options for each investor secured.)
3,750 shall become exercisable upon confirmation of four (4) new
non-wholesale market makers. (Vesting to be prorated at
937.5 Additional Options for each new market maker
secured.)
The Company agrees to issue an options/warrants document
within thirty (30) days of the Commencement Date which
conforms to and delineates the terms and conditions contained
herein.
The exercise price for the Signing Options and the Additional Options
(collectively, the "Options" shall be $10.00.
The Options issued will possess a five (5) year expiration term and the shares
of AdStar common stock underlying the Options together with any shares issued
pursuant to paragraph C hereof (the "Option Shares") will be eligible for
registration on and after January 31,2001. Such registration shall be
accomplished by one demand registration rights via a form S-3 registration
statement or by non-profitable piggyback registration rights should the Company
file a registration after the one year period. In the event that RCG provides a
written request to register the Option Shares, as provided herein, the Company
hereby agrees that it will use its reasonable best efforts to file such
registration statement within 45 days of such request. The Company's obligation
to file a registration statement, or cause such registration statement to become
and remain effective, shall be suspended for a period not to exceed 120 days in
any 12-month period if there exists at the time material non-public information
relating to the Company which, in the reasonable opinion of the Company, based
on the advice of counsel, should not be disclosed. RCG agrees to pay 50% of the
cost of such S-3 registration up to an amount not to exceed $12,500. Such
payment by RCG is due upon the effective date of the registration statement.
RCG's demand registration right shall terminate at such time as the Option
Shares shall be salable under Rule 144 during a period of not more than 90 days.
Notwithstanding anything contained herein, the Company shall not be required to
include any Options or Option Shares in any Registration Statement filed on Form
S-8 or Form S-4 or their equivalents relating to an offering of securities by
the Company to be issued in connection with any acquisition of any entity or
business or otherwise Isabel in connection with any stock option or employee
benefit plan.
In the event that AdStar is merged into or a controlling interest is acquired by
any entity, or there is a material change in AdStar management, RCG will be
immediately vested in all remaining options, including those, which to that
point have not yet been vested.
NOTWITHSTANDING ANYTHING CONTAINED HEREIN, ADSTAR SHALL NOT BE OBLIGATED TO PAY
ANY OF THE FOREGOING COMPENSATION TO RCG AFTER THIS LETTER AGREEMENT HAS BEEN
TERMINATED EXCEPT THAT ADSTAR SHALL ISSUE ANY OPTIONS THAT HAVE VESTED PRIOR TO
SUCH TERMINATION PURSUANT TO THE TERMS HEREOF AND RCG'S REGISTRATION RIGHTS WITH
RESPECT TO ANY OPTION SHARES UNDERLYING VESTED OPTIONS SHALL BE UNAFFECTED BY
SUCH TERMINATION.
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