Confidential
May 30, 1997
Mr. Edward M. Stern
President and Chief Operating Officer
Consolidated Hydro, Inc.
680 Washington Boulevard
5th Floor
Stamford, CT 06901
Dear Mr. Stern:
This letter confirms the understanding and agreement (the "Agreement")
with Consolidated Hydro, Inc. and its subsidiaries (the "Company"), concerning
the engagement of Houlihan Lokey Howard & Zukin, Inc. ("Houlihan Lokey"). This
letter amends and restates the letter agreement dated December 11, 1996 between
the Company and Houlihan Lokey.
1. Engagement: Houlihan Lokey has and is being retained to provide
financial advisory services for the Company in connection with the analysis,
design, formulation and execution of a financial restructuring plan which is
subject to approval by the Company. Houlihan Lokey is hereby engaged to render
financial advisory and investment banking services to the Company in relation to
the areas described herein.
Houlihan Lokey has completed its due diligence and analysis with regard to
evaluating the Company's financial restructuring alternatives, its business
plans, and the Company's values under various restructuring plans and capital
structures. We have recommended to the Company and its Board of Directors a
restructuring plan and have assisted the Company in negotiating a proposed
restructuring plan (the "Transaction"). The primary terms of such plan have been
agreed to among the Company, an unofficial committee representing the Company's
12% Senior Discount Notes (the "Noteholders"), and a majority of the holders of
each of the Company's Series F, H and G preferred stocks. The restructuring plan
is expected to be executed through a prepackaged or pre-negotiated Chapter 11
plan.
2. Exclusive Agreement: For the term of this Agreement, Houlihan Lokey
shall be the Company's exclusive financial advisor with respect to a potential
corporate
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Mr. Edward M. Stern
Consolidated Hydro, Inc.
May 30, 1997
restructuring and shall be compensated on the terms described herein. This
Agreement is terminable upon 30 days written notice by the Company and may not
be terminated by Houlihan Lokey prior to December 31, 1997 except as provided
below. Unless otherwise terminated, this Agreement will terminate upon the
earliest of (i) June 30, 1998, and (ii) the consummation of a Transaction.
In the event the Company becomes a debtor under the Bankruptcy Code, the
effectiveness of this Agreement and the payments required hereunder, will be
subject to approval of the bankruptcy court as is further set forth in paragraph
7. If the requisite bankruptcy court approval is not promptly obtained, Houlihan
Lokey shall have the option to terminate the Agreement, upon written notice to
the Company, and shall be entitled to be reimbursed by the Company for the fees
and expenses reasonably incurred prior to the bankruptcy court's determination
to the extent allowed by the bankruptcy court.
3. Fees and Expenses:
The Company has paid Houlihan Lokey an initial fee of $200,000 for
services rendered up through January 14, 1997. For services rendered from
January 14, 1997 through May 31, 1997, the Company has agreed to pay Houlihan
Lokey a fee of $1.2 million on or before June 10, 1997. From June 1, 1997
through the earlier of a Chapter 11 consummation or October 31, 1997, the
Company shall pay Houlihan Lokey a fee of $60,000 per month; thereafter, if
Houlihan Lokey continues to be retained the fee payable to Houlihan Lokey shall
be $30,000 per month. Monthly fees are payable in advance in cash. Additionally,
Houlihan Lokey shall be entitled to monthly reimbursement of reasonable
out-of-pocket expenses incurred in connection with the services to be provided
under this Agreement. Monthly fees plus reimbursement of reasonable and
documented out-of-pocket expenses, are due upon the 1st of each month to
Houlihan Lokey at the address above, Attention: Donald V. Smith.
Out-of-pocket expenses shall include, but not be limited to, all
reasonable travel expenses, duplicating charges, computer and research charges,
attorney fees, messenger services and long-distance telephone calls incurred by
Houlihan Lokey in connection with the services to be provided to the Company.
However, in the event that such expenses exceed $5,000 in any calendar month,
Houlihan Lokey shall obtain written approval from the Company for
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Mr. Edward M. Stern
Consolidated Hydro, Inc.
May 30, 1997
incurring such expenses. The Company agrees not to unreasonably withhold or
delay its approval to incur such expenses.
The fees payable to Houlihan Lokey pursuant to this Agreement are for the
various advisory services described herein, including without limitation
providing testimony in a Chapter 11 case (if necessary) and to the extent
Houlihan Lokey is requested by the Company to perform any financing or other
investment banking services not contemplated by this Agreement, such fees shall
be mutually agreed upon by Houlihan Lokey and the Company in writing, in advance
and shall be in addition to the fees described above.
4. Company Information: The Company understands that Houlihan Lokey will
not be responsible for independently verifying the accuracy of the information
provided by the Company (the "Information") and shall not be liable for
inaccuracies in any Information provided by or on behalf of the Company to
Houlihan Lokey. The Company will use reasonable efforts to assure that all
Information supplied to Houlihan Lokey by or on behalf of the Company will, as
of its respective dates, be accurate and complete in all material respects.
Furthermore, the Company will reasonably cooperate with Houlihan Lokey in all
phases of its financial advisory services.
5. Indemnification: If any party to the Agreement brings an action based
on the Agreement, the prevailing party shall be entitled to reasonable expenses
therefor, including, but not limited to, reasonable attorneys' fees and court
costs. In addition, the Company agrees to indemnify and hold Houlihan Lokey
harmless against any losses, claims, damages or liabilities incurred by Houlihan
Lokey in connection with or arising out of the services which are the subject of
the Agreement, including the offering or sale of securities or assets by the
Company, and which services have been provided prior to the receipt by Houlihan
Lokey of the notice of termination of the Agreement. The Company agrees to
reimburse Houlihan Lokey for any reasonable legal, investigation and preparation
expenses or other expenses as incurred in connection with investigating or
defending against any loss, claim, damage, liability, or expense or any action,
proceeding or investigation in respect thereof. However, the Company shall not
be liable under the foregoing indemnity and
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Mr. Edward M. Stern
Consolidated Hydro, Inc.
May 30, 1997
reimbursement Agreement to Houlihan Lokey in respect of any loss, claim, damage,
liability or expense to the extent it is judicially determined that such loss,
claim, damage or liability resulted, in whole or in part, from the gross
negligence, fraud, willful misconduct or lack of good faith of Houlihan Lokey.
The above reimbursement and indemnity obligations of the Company shall be
in addition to any liability the Company may otherwise have; shall extend upon
the same terms and conditions to the shareholders, directors, officers,
partners, employees, agents and controlling persons (if any) of Houlihan Lokey;
and shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of Houlihan Lokey.
The obligations of Houlihan Lokey are solely corporate obligations, and no
officer, director, employee, agent, shareholder or controlling person of
Houlihan Lokey shall be subjected to any personal liability whatsoever to any
person, nor will any such claim be asserted by or on behalf of any other party
to this Agreement or any person relying on the services provided hereunder. If
any action or proceedings shall be brought or asserted against Houlihan Lokey in
respect to which indemnity may be sought from the Company, Houlihan Lokey shall
promptly notify the Company in writing, and the Company shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to Houlihan
Lokey and the payments of all expenses. Houlihan Lokey shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
Houlihan Lokey unless (a) the Company has agreed to pay the reasonable fees and
expenses of such counsel or (b) the Company shall have failed promptly to assume
the defense of such action or proceeding or employ counsel reasonably
satisfactory to Houlihan Lokey in any such action or proceeding or (c) the named
parties to any such action or proceeding (including any impleaded parties)
include both Houlihan Lokey and the Company and Houlihan Lokey believes, in the
exercises of its business judgement, that the joint representation of the
Company and Houlihan Lokey may result in a conflict of interest (in which case,
if Houlihan Lokey notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company provided the fees and expenses of
such counsel are
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Mr. Edward M. Stern
Consolidated Hydro, Inc.
May 30, 1997
reasonable, the Company shall not have the right to assume the defense of such
action of proceeding on behalf of Houlihan Lokey).
6. Confidentiality. The Company may, from time to time, propose or be
requested to disclose (and has already disclosed) to Houlihan Lokey or its
directors, officers, agents, employees, representatives, advisors, Affiliates,
and Associates (as such capitalized terms are defined in Regulation 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended) all such persons being hereinafter collectively referred to as
"Representatives") certain proprietary, confidential, and/or material non-public
information (the "Confidential Information"). "Confidential Information"
includes without limitation, all information, data, reports, analyses,
computations, statistics compilations, studies, schedules, interpretations,
projections, forecasts, records, notes, memoranda, summaries, and other
documents and materials (whether prepared by the Company or Houlihan Lokey, or
otherwise, and in whatever form maintained, whether documentary, computerized or
otherwise) that contain or otherwise reflect information provided by or on
behalf of the Company.
Houlihan Lokey agrees that it (a) shall treat all Confidential Information
as confidential, (b) shall not disclose or allow disclosure to any other entity
of any portion of the Confidential Information, (c) shall take all reasonable
lawful measures and actions to cause its Representatives to adhere to the
confidentiality provisions herein, and (d) shall use the Confidential
Information only for purposes of providing services described in the Agreement;
provided that restrictions (a), (b), and (c) shall not apply to any Confidential
Information which (i) is or becomes generally available to the public other than
as a result of disclosure which is prohibited hereunder by Houlihan Lokey, its
Representatives, or (ii) was available to Houlihan Lokey on a non-confidential
basis prior to the receipt of such Confidential Information, provided that the
source such information was not known by the recipient thereof or of any of its
Representatives, after reasonable inquiry of the source and the Company, to be
bound by a confidentiality agreement with or other contractual, legal, or
fiduciary obligation of confidentiality to the Company or
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Mr. Edward M. Stern
Consolidated Hydro, Inc.
May 30, 1997
any of its subsidiaries or affiliates with respect to such material.
In the event that Houlihan Lokey or its Representatives are requested to
or become legally compelled (by oral questions, interrogatories, request for
information or documents, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, Houlihan Lokey shall (and
shall direct its Representatives to) provide the Company promptly with written
notice of such request(s) so that the Company may seek a protective order or
other appropriate remedy and/or waives compliance with the provisions hereof. In
the event that such protective order or other remedy is not obtained prior to
the time the Confidential Information is required to be disclosed, or that the
Company waives compliance with the provisions hereof, Houlihan Lokey agrees that
it shall furnish (and shall direct its Representatives to furnish) only that
portion of the Confidential Information in which is legally required and
Houlihan Lokey shall use its reasonable best efforts to obtain reliable
assurance that the confidential treatment will be accorded to that portion of
the Confidential Information which is being disclosed.
After Houlihan Lokey's engagement expires by its terms or is otherwise
terminated upon the request of the Company, Houlihan Lokey shall (and shall
cause its Representatives to) promptly deliver to the Company or destroy the
Confidential Information and all copies thereof, except for that portion of the
Confidential Information which consists of data, analyses statistics,
compilations, studies, schedules, notes, or other documents prepared by Houlihan
Lokey or its Representative. That portion of the Confidential Information which
consists of data, analyses, statistics, compilations, studies, schedules, notes,
or other documents prepared by Houlihan Lokey or its Representatives shall be
retained by Houlihan Lokey and shall be kept confidential and subject to the
terms hereof indefinitely, or shall be destroyed at the request of the Company.
Such destruction if any, shall be confirmed promptly in writing to the Company.
Although the Company will endeavor to include the Confidential Information
on all such information known to it which it reasonably believes to be relevant
to the performance by Houlihan Lokey of financial advisory services
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Mr. Edward M. Stern
Consolidated Hydro, Inc.
May 30, 1997
to the Company pursuant to the Agreement, Houlihan Lokey understands and agrees
that neither the Company nor its Representative(s) make any representation or
warranty, expressed or implied, as to the accuracy or completeness of the
Confidential Information and (b) shall have any liability whatsoever to Houlihan
Lokey, or, its representatives, relating to or resulting from the use of the
Confidential Information or any errors therein or omissions therefrom. Without
limiting the generality of the foregoing, the Confidential Information may
include certain statements, estimates, and projections with respect to the
Company's anticipated future performance. Such statements, estimates, and
projections reflect various assumptions made by the Company concerning
anticipated results, which assumptions may or may not prove to be correct. No
representations are made as to the accuracy of such assumptions, statements,
estimates, or projections. The Company acknowledges that Houlihan Lokey will not
be responsible for independently verifying the accuracy of the Confidential
Information.
7. Bankruptcy Court Approval: In the event the Company commences a case
under Chapter 11 of the Bankruptcy Code, this Agreement is subject to the entry
of an order of the United States bankruptcy court having jurisdiction over the
Chapter 11 case approving the retention of Houlihan Lokey pursuant to the terms
hereof. The Debtor shall use its best efforts to obtain authorization of the
retention of Houlihan Lokey pursuant to sections 327 and 328 of the Bankruptcy
Code on the terms and provisions in this Agreement. The order approving the
Agreement and authorizing the retention shall be acceptable to Houlihan Lokey in
its sole reasonable discretion.
8. Entire Agreement: This Agreement represents the entire Agreement
between the parties and may not be modified except in a writing signed by both
parties and supercedes the letter agreement dated December 11, 1996. This
Agreement shall be governed by the laws of the State of New York. This Agreement
may be executed in counterparts, each of which shall constitute an original. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision.
9. Survival: The provision of paragraphs 2 and 3, relating to Houlihan
Lokey's fees and transaction rights,
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Mr. Edward M. Stern
Consolidated Hydro, Inc.
May 30, 1997
and paragraph 5, relating to indemnification, shall survive any termination of
this Agreement.
10. Other Matters: If this letter correctly sets forth our Agreement on
the matters covered herein, please so indicate by signing and returning the
enclosed copy of this letter and signing and retaining the duplicate we are
enclosing for your records. Upon execution by both parties, this letter will
constitute a legally binding Agreement between the Company and Houlihan Lokey.
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Mr. Edward M. Stern
Consolidated Hydro, Inc.
May 30, 1997
We trust the foregoing terms and provisions are agreeable to you, and request
that you sign and return the enclosed copy of this Agreement to Houlihan Lokey.
HOULIHAN LOKEY HOWARD & ZUKIN, INC.
By: /s/ Donald V. Smith
-------------------------------
Donald V. Smith
Managing Director
CONSOLIDATED HYDRO, INC.
By: /s/ Edward M. Stern
-------------------------------
Edward M. Stern
President and Chief Operating Officer
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