EXHIBIT 10.26
[LETTERHEAD OF M. KANE & COMPANY, INC. APPEARS HERE]
May 29, 1996
The Board of Directors
Jones Education Networks, Inc.
9697 East Mineral Avenue
Englewood, CO 80112
Attention: Mr. Wallace Griffin
President CONFIDENTIAL
This letter agreement ("Agreement") confirms the engagement of M. KANE &
COMPANY, INC., ("MKC") by Jones Education Networks, Inc. (the "Company") to
render certain financial advisory services to the Company.
1.0 Services. MKC agrees to perform the following services (the "Services"):
1.0.1 review the recent historical financial information and business
operations, prospects and forecasts of future financial results of the
Company which are made available to MKC by the Company and such other
matters as MKC deems relevant to enable it to render financial advice and
assistance to the Company, including, without limitation, the pro forma
effects, from a financial point of view, of certain prospective
incremental additions and deletions ("Incremental Business") to the base
business of the Company;
1.0.2 derive the current (baseline) enterprise value of the Company, with and
without the Incremental Business, on an aggregate and market value basis
and perform a time-phased valuation analysis;
1.0.3 identify, evaluate, configure and recommend possible courses of action,
from a financial point of view, for maximizing shareholder value under
guidelines and objectives mutually agreed upon by the Company and MKC and
prepare a presentation setting forth certain options and their
prospective financial consequences (the "Strategic Financial Feasibility
Study");
1.0.4 present the Strategic Financial Feasibility Study to the Company's Board
of Directors ("Board");
1.0.5 assist the Company to evaluate and select a financial transaction
("Transaction") appropriate to the Company's expressly stated business
and financial objectives, and, if an Initial Public Offering ("IPO") of
the Company's Common Stock is selected as the preferred Transaction,
continue as follows:
May 29, 1996
Page 2
1.0.6 assist the Company to structure the financial aspects of the IPO,
including, without limitation the approximate aggregate size of the
transaction and the preferred valuation strategy;
1.0.7 assist the Company to prepare an introductory presentation to prospective
co-managing (lead) underwriters in the form of a written summary and
electronic presentation;
1.0.8 assist the Company to evaluate and select one or more co-managing
underwriters of the IPO (including the lead manager);
1.0.9 assist the Company to negotiate the terms and conditions relating to the
IPO;
1.0.10 assist the Company to prepare the "Business Section" of the S-1
Registration Statement;
1.0.11 assist the Company to prepare for underwriter financial due diligence,
and;
1.0.12 serve as a co-manager of the IPO (non-lead), subject to MKC's
satisfaction, in its sole discretion, with its due diligence examination
of the Company and financial market conditions.
1.1 INTEGRITY OF INFORMATION. The Company recognizes and confirms that in
providing the Services, MKC will be using and relying upon data, material
and other information furnished by the Company and their respective
employees and representatives ("Information"). The Company hereby agrees
and represents that all Information furnished to MKC by the Company in
connection with this Agreement shall be accurate and complete in all
material respects at the time furnished and that if such Information, in
whole or in part, becomes materially inaccurate, misleading or incomplete
during the term of MKC's engagement hereunder, the Company will so advise
MKC in writing and correct any such inaccuracy or omission. Accordingly,
MKC assumes no responsibility for the accuracy and completeness of such
Information. MKC will not be required to make an independent verification
of any Information. All Information concerning the Company so furnished
that is not publicly available will be treated in strict confidence and
will not be revealed by MKC unless legally compelled, and then only upon
written prior notice to the Company. MKC will seek confidential treatment
of any material so disclosed. The Company agrees that it and its counsel
are responsible for ensuring that a Transaction, including any legal
agreements, applications or other materials used in the Transaction (the
"Transaction Documents"), will comply in all respects with applicable
law.
________________________________________________________
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Adisory
May 29, 1996
Page 3
2.0 COMPENSATION: The Company agrees to pay MKC via wire transfer or check
the following fees (the "Compensation") for the Services as follows, time
being of the essence and all such payments to be fully earned when paid:
2.1 a non-refundable cash Advisory Retainer (the "Advisory Retainer"),
payable at the rate of $20,000 per month commencing upon the execution of
this Agreement and every month thereafter until the consummation or
abandonment of the IPO ("Retainer Payments"). All Retainer Payments paid
pursuant to the foregoing (including $50,000 already paid in respect of
Services already commenced for the Company and the $20,000 Advisory
Retainer to be paid upon execution of this Agreement) shall be credited
against (that is, deducted from), the "Success Fee(s)" (as hereinafter
defined) which may become due and payable hereunder after payment of the
"Milestone Success Fee" (as hereinafter defined).
2.2 Success Fee(s) ("the Success Fee(s)"), as follows:
2.2.1 the Company shall compensate MKC with a cash Success Fee in the amount of
one and seven eighths percent (1.875%) of the "Gross Proceeds" of the IPO
("Gross Proceeds" being defined as aggregate offering size, including
amounts sold by selling shareholders and any amounts attributable to the
exercise of the over-allotment option by the underwriters). Upon the date
of execution by the Company of a letter of intent with a lead-managing
underwriter to engage in an IPO at any time, the Company will remit to
MKC twenty-five percent (25.0%) of the estimated cash component of the
Success Fee, computed as 25.0% of 1.875% of the Gross Proceeds (or, if
expressed as a range, the average Gross Proceeds) identified in the
letter of intent (the "Milestone Success Fee"). The Advisory Retainer
shall not be credited against the Milestone Success Fee. The balance of
the Success Fee shall be paid on the settlement date(s) of the IPO and
the exercise of the overallotment option (if any), respectively, and
shall be net of all credits for any previously remitted Retainer payments
and the Milestone Success Fee. It is not necessary for MKC to actually
serve as the Company's co-manager of the IPO to be entitled to receive
any of the Success Fees pursuant to this paragraph;
2.2.2 the Company shall also compensate MKC with a 5-year warrant to purchase
the Company's common stock at a per share exercise price equal to 120% of
the IPO per share offering price upon consummation of the IPO, in an
aggregate amount equal to one half of one percent (0.5%) of the Gross
Proceeds of the IPO. MKC agrees to be bound by customary underwriter
lock-up provisions imposed exclusively in connection with the prospective
IPO and the shares underlying the warrant shall carry a provision for
cashless exercise and customary registration rights including, but not
limited to, one demand and unlimited piggyback registration rights. It is
not necessary for MKC to actually serve as
_______________________________________________________
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Adisory
May 29, 1996
Page 4
the Company's co-manager of the IPO to be entitled to receive any of the
Success Fees pursuant to this paragraph;
2.2.3 if MKC assists the Company in arranging a Transaction other than an IPO,
the Company agrees to pay MKC mutually acceptable compensation taking
into account, among other things, the results obtained and the custom and
practice among investment bankers acting in similar transactions. MKC
agrees to credit all Retainer Payments and the Milestone Success Fee, to
the extent previously remitted to MKC, against any Success Fee earned
with respect to a Transaction other than an IPO.
3.0 EXPENSES. In addition to the Compensation provided for hereunder, and
irrespective of whether a Transaction is consummated, the Company agrees
to reimburse MKC for all of its reasonable out-of-pocket fees and
expenses arising out of MKC's engagement hereunder, not to exceed $20,000
prior to the IPO Road Show (and an additional $15,000 during the IPO Road
Show), without the Company's permission, which shall not be unreasonably
withheld. Reasonable out-of-pocket fees and expenses include, but are not
limited to, such costs as travel, accommodations, telephone, telex,
courier service, copying, direct computer and data base expenses,
secretarial overtime, fees and disbursements of legal counsel and
accountants and transaction closing announcements ("Expenses"). The
Company will advance MKC $5,000 for Expenses by wire transfer or check
upon the execution of this Agreement ("the Deposit"). All Expenses will
be accounted for monthly. Expenses initially will be offset against the
Deposit. All additional Expenses, to the extent permitted hereunder, will
be billed monthly and are payable within thirty (30) days of invoice. All
Expenses not previously reimbursed shall be due and payable on the
expiration or termination of this Agreement. This Paragraph 3 shall
survive the termination or expiration of this Agreement.
4.0 IDEMNIFICATION. Execution of this Agreement shall obligate the Company to
the indemnification terms set forth in Appendix A attached hereto and
incorporated herein by reference as if fully set forth below. This
Paragraph 4 shall survive the termination or expiration of this
Agreement.
5.0 TERM. The term ("Term") of this engagement shall extend from the date
hereof to the later of the consummation or abandonment of the IPO, or
September 30, 1996. Any party may terminate this Agreement at any time by
giving each other party at least thirty (30) days prior written notice of
any such termination. Upon termination or expiration the Company shall
pay to MKC all Compensation earned and, to the extent not covered by the
Deposit and permitted hereunder, all Expenses incurred to the date
thereof. MKC shall promptly return any portion of the Deposit not
chargeable against Expenses incurred
_______________________________________________________
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Advisory
May 29, 1996
Page 5
pursuant hereto prior either to the date of: 1) receipt of notice of
termination; or 2) expiration of the Agreement. MKC shall be entitled to
(a) Success Fee(s), as set forth in Paragraph 2, if an IPO is consummated
within six (6) months of the termination or expiration of this Agreement.
The Company's obligation hereunder shall survive the termination or
expiration of this Agreement.
6.0 DISCLOSURE. The Services or financial advice to be provided by MKC under
this Agreement shall not be disclosed publicly nor made available to
third parties other than existing shareholders without MKC's prior
written approval, except as required by law.
7.0 LIMITATION. The Company recognizes that MKC has been retained only by the
Company, and that the Company's engagement of MKC is not deemed to be on
behalf of and is not intended to confer rights upon any individual
shareholder, owner, creditor or partner of the Company (differentially to
any other within the same class) or any other person not a party hereto
as against MKC or any of MKC's affiliates or the respective directors,
officers, agents, employees or representatives of either MKC or any of
MKC's affiliates. Unless otherwise expressly agreed, no one other than
the Company is authorized to rely upon the engagement of MKC hereunder or
any statements, advice, opinions or conduct by MKC.
8.0 PUBLICITY. The Company and MKC mutually agree that any references to MKC
or the Company, or any affiliate of MKC or the Company, in any release or
communication, is subject to MKC's and the Company's prior written
approval, which consent will not be unreasonably withheld. If either MKC
resigns or is terminated prior to the dissemination of any Transaction
Document or any other release or communication, reference made therein to
MKC shall be at MKC's express written option. If a Transaction is
consummated, MKC may place an appropriate announcement in the Wall Street
Journal and such other newspapers and periodicals as the Company and MKC
shall mutually determine, stating the essential facts of the Transaction
and the capacity within which MKC acted in connection with the
Transaction.
9.0 EXCLUSIVITY. The Company agrees to retain MKC on an exclusive basis to
perform the Services related to an IPO until the earlier of the
expiration or termination of this Agreement, with the exception that this
Agreement contemplates that the Company will be engaging co-managers for
its prospective IPO.
10.0 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF DELAWARE AND MAY NOT BE AMENDED OR MODIFIED EXCEPT IN A WRITING SIGNED
BY ALL PARTIES.
____________________________________________________
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Advisory
May 29, 1996
Page 6
11.0 SUCCESSORS. This Agreement and all rights and obligations thereunder
shall be binding upon and inure to the benefit of each party's
successors, but may not be assigned without the prior written consent of
the other party.
12.0 THIRD PARTY SERVICES. MKC will not be liable for, or have its
compensation reduced by, any obligation the Company or anyone else may
incur to a third party for that third party's services in connection with
any transaction contemplated hereby.
Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed duplicate of this
letter. We look forward to working with you on this assignment.
Very truly yours, Agreed to and Accepted this
M. KANE & COMPANY, INC. 29 day of May, 1996.
JONES EDUCATION NETWORKS, INC.
By: /s/ Michael W. Kane, President By: /s/ Wallace Griffin, President
--------------------------------- ---------------------------------
Michael W. Kane, President Wallace Griffin, President
_________________________________________________
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Advisory
MAY 29, 1996
Page 7
APPENDIX A
The Company agrees to indemnify MKC, including M. Kane & Company, Inc., its
employees, directors, officers, agents, affiliates, and each person, if any, who
controls it within the meaning of either Section 20 of the Securities Exchange
Act of 1934 or Section 15 of the Securities Act of 1933 (each such person,
including M. Kane & Company, Inc. is referred to as an "Indemnified Party') from
and against any losses, claims, damages and liabilities, joint or several
(including, all legal or other expenses reasonably incurred by an Indemnified
Party in connection with the investigation, preparation or providing evidence
for, or defense of, any threatened or pending claim, action or proceeding,
whether or not resulting in any liability) ('Damages'), as and when incurred, to
which such Indemnified Party, in connection with its services or arising out of
its engagement hereunder, may become subject under any applicable Federal or
state law or otherwise, including but not limited to, liability (i) caused by or
arising out of an untrue statement or an alleged untrue statement of a material
fact or the omission or the alleged omission to state a material fact necessary
in order to make the statement not misleading in light of the circumstance under
which it was made, (ii) caused by or arising out of any act or failure to act,
or (iii) arising out of MKC's engagement or the rendering by any Indemnified
Party of its services under this Agreement; provided, however, that the Company
will not be liable to the Indemnified Party hereunder to the extent that any
Damages are found in a final non-appealable judgment by a court of competent
jurisdiction to have resulted solely from the gross negligernce, bad faith or
willful misconduct of the Indemnified Party seeking indemnification hereunder.
The Company also agrees that the Indemnified Parties shall not have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company for or in connection with the retention of MKC, except to the extent
such liability is found in a final non-appealable judgment by a court of
competent jurisdiction to have resulted solely from gross negligence, bad faith
or willful misconduct.
If for any reason other than a final non-appealable judgment finding any
Indemnified Party liable for Damages for its gross negligence, bad faith or
willful misconduct the foregoing indemnity is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless, then the Company
shall contribute to the amount paid or payable by an Indemnified Party as a
result of such Damages in such proportion as is appropriate to reflect not only
the relative benefits received by the Company and its shareholders on the one
hand and MKC on the other, but also the relative fault of the Company and the
Indemnified Party as well as any relevant equitable considerations, subject to
the limitation that in no event shall the total contribution of all Indemnified
Parties to all such Damages exceed the amount of Compensation actually received
and retained by MKC hereunder after deduction of all applicable taxes to which
the Indemnified Parties are subject. Promptly after receipt by the Indemnified
Party of notice of any claim or of the commencement of any action in respect of
which indemnity may be sought, the Indemnified Party will notify the Company in
writing of the receipt or commencement thereof and the Company shall have the
right to assume the defense of such claim or action (including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of fees
and expenses of such counsel), provided that the Indemnified Party shall have
the right to control its defense if, in the opinion of its counsel, the
Indemnified Party's defense is unique or separate to it as the case may be, as
opposed to a defense pertaining to the Company. In any event, the Indemnified
Party shall have the right to retain counsel reasonably satisfactory to the
Company at the Company's expense, to represent it in any claim or action in
respect of which indemnity may be sought and agrees to cooperate with the
Company and the Company's counsel in the defense of such claim or action, it
being understood, however, that the Company shall not, in connection with any
such claim or action or separate but substantially similar or related claims or
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys, for all the Indemnified Parties unless the defense
of one Indemnified Party is unique or separate from that of another Indemnified
Party subject to the same claim or action. In the event that the Company does
not promptly assume the defense of a claim or action, the Indemnified Party
shall have the right to employ counsel reasonably satisfactory to the Company,
at the Company's expense, to defend such claim or action. The omission by an
Indemnified Party to promptly notify the Company of the receipt or commencement
of any claim or action in respect of which indemnity may be sought will relieve
the Company from any liability the Company may have to such Indemnified Party
only to the extent that such a delay in notification materially prejudices the
Company's defense of such claim or action. The Company shall not be liable for
any settlement of any such claim or action effected without its written consent,
which shall not be unreasonably withheld or delayed. Any obligation pursuant to
this Appendix A shall survive the termination or expiration of this Agreement.
_____________________________________________________
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Advisory