January 12, 1999
Mr. Joseph P. Allwein
President and Chief Executive Officer
Dynamic Materials Corporation
551 Aspen Ridge Drive
Lafayette, CO 80026
Dear Joe,
The purpose of this letter is to confirm in writing the mutual understanding
between Dynamic Materials Corporation (the "Company") and The Wallach Company,
Inc. ("TWC"), whereby TWC will act as exclusive representative for the Company
to render financial advisory and investment banking services to the Company in
connection with the Company's review of strategic alternatives available to it,
including the possible acquisition, by way of a purchase, business combination,
merger or other transaction (the "Transaction") by a corporation or other
business entity of all or part of the Company's stock or assets, including those
assets related to the business operations of its Bonding Division ("Bonding
Division").
Our arrangements with you in connection therewith shall be as follows:
1. SERVICES RENDERED: TWC will commence the following financial advisory and
investment banking services as the Company may reasonably request.
a) TWC will familiarize itself to the extent it deems reasonable with the
business, operation, properties, financial condition and prospects of
the Company.
b) If appropriate and with the Company's assistance, TWC will prepare an
offering memorandum or other suitable offering materials for use in
informing prospective purchasers about the Company or the Bonding
Division. Such offering materials will be subject to the Company's
confirmation and approval prior to any distribution.
c) Following preparation of the offering materials, TWC will advise and
assist the Company in preparation of a presentation which will be
given by management to selected qualified prospective purchasers of
the Company or the Bonding Division.
d) TWC shall develop a plan for marketing the Company and the Bonding
Division and will identify potential qualified purchasers for the
Company and the Bonding Division. TWC will contact selected potential
purchasers to determine their interest in acquiring the Company or the
Bonding Division and will provide such negotiating services as may be
reasonably requested in connection with the Transaction. TWC will
coordinate and assist in due diligence meetings with potential
qualified purchasers.
Dynamic Materials Corporation
4/12/99
e) TWC will advise the Company or its stockholders, if requested, of the
financial aspects of any proposed Transaction.
f) TWC will work with legal counsel, as appropriate, on any letter of
intent or definitive agreement and until the Transaction is completed.
In providing these services, TWC acknowledges that the final purchase price
and all other terms and conditions of a Transaction shall be subject to
approval of the Board of Directors of the Company and stockholders, if
required.
2. RELIANCE ON INFORMATION: The Company understands and confirms (i) that TWC
will be using and relying on data, material and information about the
Company and the Bonding Division furnished to TWC by the Company, its
employees and representatives and (ii) that TWC does not assume
responsibility for independently verifying the information. The Company
hereby represents and warrants to TWC that the information furnished by the
Company for the purposes contemplated by this letter will not contain any
untrue statement of a material fact.
3. CONFIDENTIALITY: TWC and its employees understand the confidential nature
of the Transaction and agree that any Confidential Information shall be
held and treated by TWC in confidence, and from the date hereof, shall not,
without the prior written consent of the Company, be disclosed or used by
TWC, in whole or in part, other than as necessary to provide of services
under this agreement or as required by law. For purposes of this agreement,
"Confidential Information" shall mean any and all information, whether
written or oral, including, without limitation, all data, reports,
forecasts and records about the Company and the Bonding Division, to the
extent that such information is not part of the public domain (other than
through the fault of TWC), which TWC shall obtain from the Company or
persons acting on its behalf.
TWC further agrees that it will not distribute an offering memorandum to
any potential purchaser without first receiving a confidentiality
agreement, approved by the Company, signed by a representative of the
potential purchaser.
4. TERMS OF ENGAGEMENT: TWC shall act as the exclusive representative of the
Company on these matters for a period of twelve (12) months from the date
of your acceptance of this letter unless extended by mutual written consent
or unless earlier terminated as provided herein. In connection with this
engagement, it is agreed that all contacts related to a potential
Transaction received by the Company during the term of this agreement from
potential purchasers of the Company or the Bonding Division or their agents
shall be forwarded to TWC.
COMPENSATION FOR SERVICES: The Company will pay TWC for its services
hereunder a cash fee ("Transaction Fee") based on the total consideration
paid ("Purchase Price") in the event of a merger, acquisition, asset sale or
similar transaction involving the Company or the Bonding Division.
Such Transaction Fee will be the sum of:
(i) 2.5% of the Purchase Price up to $15,000,000; plus
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(ii) 3.25% of the Purchase Price between $15,000,001 and $20,000,000;
plus
(iii) 4.0% of the Purchase Price over $20,000,001.
For purposes of this agreement, the Purchase Price shall include cash,
securities, special dividends or distributions and any corporate earnouts
paid to the Company, its affiliates or the Company's stockholders in
connection with or in contemplation of the Transaction, plus any debt
assumed by the purchaser. Corporate earnout shall be defined as any cash,
securities, or other remuneration received as a result of the future
performance of the Company or as a result of any noncompete or similar
agreements entered into by any Stockholders as a result of the Transaction,
but excluding compensation resulting from reasonable employment agreements.
If any portion of the Purchase Price is in the form of debt securities or
stock, then that amount of the Purchase Price shall be based upon the
market value of the debt or equity securities. If such securities are
tradable on an exchange or quoted in the over-the-counter market, the
market value of such securities shall be the average closing sales prices
(or, if no sales take place, the average of the closing bid and asked
price) for such securities on the exchange or market providing the primary
or largest market in such securities on the ten trading days prior to the
day the Transaction is consummated.
In the event that less than 100% of the Company or the Bonding Division is
sold, the Transaction Fee shall be computed by (a) computing the implicit
equity value of 100% ownership based on the value paid for portion
acquired, (b) applying the percentage fee as stipulated above in 5(i),
5(ii) and 5(iii) to the implicit value for 100% ownership, and (c)
multiplying the fee as calculated in (b) by the portion actually purchased.
In no event shall the Transaction Fee be less than $300,000 or more than
$800,000 if any proceeds are received by the Company, its affiliates or
stockholders in the Transaction.
Also, in consideration for services rendered prior to a Transaction
closing, TWC shall receive a monthly retainer of $7,500 due and payable in
advance on the first day of each month, beginning upon execution of this
agreement. If a Transaction is completed, all funds paid pursuant to this
monthly retainer to TWC by the Company shall be credited against the
Transaction Fee.
In addition, the Company will reimburse TWC monthly for reasonable
out-of-pocket expenses incurred by TWC in connection with this agreement.
Typically, these expenses may include printing costs of the offering
memorandum, slides or other material used in the management presentations,
travel, lodging, telephone and outside services, including database
services, incurred by TWC. TWC shall notify the Company in the event such
expenses exceed $5,000 and thereafter as reasonably requested by the
Company.
5. FAIRNESS OPINION: If requested by the Company, TWC will render its opinion
(the "Opinion") as to whether or not the consideration offered in a
proposed Transaction is fair, from a financial point of view, to the
Company or its stockholders. The Opinion will be dated as of a date
reasonably proximate to the date of any definitive agreement and TWC will
update such Opinion at the proximate date of the proxy statement, if one is
used, and at the proximate date of the closing. It is further
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understood that the Opinion will be prepared solely for the use of the
Board of Directors of the Company and will not be reproduced, summarized,
described or referred to or given to any other person without TWC's prior
written consent, which consent shall not be unreasonably withheld. The
Opinion may be included either in a proxy statement or other disclosure
document to be mailed to the stockholders of the Company in connection with
any Transaction, if appropriate, or if required by law on advice of the
Company's counsel. In any such event, the Opinion will be reproduced in any
such disclosure document in full and any description of or reference to TWC
or summary of the Opinion will be in a form reasonably acceptable to TWC.
If in the judgment of the Board of Directors of the Company, it is
necessary or desirable that an additional opinion be rendered by an
investment banking firm, TWC agrees to cooperate with such firm in the
preparation of such opinion by making available all information generated
from TWC's activities on this transaction in a timely manner.
6. PAYMENT OF CONSIDERATION: With the exception of the monthly retainer and
out-of-pocket expense reimbursement described in the paragraph
"Compensation for Services" above, the Transaction Fee to TWC shall be
payable only if a Transaction is closed, and shall be payable in cash in
full at the closing of any such Transaction, provided that any payments
which are based on corporate earnouts shall be paid to TWC at the time the
payments are paid. Any such amounts shall be added to any Purchase Price
previously paid in applying the percentage fee structure as set forth in
the paragraph "Compensation for Services" above.
7. OUTSIDE SERVICES REQUESTED BY THE COMPANY: TWC will not be responsible for
any fees or commissions of any type, including financial, legal, appraisal,
accounting, or other advisors, called upon, requested, or retained by the
Company, its Officers or Directors. The Company agrees to pay all of its
expenses in connection with any such transaction.
8. TERMINATION: TWC's engagement may be terminated by either the Company or
TWC at any time upon thirty days written notice. Notwithstanding the above,
termination of TWC's engagement shall not affect the indemnification of TWC
provided by this agreement, the Company's obligation to reimburse TWC's
reasonable out-of-pocket expenses and any monthly retainer earned, but not
yet paid, through the date of termination, or the Company's obligation to
TWC if the Company consummates a transaction with any party as referred to
in the "Fee Due Upon Sale after Termination" below.
9. FEE DUE UPON SALE AFTER TERMINATION: After termination of TWC's engagement
for any reason prior to the expiration of the term set forth in Section 4
herein, TWC and the Company will agree upon a list of parties with whom TWC
has been in contact and had discussions on the Company's behalf regarding
the Company or the Bonding Division. If within twelve (12) months following
the termination of TWC's engagement, the Company closes a transaction
regarding the Company or the Bonding Division with any party who is on the
aforementioned list, TWC shall be entitled to the Transaction Fee as set
forth in this agreement.
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10. INDEMNIFICATION: Because TWC will be acting on behalf of the Company in
connection with this agreement, the Company agrees to indemnify and hold
TWC (used in this paragraph to include any affiliated companies and
respective officers, directors, employees and controlling persons within
the meaning of Section 15 of the Securities Act of 1933 or Section 20 of
the Securities Exchange Act of 1934) harmless from any and all losses,
claims, damages or liabilities to which TWC may become subject in
connection with this agreement and to reimburse TWC for any reasonable and
necessary legal or other expenses incurred in connection with matters
covered by this indemnity. The Company will not, however, be responsible
for any losses, claims, damages, liabilities or expenses to the extent that
they result from TWC's bad faith, intentional misconduct or negligence. In
addition, TWC agrees to indemnify the Company, its officers, directors,
employees and controlling persons within the meaning of Section 15 of the
Securities Act of 1933 or Section 20 of the Securities Exchange Act of 1934
from any losses, claims, damages or liabilities that result from TWC's bad
faith, intentional misconduct or negligence in connection with this
agreement and to reimburse the Company for any reasonable and necessary
legal or other expenses incurred in connection with matters covered by this
indemnity. For purposes of this paragraph, no settlement of any threatened
or pending action, suit or proceeding against an indemnified party can be
made without the prior written consent of the indemnifying party.
In the event that the foregoing indemnity is legally unavailable to TWC,
the Company agrees to contribute to any losses in such proportion as is
appropriate to reflect the relative benefits received (or anticipated to be
received) by TWC and by the Company from the Transaction; provided,
however, that TWC shall not be responsible for any amounts in excess of the
amount of the Transaction Fees received (or anticipated to be received) by
TWC.
11. USE OF INFORMATION: Except as otherwise provided by this agreement, the
Company and TWC agree that neither will use the offering memorandum or
supplemental information prepared by TWC for any purposes other than
internal use without the consent of TWC or the Company, respectively. The
Company and TWC acknowledge that all opinions, advice and materials
(written or oral) given by TWC to the Company are intended solely for the
benefit and use of the Company in considering the matters to which such
opinions, advice and materials relate, and TWC and the Company agree that
no such opinion, advice or materials shall be (i) used for any other
purpose or (ii) except as otherwise provided by this agreement, reproduced,
disseminated, quoted or referred to. The Company agrees that no references
to TWC shall be made by the Company in public documents such as proxy
statements, press releases or communications to stockholders without the
prior consent of TWC, which consent shall not be unreasonably withheld.
12. MISCELLANY: The parties can modify or amend this agreement only by a
writing that both parties have signed. Any dispute about the agreement
(including the services or payments under it) will be brought in and
resolved by a Colorado federal or state court, using Colorado law. The
parties agree to the personal jurisdiction of those courts. The agreement
binds and is for the benefit of any successor, assign, heir, or personal
representative of the parties.
13. ANNOUNCEMENTS: It is understood that if any Transaction is completed, TWC
will be entitled, at its expense, to place an announcement in such
publications and mailings,
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as TWC desires, stating that TWC has acted as financial advisor in such
transaction. Any such announcement shall be subject to the Company's
approval, which approval shall not be unreasonably withheld.
If the foregoing represents a correct statement of our agreement and
understanding, please execute this agreement. If executed and delivered to TWC,
a binding agreement shall thereupon exist.
We are enthusiastic about this project and understand the importance of the
project to Dynamic Materials Corporation We are anxious to get started and look
forward to working with you.
Very truly yours,
The Wallach Company, Inc.
/s/ Michael C. Franson /s/ Bruce L. Hoyt
- --------------------------- -----------------------------
Michael C. Franson Bruce L. Hoyt
THE ABOVE IS HEREBY ACKNOWLEDGED AND ACCEPTED:
DYNAMIC MATERIALS CORPORATION
By: /s/ Joseph P. Allwein Date: 1/12/99
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Joseph P. Allwein, President and CEO