CONFIDENTIAL
Broadcast International
7050 Union Park Center
6th Floor
Salt Lake City, UT 84047
USA
Att.:Dan Mabey
Oslo, 11 October, 2005
ENGAGEMENT LETTER BETWEEN BROADCAST INTERNATIONAL AND FIRST SECURITIES ASA
With reference to meetings and discussions, First Securities ASA ("First") is
pleased to submit this proposal to render investment-banking services to
Broadcast International (hereinafter referred to as either "BI" or "the
Company"). We would like to propose the following structure and conditions
for First's engagement.
1. Background and assumptions
BI is currently traded on the OTC market in the US. The Company has a number
of international investors, among them many Scandinavian shareholders. At the
same time BI is experiencing a growing number of business opportunities and
projects requiring additional funding to the Company. To this end, the board
of directors of BI desires to engage First to carry out an initial public
offering of the Company's common shares at the Oslo Stock Exchange. An initial
evaluation is that the Company will issue new shares worth MUSD 10 -25 in
connection with the IPO.
2. Transactions covered under the engagement
The engagement will be split into the following phases (hereinafter termed the
"Transactions"):
IPO and stock exchange listing
The Company's ambition is to make a share issue and a possible secondary sale
of shares (the "Secondary Sale") with a subsequent listing of the Company's
shares on the Oslo Stock Exchange (combined referred to as the "IPO"). The
timing of the IPO will be Q4/2005 or early in Q1 2006, but will ultimately
depend on the development of the Company's revenues and profitability, market
conditions in general and the interest for the Company's shares in the capital
markets.
Financial advisory services related to a merger/de-merger, acquisition or sale
of the Company or its operations
In order to ensure a satisfactory growth in turnover and profitability, BI
will consider and possibly carry out one or several acquisitions and/or
mergers. BI may also become an acquisition target in line with the development
in the Company. Together with the issuance of financial instruments and the
IPO, these types of transactions are referred to herein as the "Transactions".
3. Services
The management and board of BI wish to engage First as an exclusive financial
manager and advisor (Sole Lead Manager) for the Transactions that BI wishes to
make.
Further, the management and Board of Directors of BI wish to engage First an
exclusive financial manager and advisor for all other financial transactions
that BI wish to contemplate and possibly carry out, given that the scope and
size of the particular transaction is commensurate with the services First
normally renders. However, any agreements of funding and financial advisory
services and the results thereof, which have been signed prior to this
Engagement Letter shall be excluded from liability for BI paying commission to
First.
At your request, First will perform all the services normally rendered by an
investment bank in connection with the Transactions.
First shall be project manager for the IPO and for other Transactions from
time to time, including the coordination of external advisors (auditors and
legal advisors) and possible contact with shareholders, the share account
manager, the Norwegian Central Securities Depository ("VPS"), and also
organise distribution of documentation, printing, etc. as needed. First shall
assist the Company with a qualitative assessment of the relevant investors and
the allocation of shares in the equity issues.
4. Rights and obligations
BI shall have the right to approve, in its sole discretion, all major
decisions based on First's suggestions, including but not limited to the
following:
- The timing of the Transactions.
- If not regulated by laws or regulations in the financial market in
Norway, recipient(s) of marketing documentation and, if applicable, the
prospectus and subscription material.
- The subscription price, alternatively the conversion rate, and size of
the Transactions.
- Allocation of shares.
- The timing and the announcement of the Transactions.
The Company shall ensure that all necessary decisions are resolved in
accordance with legislation and regulations, including any agreements with
shareholders in connection with the Transactions.
5. Conditions for the completion of the Transactions, due diligence,
indemnity, responsibility, etc.
The following conditions will apply:
- that First may engage external advisers, including legal assistance in
connection with the Transactions. The cost of such advisors shall be
paid by BI as long as BI has prior notice of such engagement and has
approved the budget therefore.
- that customary legal and financial due diligence of the Company is
carried out in connection with the IPO. The due diligence findings
shall be satisfactory from First's point of view.
- that satisfactory legal and auditor statements are submitted to First
in connection with the implementation of the Transactions.
- that the Company's board of directors shall submit a statement of
completeness to First. Such statement shall have the same date as the
general assembly and/or meeting of the board of directors for the
approval of the Transactions and must be dated before the subscription
of shares take place.
- that all employee board members and companies represented by employee
board members, the founders of the Company, and all employees with a
greater than 5% ownership in the Company, enter into customary lock-up
agreements for a period of six months, which regulate any sale of
shares from said persons.
- that all relevant external information, press releases regarding
proposals to the board/general assembly or other information which may
be of importance for the Company's financial situation in relation to
the Transactions, are put before First before publication. The
Company will use its best efforts to provide First with 12 hours notice
before publication. Such statements must be sent to:
First Securities ASA, e-mail: christian.dovland@first.no
- that BI without delay informs First about issues that are deemed to be
of importance for the value of the Company's shares or the Company's
situation in general.
- that the timing of IPO, the final valuation and the allocation of
shares shall be acceptable for First.
- that BI ensures that the necessary resources and all relevant
documentation are made available for First.
- that BI agrees that First may establish a client account in its name
for the purpose of receiving proceeds from the Transactions.
BI's board of directors is liable for ensuring that the information that is
given to any third parties through presentations, the prospectus or other
sales material is correct, complete and in accordance with all known facts,
and that such documentation do not contain any misleading or incomplete
information about matters which are likely to affect any third party's
evaluation of the Transaction.
The Company shall hold First harmless and indemnified from and against any and
all losses, claims, damages or liabilities that First incurs as a result of
missing or incorrect information from the Company in connection with the
Transactions and/or other aspects of the engagement. Nevertheless the Company
is not liable for any loss, claim, damage, expense or liability incurred by
First or its directors and employees where due to gross negligence on the part
of First.
6. Fees and expenses
First's fee is to be structured as follows:
a. Retainer
First shall be paid a retainer fee of USD 200,000. The Retainer fee
is deductible from the fee under b) below.
The retainer fee shall be split in two parts:
- USD 35,000 which has been paid prior to execution hereof.
- USD 165,000 is payable upon execution hereof.
b. IPO
There will be a management and subscription fee of 7% of the gross
proceeds from the issuance of financial instruments or from the IPO,
and a fee of 7% of the gross sales proceeds for shares that are sold
in connection with the Secondary Sale from existing shareholders.
The fee is payable upon the transfer of the proceeds from the IPO to
the Company's account or to selling shareholders.
c. Financial advisory services and assistance in relation to a
merger/de-merger, acquisition or sale of the Company or its
operations
First is entitled to a fee of 3,5% of the equity value of the
merged/de-merged or acquired company or assets, or of BI if BI is
the selling/target company for all Transactions covered under
section 3 above. The fee is payable 10 days after the transaction is
closed.
If, following the Transactions, options are issued for already
existing shares in the Company, or rights to subscribe for new
shares in the Company are issued (or in the buying company if IB is
the selling/target company), where the real decision regarding the
declaration/exercise of such options or subscription rights are
delayed in time, the fee shall be payable when the new shares are
registered in the relevant Registry of Business Enterprises or at
the time of exercise of the options, respectively.
In connection with the IPO, BI agrees that First may establish a
client account in its name for the purpose of receiving proceeds
from the share issues. BI agrees that First may debit this account
and any other bank accounts belonging to the Company in the bank in
question, for First's claims relating to the fee or expenses as laid
out in this engagement letter, providing that the deposit is at the
Company's disposal.
d. If the Company as a result of the process with First, decides to
carry out a different kind of Transaction or transaction-type than
specifically described in this agreement, given that the scope and
size of the particular Transaction is commensurate with the services
First renders, the agreement shall be deemed to be adjusted to
include any such Transaction, expect for transactions excluded in
section 3 of this Engagement Letter, and First shall be entitled to
a Transaction Fee according to this section or in accordance with
First's ordinarily terms for such a type of Transaction.
e. Reimbursement of expenses
All expenses in relation to lawyers, auditors, other advisors,
travel expenses, printing costs, copying, delivery services, VPS
expenses, account manager, marketing of the Transactions as well as
all other out-of-pocket expenses in connection with the engagement
as described in this engagement letter are to be covered by the
Company provided, that such expenses or a budget therefore, are
approved in advance by the Company. Such costs are to be paid on a
continuous basis and at the completion of the Transactions at the
latest.
f. Government charges
The fee does not include any government charges. Should Norwegian
authorities introduce transfer fee for securities, or decide to
charge VAT or other government charges for the services rendered
under the scope of this engagement, such additional expenses shall
be added to First's fees.
7. Confidentiality
First and the Company acknowledge that a co-operation of this nature assumes
that the parties work under mutual openness and commit themselves to keeping
each other fully updated and informed about all relevant matters. First shall
keep all information confidential that it becomes aware of through this
engagement. This confidentiality will apply until the Company makes such
information public.
8. Project team
First will allocate a team of its professionals in order to achieve the most
efficient and best possible completion of the engagement and the team is made
up of individuals with complementary competence and experience. This team has
achieved excellent results through several years of working together. In
addition First will also draw on other necessary resources if needed.
9. Other matters
This Engagement Letter shall remain in force until the transactions described
in this Engagement Letter, or transactions which are decided on the basis of
First's advice or analysis are consummated and all payment obligations under
the Engagement Letter have been settled in full.
This Engagement Letter may be terminated in writing with 10 days notice based
on the following principles:
* In the event any transactions described in this Engagement Letter is
consummated within 6 months after termination, or transactions which was
commenced during the duration of the Engagement Letter are consummated, First
shall be entitled to receive all fees & commissions pursuant to this
Engagement Letter irrespective of whether there is cause in fact between the
work of First according to the Engagement Letter and the completion/ result of
the transaction, with the exception of transactions as a result of agreements
entered into before this Engagement Letter as mentioned in section 3 above.
* Except for transactions excluded in Section 3 of this engagement letter in
the event any transactions which are decided on the basis of Firsts advice or
analysis under the Engagement period are consummated within 6 months after
termination, First shall be entitled to receive all fees & commissions
pursuant to this Engagement Letter irrespective of whether there is cause in
fact between the work of First according to the Engagement Letter and the
completion/result of the transaction.
* Provisions of the Engagement Letter related to indemnification and
limitation of liability shall not be effected by the expiration of the
Engagement Letter. The same applies to the provisions related to
confidentiality and reimbursement of expenses.
* All sales of securities shall be to non US citizens or residents.
Termination shall only be effective under the IPO upon written notice directly
to the other party.
10. Information.
The Company shall furnish First with such information and other materials and
documents (collectively, "the Information") as First or their counsels may
reasonable need and request. Furthermore, the Company's board and management
shall furnish First with all information, public and confidential, that is
considered or should have been considered to have an effect on the pricing of
the securities issued by the company.
It is agreed that First may rely on information, assumptions and conclusions
of the Company and the Company's officers, directors, shareholders,
accountants, counsel and other agents and advisors set forth in documents
furnished by the Company or provided to First verbally and that First need not
independently determine the accuracy, completeness or validity thereof. The
Company represents to First that all Information provided to First by or on
behalf of the Company will be accurate and complete, and the Company will
promptly notify First of any material inaccuracy or misstatement in, or
material omission from, any such Information. The Company also undertakes,
without undue delay, to inform First in writing of all circumstances of
potential relevance to the Transaction, and circumstances regarding the
reputation of the Company or the situation of the investors. On enquiry or
after notice from a third party, including any public authority, regarding
potential liability in connection with the Transaction, both parties shall
immediately consult the other party.
11. Scope of Engagement.
The Company agrees that all written or oral advice provided by First pursuant
to this Engagement Letter is being provided solely for the benefit of the
senior management of the Company in connection with and for the purposes of
its evaluation of the transactions discussed herein, and are not on behalf of,
and shall not confer any rights or remedies upon, any other person or be used
or relied upon for any other purpose.
12. Indemnification.
The Company agrees to indemnify and hold harmless First and each of their
officers, directors, employees or agents from and against any and all losses,
claims, damages or expenses related to or arising out of First's engagement or
performance under the Engagement Letter, the transactions contemplated
thereby, the services rendered by First under the Engagement Letter, unless it
is finally determined by a court of competent jurisdiction that such claim
resulted from bad faith or wilful misconduct by First.
13. Limitation on Liability.
The Company further agrees that neither First nor any of their directors,
officers, employees or agents shall have any liability to the Company for any
losses, claims, damages or expenses related to or arising out of the First's
engagement or performance under the Engagement Le, the transactions
contemplated thereby, or the services rendered by First under the Engagement
Le, unless it is finally determined by a court of competent jurisdiction that
such claim resulted from bad faith, wilful misconduct or violation of
Norwegian law by First. In no case will the liability of First hereunder
exceed the amount of fees actually received by First under this Engagement
Letter.
14. Legally binding Company decisions
The Transaction is to be based on legally binding decisions of the Company's
management and board of directors in accordance with prevailing law.
15. Due diligence process.
First will if necessary, and approved by the Company, involve and appoint an
independent legal advisor and an accounting firm to carry out a due diligence
process of the Company.
16. Miscellaneous.
References to First and the Company in this Agreement include their respective
successors. This Engagement Letter may not be modified or amended except in
writing. Neither party may assign its rights nor obligations under this
Engagement Letter without the prior written consent of the other party hereto.
This Engagement Letter constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements. If
any provision of this Engagement Letter is determined to be involved or
unenforceable such determination will not affect such, which shall remain in
full force and effect. This Engagement Letter may be executed in counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
17. Dispute resolution.
The parties shall make best endeavours to solve any dispute between them by
negotiation.
If negotiations do not lead to resolution, any dispute relating to the
entering into, or the interpretation or fulfilment of this Engagement Letter
shall be settled by the city court of Oslo. And if the amount of any such
continuing dispute exceeds one - 1 - million Norwegian kroner, the dispute
shall be settled by arbitration in accordance with the Arbitration Act of
2004 no 25.
The board of arbitrators shall consist of three members jointly appointed by
the parties. In the event the parties cannot agree on the appointment, one
arbitrator shall be appointed by each of the parties. The two arbitrators so
appointed shall, thereafter, appoint the third arbitrator who shall act as
chairman of the board of arbitrators. The deadline for appointment of
arbitrators in the Arbitration Act of 2004 no 25 will apply.
The parties shall appoint arbitrators who accept that the main hearing shall
be completed within six months after the points of claim is lodged and that
the decision shall be awarded within one month after the main hearing is
completed.
The hearings shall take place in English language but shall be governed by
Norwegian law. The arbitration and the awards shall be subject to
confidentiality, unless the parties agree otherwise.
**************************************************
We look forward to the co-operation regarding this project and ask you to
accept the terms of this agreement on the enclosed copy of this engagement
letter. Should you have any further questions we are happy to be answer these
at any time.
This Engagement Letter replaces the engagement letter signed 4 October 2005.
Yours sincerely
First Securities ASA
/s/ Geir Lie /s/ Glen Rodland
Managing Director - Head of Corporate Finance Director
The above offer of financial advisory services is hereby accepted:
Date: 10/11/05 /s/ Rodney M. Tiede
President/CEO