June 15, 1998
Mr. Alex Sandel
President
Future Media Productions
25136 Anza Drive
Valencia, California 91355
Dear Mr. Sandel:
1. This letter confirms our understanding that Future Media Productions,
Inc. (the "Company") has engaged Averil Associates, Inc. ("Averil") as
financial advisor to the Company regarding its strategic and financing
alternatives with respect to an initial public offering (the
"Engagement"). It is anticipated that the scope of this retention will
take the following form:
(A) Averil will act as financial advisor to the Company with respect
to the consideration and implementation of its strategic
alternatives. As part of this assignment, Averil will (i) study
and evaluate the short-term and long-term projected financial
performance and capital needs of the Company, (ii) develop
valuation perspectives regarding the Company, reflecting
appropriate strategic, industry and macroeconomic
considerations, (iii) as a result of Averil's diligence, and in
conjunction with management analysis, work with management in
developing a strategic financing plan for the Company; (iv) work
with management in contacting and negotiating with potential
underwriters in line with the financing plan, (v) review various
structural and tax considerations applicable to a transaction
impacting the Company, (vi) coordinate all financial and legal
advisors involved in the transactional process, and (vii) assist
in the preparation, execution and the closing of all aspects of
an initial public offering.
(B) A transaction may include the Company or any of its affiliates,
including (without limitation) a new entity formed for such
purpose (collectively, the "Entities").
2. The Company shall pay to Averil, as compensation for services under this
Engagement, as follows:
(A) RETAINER. A non-refundable retainer fee of $35,000, payable
upon execution of this letter agreement.
(B) TRANSACTION FEES. In the case of a transaction, a transaction
fee of .75% of the consideration raised, payable in cash, at the
closing (or, if more than one, at each closing) of a transaction
in line with the Company's business plan, by wire transfer or
certified bank check; PROVIDED HOWEVER, the retainer fee payable
pursuant to the first paragraph of Section 2(A) above, shall be
credited against any transaction fees payable pursuant to this
paragraph.
In addition to the cash fees payable pursuant to the above
paragraph, the Company shall issue to Averil, at no cost,
additional equity securities, warrants or other participating
interests in the Company (or, if applicable, another Entity)
representing .25% of the consideration raised in value, priced
in accordance with the Black Scholes option model, to be issued
upon consummation of the transaction and receipt of the
consideration in cash; provided, however, the minimum amount of
warrants issuable pursuant to this transaction shall be $50,000
in value. The Company will grant to Averil registration rights,
at Averil's expense, on Form S-3, exercisable after twelve
months following any initial public offering.
(C) EXPENSES. In addition to any fees payable hereunder, the
Company shall, whether or not a transaction shall be consummated,
reimburse Averil as billed for its business class travel and
other reasonable out-of-pocket expenses (including all fees and
disbursements of counsel and of other consultants and advisors
retained by it, messenger and duplicating services, telephone
and facsimile expenses, document and database charges and other
customary expenditures), incurred in connection with, or arising
out of, Averil's activities under or contemplated by this
engagement. Averil shall charge all of its out-of-pocket
expenses at its actual cost. Aggregate total expenses shall not
exceed $7,500; provided, however, in the event that Averil is
asked to travel with the Company either in connection with the
selection of underwriters or completion of the roadshow, such
expenses shall be covered by the Company.
(D) DEFINITIONS. As used herein, "transaction" shall mean any
transaction or series or combination of transactions whereby,
directly or indirectly, a private or public party(ies)
(excluding Greyrock Business Credit, Alexander Sandel, Beny
Alagem and Jason Barzilay or any entity that any of them owns or
controls) lends or otherwise invests in any of the Entities or
their respective affiliates or assets. Such transaction may
include, but shall not be limited to, placement of a term loan,
revolver or other debt facility, subordinated debentures,
convertible equity or other similar securities, a private or
public financing transaction, an acquisition or exchange of
capital stock or assets, a lease of assets with or without a
purchase option, a merger or consolidation, the formation of a
joint venture or partnership or any similar transaction through
which the Company's financing objectives are met.
As used herein, "consideration" shall mean all (i) cash,
whether paid, funded or contributed immediately or to be paid,
funded or contributed in the future (contingent, deferred or
otherwise), (ii) the fair market value of all debt, equity and
other securities, other participating interests and any other
property paid, funded or contributed, and (iii) the fair market
value of all debt or other liabilities paid, funded or secured
(or otherwise assumed) directly or indirectly on behalf of the
Company or any of its affiliates.
3. In connection with Averil's activities hereunder, the Company will
furnish Averil with all material information regarding the business and
financial condition of the Company (all such information so furnished
being the "Information"). The Company recognizes and confirms that
Averil (i) will use and rely primarily on the Information and on
information available from generally recognized public sources in
performing the services contemplated by this letter without having
independently verified the same; (ii) does not assume responsibility
for the accuracy or completeness of the Information and such other
information, (iii) will not make an appraisal of any assets of the
Company, and (iv) retains the right to continue to perform due
diligence during the course of the engagement.
4. Since Averil will be acting on behalf of the Company in connection with
its engagement hereunder, the Company and Averil have entered into a
separate indemnification agreement, dated the date hereof and attached
hereto, providing for the indemnification of Averil and certain related
persons. Such indemnification agreement is an integral part of this
letter and the terms thereof are incorporated by reference herein. It
is understood that if any other person or entity is established by the
Company for the purpose of carrying out any transaction contemplated by
this engagement letter, such person or entity will enter into
engagement and indemnification agreements substantially similar to this
engagement letter and the associated indemnification agreement dated the
date hereof. THE COMPANY ACKNOWLEDGES AND AGREES THAT THE
SERVICES RENDERED BY AVERIL UNDER THIS ENGAGEMENT ARE FINANCIAL ADVISORY
SERVICES ONLY AND DO NOT INCLUDE THE RENDERING OF ANY LEGAL
REPRESENTATION BY AVERIL OR ANY OF ITS AGENTS OR EMPLOYEES. THE
COMPANY REPRESENTS THAT IT EITHER HAS LEGAL COUNSEL, OR WILL RETAIN
LEGAL COUNSEL, TO RENDER APPLICABLE LEGAL SERVICES IN RELATION TO THE
ASSIGNMENTS CONTEMPLATED BY THIS ENGAGEMENT AND WILL IN NO WAY RELY
UPON AVERIL TO RENDER SUCH LEGAL COUNSEL._________(initials)
5. Averil's engagement hereunder shall be terminable at will at any time
prior to the closing of the Transaction by either the Company or Averil
upon thirty days' prior written notice thereof to the other party. It
is understood, however, that notwithstanding any termination of
Averil's engagement hereunder by the Company, Averil shall be entitled
to receive any retainer fees and all out-of-pocket expenses to be paid
to it pursuant to clauses (A) and (C) of the second paragraph of this
letter agreement and, for a period of twelve months subsequent to the
termination of this engagement, any transaction fees referred to in
clause (B) of the second paragraph of this letter agreement relating to
assignments within the scope of this engagement. Otherwise, the
parties shall not have any continuing liability or obligation to the
other except for those related to the indemnification agreement referred
to in paragraph 4 hereof and the representations and warranties
contained in paragraph 7, the terms of which shall survive any
termination of Averil's engagement hereunder.
6. The advice (written or oral) rendered by Averil pursuant to this
agreement is intended solely for the benefit and use of the Company in
considering the matters to which this agreement relates, and the
Company agrees that neither such advice nor Averil's retention may be
disclosed publicly or made available to third parties without the prior
written consent of Averil.
7. The Company represents and warrants to Averil that (i) this Agreement
has been duly authorized, executed and delivered by the Company, and,
constitutes a legal, valid and binding agreement of the Company,
enforceable in accordance with its terms and (ii) any offering materials
will not, when delivered for distribution in connection with a
transaction and at the closing of a transaction, contain any untrue
statements of a material fact or omit to state any material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. The Company
shall advise Averil promptly of the occurrence of any event or any
other change that results in the Information or offering materials
containing any untrue statement of a material fact or omitting to state
any material fact necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
8. The execution of this letter shall not be deemed or construed as
obligating Averil to make any investment in the Company or any other
Entity, directly or indirectly.
9. This Agreement may not be modified or amended except in a writing duly
executed by the parties hereto.
10. Any determination that any one or more of the provisions of this
Agreement may be, or is, invalid, illegal or unenforceable shall not
affect the validity, legality or enforceability of the remainder of
this Agreement.
11. THIS AGREEMENT AND ALL CONTROVERSIES ARISING FROM OR RELATING TO
PERFORMANCE UNDER THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING
EFFECT TO SUCH STATE'S RULES CONCERNING CONFLICTS OF LAWS. THE PARTIES
HERETO HEREBY IRREVOCABLY CONSENT TO PERSONAL JURISDICTION AND VENUE
IN ANY COURT OF THE STATE OF CALIFORNIA OR ANY FEDERAL COURT SITTING IN
THE CITY OF LOS ANGELES FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER
PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OF THE AGREEMENTS OR
TRANSACTIONS CONTEMPLATED HEREBY, WHICH IS BROUGHT BY OR AGAINST ANY
PARTY HERETO, AND HEREBY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH
SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT. THE PARTIES HERETO HEREBY IRREVOCABLY CONSENT TO THE SERVICE OF
PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO SUCH PARTIES AT THEIR RESPECTIVE ADDRESSES SET
FORTH ABOVE, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH
MAILING. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR ACTION
ARISING OUT OF THIS AGREEMENT OR CONDUCT IN CONNECTION WITH THIS
ENGAGEMENT IS HEREBY WAIVED.______(initials)
12. This agreement may be executed in counterparts, each of which together
shall be considered a single document.
Please confirm that the foregoing is in accordance with your understanding by
signing and returning to Averil the enclosed duplicate of this letter, which
shall thereupon constitute a binding agreement.
AVERIL ASSOCIATES, INC.
By:
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Diana L. Maranon
ACCEPTED AND AGREED TO:
FUTURE MEDIA PRODUCTIONS
By:
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Alex Sandel