Exhibit 10.1
July 10, 2006
Mr. Joseph A. Boyle
President and Chief Executive Officer
Affinity Technology Group, Inc
8807-A Two Notch Road
Columbia, SC 29223
Dear Joe:
This letter confirms the engagement of Morgan Keegan & Company, Inc.
("Morgan Keegan") to act as exclusive financial advisor to Affinity Technology
Group, Inc. ("Affinity" or the "Company") to assist the Company in its review,
analysis, consideration and, if appropriate, execution of various strategic and
financial alternatives available to it, and such other matters to which you and
we may agree during the course of our engagement. Such strategic alternatives
and other matters may include assisting the Company in strategic planning;
assessing capital markets relative to Affinity; securing additional equity
and/or debt capital; and if requested by the Company, assisting the Company in
its analysis and consideration of the financial aspects of certain potential
strategic transactions, including, but not limited to, mergers, acquisitions,
spin-offs, joint ventures, minority investments, negotiated purchases, or other
similar transactions (individually, the "Transaction" and collectively, the
"Transactions").
As exclusive financial advisor to the Company, Morgan Keegan will perform
the following functions:
a. Assist Affinity in the assessment of market information and
business strategies relevant to the operations of the Company;
b. Assist Affinity in developing appropriate value ranges in
connection with various business strategies or Transactions;
c. Assist Affinity in reviewing, evaluating and structuring proposed
business strategies or Transactions;
d. Assist Affinity in developing general negotiating strategies and
in actual negotiations with potential partners, investors,
lenders and/or (if applicable) merger and acquisition candidates
and consult with and assist counsel and independent accountants
in structuring and carrying through to conclusion any agreement
which may be reached;
e. Assist Affinity in preparing summary information (the
"Information") with respect to the Company for distribution to
potential investors, lenders and/or (if applicable) merger and
acquisition candidates selected by Morgan Keegan and Affinity,
describing the Company and its business, it being specifically
agreed that (i) the Information shall be based entirely upon
information supplied by the Company (or public information), and
Affinity hereby warrants that, to the best of its knowledge, the
Information supplied shall be complete and accurate in all
material respects, and not misleading and (ii) Morgan Keegan
shall not be responsible for the accuracy and completeness of the
Information except as it pertains to public information derived
from research performed by Morgan Keegan.
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f. Morgan Keegan will advise and assist Affinity, on a best efforts
basis, in obtaining equity and/or debt investment required to
capitalize the Company in such amount and upon such terms as
deemed to be appropriate by the Company (any securities issued in
connection with this effort are referred to herein as the
"Securities") . Morgan Keegan agrees to provide Affinity, on an
as requested basis, with a list of all investors contacted by
Morgan Keegan. Morgan Keegan will provide advice and assistance
in structuring and pricing the securities and in locating
appropriate financing sources.
In order to coordinate our efforts with respect to a possible financing
Transaction, during the period of our engagement hereunder, neither the Company
nor any representative thereof (other than Morgan Keegan) will initiate
discussions regarding any Transaction except through Morgan Keegan. If the
Company or its management receives an inquiry regarding a Transaction, the
Company or such persons will promptly advise Morgan Keegan of such inquiry. All
contact with third parties by Morgan Keegan must be approved by the Company. The
Company and Morgan Keegan hereby agree that Kimble L. Jenkins shall be the
primary banker representing Morgan Keegan in connection with this engagement.
1. In consideration for the services rendered by Morgan Keegan
hereunder, the Company shall pay Morgan Keegan:
a. An advisory fee equal to a warrant with a five year term to
purchase 2,500,000 shares of Affinity common stock for an
exercise price of $0.50 per share (the "Warrant Fee"),
payable upon execution of this Agreement. Affinity will file
a registration statement for the shares underlying the
warrant at the earlier of: (i) the time that it files a
registration statement related to the sale of additional
equity and/or debt securities as contemplated by Section 1.
b. of at least $5 million; (ii) within 60 days of receiving
patent licensing fees in the amount of at least $5,000,000;
or, (iii) within 60 days of closing a transaction as
contemplated by Section 1.c. or 1.d. of this agreement, the
result of which is to provide to Affinity at least
$5,000,000 of working capital. Morgan Keegan agrees that for
a period of one year from the date of this agreement, it
will sell no more than 500,000 shares in any single calendar
quarter.
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b. In the event that the Company sells Securities in an amount
in excess of $5,000,000, excluding sales of additional
convertible notes (for which there shall be no fee), the
Company will pay Morgan Keegan placement fees (the
"Contingent Placement Fees") payable in cash at closing as
follows:
i. Cash equal to five (5) percent of the principal amount
of equity financing (common stock, preferred stock and
convertible preferred stock); plus
ii. Cash equal to three (3) percent of the principal amount
of mezzanine financing (whether subordinated or not);
plus
iii. Cash equal to one (1) percent of the principal amount
of senior debt provided, however, that Morgan Keegan
shall not be entitled to such a fee with respect to
senior debt sourced from commercial banks and other
institutional lenders.
If more than one closing is required in connection with the
sale of such Securities, only that portion of the Contingent
Placement Fee applicable to each closing shall be payable at
such closing.
c. In the event the Company decides to pursue the sale of the
Company to a third party, Morgan Keegan agrees to represent
the Company in such Transaction, and the Company will pay
Morgan Keegan a transaction fee (the "Transaction Fee")
payable in cash at closing equal to two (2) percent of the
aggregate consideration (the "Transaction Consideration"),
as defined below, paid to the Company and its shareholders
(not including gains, if any, from the Warrant Fee).
d. In the event the Company decides to pursue an acquisition of
another company or business, Morgan Keegan agrees to
represent the Company in such Transaction, and the Company
will pay Morgan Keegan a Transaction Fee payable in cash at
closing equal to two (2) percent of the Transaction
Consideration paid to a target or its shareholders (not
including gains, if any, from the Warrant Fee).
In addition, whether or not a Transaction is completed, the
Company will reimburse Morgan Keegan, on a monthly basis, for its
reasonable out of pocket expenses (including fees and expenses of
counsel) incurred in connection with its acting as advisor
hereunder. Such out of pocket expenses shall not exceed $50,000
without the prior consent of the Company, which shall not be
unreasonably withheld.
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The "Transaction Consideration" for purposes of calculating a Transaction
Fee shall mean the gross value of all cash, securities and other property paid
directly or indirectly by an acquirer to a seller or sellers in connection with
a Transaction. A seller may include the Company, an affiliate of the Company or
stockholders of the Company. The value of any securities (whether debt or
equity) or other property delivered as consideration in any Transaction shall be
determined by the Company and Morgan Keegan based on the pricing mechanics used
for purposes of determining the purchase price payable in connection with the
Transaction. Transaction Consideration also shall be deemed to include the
aggregate principal amount of all indebtedness assumed or acquired, directly or
indirectly, by the acquiring party or any of its affiliates in a Transaction or
retired, defeased or otherwise cancelled in connection with the Transaction and
the present value of any agreements not to compete or consulting agreements.
Amounts paid into escrow and contingent payments in connection with any
Transaction will be included as part of the Transaction Consideration.
Transaction Fees on amounts paid into escrow shall be payable upon the release
of those amounts from escrow. If any portion of the consideration in connection
with any Transaction is payable in the future on the basis of occurrence of
certain future events, the portion of the Transaction Fee relating to such
contingent payments shall be calculated and payable at the time such future
payments are paid.
2. Except as listed in Appendix A, the Company represents and warrants to
Morgan Keegan that it has not, directly or indirectly, made any offers or sales
of any Securities during the six month period ending on the date of this letter,
and has no intention of making an offer or sale of any Securities for a period
of six months after completion of this financing, except for the offering of the
Securities through Morgan Keegan pursuant hereto. As used herein, the terms
"offer" and "sale" have the meanings specified in Section 2(3) of the Securities
Act of 1933, as amended (the "Act").
3. The Company and Morgan Keegan agree that:
a. The Company will not, directly or indirectly, make any offer or
sale of any Securities, the result of which would cause the offer
and sale of the Securities to fail to be entitled to the
exemption from registration afforded by Section 4(2) of the Act.
b. The Company will comply with all requirements of Regulation D
promulgated under the Act. Without limitation, the Company will:
i. not offer or sell the Securities by means of any form of
general solicitation or general advertising;
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ii. not offer or sell the Securities to any person who it does
not have a reasonable basis to believe is an "accredited
investor" (as defined in Rule 501 under the Act);
iii. exercise reasonable care to assure that the purchasers of
the Securities are not underwriters within the meaning of
Section 2(11) of the Act and, without limiting the
foregoing, that such purchases will comply with Rule 502(d)
under the Act; and
iv. file a Form D with the Securities and Exchange Commission as
contemplated by Rule 503 under the Act. (Morgan Keegan shall
have the right to review the Form D.)
b. Morgan Keegan will comply with all applicable requirements of
Regulation D promulgated under the Act. Without limitation,
Morgan Keegan will:
i. not offer the Securities by means of any form of general
solicitation or general advertising; and
ii. not offer the Securities to any person who it does not have
a reasonable basis to believe is an "accredited investor"
(as defined in Rule 501 under the Act).
c. The Company agrees to take such action (if any) as Morgan Keegan
may reasonably request to qualify the Securities for offer and
sale under the securities laws of such states as Morgan Keegan
may specify; provided that in connection therewith the Company
will not be required to qualify as a foreign corporation or file
a general consent to service of process. The Company agrees that
it will make any filings or take other actions required under
applicable state securities laws to permit the sale of the
Securities.
4. If, in connection with the services or matters that are the subject of
this Agreement, Morgan Keegan or any controlling person, affiliate, director,
officer, employee or agent of Morgan Keegan (Morgan Keegan and each such other
person referred to as an "Indemnified Person") becomes involved in any capacity
in any lawsuit, claim or other proceeding for which indemnity may be sought
pursuant to Section 4 of this Agreement, the Company shall immediately reimburse
such Indemnified Person for any and all reasonable legal or other expenses
reasonably incurred by such Indemnified Person in connection with investigating,
preparing to defend or defending such lawsuit, claim or other proceeding;
provided, however, that such Indemnified Person shall promptly reimburse the
Company for all amounts so advanced if it shall be determined that the
Indemnified Person is not entitled to indemnification by the Company hereunder.
The Company also agrees to indemnify each Indemnified Person from, and hold it
harmless against, any and all losses, claims, damages, liabilities or expenses
to which such Indemnified Person may become subject arising in any manner out of
or in connection with the services or matters which are the subject of this
Agreement; provided, however, that the Company shall not be liable under this
Section 4 in respect of any loss, claim, damage, liability or expense to the
extent that it is finally judicially determined by a court of competent
jurisdiction that such loss, claim, damage or liability resulted directly from
the gross negligence or willful misconduct of Morgan Keegan in the performance
of its services hereunder.
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The Company agrees that the indemnification and reimbursement commitments
set forth in this Section 4: (i) shall apply whether or not any Indemnified
Person is a formal party to any such lawsuit, claim or other proceeding and (ii)
are in addition to any liability that the Company may otherwise have to any
Indemnified Person. The Company agrees that, unless a final judicial
determination is made to the effect specified in the proviso in the last
sentence of the preceding paragraph, any settlement of a lawsuit, claim or other
proceeding against the Company arising out of the transactions contemplated by
this Agreement which is entered into by the Company shall include a release from
the party bringing such lawsuit, claim or other proceeding of each Indemnified
Person, which release shall be reasonably satisfactory to Morgan Keegan. The
Company further agrees that no Indemnified Person shall have any liability
(whether direct or indirect, in contract, tort or otherwise) to the Company in
connection with Morgan Keegan's engagement hereunder, except for such losses,
claims, damages or liabilities incurred by the Company that are finally
judicially determined by a court of competent jurisdiction to have resulted
directly from the gross negligence or willful misconduct of such Indemnified
Person.
The Company and Morgan Keegan agree that if such indemnification or
reimbursement sought pursuant to this Section 4 is finally judicially determined
by a court of competent jurisdiction to be unavailable, then, whether or not
Morgan Keegan is the Indemnified Person, the Company and Morgan Keegan shall
contribute to the losses, claims, damages, liabilities and expenses for which
such indemnification or reimbursement is held unavailable (i) in such proportion
as is appropriate to reflect the relative benefits to the Company, on one hand,
and Morgan Keegan on the other, in connection with the transactions to which
such indemnification or reimbursement relates, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as appropriate to reflect not only the relative benefits referred to
in clause (i) but also the relative faults of the Company, on the one hand, and
Morgan Keegan on the other, as well as any other equitable considerations;
provided, however, that in no event shall the amount to be so contributed by
Morgan Keegan exceed the amount of the cash fees actually received by Morgan
Keegan hereunder.
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5. The term of this Agreement and Morgan Keegan's appointment and
authorization hereunder shall extend from the date hereof through July 9, 2008,
or such other date as may be mutually agreed by the Company and Morgan Keegan,
and shall thereafter be automatically renewed for successive monthly periods
until terminated in writing by either the Company or Morgan Keegan. The
provisions of Sections 1 (to the extent provided in the last sentence of this
paragraph), 2, 3, 4, 6, 8, 9, 10 and this Section 5 shall survive any
termination of this Agreement. Within thirty (30) days of the termination of
this Agreement, Morgan Keegan and the Company shall prepare a list of all
potential investors, lenders and merger and acquisition candidates that Morgan
Keegan contacted on behalf of the Company in its capacity as exclusive financial
advisor during the engagement and with whom the Company had meaningful
discussions or that the Company, its directors, management or controlling
shareholders had actual knowledge were interested in merging with, acquiring or
investing in or lending to the Company. If the Company completes a Transaction
with any entity on such list within twelve (12) months of the termination of
this engagement, the Company shall be responsible for the payment of the fees
under Section 1 of this Agreement.
6. Morgan Keegan is a full service securities firm and as such may from
time to time affect transactions, for its own account or the account of
customers, and hold positions in securities or options on securities of the
Company and other companies which may be the subject of the engagement
contemplated by this Agreement.
7. All opinions and advice provided to the Company in connection with this
engagement are intended solely for the benefit and use of the Company in
connection with the matters described in this Agreement, and accordingly such
advice shall not be relied upon by any person or entity other than the Company.
The Company will not make any other use of any such opinions or advice. In
addition, none of (i) the name of Morgan Keegan, (ii) any advice rendered by
Morgan Keegan to the Company, or (iii) any communication from Morgan Keegan
pursuant to this Agreement will be quoted or referred to in any report,
document, release or other communication prepared, issued or transmitted by the
Company, or any person controlled by the Company, without Morgan Keegan's prior
written consent, which consent will not be unreasonably withheld.
8. In the event of consummation of any transaction, Morgan Keegan shall
have the right to place advertisements in financial and other newspapers and
journals at its own expense describing its services to the Company hereunder,
provided that Morgan Keegan will submit a copy of any such advertisements to the
Company for its approval, which approval shall not be unreasonably withheld.
9. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
10. This Agreement may not be amended or modified except in writing signed
by each of the parties hereto and shall be governed by and construed in
accordance with the laws of the State of Tennessee. Each of the parties hereto
expressly waives all right to trial by jury in any action or proceeding arising
out of this Agreement. This Agreement incorporates the entire understanding of
the parties with respect to the subject matter hereof and supersedes all
previous agreements should they exist with respect thereto (provided that the
parties acknowledge and agree that the confidentiality agreement between the
Company and Morgan Keegan shall continue to be in full force and effect) and
shall be binding upon and inure to the benefit of the Company, Morgan Keegan,
and the other Indemnified Persons and their respective successors, assigns,
heirs and personal representatives.
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If the foregoing correctly sets forth the understanding and agreement
between Morgan Keegan and the Company, please so indicate in the space provided
below, whereupon this letter shall constitute a binding agreement as of the date
first above written.
Very truly yours,
MORGAN KEEGAN & COMPANY, INC.
By: /s/ Kimble L. Jenkins
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Name: Kimble L. Jenkins
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Title: Managing Director
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Agreed and Accepted:
AFFINITY TECHNOLOGY GROUP, INC.
By: /s/ Joseph A. Boyle
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Name: Joseph A. Boyle
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Title: President and Chief Executive Officer
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APPENDIX A
Pursuant to Section 2, the list below represents all offerings of the Securities
or securities of the same or similar class as the Securities that the Company
has engaged in during the six-month period ending on the date of this letter.
On May 11, 2006, the Company sold five (5) of its two year, 8% convertible notes
in the aggregate principal amount of $150,000.