Exhibit 10.1
STRICTLY CONFIDENTIAL
ENGAGEMENT LETTER
February 21, 2011
BARON ENERGY, INC.
392 W. Mill Street
New Braunfels, TX 78130
Attention: Mr. Ronnie L. Steinocher
President & Chief Executive Officer
Re: Global Corporate Finance Advisory Assignment
Mr. Steinocher:
This agreement (this "Agreement") will confirm the arrangements under which
Sunrise Securities Corp. ("Sunrise") has been engaged by Baron Energy, Inc. a
corporation organized under the laws of Nevada (the "Company"), to advise the
Company on a broad array of issues which face the Company, which are broadly
defined as: (a) financing; (b) corporate restructuring and acquisitions
advisory; and (c) merger/tender advisory for targeted acquisition(s).
1. Engagement.
a. Financing. The Company hereby retains Sunrise and Sunrise shall have the
right to act as the Company's primary advisor and lead placement agent,
arranger, lead advisor or initial purchaser, as the case may be, in
connection with any and all possible issuances of capital by the Company,
and performing analysis for the Company of potential transactions related
to debt, equity, convertible securities of the Company, or any other
acquisition and drilling finance structures ("Securities"), in each case
relating to the acquisition of properties or other companies, during the
term of this engagement.
b. Corporate Restructuring and Acquisition Advisory. In connection with its
engagement hereunder, Sunrise shall:
i. Advise the Company on optimal strategies for restructuring its debt,
whether secured or unsecured, and assist the Company in negotiating
new terms for its debt, whether via reduction in principal,
forgiveness of interest, and/or exchange for equity or convertible
securities of the Company.
ii. Provide an in-depth analysis of the potential value of acquisitions
currently contemplated by the Company, and assist the Company in
generating models, analysis and interpretations thereof, independent
reserve reports, lease operating expenses, gathering and transmission
assets and agreements, product pricing and environmental reports;
iii. Advise the Company on the optimal acquisition strategy, including
pricing, use of equity and/or debt;
iv. Assist the Company with financial modeling of acquisitions
contemplated by the Company;
vi. Identify for the Company third party consultants and advisers, which
may include but is not limited to engineering, technical, accounting
and market consultants;
vii. Negotiate, as directed by the Company, definitive documentation and
other agreements necessary or desirable with respect to the
consummation of the acquisition and the financing thereof.
c. Merger/Tender Advisory. In connection with its engagement hereunder,
Sunrise shall:
i. Advise the Company on optimal strategies for a potential merger or
tender for the assets or units of other entities ("Targeted
Acquisitions");
ii. Provide an in-depth analysis of the potential value of Targeted
Acquisitions to the Company and its potential to influence the public
share price of the Company's common stock, and assist the Company in
generating models, analysis and interpretations thereof, independent
reserve reports, lease operating expenses, gathering and transmission
assets and agreements, product pricing and environmental reports;
iii. Advise the Company on the optimal acquisition strategy, including
pricing, use of equity and/or debt;
iv. Assist the Company with financial modeling of Targeted Acquisitions;
vi. Identify for the Company third party consultants and advisers, which
may include but is not limited to engineering, technical, accounting
and market consultants;
vii. Negotiate, as directed by the Company, definitive documentation and
other agreements necessary or desirable with respect to the
consummation of Targeted Acquisition(s) and the financing thereof;
viii.Negotiate, as directed by the Company, with shareholders, unit
holders, officers, general partners, and creditors in an effort to
consummate a merger/tender between the Company and the target
entity(ies).
2. Cooperation.
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a. To the extent legally and contractually permissible, the Company shall
furnish Sunrise with all information and data in the Company's possession
or reasonably available to the Company that Sunrise shall reasonably
request in connection with Sunrise's activities on the Company's behalf
hereunder, and shall provide Sunrise reasonable access to the Company's
officers, directors, employees and professional advisors. The Company
agrees to promptly advise Sunrise of all developments materially affecting
the Company, any proposed transaction or the accuracy of the information
previously furnished to Sunrise by the Company.
b. Sunrise: (i) will be relying on information and data provided by the
Company and available from generally recognized public sources, without
having independently verified the accuracy or completeness of the same,
(ii) does not assume responsibility for the accuracy or completeness of any
such information and data, (iii) will not make an appraisal of any assets
or liabilities of the Company, and (iv) retains the right to perform due
diligence on the Company during the course of this engagement.
c. In connection with its responsibilities under this Agreement, the Company
may prepare with Sunrise's assistance, a registration statement or
confidential offering or placement memorandum or road show materials to use
in connection with a transaction (the "Offering Document") and such other
documents as are necessary for a transaction, in such form as Sunrise and
the Company determine is appropriate to market the Securities. The Company
agrees that the Offering Document shall not, as of its date of publication,
to the best of its knowledge contain any untrue statement of material fact,
or omit to state a material fact necessary to make the statements contained
therein, in light of the circumstances in which they were made, not
misleading; provided the Company shall not be liable for any statements
based on information provided by third parties.
3. Use of Name, etc.
a. The Company agrees that, unless required by law, any reference to Sunrise
in any release, announcement, or marketing material is subject to Sunrise's
prior written approval, which may be given or withheld in its sole
discretion. If Sunrise resigns upon written notice to the Company prior to
the dissemination of any such release, communication or material, no
reference shall be made therein to Sunrise, despite any prior written
approval that may have been given therefore.
b. In connection with any transaction, (i) the purchase and sale of any
instruments, including the determination of the offering price, or interest
rate, as the case may be, of the instruments and any related discounts and
commissions to Sunrise, shall be an arm's-length commercial transaction
between the Company and its counterparty, (ii) Sunrise will not be the
fiduciary of the Company or its stockholders, creditors, employees or any
other party, (iii) Sunrise shall not assume a fiduciary responsibility in
favor of the Company (irrespective of whether Sunrise has advised or is
currently advising the Company on other matters) and Sunrise shall have no
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obligation to the Company with respect to any transaction except as may be
set forth in this Agreement or another definitive agreement between the
parties, and (iv) Sunrise shall not provide any legal, accounting,
regulatory or tax advice with respect to any transaction and the Company
shall consult its own legal, accounting, regulatory and tax advisors to the
extent it deems appropriate.
4. Compensation. The Company agrees to pay Sunrise at closing an amount out of
proceeds of Securities sold in the Transaction:
a. Financing. Upon the placement, purchase or origination, as applicable, of
any equity instruments, a fee in an amount of 7% of the gross proceeds for
equity instruments placed, purchased, or originated, as applicable. Upon
the placement, purchase or origination, as applicable, of any debt
instruments (excluding bank debt), a fee in an amount of 3% of the gross
proceeds for debt instruments placed, purchased, or originated, as
applicable. Upon the placement, purchase or origination, as applicable, of
any convertible or preferred instruments, a fee in an amount of 5% of the
gross proceeds of convertible or preferred instruments placed, purchased,
or originated, as applicable.
b. Corporate Restructuring and Acquisition Advisory. For services described in
Section 1b of this Agreement, the Company shall grant Sunrise:
i. Upon execution of this Agreement, 1,250,000 warrants to purchase
restricted common stock in the Company at a price of $0.01 per share.
The warrants will expire three years from grant date.
ii. Upon the recapitalization or all current private debt, 1,250,000
warrants to purchase restricted common stock in the Company at a price
of $0.01 per share. The warrants will expire three years from grant
date.
c. Merger/Tender Advisory for Targeted Acquisitions. In the event that the
Company successful consummates a transaction as described in 1c of this
agreement, the Company shall grant Sunrise 2,500,000 warrants to purchase
restricted common stock in the Company at a price of $0.01 per share. The
warrants will expire three years from grant date.
5. Expenses. In addition to any fees that may be paid to Sunrise hereunder,
whether or not any transaction occurs, the Company will reimburse Sunrise,
promptly upon receipt of an invoice therefore, for all out-of-pocket expenses
(including travel expenses, reasonable fees and expenses of its counsel, and the
reasonable fees and expenses of any other independent experts retained by
Sunrise) incurred by Sunrise in connection with the engagement contemplated
hereunder which expenses are pre-approved in writing by the Company not to
exceed $1,000.
6. Indemnification, etc. As further consideration under this Agreement, the
Company shall indemnify and hold harmless the Indemnified Persons (as defined in
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Schedule A) in accordance with Schedule A. The terms and provisions of Schedule
A are incorporated by reference herein, constitute a part hereof and shall
survive any termination or expiration of this Agreement.
7. Termination. Sunrise's engagement hereunder will commence upon the execution
of this Agreement by both parties, and will continue unless terminated by either
party on five (5) business days' written notice to the other. Upon any
termination of this Agreement, the Company shall promptly pay Sunrise any
accrued but unpaid fees hereunder, and shall reimburse Sunrise for any
unreimbursed expenses that are reimbursable hereunder. In the event of any
termination of this Agreement by the Company (other than because of Sunrise's
material breach of an express obligation under this Agreement), Sunrise shall be
entitled to the applicable fee set forth in Section 4 if the Company consummates
a transaction from a Sunrise source prior to that date which is twelve (12)
months from the date of termination of this Agreement. Any such fee shall be
payable upon the closing of any such transaction. In the event of any
termination of this Agreement by Sunrise, Sunrise shall not be entitled to any
fees hereunder. Upon any termination of this Agreement, the rights and
obligations of the parties hereunder shall terminate, except for the obligations
set forth in Sections 4-7, 9-15, and Schedule A, which shall survive such
termination.
8. Other Transactions, Disclaimer. The Company acknowledges that Sunrise is a
full service financial institution engaged in a wide range of investment banking
and other activities (including investment management, corporate finance,
securities issuing, trading and brokerage activities) from which conflicting
interests, or duties, may arise. Information that is held elsewhere within the
Sunrise, but of which none of the individuals in Sunrise's investment banking
department involved in providing the services contemplated by this Agreement
actually has (or without breach of internal procedures can properly obtain)
knowledge, will not for any purpose be taken into account in determining
Sunrise's responsibilities to the Company under this Agreement. Sunrise will not
have any duty to disclose to the Company or utilize for the Company's benefit
any non-public information acquired in the course of providing services to any
other person, engaging in any transaction (on its own account or otherwise) or
otherwise carrying on its business. The Company acknowledges and agrees that
Sunrise shall have no express or implied authority or permission to directly or
indirectly enter into or bind the Company to any commitments or to agree to the
terms of any transaction.
9. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Texas.
10. Jurisdiction and Venue. Each of the Company and Sunrise consents
specifically to the exclusive jurisdiction of the federal courts of the United
States sitting in the Southern District of Texas, or if such federal court
declines to exercise jurisdiction over any action filed pursuant to this
Agreement, the courts of the State of Texas sitting in the County of Harris, and
any court to which an appeal may be taken in connection with any action filed
pursuant to this Agreement, for the purposes of all legal proceedings arising
out of or relating to this Agreement. In connection with the foregoing consent,
each party irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the court's exercise of personal
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jurisdiction over each of the Company and Sunrise or the laying of venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. The Company
will pay Sunrise's legal fees in connection with Sunrise's successful
enforcement of its rights under this Agreement. The Company and Sunrise
irrevocably agree to waive any right to trial by jury in any action, proceeding,
claim or counterclaim (whether based upon contract, tort or otherwise) brought
by or on behalf of any party related to or arising out of this engagement
letter, any transaction or the performance of the services hereunder. Each of
the Company and Sunrise further consents that service of process may be affected
in any manner permitted under the laws of the State of Texas.
11. Payments. All payments to be made to Sunrise hereunder shall be
non-refundable and made in cash by wire transfer of immediately available U.S.
funds. Such fee may be paid by the Company in the form of a "gross spread" or
similar underwriting discount, if Sunrise's role hereunder is that of an
underwriter or an initial purchaser. The Company's obligation to pay any fee or
expense set forth herein shall be absolute and unconditional and shall not be
subject to reduction by way of setoff, recoupment or counterclaim. Fees payable
under Section 4(a) of this agreement shall be withheld by Sunrise from the gross
proceeds of any Transaction.
12. Announcements, etc. The Company agrees that Sunrise may, following the
consummation of a transaction, describe the transaction in any form of media or
in Sunrise's marketing materials, stating Sunrise's role and, with the consent
of the Company, other material terms of the Transaction and using the Company's
name and logo in connection therewith. The Company agrees that any press release
it may issue announcing a transaction will, at Sunrise's request, contain a
reference to Sunrise's role in the transaction. Sunrise agrees to secure the
Company's approval on all press releases is may issue, which approval will not
be unreasonably withheld.
13. Notices. Notice given pursuant to any of the provisions of this Agreement
shall be in writing and shall be mailed or delivered (a) if to the Company, at
392 W. Mill Street, New Braunfels, TX 78130, Attn: Ronnie L. Steinocher, and (b)
if to Sunrise Securities Corp, at 641 Lexington Avenue, New York, New York
10022, Attention: Marcia Kucher.
14. Miscellaneous. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof, and may not be amended or
modified except in writing signed by each party hereto. This Agreement may not
be assigned by either party hereto without the prior written consent of the
other, to be given in the sole discretion of the party from whom such consent is
being requested. Any attempted assignment of this Agreement made without such
consent shall be void and of no effect, at the option of the non-assigning
party. This Agreement is solely for the benefit of the Company and Sunrise and
no other person shall acquire or have any rights under or by virtue of this
Agreement. If any provision hereof shall be held by a court of competent
jurisdiction to be invalid, void or unenforceable in any respect, or against
public policy, such determination shall not affect such provision in any other
respect nor any other provision hereof. The Company and Sunrise shall endeavor
in good faith negotiations to replace the invalid, void or unenforceable
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provisions. Headings used herein are for convenience of reference only and shall
not affect the interpretation or construction of this Agreement. This Agreement
may be executed in facsimile counterparts, each of which will be deemed to be an
original and all of which together will be deemed to be one and the same
document.
15. Patriot Act. Sunrise hereby notifies the Company that pursuant to the
requirements of the USA PATRIOT Act (the "Patriot Act"), it is required to
obtain, verify and record information that identifies the Company in a manner
that satisfies the requirements of the Patriot Act. This notice is given in
accordance with the requirements of the Patriot Act.
Please sign below and return to Sunrise to indicate your acceptance of the terms
set forth herein, whereupon this Agreement and your acceptance shall constitute
a binding agreement between the Company and Sunrise as of the date first written
above.
Sincerely,
SUNRISE SECURITIES CORP.
By /s/ Frank D. Bracken, III
------------------------------------
Name: Frank D. Bracken, III
Title: Senior Managing Director
Accepted and Agreed:
BARON ENERGY, INC.
By /s/ Ronnie L. Steinocher
-----------------------------------------
Name: Ronnie L. Steinocher
Title: President & Chief Executive Officer
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SCHEDULE A
Reference is made to the engagement letter attached hereto between Sunrise
Securities Corp. and the Company as defined therein (as amended from time to
time in accordance with the terms thereof, the "Agreement"). Unless otherwise
noted, all capitalized terms used herein shall have the meanings set forth in
the Agreement.
As further consideration under the Agreement, the Company agrees to indemnify
Sunrise, its affiliates, and each of their respective officers, directors,
managers, members, partners, employees and agents, and any other persons
controlling Sunrise or any of its affiliates 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 Sunrise, is referred to as
an "Indemnified Person') from and against any claims, liabilities, losses,
damages, joint or several (including all legal or other expenses reasonably
incurred by an Indemnified Person in connection with the preparation for or
defense of any threatened or pending claim, action, or proceeding, whether or
not resulting in any liability) ("Losses"), related to or arising out of or in
connection with Sunrise's services (whether occurring before, at, or after the
date hereof) under the Agreement, a transaction or any proposed transaction
contemplated by the Agreement or any Indemnified Person's role in connection
therewith, whether or not resulting from an Indemnified Person's negligence,
provided, however, that the Company will not be liable to the Indemnified Person
hereunder to the extent such Losses are determined, by a final, non-appealable
judgment by a court of competent jurisdiction, , to have resulted from the gross
negligence, bad faith, or willful misconduct of the Indemnified Person seeking
indemnification hereunder.
The Company agrees that no Indemnified Person shall have any liability to the
Company or its owners, parents, affiliates, security holders or creditors for
any Losses, except to the extent such Losses are determined, by a final,
non-appealable judgment by a court of competent jurisdiction, to have resulted
from the gross negligence, bad faith, or willful misconduct of the Indemnified
Person seeking indemnification hereunder.
The Company shall not be liable for the settlement, compromise, or consent to
the entry of any judgment in any pending or threatened claim, action, suit, or
proceeding ("Action") without its written consent, which shall not be
unreasonably withheld or delayed. In addition, the Company will not, without the
prior written consent of Sunrise, settle, compromise, or consent to the entry of
any judgment in any pending or threatened Action in respect of which
indemnification may be sought hereunder (whether or not any Indemnified Person
is a party to such Action) unless Sunrise has given its prior written consent,
which shall no be unreasonably withheld or delayed, or the settlement,
compromise, consent or termination (i) includes an express unconditional release
of such Indemnified Person from all Losses arising out of such Action and (ii)
does not include any admission of fault on the part of any Indemnified Person.
If, for any reason (other than the gross negligence or willful misconduct of an
Indemnified Person as provided above) the foregoing indemnity is judicially
determined to be unavailable to an Indemnified Person for any reason or
insufficient to hold any Indemnified Person harmless, then the Company agrees to
contribute to any such Losses in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and Sunrise on the
other, but also the relative fault of the Company and Sunrise, as well as any
other relevant equitable considerations. Notwithstanding the provisions hereof,
the aggregate contribution of all Indemnified Persons to all Losses shall not
exceed the amount of fees actually received by Sunrise with respect to the
services rendered pursuant to the Agreement. Relative benefits to the Company,
on the one hand, and to Sunrise, on the other hand, shall be deemed to be in the
same proportion as (i) the total transaction value of the transaction or the
proposed transaction bears to (ii) all fees actually received by Sunrise in
connection with the Agreement.
The Company agrees to reimburse the Indemnified Persons for all expenses
(including, without limitation, fees and expenses of counsel) as they are
incurred in connection with investigating, preparing, defending or settling any
Action for which indemnification or contribution has or is reasonably likely to
be sought by the Indemnified Person, whether or not in connection with
litigation in which any Indemnified Person is a named party; provided that if
any such reimbursement is determined by a final, non-appealable judgment by a
court of competent jurisdiction, to have resulted solely from Sunrise' gross
negligence or willful misconduct, such Indemnified Person shall promptly repay
such amount to the Company; provided further, the Company shall be entitled to
control the defense of any Action and provide legal representation on behalf of
Sunrise. If any of Sunrise's professional personnel appears as witness, is
deposed or is otherwise involved in the defense of any Action against Sunrise,
the Company or the Company's affiliates, officers, managers, directors or
employees, the Company will reimburse Sunrise for all reasonable out-of-pocket
expenses incurred by Sunrise by reason of any of its personnel being involved in
any such Action.
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The indemnity, contribution and expense reimbursement obligations set forth
herein (i) shall be in addition to any liability the Company may have to any
Indemnified Person at common law or otherwise, (ii) shall survive the expiration
or termination of the Agreement or completion of Sunrise ' services hereunder,
(iii) shall apply to any modification of Sunrise ' engagement, (iv) shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of Sunrise or any other Indemnified Person, (v) shall be binding on
any successor or assign of the Company and successors or assigns to the
Company's business and assets and (vi) shall inure to the benefit of any
successor or assign of any Indemnified Person.
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