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CIBC WORLD MARKETS CORP. v. TECHTRADER

September 28, 2001

CIBC WORLD MARKETS CORP., PLAINTIFF,
V.
TECHTRADER, INC., DEFENDANT.



The opinion of the court was delivered by: Buchwald, District Judge.

  MEMORANDUM AND ORDER

Lynn E. Judell, Rosenthal, Judell & Uchima, New York City, for Plaintiff.

John C. Re, Aronauer, Goldfard, Sills & Re, New York City, for Defendant.

Plaintiff CIBC World Markets Corp. ("CIBC" or "plaintiff") brings this action for breach of contract against TechTrader, Inc. ("TT" or "defendant"). Currently before the court is CIBC's motion for summary judgment. For the reasons that follow, CIBC's motion is granted.

I. BACKGROUND

A. The Parties

TT is a startup company that provides software to create and maintain on-line business-to-business marketplaces. Affidavit of TT's Founder and Chairman of the Board, Jacob Pechenik ("Pechenik Aff.") at ¶ 3. In late 1999, defendant sought additional financing with the assistance of plaintiff, an investment bank that offers institutional investment banking services to a variety of domestic and international companies. Pechenik Aff. at ¶ 8; Affidavit of Director of CIBC World Markets Corp., Robert Lubin ("Lubin Aff.") at ¶ 2. On January 20, 2000, the parties executed an agreement (Def.'s Ex. B, henceforth, the "Final Agreement") pursuant to which TT retained CIBC as its exclusive financial advisor in connection with a possible sale or merger and acquisition of TT. Def.'s Rule 56.1 Statement at ¶ 1.

B. The Agreement

CIBC brings this action to recover a fee pursuant to the Final Agreement, which provided for the following engagement:

This letter agreement confirms our understanding of the engagement of CIBC World Markets Corp. ("CIBC World Markets") by TechTrader, Inc. (together with its subsidiaries and affiliates, the "Company") to act as exclusive financial advisor to the Company in connection with a possible sale or other transfer, directly or indirectly and whether in one or a series of transactions, of all or a significant portion of the assets or securities of the Company or any extraordinary corporate transaction involving a change in control of the Company, regardless of the form or structure of such transaction (the "Transaction"); provided, however, that any bridge financing from the existing investors in the Company shall not be deemed a Transaction.

Def.'s Ex. B.

Furthermore, the Agreement provided for the payment of a transaction fee:

In connection with this engagement, the Company [TT] agrees to pay us [CIBC] (a) an agreement fee equal to the greater of $250,000 or 0.5% of the Transaction Value (as defined below), payable in cash upon the earlier of the close of a Transaction or termination of an agreement for a Transaction, plus (b) a transaction fee equal to the greater of $750,000 or 1.5% of the Transaction Value (as defined below), payable in cash on the closing date of a Transaction if, during the term of this engagement or within six (6) months thereafter, a Transaction is consummated or an agreement is entered into that subsequently results in a Transaction.

Final Agreement at 2 (emphasis supplied).

Thus, the sole issue in this litigation is whether the venture capital investment received by TT in June of 2000 (the "Series-B Investment"*fn1) triggered plaintiffs obligation, pursuant to the Final Agreement, to pay the demanded fee. To resolve that question we must determine whether the Series-B Investment is a "Transaction" as defined in the Final Agreement. If so, TT is obliged to pay CIBC the contemplated transaction fee.

C. The Series-B Agreement

On June 12, 2000, TT accepted venture capital financing from Vistaar, Jackpot Enterprises (which has been renamed "J. Net"), First Chicago Equity Corp. ("First Chicago"), and Cross Creek Partners Xa, LLC ("Cross Creek") (collectively, the "Series-B Investors"), whereby these companies invested approximately 19 million dollars in exchange for Series-B Preferred Stock. Def.'s Ex. F ("Series-B Securities Purchase Agreement"); Pechenik Aff. at ¶ 25. None of the Series-B Investors were located or introduced to TT by CIBC. Pechenik Aff. at ¶ 26.

As a result of the Series-B Investment, the distribution of TT's shares and the composition of TT's Board of Directors were altered. The following tables summarize the ownership of TT shares before and after the completion of the Series-B Investment. ...


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