EXHIBIT 10.7
I|C|M|B OCEAN TOMO
ENGAGEMENT LETTER
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October 8, 2003
Mr. Jason Geng
CEO
Genex Technologies, Inc.
10605 Concord Street, Suite 500
Kensington, MD 20895-2504
Dear Mr. Geng
We are pleased to confirm our understanding that Genex Technologies, Inc.
("Genex", or the "Company") has engaged Ocean Tomo, LLC, d.b.a. I|C|M|B Ocean
Tomo ("Ocean Tomo") as its exclusive - outside strategic advisor solely in
connection with a Transaction (as defined below) involving the Company, and
expressly not in connection with any activities not involving a potential
Transaction (including, but not limited to, legal, tax, accounting, or other
similar strategic advisory services), on the terms and conditions set forth
below.
1. SERVICES. In connection with its engagement hereunder, Ocean Tomo will,
as appropriate and as requested by the Company, advise and assist the
Company in analyzing and evaluating the business, operations and
financial position of the Company (including performing financial and
intellectual property valuation analysis) in connection with the
evaluation of potential Transactions; (b) advising the Company in
connection with potential Transactions, (c) performing such other
consulting services as we may agree upon; and (d) if the Company
chooses to pursue one or more potential Transactions: (i) assisting the
Company to identify potential opportunities for such Transactions as
may be requested by the Company, (ii) advising the Company concerning
such opportunities, (iii) participating, under the direction of the
Company, on the Company's behalf in negotiations regarding potential
Transactions, and (iv) rendering an opinion as to the fairness from a
financial point of view of the consideration to be paid pursuant to any
such potential Transaction, as may be reasonably requested by the
Company. Ocean Tomo does not, however, guarantee any success in
consummating a Transaction for the Company, and shall have no liability
to the Company in the event no Transaction occurs. The Company
acknowledges and agrees that (A) Ocean Tomo is being retained solely to
assist the Company in its efforts to effect a Transaction and (B) Ocean
Tomo is not and shall not be construed as a fiduciary of the Company
and shall have no duties or liabilities to the equity holders or
creditors of the Company or any other person by virtue of this letter
agreement and the retention of Ocean Tomo hereunder, all of which are
hereby expressly waived. Ocean Tomo is not a registered broker-dealer
and will not engage in effecting securities transactions or otherwise
engage in any other activities that require broker-dealer registration.
2. COMPENSATION. The Company will pay to Ocean Tomo a consulting retainer
in the amount of $20,000 per month for a three-month period. Monthly
consulting retainer payments shall be made upon acceptance of this
letter agreement and sixty and ninety days - thereafter. Such payments
shall be non-refundable, except upon the material breach by Ocean Tomo
of this letter agreement, and are not contingent upon completion of any
Transaction or specified performance by either Ocean Tomo or the
Company. The retainer payments will be credited towards the Advisory
Fee, provided that the aggregate of the retainer payments and Advisory
Fee shall not be less than $210,000 (i.e., if the Advisory Fee is
$200,000, then $50,000 of the retainer will be credited so that the
aggregate payment will be $210,000).
If a Transaction is consummated, during the term of this letter
agreement or during the ensuing 6 month period thereafter, the Company
shall pay to Ocean Tomo an "Advisory Fee." The Advisory Fee, which
shall be payable in cash upon consummation of the Transaction, shall be
calculated as the greater of (i) $150,000 and (ii) a percentage of the
Aggregate Value of the Transaction as follows (the "Percentage Fee"):
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AGGREGATE VALUE PERCENTAGE FEE
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Less than $ 3,000,000 5% of Aggregate Value
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From $ 3,000,000.01 up to and including $ 10,000,000 $ 150,000 PLUS the product of (a) the Aggregate
Value MINUS $ 3,000,000 and (b) 4.0%
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From $ 10,000,000.01 up to and including $ 15,000,000 $ 430,000 PLUS the product of (a) the Aggregate
Value MINUS $ 10,000,000 and (b) 3.0%
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From $ 15,000,000.01 up to and including $ 20,000,000 $ 580,000 PLUS the product of (a) the Aggregate
Value MINUS $ 15,000,000 and (b) 2.0%
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From 20,000,000.01 up to and including $ 25,000,000 $ 680,000 PLUS the product of (a) the Aggregate
Value MINUS $ 20,000,000 and (b) 1.0%
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From $ 25,000,000.01 up to and including $ 30,000,000 $ 730,000 PLUS the product of (a) the Aggregate
Value MINUS $ 25,000,000 and (b) 0.5%
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From $ 30,000,000.01 and above $ 755,000 PLUS the product of (a) the Aggregate
Value MINUS $ 30,000,000 and (b) 0.5%
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The "Aggregate Value" means the aggregate value of all cash, securities
and other property paid to the Company and/or its stockholders for the
Company or its equity in connection with a Transaction, including all
indebtedness of the Company repaid or assumed, directly or indirectly,
(by operation of law or otherwise) in connection with such Transaction.
In the event that the consideration received in a Transaction is paid
in whole or in part in the form of securities or other property, then,
for purposes of calculating the Advisory Fee hereunder, the value of
such securities or other property shall be the fair market value
thereof (as agreed upon by the parties) on the day immediately
preceding the consummation of such Transaction; provided, however, that
if such securities consist of securities with an existing public
trading market, the value thereof shall be determined by the average of
the last sales prices of such securities on the 20 trading days
immediately preceding the consummation of such Transaction. Any amounts
payable to the Company, any stockholder of the Company or any affiliate
of the Company in connection with a non-competition, employment,
consulting, licensing, supply or other agreement shall be deemed
consideration, except in the case of non-competition, employment or
consulting agreements to the extent such amounts represent the fair
value of services to be rendered. Any contingent or conditional
consideration will be valued using generally accepted valuation methods
as used agreed upon by the parties. If the consideration to be paid is
computed in a foreign currency, the value of such foreign currency, for
purposes of calculating the Advisory Fee, shall be converted into U.S.
Dollars at the average of the exchange rate for the 20 trading days
immediately preceding the date on which the Transaction is consummated.
"Transaction" shall include any sale or other form of transaction
whereby, directly or indirectly, control of, or a material interest in,
the Company or any portion of its businesses or assets is transferred
for consideration to 3M or any of its divisions or subsidiaries,
including, without limitation, a sale or exchange of capital stock or
assets, a merger or consolidation, a tender or exchange offer, or any
similar transaction which results in the transfer, sale or license of a
business, product, technology, intellectual property, or other asset of
the Company. It is the intention of the parties to have the Advisory
Fee be approximately the same regardless of the form of the
Transaction.
With the prior, written consent of the Company, the definition of
"Transaction" shall be expanded to include additional third parties
beyond 3M provided Ocean Tomo receives prior written approval from the
Company of each specific party being contacted by Ocean Tomo in regards
to a possible Transaction as contemplated by this letter agreement.
3. CONFIDENTIALITY. In connection with this engagement, the Company agrees
to furnish Ocean Tomo with all information concerning the Company that
is necessary for Ocean Tomo to perform its functions under this letter
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agreement, and to provide it with access to the Company's officers,
directors, employees, accountants, counsel and other representatives,
it being understood that Ocean Tomo will rely solely upon such
information supplied by the Company and its representatives, without
assuming any responsibility for the accuracy or completeness of such
information, or the independent investigation or verification thereof.
The Company represents that all information furnished by it or on its
behalf to Ocean Tomo will be accurate and complete in all material
respects at the time it is supplied.
Ocean Tomo hereby agrees to use all information provided to it by the
Company solely for the purpose of rendering services to the Company
pursuant to this engagement, and to treat confidentially such
information for so long as such information remains non-public. Ocean
Tomo will not disclose any such information to a third party without
the prior consent of the Company and then only to those persons who
have a strict need to know and who are subject to a like
confidentiality obligation as that embodied hereby, unless Ocean Tomo
is requested or is legally required (by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process) to disclose any such
information and has provided the Company with notice of any of the
foregoing and an opportunity to object to such demand or request. Ocean
Tomo agrees to keep all information strictly confidential and will
accord the information at least the level of protection that Ocean Tomo
accords its own highly confidential, trade secret, and proprietary
business information, which level shall be, at a minimum, that of a
reasonably prudent person. Ocean Tomo acknowledges and agrees that the
information provided by the Company is the confidential and proprietary
business information of the Company, and further contains trade secrets
of the Company, whose whole or partial disclosure, or improper use,
whether deliberate or inadvertent, will irreparably harm the Company.
4. TERM OF AGREEMENT. Subject to early termination in accordance with
Section 8(e) below, this letter agreement shall continue in full force
and effect for 6 months.
5. EXPENSES. The Company hereby agrees to reimburse Ocean Tomo for all
reasonable out-of-pocket expenses incurred after the date of this
letter agreement in connection with the performance of the services
described herein, including, but not limited to, travel, meals,
lodging, expenses for presentation and financial materials; provided,
however, that Ocean Tomo shall not be reimbursed for any legal fees or
related expenses. Such expenses will be payable promptly upon Ocean
Tomo's written request, which request shall include documentation
evidencing the expenses incurred. Ocean Tomo agrees not to incur any
individual expense greater than $ 1,000 nor expenses greater than
$5,000 in the aggregate without the prior written consent of the
Company.
6. INDEMNIFICATION. Since Ocean Tomo will be acting on behalf of the
Company in connection with its engagement hereunder, Annex A attached
hereto and incorporated herein sets forth the agreement of the parties
relating to the indemnification by the Company of Ocean Tomo and its
affiliates, and their respective directors, officers, partners,
members, managers, agents, representatives and employees. The terms and
provisions of Annex A will survive any termination or expiration of
this letter agreement.
8. OTHER MATTERS.
(a) Any advice or opinions provided by Ocean Tomo may not be
disclosed by the Company or any of its directors, officers,
employees or representatives or referred to publicly or to any
third party by any of them except in accordance with Ocean
Tomo's written consent.
(b) The Company represents that it has all requisite power and
authority to enter into this letter agreement, and that this
letter agreement has been duly and validly authorized by all
necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company.
(c) The terms and conditions of this letter agreement shall not be
amended or modified and this letter agreement may not be
assigned except by written agreement of both parties.
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(d) This letter agreement may not be assigned by Ocean Tomo, by
operation of law or otherwise, without the prior written
consent of the Company. This letter agreement shall be binding
upon the Company and Ocean Tomo and their respective
successors and assigns.
(e) The Company or Ocean Tomo may terminate this letter agreement
with thirty (30) days prior written notice to the other party
hereto. In the event of any termination of Ocean Tomo's
engagement by the Company, the Company shall continue to be
obligated to pay and Ocean Tomo shall continue to be entitled
to receive all consideration for retainer payments that are
due and owing prior to the effective date of the termination,
and reimbursement for expenses incurred prior to the effective
date of the termination. In the event of any termination of
Ocean Tomo's engagement hereunder by the Company, the Company
shall continue to be obligated to pay and Ocean Tomo shall
continue to be entitled to receive all consideration set forth
in Paragraphs 2 and 5 above, including receipt of compensation
in the event a Transaction is closed with (i) third parties
originally contacted by Ocean Tomo with the written permission
of the Company, or at the written request of the Company, or
(ii) third parties with whom the Company and/or Ocean Tomo
with the prior written consent of the Company had discussions,
each during the term of this engagement.
(f) Until the termination of this letter agreement, the Company
will not solicit or negotiate with or retain any other outside
strategic advisor placement agent or underwriter in connection
with: (i) the Transaction, and (ii) any other business where
the engagement of such other outside strategic advisor or
agent there could create a potential conflict of interest
between Ocean Tomo and such other advisor as determined in the
reasonable judgment of the Company in consultation with Ocean
Tomo.
(g) This letter agreement shall be governed by and construed in
accordance with the laws of the state of Illinois, in the
United States of America.
(h) This letter agreement constitutes the entire agreement between
the parties and supersedes and cancels any and all prior or
contemporaneous arrangements, understandings and agreements,
written or oral, between them relating to the subject matter
hereof.
We are delighted to accept this engagement and look forward to working with you.
If this letter agreement correctly sets forth your understanding of our
agreement, please execute where indicated below and return to the attention of
Ocean Tomo an original executed version at your earliest convenience.
Sincerely,
John A. Amster
Managing Director
Genex Technologies, Inc.
By: _______________________________
Name: Jason Geng
Title: CEO
Date: 10/17/2003
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ANNEX A
INDEMNIFICATION PROVISIONS
Pursuant to the terms of the letter agreement dated as of October __,
2003, by and between Genex Technologies, Inc. ("Genex", or the
"Company") and Ocean Tomo, LLC, d.b.a. I|C|M|B Ocean Tomo ("Ocean
Tomo") to which this Annex A is attached (as amended, restated or
otherwise modified from time to time, the "Agreement"), the Company
agrees (a) to indemnify, defend and hold harmless Ocean Tomo and its
affiliates, and their respective directors, officers, partners,
members, managers, agents, representatives and employees (Ocean Tomo
and each such entities or persons being referred to as an "Indemnified
Person"), from and against any losses, claims, demands, damages or
liabilities of any kind relating to or arising out of activities
performed or services furnished pursuant to the Agreement, any matters
related thereto or Ocean Tomo's role in connection therewith, and (b)
to reimburse each Indemnified Person for all reasonable expenses
(including reasonable fees and disbursements of counsel) incurred by
such Indemnified Person in connection with investigating, preparing or
defending any investigative, administrative, judicial or regulatory
action or proceeding in any jurisdiction related to or arising out of
such activities, services, matters or role, whether or not in
connection with pending or threatened litigation to which any
Indemnified Person is a party, in each case as such reasonable expenses
are incurred or paid, other than any such losses, claims, demands,
damages, liabilities or expenses to the extent they result from an
Indemnified Person's gross negligence, recklessness or willful
misconduct. The Company also agrees that no Indemnified Person shall
have any liability (whether direct or indirect, in contract, tort or
otherwise) to it or any of its securityholders or creditors for or in
connection with the Agreement, any matters related thereto or Ocean
Tomo's role or services in connection therewith, except for any such
liability for losses, claims, demands, damages, liabilities or expenses
incurred by the Company to the extent they result from any Indemnified
Person's gross negligence, recklessness or willful misconduct.
Ocean Tomo shall use its reasonable efforts to notify the Company of
any claim for indemnification hereunder. Should any lawsuit,
administrative proceeding or self-regulatory organization proceeding
(collectively, a "Proceeding") be formally instituted against Ocean
Tomo or any Indemnified Person based, directly or indirectly, on Ocean
Tomo's engagement under the Agreement, the Company will be entitled to
participate therein and, to the extent that it may wish, to assume the
defense of the Proceeding, with counsel reasonably satisfactory to
Ocean Tomo, so long as the Company continues to pay all costs and
expenses of the defense and preparation for such Proceeding. Even if
the Company assumes the defense of a Proceeding, each Indemnified
Person will have the right to participate in such Proceeding and to
retain its own counsel at such Indemnified Person's own expense.
Furthermore, each Indemnified Person shall have the right to employ its
own counsel in any Proceeding and to require the Company to pay all
reasonable fees and expenses of such counsel as they are incurred if:
(a) such Indemnified Person has been advised by such counsel that there
may be legal defenses available to it which are different from or
additional to defenses available to the Company (in which case the
Company shall not have the right to assume the defense of the
Proceeding on behalf of such Indemnified Person); (b) the Company shall
not have assumed the defense of the Proceeding and employed counsel
reasonably satisfactory to Ocean Tomo in a timely matter; or (c) the
Company shall have authorized the employment of such counsel in
connection with the defense of the Proceeding.
No Indemnified Person shall be liable for any settlement of any
litigation or proceeding effected without Ocean Tomo's written consent,
provided that such consent shall not be unreasonably withheld. The
Company will not, without Ocean Tomo's written consent, settle,
compromise, consent to the entry of any judgment in or otherwise seek
to terminate any claim, action or proceeding in respect of which
indemnity may be sought hereunder, whether or not any Indemnified
Person is an actual or potential party thereto, unless such settlement,
compromise, consent or termination includes an unconditional release of
each Indemnified Person from any liabilities arising out of such claim,
action or proceeding.
If the foregoing indemnification is judicially determined to be
unavailable to an Indemnified Person (other than in accordance with the
terms hereof), the Company shall contribute to the losses, claims,
demands, damages, liabilities and expenses referred to herein that are
paid or payable by such Indemnified Person in such proportion as is
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appropriate to reflect the relative fault of the Company and its
securityholders and creditors, on the one hand, and the Indemnified
Person, on the other hand, in any transaction, and any other relevant
equitable considerations.
THE COMPANY AND OCEAN TOMO AGREE THAT ALL ACTIONS TO ENFORCE THE
AGREEMENT AND THIS ANNEX A AND ALL DISPUTES AMONG OR BETWEEN THEM
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG OR BETWEEN THEM IN CONNECTION WITH THE
AGREEMENT AND THIS ANNEX A, WHETHER ARISING IN CONTRACT, TORT, EQUITY,
OR OTHERWISE, SHALL BE RESOLVED ONLY BY A COURT LOCATED IN COOK COUNTY,
ILLINOIS, AND THE COMPANY AND OCEAN TOMO HEREBY CONSENT AND SUBMIT TO
THE JURISDICTION OF SUCH COURT. THE COMPANY AND OCEAN TOMO HEREBY WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING
OUT OF THE AGREEMENT, THIS ANNEX A OR OCEAN TOMO'S PERFORMANCE OF THE
SERVICES REFERRED TO IN THE AGREEMENT.
If multiple claims are brought against any Indemnified Person or
Indemnified Persons in an arbitration related to, arising out of or in
connection with Ocean Tomo's engagement under the Agreement, with
respect to at least one of which such claims indemnification is
permitted and provided for hereunder, the Company agrees that any
arbitration award shall be conclusively deemed to be based on claims as
to which indemnification is permitted and provided for hereunder,
except to the extent the arbitration award expressly states that the
award, or any portion thereof, is based solely on a claim as to which
indemnification is unavailable. The provisions of this Annex A shall be
governed by Illinois law and shall survive any expiration, termination
or completion of the Agreement or Ocean Tomo's engagement under the
Agreement.
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