Exhibit 10(lll)
SUTRO & CO
11150 Santa Xxxxxx Boulevard 13th Floor *
Xxx Xxxxxxx Xxxxxxxxxx 00000
*000-000-0000
XXXXXX XXXXXXX CONFIDENTIAL
Managing Director
October 8, 1999
Mr. Xxxxx Xxxxxxxx
Chairman and Chief Executive Officer
Computer Thermal Imaging, Inc.
000 Xxxxxxxx Xxxx Xxxx,
Xxxxx 000
Xxxxxx, Xxxx 00000
Dear Xx. Xxxxxxxx:
This letter agreement sets forth the terms and conditions under which
Computerized Thermal Imaging, Inc. or any successor, assign, or affiliate,
(the "Company") has retained Sutro & Co. Incorporated ("Sutro") to act as its
(i) exclusive financial advisor for any sale transaction and all acquisitions
during the Term as defined in paragraph 5 (the "Acquisition(s)" or "Sale
Transaction") and (ii) exclusive placement agent with respect to the private
placement of debt or equity-related securities or bank financing (the
"Transaction").
1. Acquisition Advisory Services- Sutro will act as financial advisor and
assist the Company in effecting the Acquisition(s) or Sale Transaction. In
this regard, we propose to undertake certain activities including, if
appropriate, the following:
(a) Review and analyze certain audited financial statements and other
information relating to the Acquisition(s);
(b) Review and analyze certain internal financial statements and other
financial and operating data concerning the Acquisition(s) prepared by
management;
(c) Review and analyze certain internal financial forecasts and projections
prepared by the management of the Acquisition(s);
(d) Discuss the past and current operations and financial condition, and the
future prospects of the Acquisition(s) with management;
(e) Compare certain financial data of the Acquisition with that of various
other comparable companies whose securities are publicly traded;
(f) Review the financial terms to the extent publicly available, of certain
comparable transactions;
(g) Assist in negotiating and structuring the transactions for the
Acquisition(s); and
(h) Assist in preparation of definitive documentation for the Acquisition(s).
2. Placement Agent Services- Sutro will act as financial advisor and assist
the Company in effecting the Financing. In this regard, we propose to
undertake certain activities including, if appropriate, the following:
(a) Advising the Company as to die form arid structure of the Financing;
(b) Assisting in the preparation of a Private Placement Memorandum (the
"Memorandum") describing the Company, the transaction and the securities
offered in connection therewith (the "Securities"). Responsibility for the
contents of such Memorandum shall be solely that of the Company, and the
Memorandum shall not be made available to or used in discussions with
prospective investors (the "Party" or "Parties") by Sutro until both the
Memorandum and its use for that purpose have been approved by the Company;
(c) Identifying, introducing to, and consulting as to strategy for initiating
discussions with, potential investors;
(d) Negotiating the sale of the Securities to investors; and
(e) Assisting in the preparation of definitive documentation for the
Financing.
3. Compensation - - Sutro's compensation for its role as acquisition advisor
and placement agent shall be determined as follows:
(a) A non-refundable retainer of $50,000 payable in two installments. The
first installment of $25,000 shall be payable upon execution of this
Agreement, and the balance due in 60 days from the date of execution of the
Agreement. The paid retainer shall be credited against any fees pursuant to
paragraphs 3(b) and 3(c) in the event the Acquisition(s) or a Financing
occurs.
(b) An acquisition advisory fee (the "Acquisition Advisory Fee") equal to
three percent (3%) of the "Aggregate Consideration", defined to include cash,
equity securities, the fair market value of revolving credit facilities,
straight and convertible debt instruments or other obligations, and any other
form of payment or assumption of obligations made to an acquisition target or
its shareholders in connection with the Acquisition(s). The Acquisition
Advisory Fee will be payable in cash upon the closing of the Acquisition(s).
(c) A placement fee (the " Placement Fee") equal to the sum of (i) one and
one-half percent (1.5 %) of the principal amount of any secured revolving
credit facility or other senior secured debt, (ii) four and one-half percent
(4.5 %) of the principal amount of senior notes, subordinated notes and/or
convertible notes and (iii) six and one-half percent (6.5 %,) of the principal
amount of any preferred stock or common stock. The Placement Fee will be
payable regardless of the size of the Financing and whether or not the
Financing occurs in one transaction or a series of transactions. The Placement
Fee shall be payable with cash upon consummation of, and out of the proceeds
of, the proposed Financing.
(d) Warrants to purchase three percent (3%) of the equity ownership of the
Company on a fully diluted basis (including without limitation the equity
underlying the warrants issued to Sutro hereunder) pro forma for the issuance
of equity and/or warrants issued in connection with the Financing. The warrant
shall vest on the following basis: (i) 50% (1.5%) upon the execution of the
Agreement and (ii) the balance, 50% (1.5%) shall vest upon the closing of the
Transaction. The percentage of equity to be purchased shall be subject to
customary anti-dilution provisions. The warrants shall be granted and fully
vested upon either the closing of the Financing, Sale Transaction, or
Acquisition, which ever occurs first, and shall be exercisable for a five year
period.
commencing one year from their date of issuance with 'cashless' exercise
provisions. The exercise price per share of the warrants will be based upon
the closing price of the Company's stock at the date of execution of this
Agreement. The holders of the warrants shall be entitled to one demand,
unlimited "piggy-back", tag along, and preemptive registration rights. The
Company shall bear all costs and -xpenses in connection with such
registrations.
4. Sutro's Expenses- In addition to the foregoing fees, and regardless of
whether the Acquisitions, Sale Transaction, or the Financing contemplated by
this letter agreement are consummated, the Company agrees, upon request from
time to time, to promptly reimburse Sutro for all reasonable out-of-pocket
expenses, including, but not limited to, such costs as printing, telephone,
fax, courier service, copying, accommodations, travel, and direct computer
expenses, secretarial overtime and fees and disbursements of legal counsel.
Any incurrance of legal fees shall be mutually agreed upon in advance.
Additionally, the Company agrees that Sutro is not responsible for the fees
3nd disbursements of special counsel for the investors, whether or not any
transactions are completed.
5. Term and Termination Rights - It is understood that the Company hereby
engages Sutro on an exclusive basis for investment banking services for a term
(the "Term") commencing on the date hereof and ending on September 30, 2000.
The Term shall be automatically renewed for successive 30 day periods unless
either party gives written notice to the other within 30 days of the
expiration of the Term of its desire that this engagement expire.
Notwithstanding the foregoing, Sutro may at its sole option, terminate its
obligation hereunder without liability if, in the reasonable opinion of Sutro,
a change has occurred in the Company's financial condition, results of
operations, properties, business prospects, or the composition of the
Company's management or Board of Directors, which, in Sutro's sole
determination has adversely effected the marketability of the Company. The
remaining provisions of this letter relating to the payment of fees earned and
expenses incurred prior to the end of the Term and the Indemnification
Agreement shall survive any termination or expiration of the engagement or the
completion of Sutro's services.
If during the Term, or within the twelve months following the expiration
thereof, (a) a financing transaction or transactions occur for the benefit of
the Company which involves a Party (i) identified to the Company by Sutro or
(ii) with whom the Company or Sutro had a discussion regarding the Financing
during the engagement and whether or not such discussions were initiated by
Sutro, or (b) the Company enters into a definitive agreement with any such
Party specified in (i) or (ii) above which subsequently results in a financing
transaction or transactions, then the Company will be obligated to pay Sutro
the fees and expenses of Sections 3 and 4.
6. Sale Transaction- If during the Term, and in lieu of the Financing, the
Company consummates a Sale Transaction (as defined below) or reaches a
definitive agreement which subsequently results in a Sale Transaction, the
Company agrees to pay or cause to be paid to Sutro, a sale transaction fee
(the "Sale Transaction Fee") equal to three percent (3%) of the Aggregate
Consideration (as defined below). The Sale Transaction Fee will be payable in
cash upon the closing of the Sale Transaction.
The term "Sale Transaction" shall be defined to include any merger,
consolidation, sale of assets, tender or exchange offer, leveraged buy-out,
formation of a joint venture or partnership, reorganization (except for the
currently contemplated recapitalization which shall not be deemed a Sale
Transaction) or other business combination, pursuant to which the business of
the Company is combined with that of an acquiring entity or any entity
affiliated with one or more acquirers (the "Party" or "Parties"), where the
Party has at least 50% of the capital stock of the surviving company.
The term "Aggregate Consideration" shall be defined to include cash, equity
securities, the fair market value of revolving credit facilities, straight and
convertible debt instruments or other obligations, and
any other form of payment or assumption of obligations made to the Company or
its shareholders in connection with the Sale Transaction. If any of the
consideration to be received by the Company is contingent upon future
performance of the Company's operations (e.g. revenues or income), the portion
of the fee attributable to such consideration shall be paid to Sutro at such
time or times as the Company receives such consideration.
7. Notwithstanding sections 1 through 9 of this agreement, the following
contractual relationship are already in place and transactions deriving from
these relationships will be considered outside the scope of this Agreement.
However, the Company may elect to invite Sutro to assist on these matters
pursuant to the terms and conditions contained in this Agreement.
(a). TSET, one of the Company's equipment brokers, is currently seeking
customers as well as capital for the Company.
(b). Xxxx Xxxxx, a finder for the Company, is actively seeking customer and
equity financing for the Company limited to Xxxx Xxxxx for a period ending
October 1, 1999.
(c). Southridge Capital Management is currently funding the Company through
the purchase of shares via the current SB/2 registration statement.
(d). Thermal Medical Imaging, Inc. is an affiliated company that will be
merging with Computerized Thermal Imaging sometime in the near future.
8. Right of First Refusal - The Company will provide Sutro with the right of
first refusal for two years to serve as a managing underwriter on any public
offering or act as advisor on any private financing (debt or equity) merger,
business combination, recapitalization or sale of some or all of the equity or
assets of the Company (collectively, "Future Services"). In the event the
Company notifies Sutro of its intention to pursue an activity that would
enable Sutro to exercise its right of first refusal to provide Future
Services, Sutro shall notify the Company of its election to provide such
Future Services, including notification of the compensation and other terms to
which Sutro claims to be entitled, within 14 days of written notice by the
Company. In the event Sutro is engaged by the Company to provide such future
services, Sutro will be compensated as is reasonable and customary within the
industry provided however, that the terms of the Indemnification Agreement
shall apply to any additional engagement.
9. In connection with Sutro's engagement, the Company and its advisors will
furnish Sutro with all data, material, and information concerning the Company
(the "Information") which Sutro reasonably requests, all of which will be
accurate and complete in all material respects, except with respect to the
Company's financial statements which shall present fairly the financial
position of the Company, to the best of the Company's knowledge, at the time
furnished. The Company recognizes and confirms that in advising it and in
undertaking the assignment, Sutro will be using and relying on the Information
and financial and other information furnished to Sutro by potential interested
Parties, without independent verification. Moreover, Sutro will not perform
any appraisal of the assets or businesses of the Company or any Party. Sutro
is hereby authorized to use and deliver the Information, and any other data
obtained by Sutro from reliable published sources, to prospective interested
Parties. In connection with the engagement of Sutro hereunder, the Company has
entered into a separate letter agreement, dated as of the date hereof,
providing for the indemnification of Sutro and certain related parties by the
Company (the "Indemnification Agreement").
10. This letter agreement and the related indemnification agreement referred
to above shall be deemed made in California. Such agreements shall be governed
by the laws of the State of California, without regard to such state's rules
concerning conflicts of laws. Should suit be brought to enforce this letter
agreement or the Indemnification Agreement, the prevailing party shall be
entitled to recover from the other reimbursement for reasonable attorneys'
fees. Any dispute arising from the interpretation,
validity or performance of this letter agreement or any of its terms and
provisions shall be submitted to binding arbitration with the National
Association of Securities Dealers.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to us the enclosed duplicate copy of this letter
agreement. We look forward to working with you and to the successful
conclusion of this assignment
Very truly yours,
SUTRO & CO INCORPORATED
/s/ Xxxxxx X. Xxxxxxx
----------------------------
Xxxxxx X. Xxxxxxx
Managing Director
Accepted and Agreed to
as of-the date written above:
COMPUTERIZED THEMAL IMAGING, INC.
By: /s/ Xxxxx Xxxxxxxx
-------------------------
Xxxxx Xxxxxxxx
Chairman and Chief Executive Officer
CONFIDENTIAL
September 28,1999
Sutro & Co. Incorporated
00000 Xxxxx Xxxxxx Xxxx.
Xxxxx 0000 Xxx Xxxxxxx, XX 00000
In consideration of Sutro's agreement to act on behalf of Computerized Thermal
Imaging, Inc. (the "Company"), in connection with the private placement,
pursuant to the engagement letter of even date herewith (the "Engagement
Letter"), we hereby agree to indemnify and hold harmless Sutro, its
affiliates, the respective partners, directors, officers, agents and employees
of Sutro and its affiliates and each person, if any, controlling Sutro or any
of its affiliates within the meaning of either Section 15 of the Securities
Act of 1933 or Section 20 of the Securities Exchange Act of 1934, (Sutro and
each such other person are hereinafter referred to as an "Indemnified
Person"), from and against any such losses, claims, damages, expenses and
liabilities (or actions in respect thereof), joint or several, as they may be
incurred (including all legal fees and other expenses incurred in connection
with investigating, preparing, defending, paying, settling or compromising any
claim, action, suit, proceeding, loss, damage, expense or liability, whether
or not in connection with an action in which any Indemnified Person is a named
party) to which any of them may become subject (including in settlement of any
action, suit or proceeding, if such settlement is effected with the Company's
consent, which consent shall not be unreasonably withheld), and which are
related to or arise out of Sutro's engagement, the transaction contemplated by
such engagement or any Indemnified Person's role in connection therewith,
including, but not limited to, any losses, claims, damages, expenses and
liabilities (or actions in respect thereof) arising out of, based upon or
caused by any untrue statement or alleged untrue statement of a material fact
contained in the offering memorandum, or any amendment or supplement thereto,
or in any other document of the Company furnished to any party or to Sutro in
connection with the Financing Transaction, or arising out of, based upon or
caused by any omission or alleged omission to state in any of them a material
fact required to be stated therein or necessary to make the statements in any
of them not misleading. The Company will not, however, be responsible under
the foregoing provisions with respect to any loss, claim, damage, expense or
liability to the extent that a court having jurisdiction shall have determined
by a final judgment (not subject to further appeal) that such loss, claim,
damage, expense or liability resulted from actions taken or omitted to be
taken by Sutro due to its gross negligence or willful misconduct. All
capitalized terms not otherwise defined herein have the same meaning as
ascribed to them in the Engagement Letter, unless the context indicates or
requires otherwise. Promptly after receipt by an Indemnified Person of notice
of the commencement of any action, such Indemnified Person will, if a claim in
respect thereof is to be made against the Company, notify the Company of the
commencement thereof; but the omission to notify the Company will not relieve
it from any liability which it may have to any Indemnified Person otherwise
than stated in this Indemnification Agreement. In case any such action is
brought against any Indemnified Person, and it notifies the Company of the
commencement thereof, the Company will be entitled to participate therein and,
to the extent that it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Person; provided, however, that if
the defendants in any such action include both the Indemnified Person and the
Company and counsel for the Indemnified Person reasonably determines there is
a conflict of interest that cannot or should not be waived, the Company shall
not have the right to direct the defense of such action on behalf of such
Indemnified Person and such Indemnified Person shall have the right to select
separate counsel to defend such action on behalf of such Indemnified Person.
After notice from the Company to such Indemnified Person of its election to
assume the defense thereof and approval by such Indemnified Person of counsel
appointed to defend such action, the
