Exhibit 10.23
[LETTERHEAD]
BROOKS, HOUGHTON & COMPANY, INC.
444 Madison Avenue - 25th Floor - New York, NY 10022
Telephone: 212-753-1991 - Facsimile: 212-753-7730
Strictly Confidential
July 7, 2005
Mr. Gregory N. Bakeman, CFO
McKenzie Bay International, Ltd.
975 Spaulding Avenue,
Ada, Michigan 49301
Re: Corporate Advisory Engagement (Revised)
Dear Greg:
We have previously, on June 23, 2005, sent to you a letter outlining the terms
of engagement to allow Brooks, Houghton & Company, Inc. ("BHC") to act as
Corporate Advisor to McKenzie Bay International, Ltd. ("MKBY") for the sale of
the Lac Dore mining deposit. On the basis of that letter and our more recent
discussions we are now in agreement that this Engagement Letter sets forth the
final agreement of the parties, to be effective as of June 23, 2005.
BHC's corporate financial advisory engagement will be the primary responsibility
of T.P. Ivanyi and Gerald Houghton; BHC's work plan as well as proposed schedule
of fees is outlined below.
I. BHC Scope of Engagement
A. Work Plan for the sale of the Lac Dore mining deposit
1. Document history of the Lac Dore vanadium deposit and mineral rights
2. Review geological surveys and related documents including the SNC-
Lavalin report
3. Together with MKBY identify key mining entities with potential interest
in development of the vanadium/titanium deposits at Lac Dore
4. Develop alternative scenarios for "capital" e.g., development rights
5. Select and prioritize target names to contact
6. Initiate direct contact with selected target names
7. Organize meetings for GW/GB with interested target names
NOTE: All written materials concerning MKBY and to be used by BHC in connection
with this engagement will either be prepared by MKBY or drafted by BHC and
approved in writing by MKBY ("approved in writing" shall include letter, email
and fax). The parties understand that MKBY is required to make public
disclosure of this Engagement Letter pursuant to the provisions of the
Securities Exchange Act of 1934, and the Securities Act of 1933.
B. Engagement Duration
1. The engagement shall commence upon signing of this Engagement Letter by
the parties, to be effective as of June 23, 2003 and for a period of 9
months thereafter and may be renewed in writing by the parties; provided
that any transaction subject to a Letter of Intent will extend the
engagement until said transaction is completed or discussions are
terminated in writing.
2. MKBY agrees that BHC will be its exclusive Financial Advisor to MKBY for
the sale of the Lac Dore mining deposit; provided, that MKBY shall
identify names of prospective parties with whom MKBY has held discussions
prior to the date of BHC's engagement as well as names of those parties
MKBY holds discussions following the engagement; names identified as
having had discussions with MKBY prior to the date of this engagement are
listed in Schedule 1 to this letter and shall constitute "carve-out" names
for the purpose of the compensation section below.
3. Either MKBY or BHC shall have the right to terminate this engagement upon
thirty days written notice. Effective as of the date of the engagement
letter and until the expiration of a period of 18 months from the date of
the termination of engagement, BHC will be paid all fees as stated below
should MKBY accept a binding proposal for financing, strategic alliance or
equity transaction with any party with which BHC on behalf of MKBY has held
discussions during the period of BHC's engagement; for the purposes of this
section said names shall include all parties with whom MKBY has held
discussions during the term of this engagement including those names listed
in Schedule 1.
II. BHC Compensation
A. Deferred Advisory Retainer Fee
MKBY has advised BHC that it intends to raise new equity and will defer payment
of BHC's retainer fee of $100,000 ("Deferred Advisory Retainer Fee"). Said
deferred fee is due on the execution of the engagement and payable upon the
raising of the first $2 million of MKBY's new equity raise; provided however, if
said funding is not completed prior termination of this engagement said $100,000
shall remain an obligation of MKBY. In addition, if the Deferred Advisory
Retainer Fee is unpaid at the time of any capital/funding event of $2,000,000 or
more then the Deferred Advisory Retainer Fee will be immediately due and payable
by MKBY to BHC.
B. Monthly Retainer Fees
In the event that MKBY and BHC agree on the extension of this engagement beyond
the first nine months, BHC will be paid a Monthly Retainer fee of $12,000. Said
monthly retainer fee will be credited to the Success Fee.
C. Success Fee
MKBY will pay BHC a Success Fee equal to 5% of the total transaction value of
any transaction executed and received by MKBY, for the first $35,000,000 of the
transaction value; and 2.5% of all additional transaction value in excess of
$35,000,000.
To the extent that non-cash consideration is part of the transaction value
(stock, debt, etc.) and/or deferred consideration is remitted to MKBY
(royalties, licenses, etc.) it will be paid according to the 5% and 2.5% Success
Fee percentage referenced in the previous sentence when received by MKBY. Any
of said deferred Success Fees payments remaining due to BHC three years after
the sale will be, at BHC's option, present valued at 10% per annum and paid by
MKBY to BHC.
III. BHC Ownership interest: Warrants
Upon execution of a binding purchase agreement on the sale of the Lac Dore
mining deposit, MKBY shall grant BHC 200,000 warrants for the purchase of MKBY
common stock for each $10,000,000, pro-rata, of transaction value of the
executed agreement (the "Warrants"). The Warrants shall have a five-year term
to purchase part or all of the shares of common stock of MKBY represented by
such Warrants.
The Warrants shall have an exercise price equal to 105% of the closing price per
share of the Company's common stock on the date of the grant and the Warrants
shall contain customary terms (including, without limitation, anti-dilution
provisions for stock splits, stock dividends, merger and other recapitalization
transactions; and "piggyback" registration rights). The delivery of the
Warrants to BHC shall be conditioned upon final closing of the transaction based
upon the purchase agreement, and shall be made immediately upon completion of
closing.
Notwithstanding anything herein to the contrary, (a) MKBY shall have no
obligation to issue the Warrants unless it receives representations and
warranties addressed to MKBY and executed by BHC with respect to the Warrants
and their underlying shares to the effect that the warrants granted and the
underlying shares upon purchase are being purchased for investment only, and not
for resale and that BHC understands and acknowledges the legal limitations on
the disposition thereof in form and content reasonably acceptable to MKBY and
its counsel, and (b) the "registration rights" shall refer to such underlying
shares and not to the Warrants and shall have no force and effect until a
registration rights agreement is executed by MKBY and BHC in form and content
reasonably acceptable to them and their respective counsel.
IV. Expenses
MKBY will pay BHC all reasonable expenses for travel, lodging and meals while
executing business for MKBY. MKBY must agree in advance, by fax, email or
written communication, for proposed expenses in excess of $1,000; in addition,
MKBY will provide BHC with an expense advance regarding international travel in
accord with a pre-approved estimate of expenses.
V. Obligations and Third Party Fees
The obligation of MKBY to pay any fees or expenses set forth herein
shall not be assigned, delegated, or transferred to any other person or
entity without the prior written consent of BHC.
VI. Indemnification Provision
As BHC will be acting on behalf of MKBY, MKBY agrees to the
indemnification provision (the "Indemnification Provision") attached to
this Letter Agreement as Annex A and incorporated herein in its
entirety.
VII Arbitration
Notwithstanding anything to the contrary contained herein, any
controversy or claim arising out of or relating to this Letter Agreement
or the breach thereof shall be settled by arbitration under the rules of
the American Arbitration Association at a place mutually agreed upon
between the parties.
VIII. Additional Terms
Notwithstanding anything to the contrary, the provisions concerning
confidentiality, indemnification, contribution and the obligation to pay
fees and reimburse expenses contained herein and in the Indemnification
Provision (as hereinafter defined) shall survive any expiration or
termination of the Letter Agreement or the engagement of BHC pursuant to
the terms of the Letter Agreement.
At the option of BHC, BHC and its legal advisors will be in attendance
at all closing meetings with respect to this mandate and if practicable,
will be given at least one week's written notice of any such meeting(s)
or closing(s).
BHC agrees to keep any information with respect to MKBY confidential and
not make use thereof except in connection with services hereunder for
MKBY, unless disclosure is required by applicable law or judicial
process, any information is or becomes generally available to the
public, or any information was or becomes available to BHC on a non-
confidential basis from a source other than MKBY. BHC will not be
identified or referred to in any release or communication prepared by
MKBY or any of its affiliates or associates without BHC's prior written
consent.
This Letter Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof, supersedes all prior agreements, may not
be amended or modified except in writing executed by MKBY and BHC, and shall be
governed by and construed in accordance with the laws of the State of New York
without reference to principles of conflicting law. This Letter Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
Please confirm that the foregoing is in accordance with your understanding by
signing and returning to Brooks, Houghton & Company, Inc. the enclosed duplicate
of this Letter Agreement.
We look forward to commencing our engagement and working with you and your
colleagues.
Sincerely yours,
/s/ Brooks, Hougton & Company, Inc.
- ----------------------------------
Brooks, Houghton & Company, Inc.
Dated: July 7, 2005
By:/s/ Gerald H. Houghton
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Name: Gerald H. Houghton Title: President
Dated: July 7, 2005
By:/s/ Thomas P. Ivanyi
- -------------------------
Name: Thomas P. Ivanyi Title: Managing Director
Agreed and Accepted on Behalf of
McKenzie Bay International, Ltd.
Date: July 7, 2005
By:/s/ Gregory N. Bakeman
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Name: Gregory N. Bakeman, CFO
ANNEX A
INDEMNIFICATION PROVISION
McKenzie bay International, Ltd.("MKBY") agrees to indemnify and hold harmless
Brooks, Houghton & Company, Inc., and its affiliates, Private Corporate
Advisors, Inc., Brooks Houghton Securities, Inc., (collectively "BHC") and their
respective directors, officers, employees, agents and each such person or
entity, if any, who controls BHC or any of its affiliates within the meaning of
the Securities Exchange Act of 1934 (BHC and all above-described entities or
persons being an "Indemnified Party") from and against any and all losses,
claims, damages, liabilities, and expenses whatsoever, joint or several
(including all reasonable fees of counsel and other expenses incurred by an
Indemnified Party in connection with the preparation for or defense of any
claim, action, or proceeding, whether or not resulting in liability), as
incurred, to which such Indemnified Party may become subject under any
applicable Federal or state law, or otherwise, relating to or arising out of any
proposed or consummated transaction covered by the Letter Agreement, except that
MKBY will not be liable hereunder to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by an arbitrator or a court to
have resulted primarily from an Indemnified Party's gross negligence or willful
malfeasance in the performance of its services described in the Letter
Agreement.
MKBY and BHC agree that if any indemnification or reimbursement sought pursuant
to the preceding paragraph is finally judicially determined to be unavailable
(except by reason of the gross negligence or willful malfeasance of BHC or its
controlling person, directors, officers, employees or agents, as the case may
be), then MKBY and BHC shall contribute to the Liabilities for which such
indemnification or reimbursement is held unavailable in such proportions as is
appropriate to reflect (a) the relative benefits to MKBY on the one hand, and
BHC on the other hand, in connection with the transaction to which such
indemnification or reimbursement relates, (b) the relative fault of the parties,
and (c) other equitable consideration; provided, however, that in no event shall
the amount to be contributed by BHC exceed the amount of the fees actually
received by BHC hereunder. In connection with any claim for contribution, MKBY
agrees that it shall not require BHC to contribute any amount in excess of the
amount of fees received by BHC pursuant to this Letter Agreement.
MKBY agrees to notify BHC promptly of the assertion against it or any other
person of any claim or the commencement of any action or proceeding relating to
any activity or transaction contemplated by this Letter Agreement.