EXHIBIT 10.32
SEABURY TRANSPORTATION ADVISORS LLC
December 16, 2002
CONFIDENTIAL
Mr. Thomas Pascoe
President & Chief Executive Officer
HiEnergy Technologies, Inc.
1601 Alton Parkway, Unit B
Irvine, California 92606
Re: Engagement of Seabury
Gentlemen:
This letter agreement (this "Agreement") confirms the engagement of Seabury
Transportation Advisors LLC and the designated NASD-registered broker-dealer
affiliate of Seabury Transportation Advisors LLC, (collectively "Seabury") by
HiEnergy Technologies, Inc. ("HiEnergy" or the "Company") as placement agent to
arrange the sale of equity or equity-linked securities (the "Securities") on
behalf of the Company. The sale of Securities (the "Financing" or "Financings")
may occur through a private placement pursuant to one or more exemptions from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and in compliance with applicable securities laws of states and other
jurisdictions ("Blue Sky Laws").
1. Retention. Subject to the terms and conditions of this Agreement,
HiEnergy hereby engages Seabury to act on behalf of the Company as placement
agent during the Authorization Period (as defined below) to arrange the sale of
Securities in the amount of approximately $15 million and on terms and
conditions satisfactory to the Company and Seabury hereby accepts such
engagement.
Subject to the exceptions set forth below, (a) during the Authorization Period,
HiEnergy shall not, and shall not permit its affiliates or their representatives
to, directly or indirectly, (i) offer any Securities for sale to, or otherwise
contact, discuss or negotiate with respect to any offer or sale of any
Securities with, any person, (ii) authorize anyone other than Seabury to act on
behalf of the Company to place any Securities or (iii) have any discussions or
negotiations with any person other than Seabury with respect to engaging such
person as a finder, broker, dealer, agent or financial advisor in connection
with any sale of Securities; and (b) HiEnergy shall, and shall cause its
affiliates and its and their officers, directors, employees and representatives
to, promptly refer to Seabury all offers, inquiries and proposals relating to
any Securities received at any time during the Authorization Period.
Although Seabury is retained on a non-exclusive basis by HiEnergy, the Company
agrees that HC Wainwright is the only financial intermediary currently retained
by the company and is focused on individual investors. Wainwright will not
approach institutional investors or strategic partners without the consent of
both Seabury and HiEnergy. In addition, due to SEC and NASD regulations,
HiEnergy will ensure that Seabury is provided with, and consents to, any and all
material HC Wainwright delivers to potential investors in order to ensure that
it materially conforms to the material HiEnergy and Seabury have created for
distribution to potential investors. If HiEnergy in its sole discretion deems
it appropriate, HiEnergy may direct Wainwright and retain such other placement
agents as it sees fit to conduct a private placement with registration rights to
investors other than institutional investors or strategic partners. Seabury
acknowledges that HiEnergy is in discussions with respect to a placement in the
$3 million to $5 million range, in which the parties do not expect Seabury to
participate.
2. Authorization Period. Seabury's engagement shall become effective
on the date hereof and, unless extended by HiEnergy and Seabury, shall expire
one (1) year after the signing of this Agreement. In the event that there has
not been an acceptable term sheet regarding a Financing within one hundred and
eighty (180) days of the execution of this Agreement, or a closing of such a
Financing within two hundred forty (240) days of the execution of this
Agreement, the Company may terminate (either a "Company Termination Event") this
Agreement in writing upon ten days notice. The period from the date hereof
through the expiration of this Agreement is called the "Authorization Period."
In the event of a material change affecting Seabury's status as a company or
related to its personnel occurs, the Company may terminate this Agreement in
writing upon ten days notice.
3. Compensation. HiEnergy shall pay Seabury the compensation set forth
below:
a. Fee. In consideration for entering into this agreement, HiEnergy
shall pay Seabury a retainer fee of $25,000 in cash upon execution of this
Agreement and $25,000 in cash on March 1, 2003. HiEnergy shall also pay Seabury
a cash placement fee equal to 8.0% on that portion of any gross proceeds placed
by Seabury and received by the Company (the "Aggregate Consideration") in
connection with the Financings thereafter. The cash placement fee shall be
payable on the closing date on which such Aggregate Consideration is received by
the Company.
b. Placement Agent Warrants. On each closing date on which Aggregate
Consideration is paid or becomes payable, HiEnergy shall issue to Seabury or its
permitted assigns warrants (the "Warrants") to provide 10% warrant coverage
based on the Aggregate Consideration received from purchasers divided by the
exercise price. The exercise price of the Warrants shall be equal to the price
at which common equity of the Company is issued (or in the event of a
convertible security, the conversion price or exercise price into common equity
on the closing date). The Warrants shall be exercisable after the date of
issuance and shall expire five years after the date of issuance, unless
otherwise extended by the Company. The Warrants shall be substantially in the
form of Exhibit 3(b) hereto. The Warrants shall also include piggyback
registration rights. The Warrants shall be transferable within Seabury, at
Seabury's discretion. Notwithstanding the foregoing, the compensation payable
under this section may be paid in HiEnergy common shares, subject to mutual
agreement between Seabury and HiEnergy.
c. Tail Period. HiEnergy shall, and shall cause its affiliates
to, pay to Seabury all compensation described in this Section 3 with respect to
all Securities including debt, convertible debt or any equity or debt investment
sold to a purchaser or purchasers at any time prior to the expiration of twelve
(12) months after the expiration of this Agreement (the "Tail Period") if (i)
such purchaser or purchasers were identified to the Company by Seabury during
the Authorization Period, (ii) Seabury advised the Company with respect to such
purchaser or purchasers during the Authorization Period or (iii) the Company or
Seabury had substantive discussions with such purchaser or purchasers regarding
a significant investment in HiEnergy during the Authorization Period.
Notwithstanding the foregoing, in the event the Agreement is terminated due to a
Company Termination Event, (1) the Tail Period shall be reduced to a period of
six months after expiration of this Agreement and (2) the corresponding cash fee
percentage shall be reduced to 4% from 8% and the corresponding warrant coverage
percentage shall be reduced to 4% from 10%.
4. Reimbursements. Regardless of whether the Private Placements or
sales of Securities are consummated, the Company shall reimburse Seabury for all
of its reasonable out-of-pocket expenses, not to exceed $10,000 without the
written consent of HiEnergy, incurred in connection with its engagement,
including the fees and disbursements of counsel for Seabury and the expenses of
any travel that may be necessary.
5. Representations. Warranties and Covenants of HiEnergy. HiEnergy
represents and warrants to, and covenants with, Seabury as follows:
a. Neither the Company nor any person acting on its behalf has
taken, and HiEnergy shall not and shall not permit its affiliates to take,
directly or indirectly, any action so as to cause any of the transactions
contemplated by this agreement to fail to be entitled to exemption from
registration or qualification under all applicable securities laws or which
constitutes general advertising or general solicitation (as those terms are used
in Regulation D under the Securities Act) with respect to the Securities.
b. HiEnergy shall take and shall cause its affiliates to take such
actions as may be required to cause compliance with this Agreement. Seabury
acknowledges that HiEnergy may cause its affiliates to perform any of its
obligations hereunder; provided, however, that HiEnergy's intention to do so (or
any action by HiEnergy or Seabury in respect thereof) shall not relieve HiEnergy
from its obligation to perform such obligations when due.
c. HiEnergy shall render its performance hereunder in compliance with
all applicable laws.
6. Representations, Warranties and Covenants of Seabury. Seabury
represents and warrants to, and covenants with, HiEnergy as follows:
a. None of Seabury, its affiliates or any person acting on behalf of
Seabury or any of such affiliates has engaged or will engage in any general
solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) with respect to the Securities.
b. Seabury will use its best efforts to conduct the offering and sale of
Securities so that Securities are sold in a transaction or series of
transactions exempt from registration under the Securities Act.
c. Seabury shall render its performance hereunder in compliance with
all applicable laws. Seabury shall deliver to potential investors only those
materials that HiEnergy and Seabury have created and HiEnergy has approved for
distribution to potential investors.
d. Seabury will send materials related to the Financings only to
persons that the Seabury reasonably believes are "accredited investors" (as
defined under Rule 501(a) of the Securities Act).
7. Indemnification. The Company agrees to the indemnification and
other agreements set forth in the attached Indemnification Agreement, the
provisions of which are incorporated herein by reference.
8. Subsequent Offerings. Seabury shall have the right from the date
hereof until twelve months after the expiration of this Agreement, to act as the
managing placement agent in connection with the sale of equity or equity-linked
securities through a Private Placement. In addition, during the Authorization
Period and for two years thereafter, Seabury shall have the right to participate
as a co-manager, on a non-risk basis in an underwritten public offering of the
Company's securities and, unless otherwise determined by HiEnergy in
consultation with the lead managing underwriter, Seabury shall receive a minimum
allocation of 10% of the gross underwriting fees and any non-accountable expense
allowances, and Seabury's name shall appear as a co-managing underwriter on the
cover of any prospectus used in connection with any sale of equity securities
described in this clause. Seabury agrees to consider alternate roles and
proportionate economically comparable compensation arrangements if HiEnergy, in
consultation with the lead managing underwriter, determines that market
conditions are not favorable to the allocations contemplated by this Section 8.
Notwithstanding the other provisions of this Section 8, Seabury shall have none
of the rights contemplated by this Section 8 in the event the Agreement is
terminated due to a Company Termination Event.
9. Mergers & Acquisitions. During the Authorization Period, Seabury
shall act as the financial advisor to the Company with respect to any potential
business combination involving the Company, including acquisitions or mergers or
the sale of the Company or certain assets or divisions of the Company (a
"Business Combination"). Seabury shall be compensated for any Business
Combination completed during the Authorization Period or for the twelve (12)
month period thereafter (the "Tail Period") with any person with whom the
Company or Seabury had substantive discussions regarding a Business Combination
during the Authorization Period. HiEnergy shall pay Seabury an amount (the
'Transaction Fee") according to the schedule hereunder, based on the transaction
value, which is payable in cash on the closing date of such Business
Combination, subject to a minimum Transaction Fee of $250,000 and a carve out
for a Business Combination with a transaction value of less than $5 million.
Transaction Value Transaction Fee
Up to $50,000,000 2.0% of such amount; plus
In excess of $50,000,000 1.5% of such amount
For the six month period following the expiration of this Agreement, if HiEnergy
elects to pursue the sale of the Company or receives an offer to purchase or
merge with the Company by a person not covered under the section above, HiEnergy
agrees to engage Seabury and Seabury agrees to act as HiEnergy's financial
advisor in connection with the potential sale or merger according to the terms
set forth above.
Notwithstanding the other provisions of this Section 9, Seabury shall have none
of the rights or entitlement to compensation contemplated by this Section 9 in
the event the Agreement is terminated due to a Company Termination Event.
10. Further Investment. Seabury has the right, but not the
obligation, to participate in any equity transaction completed during the term
of this Engagement, on the same terms as the other investors to such equity
transaction. Seabury's allocation in any equity transaction shall be limited,
however, to ten percent (10%) of the total capital raise.
11. Survival of Certain Provisions. The expense, indemnification,
reimbursement and contribution obligations of HiEnergy provided herein and in
the attached Indemnification Agreement and, except as expressly provided
otherwise in Sections 3(c), 8 and 9, Seabury's rights to compensation (which
term includes all fees, amounts and Warrants due or which may become due) shall
remain operative and in full force and effect regardless of (i) any withdrawal,
termination or consummation of or failure to initiate or consummate any
transaction described herein or (ii) any termination or the completion or
expiration of this Agreement.
12. Notices. Notice given pursuant to any of the provisions of this
Agreement shall be given in writing and shall be sent by certified mail, return
receipt request or recognized overnight courier or personally delivered (a) if
to the Company, to HiEnergy Technologies, Inc. office at 1601 Alton Parkway,
Unit B, Irvine, California 92606. Attention: Thomas Pascoe, President & Chief
Executive Officer, and; (b) if to Seabury, to its office at 540 Madison Avenue,
17th floor, New York, NY 10022. Attention: Roy Clauss, Managing Director.
13. Confidentiality. No financial advice rendered by Seabury pursuant
to this Agreement or by HC Wainwright pursuant to its engagement agreement may
be disclosed publicly in any manner without Seabury's prior written approval,
except as may be required by law, regulation or court order but subject to the
limitation below. If the Company is required or reasonably expects to be so
required to disclose any advice, HiEnergy shall provide Seabury with prompt
notice thereof so that Seabury may seek a protective order or other appropriate
remedy and take reasonable efforts to assure that all of such advice disclosed
will be covered by such order or other remedy. Whether or not such a protective
order or other remedy is obtained, HiEnergy will and will cause its affiliates
to disclose only that portion of such advice, which the Company is so required
to disclose.
14. Miscellaneous. This Agreement (including the attached
Indemnification Agreement) sets forth the entire agreement between the parties,
supersedes and merges all prior written or oral agreements with respect to the
subject matter hereof, may only be amended in writing and shall be governed by
the laws of the State of New York applicable to agreements made and to be
performed entirely within such State. The parties shall make reasonable efforts
to resolve any dispute concerning this Agreement, its construction or its
alleged breach by face-to-face negotiations. If such negotiations fail to
resolve the dispute, the dispute shall be finally decided by arbitration in
accordance with the rules then in effect of the American Arbitration
Association. Any arbitration will be conducted in the New York City metropolitan
area. HiEnergy (for the Company, for anyone claiming through or in the name of
the Company and on behalf of the equity holders the Company) and Seabury each
hereby irrevocably waives any right it may have to trial by jury in respect of
any claim arising out of this Agreement or the transactions contemplated hereby.
This Agreement may not be assigned by either party without the prior written
consent of the other party.
If any provision of this Agreement is determined to be invalid or unenforceable
in any respect, such determination will not effect such provision in any other
respect or any other provision of this Agreement. Please confirm that the
foregoing correctly sets forth our agreement by signing and returning to Seabury
the enclosed duplicate copy of this Agreement.
Very truly yours,
Seabury Transportation Advisors LLC
By: /s/ John E. Luth
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John E. Luth
President & CEO
Accepted and agreed to as of the date first written above
HiEnergy Technologies, Inc.
By: /s/ Tom Pascoe
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Thomas Pascoe
President & Chief Executive Officer