SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Under ss. 240.14a-12
HIENERGY TECHNOLOGIES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ____________________________________________
2) Form Schedule or Registration Statement No.: _______________________
3) Filing Party: ______________________________________________________
4) Date Filed: ________________________________________________________
[LOGO] HiEnergy Technologies, Inc.
[December ___], 2006
Dear Stockholder:
You are cordially invited to attend the 2006 Annual Meeting of
Stockholders of HiEnergy Technologies, Inc. to be held at [11:00 a.m.], Pacific
Standard Time, on Friday, January 26, 2007, at the [__________________________].
The accompanying Notice of the 2006 Annual Meeting of Stockholders and
Proxy Statement describe the matters to be voted on at the Annual Meeting. The
Board of Directors recommends that stockholders vote in favor of each of the
matters presented therein.
Your vote is important. Whether or not you plan to attend the Annual
Meeting, PLEASE MARK, SIGN, DATE AND RETURN the Proxy Card in the enclosed,
self-addressed and stamped envelope as soon as possible. Your stock will be
voted in accordance with the instructions you have given in the Proxy Card. You
may still attend the Annual Meeting and vote in person even if you have
previously returned a proxy.
The Board of Directors look forward very much to seeing you on January
26th.
Sincerely,
Roger W.A. Spillmann
President & CEO
NOTICE OF 2006 ANNUAL MEETING OF STOCKHOLDERS
OF HIENERGY TECHNOLOGIES, INC.
TO BE HELD ON JANUARY 26, 2007
To the Stockholders of HiEnergy Technologies, Inc.:
NOTICE IS HEREBY GIVEN that the 2006 Annual Meeting of Stockholders of HiEnergy
Technologies, Inc., a Delaware corporation, will be held at [11:00 a.m.],
Pacific Daylight Time, on Friday, January 16, 2007 at
[_________________________], and all adjournments and postponements thereof, for
the following purposes:
1. To elect five directors to serve until the next annual meeting of
stockholders and until their respective successors are duly elected
and qualified;
2. To amend our Certificate of Incorporation to increase the number of
authorized shares of Common Stock;
3. To amend our Certificate of Incorporation to remove unimplemented
provisions relating to Board classification;
4. To approve the 2006 Stock Incentive Plan;
5. To approve the selection of Singer Lewak Greenbaum & Goldstein LLP
as the Company's independent registered public accounting firm for
the fiscal year ending April 30, 2007; and
6. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice. The Board of Directors of HiEnergy Technologies has
fixed [December 15, 2006] as the record date for determining stockholders
entitled to receive notice of, and to vote at, the Annual Meeting or any
adjournment or postponement thereof. Only stockholders of record at the close of
business on that date will be entitled to notice of and to vote at the Annual
Meeting.
All stockholders are cordially invited to attend the Annual Meeting in person,
but even if you expect to be present at the Annual Meeting, you are requested to
mark, sign, date and return the enclosed Proxy Card as promptly as possible in
the envelope provided to ensure your representation. Stockholders attending the
Annual Meeting may vote in person even if they have previously voted by proxy.
By Order of the Board of Directors,
Roger W.A. Spillmann,
Secretary
Irvine, California
[December ], 2006
HIENERGY TECHNOLOGIES, INC.
1601B Alton Parkway
Irvine, CA 92606
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PROXY STATEMENT
FOR THE
2006 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 26, 2007
GENERAL
This Proxy Statement is furnished to the stockholders of HiEnergy Technologies,
Inc., a Delaware corporation, in connection with the solicitation of proxies by
the Board of Directors of HiEnergy Technologies. The proxies are to be voted at
the 2006 Annual Meeting of Stockholders of HiEnergy Technologies (the "Annual
Meeting") to be held at [___________________________________] at [11:00 a.m.],
Pacific Daylight Time, on Friday, January 26, 2007, and any adjournment or
postponement thereof, for the purposes set forth in the accompanying Notice. The
Board is not aware of any other matters to be presented at the Annual Meeting.
If any other matter should be presented at the Annual Meeting upon which a vote
properly may be taken, shares represented by all duly executed proxies received
by HiEnergy Technologies will be voted with respect thereto in accordance with
the best judgment of the persons designated as the proxies. This Proxy Statement
and the accompanying Proxy Card are first being mailed to stockholders on or
about [December 15, 2006].
HiEnergy Technologies' principal offices are located at 1601B Alton Parkway,
Irvine, CA 92606, and its telephone number is 949.757.0855.
The cost of the solicitations will be borne by HiEnergy Technologies, including
the costs of preparing, assembling, printing and mailing this Proxy Statement,
the Proxy Card and any additional information furnished to stockholders. No
additional compensation will be paid to directors, officers or other regular
employees for their services in connection with this proxy solicitation.
ANNUAL REPORT ON FORM 10-KSB
An Annual Report on Form 10-KSB (the "Annual Report"), containing financial
statements for the fiscal year ended April 30, 2006, accompanies this Proxy
Statement as Appendix D. Stockholders are referred to the Annual Report for
financial and other information about the activities of HiEnergy Technologies.
The Annual Report is not incorporated by reference into this Proxy Statement and
is not deemed to be a part hereof.
HiEnergy Technologies will furnish to you any exhibit described in the list
accompanying the Annual Report, upon the payment, in advance, of the specified
reasonable fees related to HiEnergy Technologies' furnishing of such exhibit(s).
Requests for copies of the Annual Report and/or exhibit(s) should be directed to
Mr. Roger Spillmann, Corporate Secretary of HiEnergy Technologies, at HiEnergy
Technologies' principal address at 1601B Alton Parkway, Irvine, CA 92606, or by
calling 949.757.0855. In the alternative, you may find the Annual Report and the
exhibits to the Annual Report on the Securities and Exchange Commission's
web-site at www.sec.gov.
RECORD DATE AND VOTING RIGHTS
Holders of record of HiEnergy Technologies shares of common stock, par value
$0.001 per share (the "Common Stock") [and Series C Convertible Preferred Stock,
par value $0.001 per share ("Series C Preferred Stock")], at the close of
business on December 15, 2006, (the "Record Date") will be entitled to notice
of, and to vote at, the Annual Meeting. On the Record Date, HiEnergy
Technologies had [_______] shares of Common Stock outstanding and had [_______]
shares of Series C Preferred Stock outstanding
1
Each share of Common Stock is entitled to one vote on any matter coming before
the Annual Meeting. [Each share of Series C Preferred Stock is entitled to
[100,000] votes, (which is equal to the number of common shares into which the
preferred stock may be converted on the record date), on any matter coming
before the Annual Meeting, voting together with the Common Stock as a single
class.]
In voting for directors, because HiEnergy Technologies will be treated as a
"pseudo-foreign corporation" under California law, stockholders entitled to vote
will have cumulative voting rights (subject to the requirements set forth
below), which means that the total number of votes that the stockholder may cast
for the election of directors shall equal the number of directors to be elected
(5) multiplied by the number of shares held, and the stockholder may cast all of
such votes for one candidate for director or may distribute the total votes
among all or several candidates, as the stockholder sees fit. A stockholder may
not cumulate votes for a candidate unless the candidate's name has been placed
in nomination prior to voting and unless the stockholder gives notice at the
annual meeting, prior to voting, of an intention to cumulate votes. If any
stockholder present at the annual meeting gives such notice, all stockholders
may cumulate their votes. Whether or not cumulative voting is invoked, votes
against a candidate and votes withheld will have no legal effect in the election
of directors.
The following table summarizes the voting requirements for the five proposals:
Proposal Vote Required
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Proposal No. 1: Election of five directors. Plurality of the votes of shares of our Common Stock
[and Series C Preferred Stock] present or represented
and entitled to vote at the Annual Meeting, i.e., the
five candidates in the election of directors receiving
the highest number of affirmative votes will be elected.
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Proposal No. 2: Amendment of our Certificate of The affirmative vote of a majority of the outstanding
Incorporation to increase the number of authorized shares of our Common Stock [and Series C Preferred
shares of Common Stock from 100,000,000 shares to Stock] entitled to vote is required to approve the
200,000,000 shares. amendment. If you do not vote, or if you abstain from
voting, it has the same effect as if you voted against
the proposal.
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Proposal No. 3: To amend our Certificate of The affirmative vote of a majority of the outstanding
Incorporation to remove unimplemented provisions shares of our Common Stock [and Series C Preferred
relating to Board classification. Stock] entitled to vote is required to approve the
amendment If you do not vote, or if you abstain from
voting, it has the same effect as if you voted against
the proposal.
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Proposal No. 4: Approval of the 2006 Stock The votes cast in favor of approval must exceed the
Incentive Plan. votes cast opposing approval. Any shares of our Common
Stock [and Series C Preferred Stock] not voted (whether
by abstention, broker non-vote, or otherwise) will have
no impact on the vote.
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Proposal No. 5: Ratification of the selection of To ratify the appointment of our independent auditors,
Singer Lewak Greenbaum & Goldstein LLP as the the number of shares of our Common Stock [and Series C
Company's independent, registered public accounting Preferred Stock] voted in favor of the proposal must
firm for the fiscal year ending April 30, 2007. exceed the number of shares voted against. Any shares
not voted (whether by abstention, broker non-vote, or
otherwise) will have no impact on the vote.
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Proposal No. 6: Transaction of such other business Voting requirements for such other business will vary
as may properly come before the Annual Meeting and depending on the nature of the business raised.
any adjournment or postponement thereof.
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QUORUM
One-third of HiEnergy Technologies' issued and outstanding shares of Common
Stock present in person or represented by proxy constitutes a quorum for the
transaction of business at the Annual Meeting. Broker non-votes occur when a
person holding shares through a bank or brokerage account does not provide
instructions as to how his or her shares should be voted and the broker does not
exercise discretion to vote those shares on a particular matter. Abstentions and
broker non-votes will be included in determining the presence of a quorum at the
Annual Meeting. However, an abstention or broker non-vote will not have any
effect on the outcome for the election of directors.
LIST OF STOCKHOLDERS ENTITLED TO VOTE
At least 10 days before the Annual Meeting, the Secretary of HiEnergy
Technologies will make a complete list of the stockholders entitled to vote at
the Annual Meeting arranged in alphabetical order, with the address of and
number of shares held by each stockholder. The list will be kept on file at the
principal offices of HiEnergy Technologies and will be subject to inspection by
any stockholder of HiEnergy Technologies at any time during normal business
hours. The list will also be present for inspection at the Annual Meeting.
ATTENDANCE AND VOTING AT THE ANNUAL MEETING
If you own shares of record, you may attend the Annual Meeting and vote in
person, regardless of whether you have previously voted on a Proxy Card. If you
own shares through a bank or brokerage firm account, you may attend the Annual
Meeting, but in order to vote your shares at the meeting, you must obtain a
"legal proxy" from the bank or brokerage firm that holds your shares. You should
contact your account representative to learn how to obtain a "legal proxy".
HiEnergy Technologies encourages you to vote your shares in advance of the
Annual Meeting date by one of the methods described above, even if you plan on
attending the Annual Meeting. You may change or revoke your proxy at the Annual
Meeting as described below even if you have already voted.
PROXY VOTING
Shares for which Proxy Cards are properly executed and returned will be voted at
the Annual Meeting in accordance with the directions noted thereon or, in the
absence of directions, will be voted "FOR" the election of each of the nominees
to the Board of Directors named on the following page, and "FOR" the other
proposals to be voted on at the Annual Meeting. It is not expected that any
matters other than those referred to in this Notice and Proxy Statement will be
brought before the Annual Meeting. If, however, other matters are properly
presented, the persons named as proxies will vote in accordance with their
discretion with respect to such matters.
The manner in which your shares may be voted by proxy depends on how your shares
are held. If you own shares of record, meaning that your shares of Common Stock
are represented by certificates or book entries in your name so that you appear
as a stockholder on the records of HiEnergy Technologies' stock transfer agent,
Signature Stock Transfer Inc., a Proxy Card for voting those shares will be
included with this Proxy Statement. You may vote those shares by completing,
signing and returning the Proxy Card in the enclosed envelope.
If you own shares through a bank or brokerage firm account, you may instead
receive a voting instruction form with this Proxy Statement, which you may use
to instruct how your shares should be voted. Just as with a proxy, you may vote
those shares by completing, signing and returning the voting instruction form in
the enclosed envelope. Many banks and brokerage firms have arranged for Internet
or telephonic voting of shares and provide instructions for using those services
on the voting instruction form. [If your bank or brokerage firm uses [ADP]
Investor Communication Services, you may vote your shares via the Internet at
[www.proxyvote.com] or by calling the toll-free number on your voting
instruction form.]
Brokers holding shares of record for their customers generally are not entitled
to vote on certain matters unless their customers give them specific voting
instructions. If the broker does not receive specific instructions, the broker
will note this on the proxy form or otherwise advise HiEnergy Technologies that
it lacks voting authority.
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REVOCATION OF PROXIES
Any stockholder holding shares of record may revoke a previously granted proxy
at any time before it is voted by delivering to the Secretary of HiEnergy
Technologies a written notice of revocation or a duly executed Proxy Card
bearing a later date or by attending the Annual Meeting and voting in person.
Any stockholder holding shares through a bank or brokerage firm may revoke a
previously granted proxy or change previously given voting instructions by
contacting the bank or brokerage firm, or by obtaining a "legal proxy" from the
bank or brokerage firm and voting at the Annual Meeting.
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PROPOSAL NO. 1: ELECTION OF DIRECTORS
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The Board of Directors of HiEnergy Technologies has proposed that the following
five nominees be elected at the Annual Meeting, each of whom shall hold office
until the next annual meeting of stockholders, as provided below, and until his
successor shall have been elected and qualified: Mr. William A. Nitze, Mr. Peter
J. Le Beau, Mr. David R. Baker, Colonel William J. Lacey, Jr., and Roger W.A.
Spillmann. Unless otherwise instructed, it is the intention of the persons named
as proxies on the accompanying Proxy Card to vote shares represented by properly
executed proxies for the election of such nominees. Although the Board of
Directors anticipates that the five nominees will be available to serve as
directors of HiEnergy Technologies, if any of them should be unwilling or unable
to serve, it is intended that the proxies will be voted for the election of such
substitute nominee or nominees as may be designated by the Board of Directors.
Currently, there are five board seats up for election.
NOMINEES FOR THE BOARD OF DIRECTORS
The following persons currently serve and have been nominated to continue to
serve as directors of HiEnergy Technologies. As provided in the Certificate of
Incorporation of HiEnergy Technologies, the directors are to serve until the
next annual meeting of stockholders. Absent his or her death, resignation or
removal, a director shall continue to serve despite the expiration of the
director's term until his or her successor shall have been elected and qualified
or until there is a decrease in the number of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NOMINEES
NAMED BELOW.
o WILLIAM A. NITZE is Chairman of the Board and has served as a
Director of HiEnergy Technologies since August 2004.
o PETER J. LE BEAU is Vice Chairman of the Board has served as a
Director of HiEnergy Technologies since August 2004.
o DAVID R. BAKER has served as a Director of HiEnergy Technologies
since February 2003.
o COLONEL WILLIAM J. LACEY, JR. was first appointed as a director of
HiEnergy Technologies on July 21, 2004. He resigned from the Board
of Directors on October 13, 2005 and was re-appointed to the Board
of Directors on February 17, 2006.
o ROGER W.A. SPILLMANN is CEO, President and Chief Operating Officer
and Secretary of HiEnergy Technologies. He joined the Company in
January 2005 and has served as a Director since February 2006.
Biographical information regarding each of the nominees for the Board of
Directors is set forth below under the section entitled DIRECTORS AND EXECUTIVE
OFFICERS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following tables set forth information as of [October 31, 2006], regarding
the beneficial ownership of our Common Stock and Preferred Stock by:
o each person who is known by us to beneficially own more than 5% of
our shares of common stock; and
o each named executive officer, each director and all of our directors
and executive officers as a group.
5
The number of shares beneficially owned and the percentage of shares
beneficially owned are based on 68,838,751 shares of common stock outstanding
and 219.64 shares of Series B Convertible Preferred Stock outstanding as of
[October 31, 2006]. [As of October 31, 2006, we had no shares of Series C
Convertible Preferred Stock outstanding.] For the purposes of the information
provided below, shares that may be issued upon the exercise or conversion of
options, warrants and other rights to acquire shares of our common stock that
are exercisable or convertible within 60 days following October 31, 2006, are
deemed to be outstanding and beneficially owned by the holder for the purpose of
computing the number of shares and percentage ownership of that holder, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. Except as indicated in the footnotes to these
tables, and as affected by applicable community property laws, all persons
listed have sole voting and investment power for all shares shown as
beneficially owned by them.
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NAME OF BENEFICIAL OWNER NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES OF OUTSTANDING SHARES OF SERIES OUTSTANDING
COMMON SHARES OF B CONVERTIBLE SHARES OF
STOCK COMMON PERFERRED SERIES B
STOCK STOCK CONVERTIBLE
STOCK
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Roger W.A. Spillmann, Chief 500,000(1)(7) 0.73% -0- -0-
Executive Officer, Chief Operating
Officer, President, Secretary,
Treasurer, Director
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William A. Nitze, Director, 776,092(2) 1.13% 3.56 1.62%
Chairman
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Peter J. Le Beau, Director, Vice 461,528(3) 0.66% -0- -0-
Chairman
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David R. Baker, Director 1,313,732(4) 1.81% 2.81 1.28%
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William J. Lacey, Jr., Director 387,058(5) 0.47% -0- -0-
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Dr. Bogdan C. Maglich, Director 10,661,373(6)(8) 14.73% -0- -0-
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All Executive Officers & Directors 14,099,783(9) 19.53% 6.37 2.90%
as a Group (6 individuals)
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(1) Represents 500,000 shares of common stock issuable upon the exercise of
currently exercisable stock options as of December 31, 2005.
(2) Includes:
(a) 249,501 shares of common stock owned directly by Mr. Nitze;
(b) 312,000 shares of common stock underlying stock options issued for
services as a member of the Board of Directors or a committee thereof, but not
including 50,000 shares of common stock underlying such stock options that will
vest on February 5, 2007 and 50,000 shares of common stock underlying such stock
options that will vest on August 5, 2007, if Mr. Nitze is then a director, all
issued for services as a member of the Board of Directors or a committee
thereof;
(c) 23,913 shares of common stock underlying a warrant, immediately
exercisable, which was acquired in a private placement on September 7, 2004;
(d) 12,600 shares of common stock underlying a warrant acquired as partial
consideration in a bridge financing on the same terms as the terms given to
non-affiliate participants; and
(e) 118,666 shares of common stock issuable upon conversion of 3.56 shares
of Series B Preferred Stock, plus 59,412 shares of common stock issuable upon
conversion of warrants, acquired in a private placement on the same terms given
to non-affiliate participants.
(3) Includes:
(a) 71,528 shares of common stock owned directly by Mr. Le Beau; and
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(b) 400,000 shares of common stock underlying stock options issued for
services as a member of the Board of Directors or a committee thereof, or
services rendered as a consultant prior to becoming a member of the Board of
Directors, but not including 50,000 shares of common stock underlying such stock
options that will vest on February 5, 2007, 50,000 shares of common stock
underlying such stock options that will vest on August 5, 2007, 25,000 shares of
common stock underlying such stock options that will vest on May 6, 2007 and
25,000 shares of common stock underlying such stock options that will vest on
November 6, 2007, if Mr. Le Beau is then a director, all issued for services as
a member of the Board of Directors or a committee thereof.
(4) Includes:
(a) 481,422 shares of common stock owned directly by Mr. Baker;
(b) 152,245 shares owned by Advanced Projects Group, a Delaware
corporation, attributable to Mr. Baker as a stockholder, the number of shares
being previously furnished by Dr. Bodgan C. Maglich, a controlling person of
Advanced Projects Group, Inc. (see note (6) below), Mr. Baker having no personal
knowledge of the accuracy of the number of shares listed; Mr. Baker disclaims
beneficial ownership of the stock held by Advanced Projects Group beyond his
pecuniary interest;
(c) 465,000 shares of common stock underlying stock options issued for
services as a member of the Board of Directors or a committee thereof, but not
including 82,500 shares of common stock underlying such stock options that will
vest on May 6, 2007 and 82,500 shares of common stock underlying such stock
options that will vest on November 6, 2007, if Mr. Baker is then a director, all
issued for services as a member of the Board of Directors or a committee
thereof;
(d) 64,886 shares of common stock underlying a warrant exercisable at
$0.65 per share, which was acquired (together with 129,174 shares of common
stock included in (a) above) in connection with the satisfaction at $0.46 per
share of accounts payable in the amount of $59,420 for legal services rendered,
and expenses incurred, prior to his directorship;
(e) 10,000 shares of common stock underlying a warrant acquired as partial
consideration in a bridge financing on the same terms as the terms given to
non-affiliate participants; and
(f) 93,666 shares of common stock issuable upon conversion of 2.81 shares
of Series B Preferred Stock, plus 46,813 shares of common stock issuable upon
conversion of warrants, acquired in a private placement on the same terms given
to non-affiliate participants.
(5) Includes:
(a) 52,353 shares of common stock owned directly by Mr. Lacey;
(b) 270,000 shares of common stock underlying stock options issued for
services as a member of the Board of Directors or a committee thereof, but not
including 50,000 shares of common stock underlying such stock options that will
vest on January 17, 2007, 50,000 shares of common stock underlying such stock
options that will vest on July 21, 2007, 7,500 shares of common stock underlying
such stock options that will vest on May 6, 2007 and 7,500 shares of common
stock underlying such stock options that will vest on November 6, 2007 if Mr.
Lacey is then a director, all issued for services as a member of the Board of
Directors or a committee thereof; and
(c) 44,705 shares of common stock underlying HiEnergy Microdevices, Inc.
exchange rights exercisable at any time, subject to payment of a promissory note
in the amount of $7,000 and granted for consultant services rendered to HiEnergy
Microdevices, Inc. prior to merger with SLW Enterprises, Inc.
(6) Includes:
(a) 869,769 shares owned directly by Dr. Maglich;
(b) 1,131,735 shares owned by Advanced Projects Group, Inc., a Delaware
corporation, of which Dr. Maglich is a director, officer and greater than ten
percent stockholder; Dr. Maglich disclaims beneficial ownership of the stock
held by Advanced Projects Group beyond his pecuniary interest
(c) 2,580,995 shares owned by Maglich Family Holdings, Inc., a Delaware
corporation, of which Dr. Maglich is a director, officer and greater than ten
percent stockholder; Dr. Maglich disclaims beneficial ownership of the stock
held by Maglich Family Holdings beyond his pecuniary interest;
(d) 505,435 shares of common stock underlying a warrant owned by Maglich
Family Holdings, immediately exercisable, which was acquired in a private
placement on November 19, 2004;
(d) 1,370,000 shares owned by Maglich Innovations Fund Inc., a Delaware
corporation, of which Dr. Maglich is sole director, officer and direct or
indirect stockholder; and
(e) 4,203,439 shares of common stock issuable upon the exercise of
currently exercisable stock options issued pursuant to the terms of Dr.
Maglich's employment agreement.
7
(7) Mr. Spillmann became our President and Chief Operating Officer on January 5,
2005, our Chief Executive Officer and a member of our Board of Directors on
February 17, 2006, and our Treasurer on March 15, 2006.
(8) Dr. Maglich resigned as our President on January 5, 2006, was replaced as
our Treasurer on March 15, 2006, and was removed as our Chairman of the Board
and Chief Scientific Officer on April 18, 2006.
(9) The number of shares beneficially owned takes into account the details set
forth in the preceding footnotes.
The amounts reflected above are based upon information provided to us and in
filings on Form 5 with the Securities and Exchange Commission. To our knowledge,
the table sets forth information about beneficial ownership information for (i)
each person known by us to beneficially own more than 5% of our outstanding
shares of common stock; (ii) each of our executive officers; (iii) each of our
directors; and (iv) all of our executive officers and directors as a group.
The address for Messrs. Spillmann, Nitze, Le Beau, Baker and Lacey is: c/o
HiEnergy Technologies, Inc., 1601-B Alton Parkway, Irvine, California 92606. The
address for Dr. Maglich is 2785 Vista Umbrosa, Newport Beach, CA 92660. Except
as indicated by footnote, and subject to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of the fiscal year ended April 30,
2006 with respect to compensation plans under which we are authorized to issue
shares of our common stock, aggregated as follows:
o all compensation plans previously approved by security holders; and
o all compensation plans not previously approved by security holders.
8
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(a) (b) (c)
PLAN CATEGORY NUMBER OF SECURITIES WEIGHTED-AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE
EXERCISE OF OUTSTANDING FOR FUTURE ISSUANCE
OUTSTANDING OPTIONS, OPTIONS, WARRANTS UNDER EQUITY
WARRANTS AND RIGHTS AND RIGHTS COMPENSATION PLANS
(EXCLUDING SECURITIES
REFLECTED IN COLUMN
(a))
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Equity compensation plans approved 6,203,439 $0.71 0
by security holders (1), (2), (3),
(4), (5)
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Equity compensation plans not 2,216,726 $0.59 1,000,000 (10)
approved by security holders (6),
(7), (8), (9)
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Total (11) 8,420,165 $0.68 0
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(1) On April 24, 2002, our Board of Directors approved the issuance and grant of
a non-qualified stock option to Dr. Maglich to purchase 2,482,011 shares of our
common stock with an exercise price of $0.134 and a term that ends on November
30, 2008. The stock option was granted pursuant to the reverse takeover of
HiEnergy Microdevices by SLW and Dr. Maglich's agreement to cancel a HiEnergy
Microdevices' stock option to purchase 111,040 shares of HiEnergy Microdevices
common stock with an exercise price of $3.00 and a term that would have ended on
November 30, 2008. The number of shares and exercise price for the HiEnergy
Technologies stock option was determined by using the same exchange rate as that
used in the voluntary share exchange transaction, or 22.3524 shares of our
common stock for each share of HiEnergy Microdevices. The stockholders of
HiEnergy Technologies ratified and approved the grant of the stock option at the
Annual Meeting of Stockholders that took place on October 10, 2002.
(2) The employment agreement between Dr. Maglich and HiEnergy Technologies,
which was terminated on April 8, 20006, provided for the issuance of stock
options to Dr. Maglich annually through December 31, 2006 or the date of
termination, options to purchase one percent per year of the amount of our
common stock issued and outstanding at the end of each year with an exercise
price equal to the average trading price for the preceding thirty days and with
terms of five years.
(3) Pursuant to the foregoing (see footnote (2)), on February 11, 2003 our Board
of Directors approved the issuance and grant of a non-qualified stock option to
Dr. Maglich to purchase 416,717 shares of our common stock with an exercise
price of $2.81 and a term that ends on February 11, 2008, pursuant to his
employment agreement with us. On June 26, 2003 our Board of Directors approved
(due to an error in the calculation of the grant approved by the Board on
February 11, 2003) the issuance and grant of an incidental non-qualified stock
option to Dr. Maglich to purchase an additional 40,000 shares of our common
stock with an exercise price of $2.81 and a term that ends on February 11, 2008.
On December 31, 2003, we granted Dr. Maglich options to purchase 313,221 shares
of common stock with an exercise price of $0.87 and on December 31, 2004, we
granted him options to purchase 421,980 shares with an exercise price of $0.98
for calendar years 2003 and 2004, respectively, pursuant to the terms of his
employment agreement. In addition, on December 31. 2005, we granted Dr. Maglich
options to purchase 529,510 shares with an exercise price of $0.49 for calendar
year 2005.
(4) On May 5, 2003, our Board of Directors approved the HiEnergy Technologies
2003 Stock Incentive Plan (the "Plan") to provide equity incentives to our
employees, officers, directors and service providers. The Board decided to
reserve 700,000 shares of our authorized and unissued common stock for future
issuance under the Plan. On May 28, 2003 our Board of Directors approved an
increase in the amount of the reserve of shares to be issued under the Plan to
2,000,000 shares of authorized and unissued Common Stock. Our stockholders
approved the Plan on November 7, 2003. Options granted to employees who are not
officers, directors or Service Providers shall vest and become exercisable in
installments at a minimum rate of 20% per year over a period of five (5) years
from the date the Option is granted. No Option may be exercisable more than ten
(10) years after the date it is granted. An Incentive Option granted to a person
who is a 10% Shareholder on the date of grant shall not be exercisable more than
five (5) years after the date it is granted. No Incentive Option or Nonqualified
Option shall be assignable or transferable except by will or the laws of descent
and distribution, and during the life of the Optionee shall be exercisable only
by such Optionee.
9
(5) On May 16, 2003, our Board of Directors approved the issuance and grant of
incentive stock options and non-qualified stock options under the Plan to
purchase 400,000 shares of our common stock with an exercise price of $0.75 and
a term that ends on May 16, 2009 to our employees and consultants. On June 26,
2003 our Board of Directors approved the issuance and grant of incentive stock
options to purchase 90,000 shares of our common stock with an exercise price of
$0.75 and a term that ends on June 26, 2009 to our employees. On July 16, 2003
our Board of Directors approved the issuance and grant of non-qualified stock
options to purchase 200,000 shares of our common stock with an exercise price of
$0.50 and a term that ends on July 16, 2009 to our consultants. On August 27,
2003 our Board of Directors approved the issuance and grant of incentive stock
options to purchase 65,000 shares of our common stock to our employees, and
nonqualified options to purchase 40,000 shares of our common stock with an
exercise price of $1.02 and a term that ends August 27, 2009 to our consultants.
On November 7, 2003, our Board of Directors approved the issuance and grant of
non-qualified options to purchase 100,000 shares of our common stock, with an
exercise price of $0.35 and a term that ends November 7, 2009, to one of our
directors. On November 7, 2003, our Board of Directors approved the issuance and
grant of nonqualified options to purchase 740,000 shares of our common stock,
with an exercise price of $1.25 and a term that ends November 7, 2009, to our
directors and consultants. On November 7, 2003, our Board of Directors approved
the issuance and grant of nonqualified options to purchase 100,000 shares of our
common stock, with an exercise price of $0.35 and a term that ends November 7,
2009 to one of our directors, and on December 4, 2003, we granted stock options
to purchase 350,000 shares of our common stock, with an exercise price of $0.90
and a term that ends December 4, 2009, to our employees and consultants. On
April 29, 2004, we granted stock options to purchase 100,000 shares of our
common stock, with an exercise price of $2.06 and a term that ends April 29,
2010, to our employees. Of the options granted, 85,000 were subsequently
forfeited pursuant to the terms of the Plan.
(6) On March 10, 2004, our Board of Directors approved the issuance and grant of
non-qualified stock options to purchase 29,000 shares of our common stock with
an exercise price of $1.42 and a term that ends on March 10, 2010 to board
members of HiEnergy Defense. On June 28, 2004, our Board of Directors approved
the issuance and grant of incentive stock options to purchase 25,000 shares of
our common stock with an exercise price of $1.78 and a term that ends on June
28, 2010 to one of our employees. On July 19, 2004, our Board of Directors
approved the issuance and grant of incentive stock options to purchase 30,000
shares of our common stock with an exercise price of $1.09 and a term that ends
on July 19, 2010 to one of our employees. On July 21, 2004 our Board of
Directors approved the issuance and grant of non-qualified stock options to
purchase 100,000 shares of our common stock with an exercise price of $0.94 and
a term that ends on July 21, 2010 to one of our board members upon his
appointment. On August 5, 2004, our Board of Directors approved the issuance and
grant of non-qualified stock options to purchase 200,000 shares of our common
stock with an exercise price of $1.25 and a term that ends on August 5, 2010 to
two of our board members upon their appointment. On August 18, 2004, our Board
of Directors approved the issuance and grant of incentive stock options to
purchase 25,000 shares of our common stock with an exercise price of $0.96 and a
term that ends August 18, 2010 to one of our employees. On August 27, 2004, our
Board of Directors approved the issuance and grant incentive options to purchase
25,000 shares of our common stock, with an exercise price of $0.85 and a term
that ends August 27, 2010, to one of our employees. On November 5, 2004, our
Board of Directors approved the issuance and grant of nonqualified options to
purchase 330,000 shares of our common stock, with an exercise price of $1.04 and
a term that ends November 5, 2010, to our directors and consultants. Of the
options granted, 100,000 were subsequently forfeited pursuant to the terms of
the grant.
(7) On January 19, 2005, our Board of Directors approved the issuance and grant
of incentive options to purchase 390,000 shares of our common stock, with an
exercise price of $0.72 and a term that ends January 19, 2011 to our employees.
On January 19, 2005, our Board of Directors approved the issuance and grant of
incentive options to purchase 500,000 shares of our common stock, with an
exercise price of $0.72 and a term that ends January 19, 2011 to our Vice
President/Corporate Secretary. On February 1, 2005, our Board of Directors
approved the issuance and grant of incentive options to purchase 35,000 shares
of our common stock, with an exercise price of $0.86 and a term that ends
February 1, 2011, to one of our employees. On March 1, 2005, our Board of
Directors approved the issuance and grant of incentive options to purchase
500,000 shares of our common stock, with an exercise price of $0.72 and a term
that ends March 1, 2011 to our Controller. On April 1, 2005, our Board of
Directors approved the issuance and grant of nonqualified options to purchase
315,000 shares of our common stock, with an exercise price of $0.01 and a term
that ends April 1, 2011, to one of our directors. On April 29, 2005, our Board
of Directors approved the issuance and grant of incentive options to purchase
50,000 shares of our common stock, with an exercise price of $0.73 and a term
that ends April 29, 2011, to one of our employees. Of the options granted,
80,000 were subsequently forfeited pursuant to the terms of the grant.
10
(8) On June 25, 2005, our Board of Directors approved the issuance and grant of
an incentive stock option to purchase up to 25,000 shares of our common stock
with an exercise price of $0.70 per share and a term that ends June 25, 2011, to
one of our consultants. On July 19, 2005, our Board of Directors approved the
issuance and grant of an incentive stock option to purchase up to 30,000 shares
of our common stock with an exercise price of $0.68 per share and a term that
ends July 19, 2011, to one of our employees. On August 5, 2005, our Board of
Directors approved the issuance and grant of a non-qualified stock option to
purchase up to 200,000 shares of our common stock with an exercise price of
$0.68 per share and a term that ends August 5, 2011, to two of our board
members. On August 18, 2005, our Board of Directors approved the issuance and
grant of an incentive stock option to purchase up to 25,000 shares of our common
stock with an exercise price of $0.68 and a term that ends August 18, 2011, to
one of our employees. On August 27, 2005, our Board of Directors approved the
issuance and grant of an incentive stock option to purchase up to 25,000 shares
of our common stock with an exercise price of $0.68 and a term that ends August
27, 2011, to one of our employees. On November 7, 2005, our Board of Directors
approved the issuance and grant of a non-qualified stock option to purchase up
to 330,000 shares of our common stock with an exercise price of $0.65 and a term
that ends November 7, 2011, to four of our directors. On December 30, 2005, our
Board of Directors approved the issuance and grant of an incentive stock option
to purchase up to 20,000 shares of our common stock with an exercise price of
$0.38 and a term that ends December 30, 2011, to one of our consultants. On
February 1, 2006, our Board of Directors approved the issuance and grant of an
incentive stock option to purchase up to 35,000 shares of our common stock with
an exercise price of $0.39 and a term that ends February 1, 2012, to one of our
employees. On April 29, 2006, our Board of Directors approved the issuance and
grant of an incentive stock option to purchase up to 50,000 shares of our common
stock with an exercise price of $0.34 and a term that ends April 29, 2012, to
one of our employees.
(9) On July 12 2002, we issued and granted a non-qualified stock option to
purchase up to 1,000,000 shares of our common stock with an exercise price of
$1.00 per share to Isaac Yeffet. The stock option was issued in connection with
a consulting agreement between Yeffet Security Consultant, Inc and HiEnergy
Technologies. In June 2006, all of the above options were voluntarily forfeited
by Yeffet pursuant to the terms of a Settlement Agreement. On September 25,
2002, we issued stock options to purchase an aggregate of 45,454 shares of
common stock at $1.00 per share and on December 19 2002 we issued additional
stock options to purchase an aggregate of 27,272 shares of common stock at $2.24
per share to Shea Wilson and Derek Woolston.
(10) On September 19, 2005, our Board of Directors approved a 2006 Consultant
Stock Plan reserving 1,000,000 shares for issuance to consultants in
compensation of services provided to the Company. Our management never
implemented the 2006 Consultant Stock Plan and no shares have ever been issued
under it. We anticipate that this plan will be cancelled at our next Board
meeting.
(11) The preceding footnotes all affect this total.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of HiEnergy Technologies, and their ages,
positions, business experience and education as of date of this Proxy Statement
are as follows:
- --------------------------------------------------------------------------------
NAME AGE POSITION
- --------------------------------------------------------------------------------
Roger W.A. Spillmann 35 Chief Executive Officer, President,
Secretary and Treasurer; Director
- --------------------------------------------------------------------------------
William A. Nitze 63 Chairman of the Board; Director
- --------------------------------------------------------------------------------
Peter J. Le Beau 59 Vice Chairman of the Board; Director
- --------------------------------------------------------------------------------
David R. Baker 74 Director
- --------------------------------------------------------------------------------
Colonel William J. Lacey, Jr. 67 Director
- --------------------------------------------------------------------------------
Dr. Bogdan C. Maglich 77 Director
- --------------------------------------------------------------------------------
11
Mr. Spillmann was appointed Vice President and Corporate Secretary of HiEnergy
Technologies on January 11, 2005. He became our President and Chief Operating
Officer on January 5, 2006, our Chief Executive Officer and a member of our
Board of Directors on February 17, 2006, and our Treasurer on March 15, 2006. He
is a member of the Marketing and Business Development and the Finance
Committees. Our employment agreement with Mr. Spillmann remains in effect and
has not been modified.
Mr. Nitze was appointed as a director of HiEnergy Technologies on August 5,
2005, became Interim Chairman of the Board of Director on February 17, 2006, and
Chairman of the Board of Directors on June 5, 2006. He is a member of the Legal
Affairs and the Marketing and Business Development Committees.
Mr. Le Beau was appointed as a director of HiEnergy Technologies on August 5,
2005 and became Vice Chairman of the Board of Directors on February 17, 2006. He
is Chairman of the Audit and the Marketing and Business Development Committees
and a member of the Finance Committee.
Mr. Baker was appointed as a director of HiEnergy Technologies on February 27,
2003. He is Chairman of the Legal Affairs, Finance and Compensation Committees
and a member of the Audit Committee.
Mr. Lacey was appointed as a director of HiEnergy Technologies on July 21, 2004.
He resigned from the Board of Directors on October 13, 2005 and was re-appointed
to the Board of Directors on February 17, 2006. Mr. Lacey is a member of the
Compensation, Marketing and Business Development and Nominating Committees.
Dr. Maglich was appointed Chairman and Chief Scientific Officer of HiEnergy
Technologies and as a member of our Board of Directors on April 25, 2002. He was
appointed Chief Executive Officer, President and Treasurer of HiEnergy
Technologies effective as of March 2003. Dr. Maglich resigned as our President
on January 5, 2006. He was removed as our Chief Executive Officer and a member
of the Board of Directors' Finance Committee, and his duties as our Chairman of
the Board, Treasurer and Chief Scientific Officer were suspended on February 17,
2006. He was replaced as our Treasurer on March 15, 2006, and was removed as our
Chairman of the Board and Chief Scientific Officer on April 18, 2006. Dr.
Maglich's Employment Agreement with us was terminated effective April 28, 2006.
All directors hold office for one year or until their respective successors are
elected, or until their earlier death, resignation or removal. Each of our
officers serves at the discretion of the Board of Directors. There are no family
relationships between or among any of our directors or executive officers.
12
BIOGRAPHIES
Each director and executive officer has furnished us the following information
with respect to his or her principal occupation or employment, other
affiliations and business experience during the last five years.
WILLIAM A. NITZE
Mr. Nitze, Chairman of our Board of Directors since June 2006, Interim Chairman
February 2006 through June 2006, Director since August 2005, and Chairman of our
subsidiary HiEnergy Defense, Inc. (since August 2003), has been Chairman of
GridPoint, Inc. since November 2003, and Chairman of Oceana Energy Systems since
March 2006. He was President of Gemstar Group, Inc. (Global Environmental Market
Solutions through Technology And Reform), from 2001 to 2005, which was founded
to work with partners around the world in implementing market-based approaches
to global environmental problems. Mr. Nitze is a graduate of Harvard College and
Oxford University (UK) and received a J. D. degree from Harvard Law School.
After a brief practice at the law offices of Sullivan and Cromwell in New York,
he spent 14 years with Mobil Oil as a legal counsel, 4 1/2 years of which were
spent in Japan.
He served as an Assistant Administrator of the Environmental Protection Agency
(EPA) for International Activities during the Clinton Administration (1994-2001)
and Deputy Assistant Secretary of State for the Environment in the Reagan and
Bush Administrations (1987-90). Mr. Nitze has written and spoken widely on
environmental issues. In 1993-94 and 2002, he taught a new course on forming an
international regime to address climate change at the Paul H. Nitze School of
Advanced International Studies at The Johns Hopkins University. As President of
the Alliance to Save Energy, Mr. Nitze led a broad coalition of business,
government, labor and consumer interests in supporting and implementing policies
and programs to promote energy efficiency. While at the Alliance, Mr. Nitze
founded the Alliance's Business Council for Sustainable Energy.
As the Assistant Administrator for International Activities at the EPA
from 1994 to the end of the Clinton Administration, Mr. Nitze strengthened the
EPA's international role by making it a key player in implementing NAFTA,
managing its associated institutions and by making it the lead agency on
environmental issues in several bi-national commissions co-chaired by Vice
President Al Gore. He made environmental security a focus of the EPA's
international work, instituting for the first time a formal working relationship
among the Department of Defense, the Department of Energy and EPA on
environmental security issues.
PETER J. LE BEAU
Mr. Le Beau, the Vice Chairman of our Board of Directors, has extensive
experience in commercial finance and investment banking (including structured
finance, private/public asset-based financing, operating and leveraged leasing,
debt and equity placements, mergers and acquisitions, and research and
analysis), with a strong emphasis on the aviation and aerospace industries.
Since 1996 and to the present, he has served as an Executive Director and
Treasurer for the Soldiers', Sailors', Marines and Airmen's Club in New York
City. From 2002 to 2003, he served as Director of Capital Markets for Residual
Based Finance Corporation, a finance company involved in the acquisition of
commercial aircraft and engines, where he was involved in the structuring and
placement of a $400 million private equity fund focused on the acquisition of
commercial aircraft and engines. From 2001 to 2002, he served as Senior Vice
President of Finance with ComJet Aviation Leasing Corp. and from 1998 to 2001,
he was Director of Commercial Aviation Finance with Summit Bank.
Currently, Mr. Le Beau is a member of Vietnam Veterans of America, the American
Legion, Veterans of Foreign Wars, Soldiers', Sailors', Marines and Airmen's
Club, Face the Challenge Foundation, the 82nd Airborne Division Association and
the Squadron A Association. Mr. Le Beau received a Bachelor's degree in the
field of management from St. John's University in 1967.
DAVID R. BAKER
Mr. Baker has been an attorney for over 50 years and has been Of Counsel to the
firm Haskell Slaughter Young & Rediker, LLC, of Birmingham and Montgomery,
Alabama and New York City, since February 2003. Since October 1993, Mr. Baker
has been a Retired Partner of the law firm of Jones Day from its New York City
office. Prior to joining Haskell Slaughter Young & Rediker, LLC, Mr. Baker was a
partner in Baker, Johnston & Wilson LLP, Birmingham and New York City, from
October 1998 to February 2003.
13
Mr. Baker received a Bachelor of Philosophy from the University of Chicago, a
Bachelor of Arts from Birmingham-Southern College, and a Juris Doctor from
Harvard Law School. He is a member of the Alabama and New York State Bar
Associations and the American and Alabama Law Institutes, serves on the Liaison
Committee of the American Bar Association to the Financial Accounting Standards
Board and is the International Bar Association's principal representative to the
United Nations in New York. In addition, he serves as Chairman of the New York
Legislative Service and is a Life Trustee of Birmingham-Southern College.
COLONEL WILLIAM J. LACEY, JR. (USA, RET.)
Colonel William J. Lacey, Jr. (USA, Ret.) currently serves as the President and
Chief Executive Officer for our wholly-owned subsidiary, HiEnergy Defense, Inc.,
and was recently re-appointed as a member of our Board of Directors.
Col. Lacey has more than thirty years of diversified responsibility within
Department of Defense (DoD) management, including senior executive level
positions in congressional relations; program development, management and
administration; test design and analysis; research, development, test, and
evaluation of major weapons systems. His areas of expertise include counter
terrorism, mine detection, border control, military medicine, and weapons of
mass destruction.
Col. Lacey has worked in executive and management positions with several
corporations, including, most recently, Technology Team, Inc., in the role of
Program Manager/Regional Specialist and Senior Policy Analyst, supporting the
DoD Office of Partnership for Peace Information Management System (January
2001-August 2003). Prior to Technology Team, Inc., he held executive positions
with Integrated Concepts & Research Corporation; Militec, Inc.; EWA, Inc; and
LCC, Inc.
He served in combat as an Army Special Forces Officer. During the Vietnam
conflict, he was awarded two Silver Stars for valor, four Bronze Stars for valor
and service, and two Purple Hearts for wounds sustained. He was also awarded the
Legion of Merit.
Col. Lacey is a graduate of the University of Rhode Island (1963) and the
Defense Systems Management College Test and Evaluation Course (1975), and is an
MS Candidate, Business Administration, at the University of Southern Illinois.
DR. BOGDAN C. MAGLICH
Dr. Maglich served as HiEnergy Technologies' President from March 2003 to
January 2006, as its Treasurer from March 2003 to March 2006, and as its
Chairman and Chief Scientific Officer from March 2003 to April 2006. During
those periods, he had primary responsibility for our business strategy and
development. Dr. Maglich resigned as our President on January 5, 2006, was
suspended form the duties of Chairman of the Board of Directors, Treasurer and
Chief Scientific Officer on February 17, 2006, was replaced as our Treasurer on
March 15, 2006, and was removed as our Chairman of the Board and Chief
Scientific Officer on April 18, 2006. Dr. Maglich founded HiEnergy Microdevices
and has served as its Chief Executive Officer from 1995 until its reverse
takeover of HiEnergy Technologies in April 2002. Since the termination of his
employment agreement with us, he has been pursuing new ventures independently
and is President of Centurion Enterprises Corporation.
As HiEnergy Technologies' Chief Scientific Officer since April 2002, Dr. Maglich
had primary responsibility for technology strategy, technology development and
technical proposal development. Dr. Maglich is a respected scientist in his
field. He received the White House Citation from President John F. Kennedy and
was named an honorary citizen in Switzerland by the President of the Swiss
Confederation for his discovery of the omega meson. In addition to his research
discoveries and inventions in particle physics, instrumentation, and detection
devices, Dr. Maglich has played a role in reducing weapons in areas such as
Yugoslavia and Russia, and worked on safety measures for Soviet reactors in
Europe. Following the Chernobyl incident, Dr. Maglich as CEO of Advanced Physics
Corporation, initiated and chaired a joint technical conference of the American
and Soviet nuclear reactor designers aimed at adding the American nuclear safety
features to the Soviet-built power reactors in Hungary, Bulgaria,
Czechoslovakia, East Germany, and Finland. The conference was held in Belgrade,
Yugoslavia on October 2-6, 1990. In the period 1992-1993 the late Glenn T.
Seaborg, Nobel Laureate and nuclear energy pioneer, as Chairman, and Dr.
Maglich, as President, of Advanced Physics Corporation, organized a project in
Irvine, California under the U.S. Dept. of State Initiatives, to assist in the
transition of Soviet nuclear physicists from nuclear weapons research to
peaceful nuclear research. The group worked on the design of a miniature joint
peaceful nuclear power reactor named MARR (Mini American Russian Reactor).
Twelve nuclear engineers from the Russian nuclear weapon center "Chelyabinsk
70," and from the Kurchatov Atomic Energy Institute, Moscow, gathered for a
period of 3 months in Irvine in the period between 1992 and 1993, and were
hosted by Advanced Physics Corporation. Currently, Dr. Maglich has served as a
professor of physics at the University of Pennsylvania and has also worked at
Rutgers and at the Joint Faculty, Princeton-Penn Accelerator Laboratory. Dr.
Maglich also worked in various leadership capacities on a variety of projects,
including the CERN European Center for High Energy Physics in Geneva,
Switzerland; and the U.S. National Laboratories, the Air Force Phillips
Laboratory. Dr. Maglich received a Ph.D. in high-energy physics and nuclear
engineering from the Massachusetts Institute of Technology, a Master of Science
from Britain's University of Liverpool, and a Bachelor of Science from the
University of Belgrade.
14
ROGER W.A. SPILLMANN
Mr. Spillmann has served as HiEnergy Technologies' Vice President from January
2005 to January 2006, Corporate Secretary since January 2005, our President and
Chief Operating Officer since January 2006, our Chief Executive Officer and a
member of our Board of Directors since February 2006, and our Treasurer since
March 2006. In these capacities, he focuses on corporate compliance and
governance, contract administration, investor relations, and capital strategy.
Prior to joining HiEnergy, Roger Spillmann provided financial and legal
consulting as an employee of Resources Connection, Inc. from July 2004 until his
appointment in January 2005. Prior to Resources Connection, he served as a
business development and financial services specialist with Empire Capital
Leasing, Inc. ("ECL"), where he focused on asset based financing, including
project finance, receivable financing, equipment leasing and related
securitizations (2003-2004). Prior to ECL, Mr. Spillmann was a Managing Director
and Partner of Harris, Hoover & Lewis, Inc. (HHL), a New York based middle
market financial advisory and investment banking boutique, and a member of its
Executive Committee, where he was responsible for strategic planning, affiliate
marketing, product research and outside capital relationships (2001-2003). Prior
to HHL, Mr. Spillmann was First Vice President of Investments, Director -
Special Accounts Group (SAG) with Prudential Securities in New York City,
specializing in advising corporations, institutions and high net-worth clients
on asset allocation, money management, estate and tax planning, equity risk
management and general investment strategies, and a Sales Analyst with the
Private Client Services Group at Banc of America Securities LLC (Montgomery
Securities), where he focused on corporate finance, equity derivatives, asset
management and corporate and venture services directed toward leading and
emerging technology companies (1997-2001). From March 1994 to 1997, Mr.
Spillmann was with the Cross Border Finance Group at Clifford Chance, Rogers &
Wells LLP, where he served as a corporate paralegal and assisted senior partners
and associates with the development and structuring of public and private debt
and equity transactions, project finance and M&A for governments, financial
institutions and corporations. Upon graduation in 1992, Mr. Spillmann was
recruited by Liz Claiborne, Inc, a Fortune 500 textile and clothing
manufacturer, with positions in its sales, production and manufacturing
divisions, as well as serving as Production Coordinator for the Knitwear
Division.
Roger Spillmann received a Bachelor of Arts from Dartmouth College in Hanover,
NH. He also attended the Universidad Federal do Rio de Janeiro, in Brazil, and
is fluent in Spanish and Portuguese. During his career, Mr. Spillmann has served
on the advisory boards of several private technology companies.
15
SIGNIFICANT EMPLOYEES
DR. ALEXANDER R. VAUCHER - CHIEF SCIENTIST
Dr. Alexander Vaucher joined HiEnergy in July 2004 as a Senior Scientist and
non-executive Vice President for Research & Development and assumed the title of
Chief Scientist in 2006. Dr. Vaucher brings with him more than 20 years
experience in software and product development and engineering with a focus on
new product development, project management, cost administration and technical
supervision. From 1997 to July 2004, he served as a Software Engineer and
manager with Northrop Grumman where he was responsible for managing a satellite
telemetry-data acquisition system, including continuous troubleshooting,
hardware and software upgrades and installation and changing system architecture
as needed. From 1985 to 1997, he served as Software Engineer and a systems
analyst with Hughes Aircraft Co. where he developed analysis and algorithms for
near field calibration of aperture array radar antennas, as well as theoretical
models and simulations of ground clutter return in airborne radar systems,
digital filters to simulate antenna commanding for various radar modes and
coordinate transformations between aircraft and antenna platform for radar
simulations. Other positions include Systems Engineer with Vitro Laboratories,
where he developed a mathematical model for an electrostatic gyro used on the
Trident navigation system and other projects, including digital time series
analysis, and filtering, and an Engineer with the U.S. Bureau of Mines.
Dr. Vaucher received a Ph.D. in Theoretical High Energy Physics and a Masters in
Physics from University of California - Riverside. He completed undergraduate
studies at the University of Minnesota, Minneapolis.
SEAN MOORE - VICE PRESIDENT, SALES & MARKETING
Sean C. Moore joined HiEnergy Technologies in May 2004 as Director of Sales &
Marketing and was promoted in December 2005 to Vice President. Prior to joining
HiEnergy Technologies, from June 2000 to May 2004, Mr. Moore served as Director
of the North American Business Unit of Signalbau Huber GMBH of Germany, where he
created and executed the product launch of the SecuScan - Under Vehicle
Explosives Inspection System, with more than 100 units sold to state, local and
federal security customers in the U.S. and abroad. Prior to his successful sales
career, Mr. Moore served as a Special Agent from June 1991 to May 2000 with the
United States Customs Service where he held numerous positions within the Office
of Field Operations and the Office of Investigations and awarded the
Commissioner's Unit Citation of Merit. With more than 200 letters of
commendation for strategic investigations and interdictions which led to major
arms, narcotics and currency seizures, Sean Moore brings to HiEnergy
Technologies significant operational and enforcement expertise within air, sea,
land and border operations as well as in homeland security. Mr. Moore graduated
with High Honors with a Bachelors Degree in Criminal Justice and International
Business from Northeastern University in Boston.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the year ended April 30, 2006, there were seven meetings of the Board of
Directors. During such year, all of the directors with the exception of Dr.
Maglich attended at least 75% of the total of the number of meetings of the
Board and the number of meetings of committees of which such director was then a
member.
The Board of Directors has a standing Nominating Committee, however our Board
believes it is best for potential Director nominees are considered by the entire
Board.
The Board of Directors has established an Audit Committee, Finance Committee,
Compensation Committee, and Legal Affairs Committee. The Audit Committee,
Finance Committee, Compensation Committee, and Legal Affairs Committee are
responsible to the full Board of Directors. The functions performed by the Audit
Committee and Compensation Committee are summarized below:
AUDIT COMMITTEE
The Audit Committee is governed by a written charter, a copy of which charter
accompanies this Proxy Statement as Appendix A. The Audit Committee selects our
independent auditors, reviews the results and scope of the audit and other
services provided by our independent auditors, reviews our financial statements
for each quarterly period and reviews and evaluates our internal control
functions.
16
Peter Le Beau serves as the Chairman of the Audit Committee and David Baker is
also a member. Both Mr. Le Beau and Mr. Baker are independent audit committee
members according to the definition used by the NASD for audit committee
independence, and Mr. Le Beau is considered a qualified financial expert.
COMPENSATION COMMITTEE
The Compensation Committee currently consists of David R. Baker and Col. William
J. Lacey, Jr. The Compensation Committee reviews and evaluates our executive and
Board compensation policies and makes recommendations about such compensation to
the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth the compensation that we have paid to our named
executive officers for each of our last three completed fiscal years ended. Dr.
Maglich served as Chairman, Chief Executive Officer, President, Treasurer and
Chief Scientific Officer of HiEnergy Microdevices during the fiscal years 2006,
2005 and 2004.
Mr. Spillmann was appointed Vice President and Corporate Secretary of HiEnergy
Technologies on January 11, 2005. Mr. Spillmann became our President and Chief
Operating Officer on January 5, 2006, our Chief Executive Officer and a member
of our Board of Directors on February 17, 2006, and our Treasurer on March 15,
2006.
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM COMPENSATION
- ---------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPNESATION AWARDS PAYOUTS
- ---------------------------------------------------------------------------------------------------------------------------------
NAME AND FISCAL SALARY BONUS OTHER RESTRICTED SECURITIES LTIP ALL
PRINCIPAL YEAR ANNUAL STOCK UNDERLYING PAYOUTS OTHER
POSITION ENDED ($) ($) COMPENSATION AWARDS OPTIONS ($) COMPENSATION
APRIL 30
($) ($)
- ---------------------------------------------------------------------------------------------------------------------------------
Roger W.A. Spillmann
Chief Executive 2006 200,000 2,292 -0- -0- -0- -0- -0-
Officer, Chief ---------------------------------------------------------------------------------------------------------
Operating Officer, 2005 500,000
President, Secretary, ---------------------------------------------------------------------------------------------------------
Treasurer and Director 2004 N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Dr. Bogdan C. Maglich 2006 219,038 24,381 $7,518 -0- 529,510 -0- -0-
---------------------------------------------------------------------------------------------------------
Director 2005 220,046 4,381 $13,640 -0- 421,980 -0- -0-
---------------------------------------------------------------------------------------------------------
Former Chief 2004 220,046 -0- $25,345 -0- 313,221 -0- -0-
Scientific
Officer, President,
Treasurer and
Chairman
of the Board of
Directors
- ---------------------------------------------------------------------------------------------------------------------------------
Dr. Maglich was appointed Chairman and Chief Scientific Officer of HiEnergy
Technologies and as a member of our Board of Directors on April 25, 2002. He was
appointed Chief Executive Officer, President and Treasurer of HiEnergy
Technologies effective as of March 2003. Dr. Maglich resigned as our President
on January 5, 2006, was removed as our Chief Executive Officer and a member of
the Board of Directors' Finance Committee on February 17, 2006. Also on February
17, 2006, Dr. Maglich's duties as our Chairman of the Board, Treasurer and Chief
Scientific Officer were suspended, he was replaced as our Treasurer on March 15,
2006, and was removed as our Chairman of the Board and Chief Scientific Officer
on April 18, 2006. Dr. Maglich's Employment Agreement with us was terminated
effective April 28, 2006.
17
Other Annual Compensation amounts paid to Mr. Spillmann and Dr. Maglich
consisted of the following personal expense reimbursements during the last three
completed fiscal years:
- -----------------------------------------------------------------------------------------------
EXPENSE CATEGORY FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
- -----------------------------------------------------------------------------------------------
2006 2005 2004
- -----------------------------------------------------------------------------------------------
Roger W.A. Spillmann -0- -0- N/A
- -----------------------------------------------------------------------------------------------
TOTAL -0- -0- N/A
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Dr. Bogdan C. Maglich
- -----------------------------------------------------------------------------------------------
Auto Lease -0- -0- -0-
- -----------------------------------------------------------------------------------------------
Auto Insurance $ 213 $ 4,500 $ 212
- -----------------------------------------------------------------------------------------------
Auto Expenses (other) $ 561 $ 1,325 $ 1,046
- -----------------------------------------------------------------------------------------------
Home Rent -0- -0- -0-
- -----------------------------------------------------------------------------------------------
Medical & Dental Reimbursements $ 6,744 $ 7,815 $24,088
- -----------------------------------------------------------------------------------------------
TOTAL $ 7,518 $13,640 $25,345
- -----------------------------------------------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options granted
to each named executive officer during our most recent fiscal year ended April
30, 2006. We have never granted any stock appreciation rights.
- --------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPT./WRTS. GRANTED
UNDERLYING TO EMPLOYEES IN EXERCISE OF BASE
NAME OPTIONS FISCAL YEAR PRICE ($/SHARE)
- --------------------------------------------------------------------------------
Roger W.A. Spillmann -0- N/A N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dr. Bogdan C. Maglich 529,510(1) 48% $0.49
- --------------------------------------------------------------------------------
(1) Option was granted on December 31, 2005, and was fully vested and
exercisable on the date of grant pursuant to his employment agreement.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth information with respect to fiscal year-ended
April 30, 2006 option values. No stock options were exercised by the named
executive officers during the fiscal year ended April 30, 2006.
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS/SARs AT THE FISCAL THE-MONEY OPTIONS/SARs AT
ACQUIRED YEAR END FISCAL YEAR-END
ON EXERCISE VALUE (#) (#)
NAME (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------
Roger W.A. Spillmann -- -- 500,000 / 500,000 $ -0-(1)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Dr. Bogdan C. Maglich -- -- 4,203,439 / 4,203,439 $511,294(2)
- ------------------------------------------------------------------------------------------------------------------
(1) The value of Mr. Spillmann's options has been calculated based on the
difference between the closing price of our stock on the OTC Bulletin Board(R)
on April 28, 2006 of $0.34 per share and the exercise price of Mr. Spillmann's
stock options at $0.72 per share. No effect is given to the shares with exercise
prices above $0.34 per share.
18
(2) As of April 30, 2006, Dr. Maglich had options to purchase 2,482,011 shares
that were in-the-money. The value of Dr. Maglich's options has been calculated
based on the difference between the closing price of our stock on the OTC
Bulletin Board(R) on April 28, 2006 of $0.34 per share and the exercise prices
of Dr. Maglich's stock options at $0.134 per share. No effect is given to the
shares with exercise prices above $0.34 per share.
COMPENSATION OF DIRECTORS
We compensate non-executive directors with an annual aware of stock options to
purchase 100,000 shares of common stock for service as a director and additional
stock options at varying amounts of shares for their services on committees of
the Board, in addition to issuances of shares or options for attendance at Board
meetings. Prior to July 15, 2005, we compensated non-executive directors with
3,000 shares of common stock or stock options to purchase 3,000 shares of common
stock for each meeting attended, in addition to an annual award of stock options
to purchase 100,000 shares of common stock for service as a director and
additional stock options at varying amounts of shares for their services on
committees of the Board. Commencing on July 15, 2005, the Board approved an
increase to the number of shares or stock options due each non-executive
director for each meeting attended to 5,000, effective at that meeting. On
January 5, 2006, the Board approved an increase in the number of shares or stock
options due each non-executive director for each meeting attended to 10,000.
Grants of 10,000 shares or stock options were made to the non-executive
directors in attendance at that meeting and at the directors' meeting on January
25, 2006. On February 17, 2006, the Board rescinded the increase from 5,000 to
10,000, and for that meeting and the subsequent meeting those directors who had
received grants of 10,000 shares or stock options received nothing, with the
effect that each non-executive director received 5,000 shares or stock options
for each meeting attended without any increase. The transfer of all these
securities is restricted under applicable securities laws. Additionally, all
directors are reimbursed for any reasonable expenses incurred in the course of
fulfilling their duties as a director of our company.
EMPLOYMENT CONTRACTS
In March 2002, Microdevices entered into an employment agreement with Dr.
Maglich. In May 2002, we assumed the employment agreement, which as amended in
December 2002 and July 2003, provided that it was effective through December 31,
2006. On April 8, 2006, we gave Dr. Maglich notice of termination of the
employment agreement for cause, which termination became effective on April 18,
2006. Pursuant to the contract, our major commitments under the employment
agreement included our obligations to:
o Pay an annual bonus, which must not be less than 20% of the total
amount of bonuses paid to our officers.
o Grant Dr. Maglich annually, during the term of the employment
agreement, stock options to exercise a number of shares of common
stock equal to the greater of (i) 1% per annum of our common stock
issued and outstanding or (ii) 10% of the total number of options
granted by us for services in that year. In either case, the
exercise price on the stock options is equal to the average price of
our traded shares for the preceding 30 days prior to the date of the
grant.
o Provide Dr. Maglich with a car, family health insurance, life and
disability insurance, and reimbursements for reasonable
out-of-pocket expenses, not to exceed $39,200 in any one year, and
any personal tax liabilities arising up to $75,000.
o Pay Dr. Maglich a base salary in cash as follows:
- January 1, 2004 to December 31, 2004 $175,000 per year
- January 1, 2005 to December 31, 2005 $175,000 per year
- January 1, 2006 to December 31, 2006 $283,013 per year
19
o Pay Dr. Maglich a supplemental salary of $2,800 per month for the
duration he serves as our Chief Executive Officer, pursuant to an
authorization from the Board of Directors in July 2003.
o Pay Dr. Maglich, on the termination date, an amount equal to two
years of the minimum annual base salary which would have been
required if his employment agreement had been terminated without
cause, which we believe is not applicable in view of the termination
of Dr. Maglich for cause.
In view of the termination of Dr. Maglich's employment agreement and certain
litigation between Dr. Maglich and the Company, we are currently analyzing our
obligations to Dr. Maglich under the employment agreement to determine the
extent to which we are required to honor them.
In January 2005, we entered into an employment agreement for the employment of
Roger Spillmann to serve as our Vice President and Corporate Secretary. Mr.
Spillmann became our President and Chief Operating Officer on January 5, 2006,
our Chief Executive Officer and a member of our Board of Directors on February
17, 2006, and our Treasurer on March 15, 2006. Our employment agreement remains
in effect and has not been modified. Major terms of the agreement are as
follows:
o We will pay him an annual base salary of $200,000, of which $140,000
will be payable in cash, and the remainder in deferred compensation.
o We have the option to prepay services with S-8 stock with value
equivalent to six (6) months of the above stated salary.
o We will pay the fee required under his contract with his then
current employer for his conversion from consultant employee, which
should not exceed $12,000.
o We will grant him a stock option to purchase 500,000 shares of
common stock which shall be exercisable at a price no greater than
the average trading price for the prior thirty (30) day period. The
option is fully vested.
o If the employment agreement is terminated by HiEnergy without cause,
we must pay him on the termination date, severance pay in an amount
equal to six (6) months of the minimum annual base salary.
o We will provide him with comprehensive family medical and dental
healthcare benefits.
o We will keep our Directors and Officers insurance coverage in effect
at all times with the present policy limits and for a period of
three years following the termination of Mr. Spillmann's employment
with us on a commercially reasonable effort.
o We will timely reimburse Mr. Spillmann for approved expenses.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires all
executive officers, directors and persons who are the beneficial owners of more
than 10% of the common stock of HiEnergy Technologies to file reports of
ownership with the SEC indicating their ownership of our equity securities and
to report any changes in that ownership. Specific due dates for these reports
have been established, and we are required to report in this Annual Report on
Form 10-KSB any failure to comply therewith during the fiscal year ended April
30, 2006. During the Company's fiscal year ended April 30, 2006, Messrs. Baker,
Nitze, Le Beau, Lacey and Dr. Maglich did not timely file Forms 4 for common
stock and options issued to them by HiEnergy Technologies during the past fiscal
year and did not file a timely Form 5 to report these; but subsequently Messrs.
Baker, Nitze, Le Beau, and Lacey filed a Form 5 that included all transactions
they were required to report. As of [_____, 2006], Dr. Maglich has not filed a
timely Form 5 to report transactions. None of the foregoing directors or
officers, other than Dr. Maglich, disposed of any shares or derivatives in the
open market during the reporting period. During the reporting period, Dr.
Maglich disposed of shares of our common stock pursuant to a 10b5-1 trading plan
as follows: 76,700 shares of common stock disposed of between May 19, 2005 and
May 23, 2005, at $.69 or $.70 per share; and 46,200 shares of our common stock
disposed of between May 31, 2005 and June 1, 2005, at $.69 or $.70 per share.
With the above exceptions, we believe that, as of the date of this Report, all
of the filing requirements under Section 16(c) of the Securities Exchange Act of
1934, as amended, have been satisfied by its executive officers, directors and
beneficial owners of more than 10% of our common stock. In making this
statement, we have relied on copies of the reporting forms received by us or on
the written representations from certain reporting persons that no Form 5
(Annual Statement of Changes in Beneficial Ownership) was required to be filed
under applicable rules of the SEC.
20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except for the transactions described below, during the last two years, none of
our directors, officers or principal stockholders, nor any associate or
affiliate of the foregoing have any interest, direct or indirect, in any
transaction, or in any proposed transactions, which has materially affected or
will materially affect us.
TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
It is our current policy that all transactions with officers,
directors, 5% stockholders and their affiliates are entered into
only if they are approved by a majority of the disinterested
directors, are on terms no less favorable to us than could be
obtained from unaffiliated parties and are reasonably expected to
benefit us.
o In September 2004, we issued to William A. Nitze, Chairman of our
Board of Directors, 71,739 Shares and warrants to purchase 23,913
shares of common stock, par value $0.001 with an exercise price of
$1.00 a Share in a private placement transaction for an investment
by Mr. Nitze of $33,000.
o In July 2005, we issued to David R. Baker, a member of our Board of
Directors, 129,174 Shares and warrants to purchase 64,586 Shares
with an exercise price of $0.65 a Share, in connection with the
satisfaction of accounts payable for legal services rendered, and
expenses incurred, prior to his directorship..
o In March 2006, we issued to Mr. Nitze a convertible promissory note
for $31,500, bearing interest at 10% per annum and convertible into
Shares at $0.30 per Share, with warrants to purchase 12,600 Shares
at a price of $0.60 per Share, for an investment by Mr. Nitze of
$31,500. The note provided for its automatic exchange into the next
qualified financing, as defined therein, at 110% of the then
outstanding balance, including accrued interest. This investment was
on the same terms as concurrently made by unaffiliated investors.
o In June 2006, we issued to Mr. Nitze 3.56 shares of Series B
Convertible Preferred Stock (the "Series B Preferred Shares"),
convertible into 118,666 Shares; Series B-1 Warrants to purchase
35,647 Shares at an exercise price of $0.45 per Share, and Series
B-2 Warrants to purchase 23,765 Shares at an exercise price of $0.60
per Share, upon the automatic exchange referred to in the preceding
paragraph.
o In April 2006, we issued to Mr. Baker a convertible promissory note
for $25,000, bearing interest at 10% per annum and convertible into
Shares at $0.30 per Share, with warrants to purchase 10,000 Shares
at a price of $0.60 per Share, for an investment by Mr. Baker of
$25,000. The note provided for its automatic exchange into the next
qualified financing, as defined therein, at 110% of the then
outstanding balance, including accrued interest. This investment was
on the same terms as concurrently made by unaffiliated investors.
o In June 2006, we issued Mr. Baker 2.81 shares of Series B
Convertible Preferred Stock (the "Series B Preferred Shares"),
convertible into 93,666 Shares; Series B-1 Warrants to purchase
28,088 Shares at an exercise price of $0.45 per Share, and Series
B-2 Warrants to Mr. Baker purchase 18,725 Shares at an exercise
price of $0.60 per Share, upon the automatic exchange referred to in
the preceding paragraph.
21
o In October 2006, we issued to Mr. Nitze a promissory note for
$60,000, bearing interest at 10% per annum and due October 2007, for
a secured loan by Mr. Nitze of $60,000. The note provides for
exchange into the next qualified financing, as defined therein, at
110% of the then outstanding balance, including accrued interest.
CERTAIN BUSINESS RELATIONSHIPS
No director or nominee for director is or has been during the fiscal years ended
April 30, 2005 or 2006, an executive officer or beneficial owner of more than
10% of any other entity that has engaged in a transaction with us in excess of
5% of either companies' revenues or assets.
INDEBTEDNESS OF MANAGEMENT
There are no persons who are directors or executive officers of our company,
nominees for election as a director, immediate family members of the foregoing,
corporations or organizations in which the foregoing are executive officers or
partners, or 10% of the shares of which are directly or beneficially owned by
the foregoing, trusts or estates in which the foregoing have a substantial
beneficial interest or as to which the foregoing serve as a trustee or in a
similar capacity that are indebted to us in an amount in excess of $60,000.
22
AUDIT COMMITTEE REPORT
The Audit Committee operates under a written charter adopted by the Audit
Committee. A copy of the Audit Committee Charter accompanies this Proxy
Statement as Appendix A.
The purpose of the Audit Committee is to assist the Board of Directors in its
general oversight of HiEnergy Technologies' financial reporting, internal
controls and audit functions. The Audit Committee members are not professional
accountants or auditors, and their functions are not intended to duplicate or
certify the activities of management and the independent auditor. The Audit
Committee provides advice, counsel and direction to management and the auditors
on the basis of information it receives, discussions with management and the
auditors and the experience of the Committee's members in business, financial
and accounting matters.
The Audit Committee has met and reviewed HiEnergy Technologies' audited
financial statements as of and for the year ended April 30, 2006, with HiEnergy
Technologies' management, which has the primary responsibility for HiEnergy
Technologies' financial statements. HiEnergy Technologies' independent auditors,
Singer Lewak Greenbaum & Goldstein LLP, are responsible for performing an
independent audit of HiEnergy Technologies' consolidated financial statements in
accordance with auditing standards generally accepted in the United States and
issuing a report thereon.
The Audit Committee has discussed with Singer Lewak Greenbaum & Goldstein LLP
the matters required to be discussed by Statement on Auditing Standards No. 61,
Communicating with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants. The Audit Committee
has received and reviewed the written disclosures and the letter from Singer
Lewak Greenbaum & Goldstein LLP required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended, by the Independence
Standards Board, and has discussed with Singer Lewak Greenbaum & Goldstein LLP
their independence.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to HiEnergy Technologies' Board of Directors that the audited
financial statements referred to above be included in HiEnergy Technologies'
Annual Report on Form 10-KSB for the year ended April 30, 2006, for filing with
the Securities and Exchange Commission.
Respectfully submitted by the Audit Committee of the Board of Directors of
HiEnergy Technologies,
PETER J. LE BEAU, Chair
DAVID R. BAKER
23
- --------------------------------------------------------------------------------
PROPOSAL NO. 2: AMENDMENT OF OUR CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 100,000,000 SHARES TO 200,000,000 SHARES.
- --------------------------------------------------------------------------------
Our Board of Directors has approved and recommended that the shareholders
approve an amendment to our Articles of Incorporation to increase the number of
authorized shares of Common Stock from 100,000,000 to 200,000,000 shares.
The increase in our authorized shares of Common Stock is necessary to fulfill
contractual obligations and in order to have further shares of authorized but
unissued Common Stock available for subsequent financing and/or for acquisitions
as opportunities may present themselves. Additionally, if Proposal No. 4 -
Approval of the 2006 Stock Incentive Plan is approved by the shareholders, the
Company will need to have available additional authorized shares of Common Stock
for the issuance of stock options. Approval of this Proposal No. 2 by the
shareholders will address all of these considerations.
As of [December __, 2006], we had 68,838,751 shares of Common Stock outstanding
with approximately [______] additional shares of Common Stock necessary for the
conversion of Preferred Stock, stock options, warrants, and convertible notes,
provided that holders of options to purchase 4,703,439 shares and warrant
holders with rights to purchase 3,527,388 shares waived reserve requirements.
SERIES B CONVERTIBLE PREFERRED STOCK FINANCING
In June and August 2006, we entered into Series B Convertible Preferred Stock
Purchase Agreements (the "Agreements") with select accredited investors (the
"Investors") for the sale of Series B Convertible Preferred Stock, par value
$0.001 per share (the "Series B Preferred Shares") and Series B-1 Warrants and
Series B-2 Warrants (collectively, the "Series B Warrants"). As of October 31,
2006, Investors subscribed a total of $2,196,403 of the offering, and we have
issued 219.64 of Series B Preferred Shares, Series B-1 Warrants for the purchase
of up to 2,196,403 shares of Common Stock at $0.45 per share, and Series B-2
Warrants for the purchase of up to 1,464,269 shares of Common Stock at $0.60 per
share.
Under the Agreements, we are initially required to reserve a number of shares of
its Common Stock sufficient to effect the conversion of all the Series B
Preferred Shares and exercise of the outstanding Series B Warrants. However, the
Agreement required the Company to obtain shareholder approval by October 31,
2006 for the filing of an amendment to its Certificate of Incorporation to
increase the number of the Company's authorized shares of Common Stock
sufficient for it to reserve a number of shares of Common Stock equal to 120% of
the number of shares necessary to effect the conversion of the Series B
Preferred Shares and the exercise of the Series B Warrants.
In order for us to have a sufficient number of shares available to meet the
requirements in the preferred stock financing, we would need to reserve at least
13,178,418 shares of our Common Stock. Although as of [October 31, 2006], we had
available 31,161,249 shares of authorized and unissued Common Stock, we are
required pursuant to contractual obligations with investors and other holders of
outstanding options, warrants and convertible instruments, to reserve at least
an additional 20,234,909 shares of our Common Stock, leaving approximately
10,926,340 shares of authorized and unissued Common Stock. Therefore, as of
[_________, 2006], we needed to authorize at least 2,252,078 additional shares
of Common Stock to meet our obligations under the Series B Agreements. As
disclosed in our filings, the sale of our Series B Preferred Shares and Series B
Warrants is a part of an offering to sell up to $6,000,000 of our Series B
Preferred Shares to accredited investors only. Should we achieve a maximum
offering, we would need reserve an additional 38,036,000 shares of Common Stock,
for a total of 40,288,078 shares.
Because we are in default of the reserve requirements of the Series B
Agreements, we are obligated to pay the Investors penalty fees equal 1% of their
initial investment amount per calendar month thereafter (and not exceed 10%)
until the reserve requirement is met. Additionally, as we are currently in
breach of the Registration Rights Agreements entered into with the Investors to
register the shares reserved for conversion of the Series B Preferred Shares, we
are also obligated to pay the Investors penalty fees equal to 2% of their
initial investment amount for the first calendar month and 1% per month
thereafter. Increasing the Company's authorized shares of Common Stock to meet
the reserve requirement is a prerequisite to the Company filing a registration
statement. Therefore, should the shareholders fail to approve this Proposal No.
2, the Company will continue to be responsible for paying the penalty fees.
Additionally, we cannot preclude the possibility that the Company may be held
liable to the Investors for additional damages resulting from a continuing
default of the Series B Agreement.
24
The terms of the Series B Agreement allow for the Investors to convert the
Series B Preferred Shares and accrued dividends into shares of Common Stock at a
conversion rate of $0.30 per share of Common Stock (the "Conversion Price"). For
so long as the Series B Preferred Shares are outstanding, if the Company
subsequently sells Common Stock or securities convertible into Common Stock at
lower purchase price then the Conversion Price, the Investors are entitled to
have the Conversion Price adjusted downwards to match that of such subsequent
sale. Additionally, with some exceptions, in the event the Company engages in a
subsequent financing on terms more favorable than the terms governing the Series
B Preferred Shares, then the Investors are entitled to exchange the Series B
Preferred Shares, valued at the their investment amounts together with accrued
but unpaid dividends (which dividend payments shall be payable, in cash or in
the form of the new securities to be issued in the subsequent financing), for
the securities issued in the subsequent financing.
PROMISSORY NOTES
In October and November 2006, in exchange for cash in the same amount, we issued
[$210,000] of secured promissory notes, the outstanding balance of which plus
any accrued interest will automatically exchange at 110% of the value of the
outstanding balance of principal and accrued interest into our next equity or
equity based financing [with gross proceeds totaling at least $220,000]. The
notes have maturities of one year and bear interest at 10% per annum. Should any
such automatic exchange occur, additional authorized shares of Common Stock will
be required.
[CONTEMPLATED SERIES C PREFERRED STOCK FINANCING.]
[As the Company is in immediate need for operating capital, we are contemplating
terminating our Series B Preferred Stock private placement and commencing a
private placement to accredited investors up to 600 shares of a new series of
preferred stock, Series C Preferred Stock, for a maximum offering amount of
$6,000,000. We expect the Series C Preferred Stock to have substantially the
same rights as the Series B Preferred Stock discussed above with the exception
of a lower conversion price of [$0.10] to reflect the recent decline in the
traded market price of the Company's shares of Common Stock and voting rights,
entitling the Series C Preferred Shares to vote together with the Common Stock
as a single class on any matter put to a vote of the Common Stock, with each
Series C Preferred Share entitled to [100,000] votes (which is equal to the
amount of shares of Common Stock into which the preferred stock may be
converted). Each share of Series C Preferred Share sold is expected to be
accompanied with a 5-year warrant to purchase up to 50% of the number of shares
of Common Stock into which the preferred stock would be converted [at $0.25 per
share]. However, if circumstances require, we may need to further decrease the
Conversion Price and the warrant exercise price for the contemplated Series C
Preferred Stock financing. As the terms of the Series C Preferred Stock would be
more favorable then those of the Series B, the Series B Investors would be
entitled to have their Conversion Price adjusted to match that of the Series C.
Additionally, many Series B Investors may elect to exchange their Series B stock
for Series C stock pursuant to their rights under the Series B Agreement.
Further, we expect a NASD broker to assist us in placing the Series C Preferred
Stock with warrants for commissions equal to 10% of the monies raised.] [NOTE:
THIS PARAGRAPH TO BE UPDATED AS NECESSARY IN THE DEFINITIVE PROXY STATEMENT TO
REFLECT STATUS OF PREFERRED C PRIVATE PLACEMENT]
OTHER USES OF ADDITIONAL AUTHORIZED SHARES
The additional authorized shares of common stock may be used to accommodate the
conversion and/or exercise of other options, convertible notes, preferred stock
and warrants, which we may issue or for possible future public offerings,
private placements, acquisitions, stock dividends, and for other opportunities
which may arise in the future. .
The additional shares of Common Stock would be available for issuance by action
of the Board of Directors without the need for further action by shareholders,
unless such action were specifically required by applicable law or rules of any
stock exchange on which the Company's securities may then be listed. Under
applicable laws of the State of Delaware, shareholders of the Company have no
pre-emptive rights with respect to the authorization or issuance of additional
shares of the Company's capital stock.
25
The proposed increase in the authorized number of shares of common stock could
have a number of effects on the Corporation's shareholders depending upon the
exact nature and circumstances of any actual issuance of authorized but unissued
shares. The increase could have an anti-takeover effect, in that additional
shares could be issued (within the limits imposed by applicable law) in one or
more transactions that could make a change in control or takeover of the Company
more difficult. For example, additional shares could be issued by the Company so
as to dilute the stock ownership or voting rights of persons seeking to obtain
control of the Company. Similarly, the issuance of additional shares to certain
persons allied with the Company's management could have the effect of making it
more difficult to remove the Company's current management by diluting the stock
ownership or voting rights of persons seeking to cause such removal.
In addition, an issuance of additional shares by the Company could have an
effect on the potential realizable value of a shareholder's investment. In the
absence of a proportionate increase in the Company's earnings and book value, an
increase in the aggregate number of outstanding shares of the Company caused by
the issuance of the additional shares would dilute the earnings per share and
book value per share of all outstanding shares of the Company's common stock. If
such factors were reflected in the price per share of common stock, the
potential realizable value of a shareholder's investment could be adversely
affected.
SUMMARY
Our Board of Directors believes that increasing the number of authorized Common
Stock is in the best interests of our Company and its stockholders, because it
will allow us to meet our contractual obligations. In addition, it would also
make available additional shares of Common Stock for use in future offerings, as
well as acquisitions, incentive stock programs and other corporate purposes. The
available additional shares of Common Stock may be issued from time to time as
our Board of Directors determines, without further action of the stockholders.
If Proposal No. 2 is approved, the increase in authorized shares will become
effective upon the filing an Amendment to our Certificate of Incorporation with
the Secretary of State of Delaware.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF PROPOSAL NO.
2, WHICH WILL ALLOW US TO INCREASE OUR AUTHORIZED NUMBER OF SHARES OF COMMON
STOCK TO 200,000,000.
26
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PROPOSAL NO. 3: AMENDMENT OF OUR CERTIFICATE OF INCORPORATION TO REMOVE
UNIMPLEMENTED PROVISIONS RELATING TO BOARD CLASSIFICATION
- --------------------------------------------------------------------------------
HiEnergy's Certificate of Incorporation and Bylaws provide for the Board of
Directors to be divided into three classes, with staggered terms of office (the
"Classification Provisions"). The Classification Provisions have never been
implemented. Had they been implemented, Directors would serve for terms of three
years each, with approximately one third of the Board being subject to
reelection each year.
During the last quarter of Fiscal Year 2006, the Company underwent management
changes leading to the election of a new CEO a new Chairman of the Board. During
these management changes, our current management, on becoming aware of the
unimplemented Classification Provisions, has determined that it is in the best
interests of the Company to remove these provisions from or Bylaws and
Certificate of Incorporation.
For as long as HiEnergy Technologies has been a public, reporting company, the
Board has not been classified and Directors have been elected to serve until the
next Annual Meeting of Shareholders. Additionally, in its Annual Reports and in
other disclosures, the Company has always described its Directors as serving on
a non-classified basis. Therefore, the implementation of the Classification
Provisions at this time would be inequitable to shareholders as such
implementation would be inconsistent with the actual historic practices of the
Company as well as its public disclosures.
Our Board has approved an Amendment to the Certificate of Incorporation removing
the Classification Provisions. Our Board has also approved the removal of the
Classification Provisions from our Bylaws effective immediately on the removal
of the Classification Provisions from our Certificate of Incorporation.
Should this Proposal No. 3 be approved by the Shareholders, Section 6.2 of the
Certificate of Incorporation will be amended to read as follows:
6.2 ELECTION AND TERM OF OFFICE.
The Directors shall be elected at each annual meeting of the
Stockholders, but if any such annual meeting is not held or the Directors
are not elected thereat, the Directors may be elected at any special
meeting of the Stockholders held for such purpose. Each Director shall
hold office until the next annual (or, if applicable, special) meeting and
until a successor has been duly elected and qualified.
Should Proposal No. 3 fail, the Company will be forced to implement the
Classification Provisions. The Board of Directors has considered the relative
merits of annually elected and classified boards. Classified boards promote
stability by ensuring that a majority of directors will have had prior
experience with, and in-depth knowledge of, the Company's business and industry.
A classified board also helps protect the interests of stockholders by
encouraging potential acquirers to enter into arms-length negotiations with the
Board of Directors. Notwithstanding these important benefits, the Board of
Directors recognizes that the election of directors is a primary means for
stockholders to influence corporate governance and ensure that management is
accountable to stockholders. The Board of Directors believes that providing the
Company's stockholders with the opportunity annually to register their views on
the performance of individual directors and the Board of Directors collectively
will further the Company's goal of maintaining best practices in corporate
governance.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF PROPOSAL NO.
3, AMENDMENT OF OUR CERTIFICATE OF INCORPORATION TO REMOVE UNIMPLEMENTED
PROVISIONS RELATING TO BOARD CLASSIFICATION.
27
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PROPOSAL NO. 4: APPROVE THE HIENERGY TECHNOLOGIES, INC.
2006 STOCK INCENTIVE PLAN
- --------------------------------------------------------------------------------
The Board of Directors has adopted the HiEnergy Technologies, Inc. 2006 Stock
Incentive Plan (the "2006 Plan"), and joins with HiEnergy Technologies'
management in asking for your support of this proposal. Competition for key
employees is very intense, and HiEnergy Technologies needs to have competitive
compensation programs, including equity-based awards. The 2006 Plan is integral
to HiEnergy Technologies' compensation strategies and programs, and with
stockholder approval of the Plan, HiEnergy Technologies expects to continue its
efforts to expand the use of stock options.
All 2,000,000 of the shares available under the Company's 2003 stock option
plan, have been issued or reserved for outstanding stock options. Therefore the
2006 Plan is necessary for the Company to continue to incentivize its employees,
directors and consultants.
The 2006 Plan allows for the granting of stock options and restricted stock to
key employees, directors and consultants. The stock options and restricted stock
may be granted singly, in combination or in tandem. Stock options will be
granted at an exercise price of not less than 100% of fair market value (as
defined in the Plan) on the date of grant and it is expected that options will
typically be granted for periods of 6 years or less. The Plan also permits the
grant of awards of common stock, which may be subject to restrictions on
transfer and/or forfeiture provisions.
If approved by stockholders, the Board has authorized for issuance under the
2006 Plan 10,000,000 shares of common stock, which is approximately 12% of
HiEnergy Technologies' outstanding shares of common stock and preferred stock on
October 31, 2006. The closing price of HiEnergy Technologies' common stock on
the OTCBB that day was $0.13 per share.
For purposes of determining the number of shares of common stock issued under
the 2006 Plan, no shares shall be deemed issued until they are actually
delivered to a participant, or such other person in accordance with Section 5.7
of the 2006 Plan.
Shares covered by awards that either wholly or in part are not earned, or that
expire or are forfeited, terminated, canceled, settled in cash, or exchanged for
other awards, shall be available for future issuance under the 2006 Plan.
Further, shares tendered to or withheld by HiEnergy Technologies in connection
with the exercise of stock options, or the payment of tax withholding on any
award, shall also be available for future issuance under the 2006 Plan.
It is intended that the 2006 Plan will generally be administered by the
Compensation Committee (or any successor committee) of the Board of Directors,
which is constituted in compliance with the rules and regulations issued under
the federal securities laws and the Internal Revenue Code. In administering the
2006 Plan, the Committee has the full power to select participants, to interpret
the provisions of the 2006 Plan, to grant waivers of award restrictions, to
continue or accelerate the exercisability, vesting or payment of an award and to
adopt such rules, regulations and guidelines for carrying out the 2006 Plan as
it may deem necessary or proper. The Committee may delegate certain of its
duties, power and authority to officers of HiEnergy Technologies, pursuant to
such conditions and limitations as the Committee may establish. The 2006 Plan
may be amended by the Board, except that it may not be amended to increase the
maximum number of shares that may be issued under the 2006 Plan (except for
adjustments pursuant to Section 4.2 of the 2006 Plan) or to permit the granting
of stock options or restricted stock with exercise or grant prices lower than
those specified in Section 5.2 of the 2006 Plan, without stockholder approval.
Awards under the 2006 Plan may be made to directors, officers, employees and
consultants of HiEnergy Technologies and to other individuals providing services
to HiEnergy Technologies. Participants in the 2006 Plan will be recommended by
management, and the Compensation Committee intends to review and act on all 2006
Plan grants and awards. HiEnergy Technologies currently has 15 directors,
officers, employees and consultants eligible to receive awards under the 2006
Plan. As of September 19, 2003, options to purchase 615,000 shares were granted
to employees under the 2006 Plan, no options were granted to current executive
officers under the 2006 Plan, and options to purchase 198,000 shares were
granted to directors under the 2006 Plan. For additional information on option
grants to the named executive officers other than under the 2006 Plan, refer to
the tables on page 12. The 2006 Plan has been designed to meet the requirements
of section 162(m) of the Internal Revenue Code for stock options.
28
The foregoing summary of the terms and features of the 2006 Plan is qualified by
reference to the 2006 Plan itself. The 2006 Plan is printed in its entirety as
Appendix C and the federal income tax consequences of the issuance and exercise
of options and restricted stock are summarized below.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences of
awards under the HiEnergy Technologies, Inc. 2006 Stock Incentive Plan. HiEnergy
Technologies has been advised by counsel that, in general, under the Internal
Revenue Code as presently in effect, a Participant will not recognize any income
for federal income tax purposes at the time an option is granted or a restricted
stock award is made, nor will HiEnergy Technologies be entitled to a tax
deduction at that time. However, when any part of an option is exercised, when
restrictions on restricted stock lapse, or when an unrestricted stock award is
made, the federal income tax consequences may be summarized as follows:
1. In the case of an exercise of a stock option other than an option qualifying
as an Incentive Stock Option under Section 422 of the IRS Tax Code ("ISO"), the
optionee will generally recognize ordinary income in an amount equal to the
excess of the fair market value of the shares purchased on the exercise date
over the option price.
2. In the case of an exercise of an option payable in restricted stock, or in
the case of an award of restricted stock, the immediate federal income tax
effect for the recipient will depend on the nature of the restrictions.
Generally, the fair market value of the stock will not be taxable to the
recipient as ordinary income until the year in which his or her interest in the
stock is freely transferable or is no longer subject to a substantial risk of
forfeiture. However, the recipient may elect to recognize income when the stock
is received, rather than when his or her interest in the stock is freely
transferable or is no longer subject to a substantial risk of forfeiture. If the
recipient makes this election, the amount taxed to the recipient as ordinary
income is determined as of the date of receipt of the restricted stock.
3. In the case of ISOs, there is generally no tax liability at time the option
is exercised. However, the excess of the fair market value of the stock on the
exercise date over the option price is included in the optionee's income for
purposes of the alternative minimum tax. If no disposition of the ISO stock is
made before the later of one year from the date of exercise and two years from
the date of grant, the optionee will realize a capital gain or loss upon a sale
of the stock, equal to the difference between the option price and the sale
price. If the stock is not held for the required period, ordinary income tax
treatment will generally apply to the excess of the fair market value of the
stock on the date of exercise (or, if less, the amount of gain realized on the
disposition of the stock) over the option price, and the balance of any gain or
any loss will be treated as capital gain or loss. In order for ISOs to be
treated as described above, the Participant must remain employed by HiEnergy
Technologies (or a subsidiary in which HiEnergy Technologies holds at least 50
percent of the voting power) from the ISO grant date until three months before
the ISO is exercised. The three-month period is extended to one year if the
Participant's employment terminates on account of disability. If the Participant
does not meet the employment requirement, the option will be treated for federal
income tax purposes as an option as described in paragraph 5 below. A
Participant who exercises an ISO might also be subject to an alternative minimum
tax.
4. Upon the exercise of a stock option other than an ISO, the award of stock, or
the recognition of income on restricted stock, HiEnergy Technologies will
generally be allowed an income tax deduction equal to the ordinary income
recognized by the Participant. HiEnergy Technologies will not receive an income
tax deduction as a result of the exercise of an ISO, provided that the ISO stock
is held for the required period as described above.
5. Pursuant to section 162(m) of the Internal Revenue Code, HiEnergy
Technologies may not deduct compensation of more than $1,000,000 that is paid in
a taxable year to an individual who, on the last day of the taxable year, is the
HiEnergy Technologies' chief executive officer or among one of its four other
highest compensated officers for that year. The deduction limit, however, does
not apply to certain types of compensation, including qualified
performance-based compensation. HiEnergy Technologies believes that compensation
attributable to stock options and stock appreciation rights granted under the
Plan will be treated as qualified performance-based compensation and therefore
will not be subject to the deduction limit. The Plan also authorizes the grant
of long-term performance incentive awards utilizing the performance criteria set
forth in the Plan that may likewise be treated as qualified performance-based
awards.
29
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" PROPOSAL NO. 4 - THE APPROVAL
OF THE HIENERGY TECHNOLOGIES, INC. 2006 STOCK INCENTIVE PLAN.
30
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PROPOSAL NO. 5: RATIFICATION OF THE SELECTION OF SINGER LEWAK GREENBAUM &
GOLDSTEIN LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM FOR THE FISCAL YEAR ENDING APRIL 30, 2007.
- --------------------------------------------------------------------------------
Singer Lewak Greenbaum & Goldstein LLP has been our independent audit firm since
February 2004, and the Board of Directors has selected Singer Lewak Greenbaum &
Goldstein LLP has as our independent audit firm for the fiscal years ended April
30, 2005 and 2006.
A representative from Singer Lewak Greenbaum & Goldstein LLP is expected to be
present at the Annual Meeting with the opportunity to make a statement if he or
she so desires and to be available to respond to appropriate questions.
As a matter of good corporate governance, the Board of Directors has determined
to submit its selection of independent audit firm to shareholders for
ratification. If shareholders fail to ratify the appointment, the Board of
Directors would reconsider this appointment, although it would not be required
to select different independent public auditors. Even if the selection is
ratified, the Board of Directors, in its discretion, may select a different
independent registered public accounting firm at any time during the year if it
determines that such a change would be in the best interests of our company and
our shareholders.
During the fiscal year ended April 30, 2006, Singer Lewak Greenbaum & Goldstein
LLP, in its capacity as our principal accoutant, invoiced HiEnergy Technologies
the fees set forth below in connection with services rendered by it to HiEnergy
Technologies.
AUDIT FEES
For the fiscal years ended April 30, 2006 and 2005, our principal accountant is
expected to bill approximately $248,000 and billed $110,518 respectively, for
the audit of our annual financial statements and review of financial statements
included in our Form 10-QSB filings.
AUDIT-RELATED FEES
There were no fees billed for services reasonably related to the performance of
the audit or review of our financial statements outside of those fees disclosed
above under "Audit Fees" for fiscal years 2006 and 2005.
TAX FEES
For the fiscal years ended April 30, 2006 and 2005, our principal accountant is
expected to bill approximately $0 and has billed $0, respectively, for tax
compliance, tax advice, and tax planning services.
ALL OTHER FEES
There were no fees billed for services by our principal accountant, other than
those disclosed above.
PRE-APPROVAL POLICIES AND PROCEDURES
Prior to engaging our accountants to perform a particular service, our Board of
Directors obtains an estimate for the service to be performed. The Board of
Directors in accordance with our procedures approved all of the services
described above.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" THE PROPOSAL NO.5 -
RATIFICATION OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP AS INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FOR THE FISCAL YEAR ENDING APRIL 30, 2007.
31
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PROPOSAL NO. 6: OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING.
- --------------------------------------------------------------------------------
If you are granted a proxy, the persons named as proxy holders will have the
discretion to vote your shares on any additional matters not described herein
that properly come before the meeting, or any adjournment or postponement of the
meeting. This discretionary authority is limited by SEC rules to certain
specified matters, such as matters incident to the conduct of the meeting and
voting for alternative candidates if any of our nominees is not available to
serve as a director. If for any unforeseen reason any of our nominees is not
available as a candidate for director, the persons named as proxy holders will
vote your proxy for such other candidate or candidates as may be nominated by
the Board. At the time this document went to press, we knew of no other matters
that might be presented for shareholder action at our 2006 Annual Meeting of
Stockholders.
PROPOSALS OF STOCKHOLDERS
A stockholder proposal is a stockholder's recommendation or requirement that
HiEnergy Technologies and/or its Board of Directors take certain action, which
the stockholder intends to present at a meeting of HiEnergy Technologies'
stockholders. The proposal should state as clearly as possible the course of
action that the stockholder believes HiEnergy Technologies should follow and
should be accompanied by a supporting statement. The proposal, including the
accompanying supporting statement, may not exceed 500 words.
Proposals received from stockholders are given careful consideration by HiEnergy
Technologies in accordance with Rule 14a-8 under the Securities Exchange Act of
1934, as amended. Stockholder proposals are eligible for consideration for
inclusion in the proxy statement for the 2007 Annual Meeting of Stockholders if
they are received by HiEnergy Technologies on or before August 31, 2007. Any
stockholder proposal should be directed to the attention of the Secretary of
HiEnergy Technologies, at 1601B Alton Parkway, Irvine, California 92606.
In order for a stockholder proposal submitted outside of Rule 14a-8 to be
considered "timely" within the meaning of Rule 14a-4(c), such proposal must be
received by HiEnergy Technologies on or prior to November 1, 2007. HiEnergy
Technologies will have discretionary authority with respect to stockholder
proposals submitted for consideration at the 2007 Annual Meeting of Stockholders
that are not "timely" within the meaning of Rule 14a-4(c). HiEnergy Technologies
reserves the right to reject, rule out of order, or take other appropriate
action with respect to any proposal that does not comply with these and other
applicable requirements.
ADDITIONAL INFORMATION
Stockholders should direct communications regarding change of address, transfer
of stock ownership or lost stock certificates to: American Stock Transfer &
Trust Company, 59 Maiden Lane, New York, NY 10038. American Stock Transfer &
Trust Company may also be reached by telephone at 800.937.5449.
OTHER MATTERS
HiEnergy Technologies knows of no other matters that are likely to be brought
before the Annual Meeting. If, however, other matters not presently known or
determined properly come before the Annual Meeting, the persons named as proxies
in the enclosed Proxy Card or their substitutes will vote such proxy in
accordance with their discretion with respect to such matters.
By Order of the Board of Directors
---------------------------------
Roger W.A. Spillmann
President & CEO
Irvine, California
[___________, 2006]
32
INDEX TO APPENDICES
Appendix Description
- -------- ------------------------------------------------------------------
A Audit Committee Charter
B Compensation Committee Charter
C HiEnergy Technologies, Inc. 2006 Stock Incentive Plan
D Annual Report on Form 10-KSB for Fiscal Year Ended April 30, 2006
33
APPENDIX A
AUDIT COMMITTEE CHARTER
APPENDIX A
AMENDED AND RESTATED CHARTER OF THE AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
HIENERGY TECHNOLOGIES, INC.
Composition and Membership
The Audit Committee (the "Committee") shall be comprised of one or more
directors as determined by the Board of Directors (the "Board") in accordance
with the following criteria. Committee members shall be appointed and replaced
by the Board after consulting with, or on recommendation of, the
Nominating/Corporate Governance Committee. If a Committee Chairman is not
designated or present at a meeting, the members of the Committee may designate a
Committee Chairman for such meeting by majority vote of the Committee membership
present at the meeting. Committee members shall be "independent" within the
meaning of the Rules of NASDAQ ("NASDAQ") and U.S. federal law and regulations.
All members of the Committee shall have a basic understanding of finance
and accounting and be able to read and understand fundamental financial
statements. At least one member of the Committee shall have accounting or
related financial management expertise which shall include an understanding of
generally accepted accounting principles and financial statements, experience in
preparing, auditing analyzing or evaluating financial statements, experience
with internal auditing controls and an understanding of audit committee
functions. A related Questionnaire is attached as Supplement 1 hereto.
The Company shall provide the Committee with such funding as the Committee
decides in good faith is adequate for the engagement and retention of the
Company's independent auditors and any advisors employed by the Committee, as
well as for the performance of the Committee's other functions as detailed in
this Charter.
General Functions
The Committee shall have and may exercise on behalf of the Board with
respect to assisting in the oversight of the following, subject, however, to
other limitations of authority listed below under Article VI or as specified by
the Board from time to time:
A. the integrity of the Company's financial statements;
B. the Company's compliance with legal and regulatory requirements;
C. the independent auditor's qualifications and independence;
D. the performance of the Company's internal audit function and of its
independent auditors; and
E. the preparation of the Committee Report for inclusion in the
Company's Annual Proxy Statement.
The Committee's primary duties and responsibilities are:
1
A. to monitor the integrity of the Company's financial statements,
financial reporting process, internal auditing department and
systems of internal controls regarding finance and accounting;
B. to exercise sole authority to retain and terminate, and to monitor
the qualifications, independence and performance of, the Company's
independent auditors; and
C. to provide an avenue of communication among the independent
auditors, management, the internal auditing department, and the
Board.
The Committee has the authority to conduct any investigation appropriate
to fulfilling its responsibilities, and it shall have direct access to the
Company's independent auditors as well as to anyone else in the Company. The
Committee has the authority to retain and to obtain the advice of, at the
Company's expense, such legal, accounting or other consultants or experts as it
deems necessary in the performance of its duties, which experts need not be the
same as are regularly retained by the Company to perform such functions.
Procedures and Meetings
The Committee shall meet at least five times annually, or more frequently
as circumstances require. The Committee Chairman shall prepare and/or approve an
agenda in advance of each meeting and, whenever reasonably practicable,
circulate the agenda to each member prior to the meeting date. Every notice or
facsimile or copy thereof that may be given by the Committee to its members or
other Board members electronically, whether by telephone, email, telegram, fax,
or otherwise, shall be deemed as effectively given as a written notice with an
original signature.
The Committee should meet privately and separately in executive session at
least quarterly with management, the director of the internal auditing
department, the independent auditors, and as a committee to discuss any matters
that the Committee or each of these groups believe should be discussed including
the Company's financial statements and significant findings based upon the
auditors' limited review procedures.
A majority of the then-acting members of the Committee shall constitute a
quorum. A majority of the members present at any meeting at which a quorum is
present may act on behalf of the Committee. The Chairman shall preside, when
present, at all meetings of the Committee. The Committee will keep a record of
its meetings and report on them to the Board. The Committee may meet by
telephone or video conference and may take action by unanimous written consent.
On all procedural matters not specifically addressed in this Charter, the
provisions of the Bylaws of the Company relating to actions by the Board shall
apply to the Committee.
The Committee is empowered to adopt its own rules of procedure which shall
not be inconsistent with the Bylaws of the Company or resolutions of the Board.
The Committee may set a schedule for regular monthly meetings and special
meetings as the Chairman or Committee may deem necessary.
The President, the Chairman of the Board and the Chairman of any other
committee of the Board, if not otherwise attending as a member of the Committee,
may attend open sessions of meetings of the Committee, as determined by the
Committee Chairman, and non-members shall have no voting rights in such
Committee meetings.
2
A Committee Secretary may be appointed by the Board or, absent such
appointment, by the Committee; and such Committee Secretary may attend meetings
of the Committee in the discretion of the Committee Chairman and may perform
such administrative tasks on behalf of the Committee as may be delegated to such
Committee Secretary by the Committee Chairman, including the development of
Committee meeting agendas, preparation of Committee minutes and distribution of
such minutes to the Committee and the Board. The Committee Secretary need not be
a member of the Committee, and appointment to such post shall not serve to make
the individual a member of the Committee, or grant a right to vote in Committee
actions to the individual, or make the individual an executive officer of the
Company. The post of Committee Secretary shall be a subordinate officer under
the Bylaws.
The Committee may meet by telephone or video conference and may take
action by unanimous written consent. On all procedural matters not specifically
addressed in this Charter, the provisions of the Bylaws of the Company relating
to actions by the Board shall apply to the Committee.
Communication with Management
It shall be the responsibility of the Committee Chairman to keep the
President and/or the Board informed promptly of the deliberations and
conclusions of the Committee to the extent appropriate.
The Committee will review any disclosures by the Company's officers during
their certification process for the Form 10-K and Form 10-Q about any
significant deficiencies in the design or operation of internal controls or
material weaknesses therein and any fraud involving management or other
employees who have a significant role in the Company's internal controls.
The Committee shall obtain reports from management, the Company's senior
internal auditing executive and the independent auditor that the Company and its
foreign subsidiaries and affiliated entities are in conformity with applicable
legal requirements and the Company's Business Conduct, Compliance and Conflict
of Interest Policy.
The Committee shall review reports and disclosures of insider and
affiliated party transactions.
The Committee shall advise the Board with respect to the Company's
policies and procedures regarding compliance with applicable laws and
regulations and with the Company's Business Conduct, Compliance and Conflict of
Interest Policy.
Minutes and Reports
Minutes of each Committee meeting shall be kept and, promptly after being
finalized and executed by the Committee Chairman and Committee Secretary,
distributed to each member of the Board and to the Corporate Secretary. This
provision shall not require distribution of preliminary drafts or information
given consideration by the Committee unless included in the final minutes. The
Chairman of the Committee shall report at each meeting of the Board on any
actions taken by the Committee subsequent to the most recent meeting of the
Board and, if deemed necessary or advisable, to seek the approval and/or
ratification of the full Board to such actions taken by the Committee.
Authority and Responsibilities
Subject to limitations set forth in Article II above, the Committee shall:
3
Review Procedures
Review and reassess the adequacy of this Charter at least annually.
Submit the Charter with any recommended changes to the Board for
approval and have the then-current document published in accordance
with Securities and Exchange Commission ("SEC") regulations and the
rules of NASDAQ.
Review the Company's annual audited financial statements prior to
release. Review should include discussion with management and
independent auditors of significant issues regarding accounting
principles, practices and judgments. Recommend to the Board whether
the audited financial statements should be included in the Company's
Form 10-K.
Require an annual report by the independent auditors describing the
independent auditors' internal quality control procedures, and any
material issues raised with respect thereto by any internal review,
peer review or external investigation thereof.
In consultation with the management, the independent auditors, and
the internal auditors, consider the integrity of the Company's
financial reporting processes and controls and review and discuss
the critical accounting practices and policies. Discuss significant
financial risk exposures and the steps management has taken to
monitor, control and report such exposures. Review significant
findings and analyses prepared by the independent auditors and the
internal auditing department together with management's responses.
Review with financial management and the independent auditors the
Company's quarterly financial results prior to the release of
earnings and/or the Company's quarterly financial statements prior
to filing or distribution. Discuss any significant changes to the
Company's accounting principles and any items required to be
communicated by the independent auditors in accordance with SAS 61
(see item B.5 below). The Committee Chairman may represent the
entire Audit Committee for purposes of this review.
Independent Auditors
The Committee shall have sole authority to hire or terminate
auditors. The independent auditors shall be directly accountable to
the Committee and indirectly accountable to the Board through the
Committee. The Committee shall review the independence and
performance of the auditors and annually approve the appointment of
the independent auditors or approve any discharge of auditors when
circumstances warrant. The Committee shall have the sole authority
to terminate the engagement of the Company's independent auditors;
provided, however, the Committee shall discontinue the Company's
engagement of the independent auditors with respect to any
independent audit if the Company's chief executive officer, chief
financial officer, controller, chief accounting officer or person
serving in an equivalent position was employed by the auditor and
participated in any capacity in auditing of the Company during the
one year period prior to initiating such independent audit.
4
The Committee shall have the sole authority to approve the fees and
other significant compensation to be paid to the independent
auditors, and to approve any significant non-audit engagement. Such
approval shall be delivered prior to the related services being
performed.
On an annual basis, the Committee shall review and discuss with the
independent auditors all significant relationships they have or are
proposed to have with the Company to determine whether those
relationships could impair the auditors' independence.
Review the independent auditors' audit plan, including scope,
staffing, locations, reliance upon management, internal audit and
general audit approach and the content of all audit-related
services.
The Committee shall discuss, both internally and with the Company's
independent auditors, any earnings information or any financial
information or earnings guidance provided to analysts and rating
agencies prior to the release of the information. In that
connection, the Committee shall discuss certain matters required to
be communicated to audit committees in accordance with AICPA SAS 61.
Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
At least every five years, require the rotation of the independent
auditor's lead audit partner and reviewing audit partner, and
consider the costs and benefits of switching to another firm of
independent auditors.
Review, on an ongoing basis, compliance with the statutory ban on
the independent auditors' provision of non-audit services, except
for the provision of tax advice and services pre-approved by the
Committee.
Review analyses prepared by management and the independent auditors
of significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial
statements, including the selection, application and disclosure of
critical accounting policies and analyses of the effect of
alternative financial and accounting assumptions, estimates or
methods on the Company's financial statements.
Obtain from the independent auditor assurance that Section 10A of
the Securities Exchange Act of 1934 has not been implicated or, if
implicated, the ramifications thereof and the remedial action
required.
Discuss with management and the independent auditor any
correspondence with regulators or governmental agencies and any
complaints or published reports which raise material issues
regarding the Company's financial statements, accounting policies or
audit procedures.
5
Internal Audit Department (Optional)
Review the budget, plan, changes in plan, activities, organizational
structure and qualifications of the internal audit department, as needed.
Review the appointment, performance and replacement of the senior internal
audit executive.
Review significant reports prepared by the internal audit department
together with management's response and follow-up to these reports.
On at least an annual basis, review with the Company's counsel and
Compliance Committee of the Board of Directors, any legal matters that could
have a significant impact on the organization's financial statements, the
Company's compliance with applicable laws and regulations, and inquiries
received from regulators or governmental agencies.
Outside Advisors
The Committee shall have the authority to engage its own outside advisors,
including experts in particular areas of accounting, as it determines necessary
apart from counsel or advisors hired by management, especially when potential
conflicts of interest with management may be apparent.
Monitoring and Public Reporting Responsibilities
Causing to be maintained an anonymous hotline for reporting violations of
law or Company policy to the Committee.
Reporting on behalf of the Company to the SEC any information the
Committee believes that the Company has a duty to so disclose and has not
disclosed theretofore.
Limits of Duties
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to determine that the Company's
financial statements and disclosures are complete and accurate and are in
accordance with generally accepted accounting principles and applicable rules
and regulations plan or to conduct audits. These are the respective
responsibilities of management and the independent auditor.
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APPENDIX B
COMPENSATION COMMITTEE CHARTER
APPENDIX B
CHARTER OF THE COMPENSATION COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
HIENERGY TECHNOLOGIES, INC.
I. Composition and Membership
The Compensation Committee (the "Committee") will be comprised of one or
more members of the Board of Directors (the "Board") of HiEnergy Technologies,
Inc. (the "Company") and shall be appointed for such term or terms as the Board
may determine and may be replaced by the Board, at its discretion. One of the
Committee members shall be appointed Chairman of the Committee by the Board or,
absent such appointment, by majority vote of the Committee members present at
the meeting. All Committee members shall be "independent" to the extent required
by U.S. Federal Law or applicable regulations and within the meaning of Rule
16b-3 promulgated by the SEC under the Securities Exchange Act of 1934 and
Section 162(m) of the Internal Revenue Code.
II. General Functions
The Committee shall have and may exercise on behalf of the Board the
following powers, subject, however, to other limitations of authority listed
below under Article VI or as specified by the Board from time to time:
A. Approval of all compensation arrangements relating to Executive
Officers.
B. Make recommendations to the Board with respect to the Company's
incentive compensation plans and equity based compensation plans and
all compensation arrangements of the Board and Board committee
members.
C. Assure that the Company's compensation policies are designed to
allow the Company to recruit and retain superior talent and create a
direct relationship between pay and benefit levels and performance.
D. Assure that the compensation payable to the Company's executives
provides overall competitive pay and benefit levels, creates proper
incentives to enhance the value of the Company and rewards superior
performance.
E. Produce an annual report on executive compensation for inclusion in
the Company's proxy statement.
III. Procedures and Meetings
The Committee shall meet at least four times annually, or more frequently
as circumstances require. The Committee Chairman shall prepare and/or approve an
agenda in advance of each meeting and, whenever reasonably practicable,
circulate the agenda to each member prior to the meeting date. Every notice or
facsimile or copy thereof that may be given by the Committee to its members or
other Board members electronically, whether by telephone, email, telegram, fax,
or otherwise, shall be deemed as effectively given as a written notice with an
original signature.
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A majority of the then-acting members of the Committee shall constitute a
quorum. A majority of the members present at any meeting at which a quorum is
present may act on behalf of the Committee. The Chairman shall preside, when
present, at all meetings of the Committee.
The Committee is empowered to adopt its own rules of procedure which shall
not be inconsistent with the Bylaws of the Company or resolutions of the Board.
The Committee may set a schedule for regular meetings and special meetings as
the Chairman or Committee may deem necessary.
The President, the Chairman of the Board and the Chairman of any other
committee of the Board, if not otherwise attending as a member of the Committee,
may attend open sessions of meetings of the Committee, as determined by the
Committee Chairman, and non-members shall have no voting rights in such
Committee meetings.
A Committee Secretary may be appointed by the Board or, absent such
appointment, by the Committee; and such Committee Secretary may attend meetings
of the Committee in the discretion of the Committee Chairman and may perform
such administrative tasks on behalf of the Committee as may be delegated to such
Committee Secretary by the Committee Chairman, including the development of
Committee meeting agendas, preparation of Committee minutes and distribution of
such minutes to the Committee and the Board. The Committee Secretary need not be
a member of the Committee, and appointment to such post shall not serve to make
the individual a member of the Committee, or grant a right to vote in Committee
actions to the individual, or make the individual an executive officer of the
Company. The post of Committee Secretary shall be a subordinate officer under
the Bylaws.
The Committee may meet by telephone or video conference and may take
action by unanimous written consent. On all procedural matters not specifically
addressed in this Charter, the provisions of the Bylaws of the Company relating
to actions by the Board shall apply to the Committee.
IV. Communication with Management
It shall be the responsibility of the Committee Chairman to keep the
President and/or the Board informed promptly of the deliberations and
conclusions of the Committee to the extent appropriate.
V. Minutes and Reports
Minutes of each Committee meeting shall be kept and, promptly after being
finalized and executed by the Committee Chairman and Committee Secretary,
distributed to each member of the Board and to the Corporate Secretary. This
provision shall not require distribution of preliminary drafts or information
given consideration by the Committee unless included in the final minutes. The
Chairman of the Committee shall report at each meeting of the Board on any
actions taken by the Committee subsequent to the most recent meeting of the
Board and, if deemed necessary or advisable, to seek the approval and/or
ratification of the full Board to such actions taken by the Committee.
VI. Authority and Responsibilities.
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A. Compensation Policies. Review, evaluate and make recommendations to
the Board with respect to management's proposals regarding the
Company's overall compensation policies.
B. Chief Executive Officer ("CEO") Compensation and Goals. Consider and
approve goals and objectives relevant to the CEO's compensation,
evaluate the CEO's performance in light of those goals and
objectives, and set the CEO's compensation level (including, but not
limited to, salary, long and short-term incentive plans, retirement
plans, deferred compensation plans, equity award plans, change in
control or other severance plans, as the Committee deems
appropriate) based on this evaluation. In determining the long-term
incentive component of CEO compensation, the Committee should
consider the Company's performance and relative shareholder return,
the value of similar incentive awards to CEOs at comparable
companies, and the awards given to the Company's CEO in past years.
C. Executive Officers. Consider and approve or make recommendations to
the Board regarding the remuneration arrangements for other
executive officers and establish, review and approve compensation
plans in which any executive officer is eligible to participate.
Such remuneration arrangements can include long and short-term
incentive plans, retirement plans, deferred compensation plans,
equity award plans, change in control or other severance plans, as
the Committee deems appropriate.
D. Other Senior Officers and Key Employees. Receive from the CEO and
his staff the performance target goals for the senior officers and
key employees and evaluate those targets. Receive and review
periodic reports from the CEO as to the performance and compensation
of such senior officers and key employees.
E. Incentive Compensation Plans. Make recommendations to the Board with
respect to the Company's incentive compensation plans and equity
based compensation plans.
F. Option Grants. Consider or approve or make recommendations to the
Board concerning stock option grants to key employees, officers and
consultants of the Company. Make recommendations to the Board
concerning stock option grants to directors of the Company.
Determine and approve the number of shares to be covered by each
option, whether the option will be an incentive stock option or a
non-qualified stock option, the vesting schedules and the type of
consideration to be paid to the Company upon exercise and other
terms, all consistent with the terms and conditions of the relevant
plan and act as administrator of such plans.
G. Overall Review of Plans. Except as otherwise determined by the
Board, review all compensation plans of the Company in light of
Company and plan objectives, needs, current benefit levels and legal
requirements.
H. Board. Evaluate and make recommendations to the Board concerning the
compensation for the Board and committee members taking into
consideration similar incentive awards at comparable companies.
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I. Investigations. Investigate any matter brought to its attention
within the scope of its duties with the power to retain outside
counsel or compensation consultants, for this purpose if in its
judgment that is appropriate.
J. Annual Report. Produce and sign an annual report on executive
compensation for inclusion in the Company's proxy statement.
The Committee may not undertake actions specifically reserved by law or in
the Bylaws, to the Board itself, or if such actions are specifically
prohibited from being delegated to a committee. The actions of the
Committee shall be immediately effective to the full extent authorized by
the Board and as permitted under the General Corporation Law of Delaware
and the Bylaws of the Company.
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APPENDIX C
HIENERGY TECHNOLOGIES, INC.
2006 STOCK INCENTIVE PLAN
HiEnergy Technologies, Inc.
2006 STOCK INCENTIVE PLAN
This 2006 STOCK INCENTIVE PLAN (the "Plan") is hereby established by HIENERGY
TECHNOLOGIES, INC., a Delaware corporation (the "Company"), as adopted by its
Board of Directors as of ________________, 2006 (the "Effective Date").
1. PURPOSES OF THE PLAN.
The purposes of the Plan are (a) to enhance the Company's ability to attract and
retain the services of qualified employees, officers and directors (including
non-employee officers and directors), and consultants and other service
providers upon whose judgment, initiative and efforts the successful conduct and
development of the Company's business largely depends, and (b) to provide
additional incentives to such persons or entities to devote their utmost effort
and skill to the advancement and betterment of the Company, by providing them an
opportunity to participate in the ownership of the Company and thereby have an
interest in the success and increased value of the Company.
2. DEFINITIONS.
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1. Administrator.
"Administrator" means the Board or, if the Board delegates responsibility for
any matter to the Committee, the term Administrator shall mean the Committee.
2.2. Affiliated Company.
"Affiliated Company" means any "parent corporation" or "subsidiary corporation"
of the Company, whether now existing or hereafter created or acquired, as those
terms are defined in Sections 424(e) and 424(f) of the Code, respectively.
2.3. Board.
"Board" means the Board of Directors of the Company.
2.4. Change in Control.
"Change in Control" shall mean (i) the acquisition, directly or indirectly, by
any person or group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) of the beneficial ownership of securities of
the Company possessing more than fifty percent (50%) of the total combined
voting power of all outstanding securities of the Company; (ii) a merger or
consolidation in which the Company is not the surviving entity, except for a
transaction in which the holders of the outstanding voting securities of the
Company immediately prior to such merger or consolidation hold, in the
aggregate, securities possessing more than fifty percent (50%) of the total
combined voting power of all outstanding voting securities of the surviving
entity immediately after such merger or consolidation; (iii) a reverse merger in
which the Company is the surviving entity but in which securities possessing
more than fifty percent (50%) of the total combined voting power of all
outstanding voting securities of the Company are transferred to or acquired by a
person or persons different from the persons holding those securities
immediately prior to such merger; (iv) the sale, transfer or other disposition
(in one transaction or a series of related transactions) of all or substantially
all of the assets of the Company; or (v) the approval by the shareholders of a
plan or proposal for the liquidation or dissolution of the Company.
2.5. Code.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
2.6. Committee.
"Committee" means a committee of two or more members of the Board appointed to
administer the Plan, as set forth in Section 7.1 hereof.
2.7. Common Stock.
"Common Stock" means the Common Stock, par value $0.001 per share, of the
Company, subject to adjustment pursuant to Section 4.2 hereof.
2.8. Continuous Service.
"Continuous Service" shall mean--
(a) employment by either the Company or any parent or subsidiary
corporation of the Company, or by a corporation or a parent or
subsidiary of a corporation issuing or assuming a stock option in a
transaction to which Section 424(a) of the Code applies, which is
uninterrupted except for vacations, illness (except for permanent
disability, as defined in Section 22(e)(3) of the Code), or leaves
of absence which are approved in writing by the Company or any of
such other employer corporations, if applicable,
(b) service as a member of the Board of Directors of the Company until
Participant resigns, is removed from office, or Participant's term
of office expires and he or she is not reelected, or
(c) so long as Participant is engaged as a consultant or service
provider to the Company or any corporation referred to in clause (a)
above, or
(d) so long as Participant is granted and continues to hold the status
of a "friend of the Company" pursuant to action by the Administrator
or the Board.
2.9. Disability.
"Disability" means permanent and total disability as defined in Section 22(e)(3)
of the Code. The Administrator's determination of a Disability or the absence
thereof shall be conclusive and binding on all interested parties.
2.10. Effective Date.
"Effective Date" means the date on which the Plan is adopted by the Board, as
set forth on the first page hereof.
2.11. Exercise Price.
"Exercise Price" means the purchase price per share of Common Stock payable upon
exercise of an Option.
2.12. Fair Market Value.
"Fair Market Value" on any given date means the value of one share of Common
Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on the
Nasdaq Stock Market or a stock exchange which reports closing sale
prices, the Fair Market Value shall be the closing sale price on the
date of valuation as so reported by the principal system or exchange
on which the Common Stock is traded, or, if no closing sale price is
reported on such day, then the Fair Market Value shall be the
closing sale price of the Common Stock as so reported on the next
preceding day on which a closing sale price is reported.
(b) If the Common Stock is not then listed or admitted to trading on the
Nasdaq Stock Market or a stock exchange which reports closing sale
prices, the Fair Market Value shall be the average of the reported
closing bid and asked prices of the Common Stock in the
over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation,
then the Fair Market Value shall be determined by the Administrator
in good faith using any reasonable method of evaluation, which
determination shall be conclusive and binding on all interested
parties.
2.13. Hostile Takeover.
"Hostile Takeover" shall mean either of the following events effecting a change
in control or ownership of the Company:
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(a) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Company or a person that directly
or indirectly controls, is controlled by, or is under common control
with, the Company) of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer made
directly to the Company's shareholders which the Board does not
recommend such shareholders to accept, or
(b) a change in the composition of the Board over a period of thirty-six
(36) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period
or (B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the
Board approved such election or nomination.
2.14. Incentive Option.
"Incentive Option" means any Option designated and qualified as an "incentive
stock option" as defined in Section 422 of the Code.
2.15. NASD Dealer.
"NASD Dealer" means a broker-dealer that is a member of the National Association
of Securities Dealers, Inc.
2.16. Nonqualified Option.
"Nonqualified Option" means any Option that is not an Incentive Option. To the
extent that any Option designated as an Incentive Option fails in whole or in
part to qualify as an Incentive Option, including, without limitation, for
failure to meet the limitations applicable to a 10% Shareholder or because it
exceeds the annual limit provided for in Section 5.6 below, it shall to that
extent constitute a Nonqualified Option.
2.17. Offeree.
"Offeree" means a Participant to whom a Right to Purchase has been offered or
who has acquired Restricted Stock under the Plan.
2.18. Option.
"Option" means any option to purchase Common Stock granted pursuant to the Plan.
2.19. Option Agreement.
"Option Agreement" means the written agreement entered into between the Company
and the Optionee with respect to an Option granted under the Plan.
2.20. Optionee.
"Optionee" means a Participant who holds an Option.
2.21. Participant.
"Participant" means an individual or entity who holds an Option, a Right to
Purchase or Restricted Stock under the Plan.
2.22. Purchase Price.
"Purchase Price" means the purchase price per share of Restricted Stock payable
upon acceptance of a Right to Purchase.
2.23. Restricted Stock.
"Restricted Stock" means shares of Common Stock issued, subject to any
restrictions and conditions as are established, pursuant to Section 6.
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2.24. Restricted Stock Purchase Agreement.
"Restricted Stock Purchase Agreement" means the written agreement entered into
between the Company and the Offeree with respect to a Right to Purchase offered
under the Plan.
2.25. Right to Purchase.
"Right to Purchase" means a right to purchase Restricted Stock granted to an
Offeree pursuant to Section 6 hereof.
2.26. Service Provider.
"Service Provider" means a consultant or other person or entity who provides
advice or other services to the Company or an Affiliated Company and who the
Administrator authorizes to become a Participant in the Plan.
2.27. 10% Shareholder.
"10% Shareholder" means a person who, as of a relevant date, owns or is deemed
to own (by reason of the attribution rules applicable under Section 424(d) of
the Code) stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of an Affiliated Company.
2.28. Vest.
The terms "vest" and "vested" shall mean (a) with respect to an Option, the
Option becoming exercisable with respect to one or more shares of Common Stock
pursuant to the terms of the applicable Option Agreement, or (b) with respect to
shares of Restricted Stock or shares of Common Stock acquired upon exercise of
an Option, the shares becoming no longer subject to a right of the Company to
repurchase the shares for less than Fair Market Value pursuant to the terms of
the applicable Restricted Stock Purchase Agreement or Option Agreement.
3. ELIGIBILITY.
3.1. Incentive Options.
Officers and other key employees of the Company or of an Affiliated Company
(including members of the Board if they are employees of the Company or of an
Affiliated Company) are eligible to receive Incentive Options under the Plan.
3.2. Nonqualified Options and Rights to Purchase.
Officers and other key employees of the Company or of an Affiliated Company,
members of the Board (whether or not employed by the Company or an Affiliated
Company), and Service Providers are eligible to receive Nonqualified Options or
Rights to Purchase under the Plan.
3.3. Limitation on Shares.
In no event shall any Participant be granted Options or Rights to Purchase in
any one calendar year pursuant to which more than 1,000,000 shares of Common
Stock may be acquired.
4. PLAN SHARES.
4.1. Shares Subject to the Plan.
A total of 10,000,000 shares of Common Stock may be issued under the Plan (and
any sub-plan or other plan whose reserved shares are at a future date taken from
the reserve under this plan, aggregately), subject to adjustment as to the
number and kind of shares pursuant to Section 4.2 hereof. For purposes of this
limitation, in the event that
(a) all or any portion of any Option or Right to Purchase granted or
offered under the Plan can no longer under any circumstances be
exercised, or
(b) any shares of Common Stock are reacquired by the Company pursuant to
an Option Agreement or Restricted Stock Purchase Agreement, the
shares of Common Stock allocable to the unexercised portion of such
Option or such Right to Purchase, or the shares so reacquired, shall
again be available for grant or issuance under the Plan.
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4.2. Changes in Capital Structure.
If the then outstanding shares of Common Stock are increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of a recapitalization, stock split,
combination of shares, reclassification, stock dividend, or other similar change
in the capital structure of the Company, then appropriate adjustments shall be
made by the Administrator to the aggregate number and kind of shares subject to
this Plan, and the number and kind of shares and the price per share subject to
outstanding Option Agreements, Rights to Purchase and Restricted Stock Purchase
Agreements in order to preserve, as nearly as practical, but not to increase,
the benefits to Participants.
5. OPTIONS.
5.1. Option Agreement.
Each Option granted pursuant to this Plan shall be evidenced by an Option
Agreement which shall specify the number of shares subject thereto, the Exercise
Price per share, and whether the Option is an Incentive Option or Nonqualified
Option. As soon as is practical following the grant of an Option, an Option
Agreement shall be duly executed and delivered by or on behalf of the Company to
the Optionee to whom such Option was granted. Each Option Agreement shall be in
such form and contain such additional terms and conditions, not inconsistent
with the provisions of this Plan, as the Administrator shall, from time to time,
deem desirable, including, without limitation, the imposition of any rights of
first refusal and resale obligations upon any shares of Common Stock acquired
pursuant to an Option Agreement. Each Option Agreement may be different from
each other Option Agreement.
5.2. Exercise Price.
The Exercise Price per share of Common Stock covered by each Option shall be
determined by the Administrator, subject to the following:
(a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is
granted,
(b) the Exercise Price of a Nonqualified Option shall not be less than
85% of Fair Market Value on the date the Nonqualified Option is
granted (or 100% as to a Nonqualified Option granted to a 10%
Holder"), and
(c) if the person to whom an Incentive Option is granted is a 10%
Shareholder on the date of grant, the Exercise Price shall not be
less than 110% of Fair Market Value on the date the Option is
granted.
5.3. Payment of Exercise Price.
Payment of the Exercise Price shall be made upon exercise of an Option and may
be made, in the discretion of the Administrator, subject to any legal
restrictions, by--
(a) cash;
(b) check (considered payment only when honored by the bank against
which it is drawn upon first presentment);
(c) the surrender of shares of Common Stock owned by the Optionee that
have been held by the Optionee for at least six (6) months, which
surrendered shares shall be valued at Fair Market Value as of the
date of such exercise;
(d) the Optionee's promissory note in a form and on terms acceptable to
the Administrator;
(e) the cancellation of indebtedness of the Company to the Optionee;
(f) the waiver of compensation due or accrued to the Optionee for
services rendered;
(g) provided that a public market for the Common Stock exists, a "same
day sale" commitment from the Optionee and an NASD Dealer whereby
the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and
whereby the NASD Dealer irrevocably commits upon receipt of such
shares to forward the Exercise Price directly to the Company;
(h) provided that a public market for the Common Stock exists, a
"margin" commitment from the Optionee and an NASD Dealer whereby the
Optionee irrevocably elects to exercise the Option and to pledge the
shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such shares to forward the Exercise Price directly to the
Company; or
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(i) any combination of the foregoing methods of payment or any other
consideration or method of payment as shall be permitted by
applicable corporate law.
5.4. Term and Termination of Options.
The term and provisions for termination of each Option shall be as fixed by the
Administrator, but no Option may be exercisable more than ten (10) years after
the date it is granted. An Incentive Option granted to a person who is a 10%
Shareholder on the date of grant shall not be exercisable more than five (5)
years after the date it is granted.
5.5. Vesting and Exercise of Options.
Each Option shall vest and become exercisable in one or more installments at
such time or times and subject to such conditions, including without limitation
the achievement of specified performance goals or objectives, as shall be
determined by the Administrator and set forth in an Option Agreement; provided,
however that Options granted to employees who are not officers, directors or
Service Providers shall vest and become exercisable in installments at a minimum
rate of 20% per year over a period of five (5) years from the date the Option is
granted.
5.6. Annual Limit on Incentive Options.
To the extent required for "incentive stock option" treatment under Section 422
of the Code, the aggregate Fair Market Value (determined as of the time of
grant) of the Common Stock shall not, with respect to which Incentive Options
granted under this Plan and any other plan of the Company or any Affiliated
Company become exercisable for the first time by an Optionee during any calendar
year, exceed $100,000. To the extent such dollar limitation is exceeded, the
excess portion of such Option shall be exercisable as a Nonqualified Option
under the Federal tax laws.
5.7. Limited Transferability.
No Incentive Option or Nonqualified Option shall be assignable or transferable
except by will or the laws of descent and distribution, and during the life of
the Optionee shall be exercisable only by such Optionee. Notwithstanding the
foregoing, shares purchased upon exercise of Options may be transferred or
assigned in whole or in part during the Optionee's lifetime, provided that the
transferee agrees to be bound by the same transfer restrictions applicable to
the Participant, either (a) in connection with the Optionee's estate plan to one
or more members of the Optionee's immediate family, including any parent,
descendant, spouse, brother, sister, grandparent, grandchild, dependent, or
member of their immediate families, or to a trust established exclusively for
one or more such persons, or (b) in a transfer described in Section 1041(a) of
the Code between spouses or incident to divorce. The terms applicable to the
assigned portion of the shares shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Administrator may deem appropriate. In
the event that applicable tax law and Section 25102(o) of the California
Corporate Securities Law of 1968 permit transferability of Options in any
particular case, then with the consent of the Administrator in such case, an
Option may be transferred consistent with restrictions under law and subject to
any terms or restrictions imposed by the Administrator.
5.8. No Rights as Shareholder.
An Optionee or permitted transferee of an Option shall have no rights or
privileges as a shareholder with respect to any shares covered by an Option
until such Option has been duly exercised and certificates representing shares
purchased upon such exercise have been issued to such person.
5.9. Company's Repurchase Rights.
In the event of termination of a Participant's Continuous Service for any reason
whatsoever (including death or disability), the Option Agreement may provide, in
the discretion of the Administrator or upon events specified in the discretion
of the Administrator, that the Company, or its assignee, shall have the right,
exercisable at the discretion of the Administrator, to repurchase shares of
Common Stock acquired pursuant to the exercise of an Option at any time, at any
price, and on any terms as set forth in the Option Agreement evidencing such
Options.
5.10. Other Restrictions on Underlying Shares of Common Stock.
Shares of Common Stock issued pursuant to the exercise of an Option may not be
sold, assigned, transferred, pledged or otherwise encumbered or disposed of
except as specifically provided in the Option Agreement.
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6. RIGHTS TO PURCHASE.
6.1. Nature of Right to Purchase.
A Right to Purchase granted to an Offeree entitles the Offeree to purchase, for
a Purchase Price determined by the Administrator, shares of Common Stock subject
to such terms, restrictions and conditions as the Administrator may determine at
the time of grant ("Restricted Stock"). Such conditions may include, but are not
limited to, Continuous Service or the achievement of specified performance goals
or objectives. The Administrator shall have the discretion to grant options, or
amend outstanding options, such that the unvested portion of options is
exercisable for Restricted Stock.
6.2. Acceptance of Right to Purchase.
An Offeree shall have no rights with respect to the Restricted Stock subject to
a Right to Purchase unless the Offeree shall have accepted the Right to Purchase
within ten (10) days (or such longer or shorter period as the Administrator may
specify) following the grant of the Right to Purchase by making payment of the
full Purchase Price to the Company in the manner set forth in Section 6.3 hereof
and by executing and delivering to the Company a Restricted Stock Purchase
Agreement. Each Restricted Stock Purchase Agreement shall be in such form, and
shall set forth the Purchase Price and such other terms, conditions and
restrictions of the Restricted Stock, not inconsistent with the provisions of
this Plan, as the Administrator shall, from time to time, deem desirable. Each
Restricted Stock Purchase Agreement may be different from each other Restricted
Stock Purchase Agreement.
6.3. Payment of Purchase Price.
Subject to any legal restrictions, payment of the Purchase Price upon acceptance
of a Right to Purchase Restricted Stock may be made, in the discretion of the
Administrator, by--
(a) cash;
(b) check (considered payment only when honored by the bank against
which it is drawn upon first presentment);
(c) the surrender of shares of Common Stock owned by the Offeree that
have been held by the Offeree for at least six (6) months, which
surrendered shares shall be valued at Fair Market Value as of the
date of such exercise;
(d) the Offeree's promissory note in a form and on terms acceptable to
the Administrator;
(e) the cancellation of indebtedness of the Company to the Offeree;
(f) the waiver of compensation due or accrued to the Offeree for
services rendered; or
(g) any combination of the foregoing methods of payment or any other
consideration or method of payment as shall be permitted by
applicable corporate law.
6.4. Rights as a Shareholder.
Upon complying with the provisions of Section 6.2 hereof, an Offeree shall have
the rights of a shareholder with respect to the Restricted Stock purchased
pursuant to the Right to Purchase, including voting and dividend rights, subject
to the terms, restrictions and conditions as are set forth in the Restricted
Stock Purchase Agreement. Unless the Administrator shall determine otherwise,
certificates evidencing shares of Restricted Stock shall remain in the
possession of the Company in accordance with the terms of the Restricted Stock
Purchase Agreement until such shares have vested.
6.5. Restrictions.
Shares of Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of except as specifically provided in the
Restricted Stock Purchase Agreement or by the Administrator. In the event of
termination of a Participant's employment, service as a director of the Company
or Service Provider status for any reason whatsoever (including death or
disability), the Restricted Stock Purchase Agreement may provide, in the
discretion of the Administrator, that the Company shall have the right,
exercisable at the discretion of the Administrator or upon events specified in
the discretion of the Administrator, to repurchase
7
(i) at the original Purchase Price, any shares of Restricted Stock which
have not vested as of the date of termination, and
(ii) at Fair Market Value (or at the original Purchase Price in specified
events), any shares of Restricted Stock which have vested as of such
date, on such terms as may be provided in the Restricted Stock
Purchase Agreement;
provided that, for Restricted Stock granted to employees who are not officers,
directors or Service Providers, the Company's Repurchase Right at the original
purchase price lapses at a minimum rate of 20% per year over a period of five
(5) years from the date the Right to Purchase was granted.
6.6. Vesting of Restricted Stock.
Each Restricted Stock Purchase Agreement shall specify the date or dates, the
performance goals or objectives which must be achieved, and any other conditions
on which the Restricted Stock may vest, as may be established in the discretion
of the Administrator.
6.7. Dividends.
If payment for shares of Restricted Stock is made by promissory note, any cash
dividends paid with respect to the Restricted Stock may be applied, in the
discretion of the Administrator, to repayment of such note.
6.8. Limited Assignability of Rights.
No Right to Purchase shall be assignable or transferable except by will or the
laws of descent and distribution. Restricted Stock may, in connection with the
Participant's estate plan, be assigned in whole or in part during the
Participant's lifetime to one or more members of the Participant's immediate
family, , including any parent, descendant, spouse, brother, sister,
grandparent, grandchild, dependent, or member of their immediate families, or to
a trust established exclusively for one or more such persons, or to a trust
established exclusively for one or more such family members. The terms
applicable to the assigned portion shall be the same as those in effect for the
Restricted Stock immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Plan Administrator may deem
appropriate. In the event that applicable tax law and Section 25102(o) of the
California Corporate Securities Law of 1968 permit transferability of Restricted
Stock in any other particular case, then with the consent of the Administrator
in such case, Restricted Stock may be transferred consistent with restrictions
under law and subject to any terms or restrictions imposed by the Administrator.
7. ADMINISTRATION OF THE PLAN.
7.1. Administrator.
Authority to control and manage the operation and administration of the Plan
shall be vested in the Board, which may delegate such responsibilities in whole
or in part to a committee consisting of two (2) or more members of the Board
(the "Committee"). Members of the Committee may be appointed from time to time
by, and shall serve at the pleasure of, the Board. As used herein, the term
"Administrator" means the Board or, with respect to any matter as to which
responsibility has been delegated to the Committee, the term Administrator shall
mean the Committee.
7.2. Powers of the Administrator.
In addition to any other powers or authority conferred upon the Administrator
elsewhere in the Plan or by applicable law, the Administrator shall have full
power and authority, at any time and from time to time, in any or each
particular instance or circumstance, as to each Option Agreement or Restricted
Stock Purchase Agreement, Optionee or Purchaser, independently of any other or
others, as determined in any or each instance in the sole and absolute
discretion of the Administrator:
(a) to determine the persons to whom, and the time or times at which,
Incentive Options or Nonqualified Options shall be granted and
Rights to Purchase shall be offered, the number of shares to be
represented by each Option and Right to Purchase and the
consideration to be received by the Company upon the exercise
thereof;
(b) to interpret the Plan;
(c) to create, amend or rescind rules and regulations relating to the
Plan;
8
(d) to determine the terms, conditions and restrictions contained in,
and the form of, any or all Option Agreements and Restricted Stock
Purchase Agreements;
(e) to determine the identity or capacity of any persons who may be
entitled to exercise a Participant's rights under any Option or
Right to Purchase under the Plan;
(f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement or Restricted
Stock Purchase Agreement;
(g) to extend the exercise date or any relevant date of any Option or
acceptance date or other relevant date of any Right to Purchase, or
to waive any other right of the Company to insist on prompt
performance;
(h) to provide for any rights of first refusal and/or any repurchase
rights and the terms, provisions and conditions thereof, if any, and
their performance, waiver, modification or termination, or any of
the above in combination; (i) to effect, with the consent of the
affected Participant or pursuant to the terms of the Plan, the
cancellation of any or all outstanding Options and to grant, in
respect of any or all thereof in substitution, new options covering
the same or different number of shares of Common Stock but with an
exercise price per share based on the Fair Market Value on the new
grant date with any or all adjustments thereto, in either case in
any such manner as the Adminstrator deems to be reasonable,
equitable , appropriate or advisable;
(i) to amend any outstanding Option Agreements and any outstanding
Restricted Stock Purchase Agreements, and by way of example but not
limitation to provide for, among other things, any change or
modification to a provision thereof which the Administrator could
have provided for upon the grant of an Option or Right to Purchase
or upon the issuance of Restricted Stock or could have otherwise
done in furtherance of the powers or discretion provided for herein;
and
(j) to make all other determinations and take all other actions, or
refrain therefrom, as considered necessary or advisable for the
administration of the Plan, or the performance of its terms in the
name of the Company or its successors, but only to the extent not
contrary to the express provisions of the Plan, in the sole and
absolute discretion of the Administrator.
Any action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants. Notwithstanding
anything to the contrary, the Administrator's discretion under this Plan extends
to and includes the authorization to deal with any one or more individual Option
Agreements or individual Restricted Stock Purchase Agreements independently of
any or all others then outstanding under the Plan in the discretion of the
Administrator, and such authority and discretion are not intended to be limited
by, and there is no actual or implied requirement of, consistency among various
Option Agreements or Restricted Stock Purchase Agreements, respectively, under
any circumstances.
7.3. Limitation on Liability.
No employee of the Company or member of the Board or Committee shall be subject
to any liability with respect to duties under the Plan unless the person acts
fraudulently or in bad faith. To the extent permitted by law, the Company shall
indemnify each member of the Board or Committee, and any employee of the Company
with duties under the Plan, who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed proceeding, whether civil,
criminal, administrative or investigative, by reason of such person's conduct in
the performance of duties under the Plan.
8. MERGERS AND OTHER REORGANIZATIONS.
8.1. Mergers and Other Reorganizations.
An Option Agreement or Restricted Stock Purchase Agreement may make provision
for what, if anything, shall happen in the event that the Company at any time
proposes to enter into any transaction approved by the Board to dissolve,
liquidate, sell substantially all of its assets, merge or consolidate, acquire
property or shares, separate or reorganize, with any other entity or entities,
corporate or otherwise, as a result of which either the Company is not the
surviving corporation or the Company is the surviving corporation. The Plan and
outstanding Options, Rights of Purchase, and Restricted Stock shall in no way
affect the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
9
8.2. Change in Control.
An Option Agreement or Restricted Stock Purchase Agreement may make provision
for what, if anything, shall happen to the terms of any or every outstanding
Option Agreement or Restricted Stock Purchase Agreement in the event that the
Company at any time proposes to enter into any transaction that results in a
Change of Control.
8.3. Hostile Takeover.
The Administrator shall have the discretionary authority to structure Option
Agreements and Restricted Stock Purchase Agreements such that the Company's
Repurchase Rights shall terminate and such shares shall vest automatically upon
the consummation of a Hostile Take-Over, to condition the automatic acceleration
of one or more Options and the termination of one or more of the Company's
Repurchase Rights under Restricted Stock Purchase Agreements upon the
involuntary termination of the Participant's Continuous Service within a
designated period (not to exceed eighteen (18) months) following the effective
date of a Hostile Take-Over, and to make provision that each Option so
accelerated shall remain exercisable for fully-vested shares until a date not
later than the expiration of the option term.
9. AMENDMENT AND TERMINATION OF THE PLAN.
9.1. Amendments.
The Board shall have full power and authority (subject to certain amendments
requiring shareholder approval pursuant to applicable laws or regulations) from
time to time to alter, amend, suspend or terminate the Plan in any or all
respects as the Board may deem advisable. No such alteration, amendment,
suspension or termination shall be made which shall substantially affect or
impair the rights of any Participant under an outstanding Option Agreement or
Restricted Stock Purchase Agreement without such Participant's consent. The
Board may alter or amend the Plan to comply with requirements under the Code
relating to Incentive Options or other types of options which give Optionees
more favorable tax treatment than that applicable to Options granted under this
Plan. Upon any such alteration or amendment, any outstanding Option granted
hereunder may, if the Administrator so determines and if permitted by applicable
law, be subject to the more favorable tax treatment afforded to an Optionee
pursuant to such terms and conditions.
9.2. Plan Termination.
Unless the Plan shall theretofore have been terminated, the Plan shall terminate
on the tenth (10th) anniversary of the Effective Date and no Options or Rights
to Purchase may be granted under the Plan thereafter, but Option Agreements,
Restricted Stock Purchase Agreements and Rights to Purchase then outstanding
shall continue in effect in accordance with their respective terms.
10. CANCELLATION & RESCISSION
10.1. Non-Competition.
Unless a particular Option Agreement or a particular Restricted Stock Purchase
Agreement specifies otherwise, the Administrator may cancel, rescind, suspend,
withhold or otherwise limit or restrict any Options or Common Stock at any time
if the Participant engages in any "Adverse Activity." For purposes of this
Section 10, "Adverse Activity" shall include: (i) the rendering of services for
any organization or engaging directly or indirectly in any business which is or
becomes competitive with the Company, or which organization or business, or the
rendering of services to such organization or business, is or becomes otherwise
prejudicial to or in conflict with the interests of the Company; (ii) the
disclosure to anyone outside the Company, or the use in other than the Company's
business, without prior written authorization from the Company, of any
confidential information or material relating to the business of the Company,
acquired by the Participant either during or after employment with the Company;
(iii) the failure or refusal to disclose promptly and to assign to the Company
all right, title and interest in any invention or idea, patentable or not, made
or conceived by the Participant during employment by the Company, relating in
any manner to the actual or anticipated business, research or development work
of the Company; (iv) activity that results in termination of Participant's
Continuous Service for "cause," defined here to mean those acts identified in
Section 2924 of the California Labor Code; (v) any material violation of any
terms or provisions of this Agreement; or (vi) any attempt directly or
indirectly to induce any employee of the Company to be employed or perform
services elsewhere or any attempt directly or indirectly to solicit the trade or
business of any current or prospective customer, supplier or partner of the
Company.
10
10.2 Agreement Upon Exercise.
In the event a Participant fails to comply with the provisions of paragraphs
(i)-(vi) of Section 10.1 prior to, or during the six (6) months after, any
exercise pursuant to an Option Agreement or a purchase pursuant to a Restricted
Stock Purchase Agreement, such exercise or purchase may be rescinded at the
Company's sole election within two years thereafter. In the event of any such
rescission, the Participant shall pay to the Company the amount of any gain
realized or payment received as a result of the disposition of Options or Common
Stock acquired pursuant to such exercise or purchase, in such manner and on such
terms and conditions as may be required, and the Company shall be entitled to
set-off against the amount of any such gain any amount owed to the Participant
by the Company.
11. TAX WITHHOLDING.
The Company shall have the power to withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy any applicable U.S. federal,
state, or local tax withholding requirements with respect to any Options
exercised or Restricted Stock issued under the Plan. The Company's obligation to
deliver shares of Common Stock upon the exercise of Options or the issuance or
vesting of Common Stock under the Plan shall be subject to the satisfaction of
all applicable U.S. federal, state and local income and employment tax
withholding requirements. To the extent permissible under applicable tax,
securities and other laws, the Administrator may, in its sole discretion and
upon such terms and conditions as it may deem appropriate, permit a Participant
to satisfy his or her obligation to pay any such tax, in whole or in part, up to
an amount determined on the basis of the highest marginal tax rate applicable to
such Participant, by--
(a) directing the Company to apply shares of Common Stock to which the
Participant is entitled as a result of the exercise of an Option or
as a result of the purchase of or lapse of restrictions on
Restricted Stock or
(b) delivering to the Company shares of Common Stock owned by the
Participant.
The shares of Common Stock so applied or delivered in satisfaction of the
Participant's tax withholding obligation shall be valued at their Fair
Market Value as of the date of measurement of the amount of income subject
to withholding.
12. MISCELLANEOUS.
12.1. Benefits Not Alienable.
Other than as provided above, benefits under the Plan may not be transferred,
assigned or alienated, whether voluntarily or involuntarily or by operation of
law. Any unauthorized attempt at assignment, transfer, pledge or other
disposition shall be void and without force or effect whatsoever.
12.2. No Creation or Enlargement of Participant's Rights to Continue in any
Capacity.
This Plan is strictly a voluntary undertaking on the part of the Company and
shall not be deemed to constitute a contract between the Company and any
Participant for, or to be consideration for, or an inducement to, or a condition
of, the continuation of any Participant's services to the Company in any
capacity. Nothing contained in the Plan shall be deemed to give the right to any
Participant to be retained in the service of the Company or any Affiliated
Company or to interfere with the right of the Company or any Affiliated Company
(which rights are hereby expressly reserved by each) to discharge or discontinue
the services of any Participant at any time for any reason, with or without
cause.
11
12.3. Application of Funds.
The proceeds received by the Company from the sale of Common Stock pursuant to
Option Agreements and Restricted Stock Purchase Agreements, except as otherwise
provided herein, will be used for general corporate purposes.
12.4. Annual and Other Periodic Reports.
The Company shall make available to Participants or cause to be made available
to Participants, either electronically or in the form of paper copies, all
annual and other periodic financial and informational reports that the Company
distributes generally to its shareholders, except if Participants are key
employees with duties that assure the equivalent access to information.
12.5. Action to Enforce In the event that a Participant brings an action to
enforce the terms of the Plan or any Option Agreement or Restricted Stock
Purchase Agreement and the Company prevails, the Participant shall pay all costs
and expenses incurred by the Company in connection with that action, including
reasonable attorney's fees and costs, including reasonable attorney's fees and
costs incurred by the Company in connection with collection.
12.6. Severability and Interpretation
If any provision of the Plan is or becomes or is deemed invalid, illegal or
unenforceable in any jurisdiction, or would disqualify the Plan or any Option
Agreement or Restricted Stock Purchase Agreement under any law deemed applicable
by the Administrator, such provision shall be construed or deemed amended or
limited in scope to conform to applicable laws or, in the discretion of the
Administrator, it shall be stricken and the remainder of the Plan shall remain
in full force and effect.
12.7. Governing Law
The Plan and each Option Agreement or Restricted Stock Purchase Agreement shall
be governed by the laws of the State of California, excluding any conflicts of
law or choice of law rule or principle that might otherwise refer construction
and interpretation of the plan and such agreements to the substantive law of
another jurisdiction. Unless otherwise provided in the Option Agreement or
Restricted Stock Purchase Agreement, Participants are deemed to submit to the
exclusive jurisdiction and venue of federal or state courts of Orange County,
California, to resolve any and all issues that may arise out of or relate to the
Plan or any Option Agreement or Restricted Stock Purchase Agreement.
12.8. Effective Date
The Plan shall become effective on the Effective Date.
12
Option No.
HiEnergy Technologies, Inc.
STOCK OPTION AGREEMENT
Type of Option (check one): |_| Incentive |_| Nonqualified
This Stock Option Agreement (the "Agreement") is entered into as of ___________,
by and between HiEnergy Technologies, Inc., a Delaware corporation (the
"Company") and ___________ (the "Optionee") pursuant to the Company's 2006 Stock
Incentive Plan (the "Plan").
1. Grant of Option.
The Company hereby grants to Optionee an option (the "Option") to purchase all
or any portion of a total of (___________) shares (the "Shares") of the Common
Stock of the Company at a purchase price of ___________ (___________) per share
(the "Exercise Price"), subject to the terms and conditions set forth herein and
the provisions of the Plan. If the box marked "Incentive" above is checked, then
this Option is intended to qualify as an "incentive stock option" as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). If
this Option fails in whole or in part to qualify as an incentive stock option,
or if the box marked "Nonqualified" is checked, then this Option shall to that
extent constitute a nonqualified stock option.
2. Vesting of Option.
2.1. Vesting Schedule.
The right to exercise this Option shall vest in installments, and this Option
shall be exercisable from time to time in whole or in part as to any vested
installment. Vesting will be measured from ___________ (the "Vesting Measurement
Date"). No additional Shares shall vest after the date of termination of
Optionee's "Continuous Service" (the "Service Termination Date"). As used
herein, the term "Continuous Service" has the meaning given in the Plan. Except
as may otherwise be provided in this Agreement, the vesting schedule is as
follows:
On or After: ........................................................ Option Exercisable As To:
- ----------- ------------------------
First anniversary of Vesting Measurement Date: ............................ ____% of the Shares
Last day of each calendar month after such first anniversary .............. ____% of the Shares
The vesting schedule of this Option would result, assuming the Service
Termination Date shall not have theretofore occurred, in this Option being
exercisable as to One Hundred Percent (100%) of the Shares covered by this
Option at the end of the calendar month in which the _______ anniversary of the
Vesting Measurement Date falls.
2.2. Change in Control.
In the event of a Change in Control (as defined in the Plan), the Administrator
in its discretion may take one or more of the following actions with respect to
this Option (whether or not then exercisable or vested):
(i) provide for the purchase or exchange of this Option for an amount of
cash or other property having a value equal to the difference, or
spread, between
(x) the value of the cash or other property that the Optionee
would have received pursuant to such Change in Control
transaction in exchange for any shares issuable upon exercise
of this Option, in the amount that the Optionee would have
received had the then exercisable portion, if any, of this
Option been exercised immediately prior to such Change in
Control transaction, and
(y) the Exercise Price,
(ii) adjust the terms of this Option in a manner determined by the
Administrator to reflect the Change in Control,
(iii) cause this Option to be assumed, or new rights substituted therefor,
by another entity, through the continuance of the Plan and the
assumption of this Option, or the substitution for this Option of a
new option of comparable value covering shares of a successor or
parent corporation, with appropriate adjustments as to the number
and kind of shares and Exercise Price, in which event the Plan and
this Option, or the new option substituted therefor, shall continue
in the manner and under the terms so provided,
(iv) cancel this Option if this Option is deemed to have no net value on
the basis described in paragraph 2.2(i) above or if the Option is
not then exercisable by virtue of this Agreement, as then in effect,
or
(v) make such other provision as the Administrator may consider
equitable.
If the Administrator does not take any of the forgoing actions, this Option
shall terminate upon the consummation of the Change in Control and the
Administrator shall cause written notice of the proposed transaction to be given
to the Optionee not less than fifteen (15) days prior to the anticipated
effective date of the proposed transaction.
3. Term of Option.
Optionee's right to exercise any vested portion of this Option shall terminate
upon the first to occur of the following:
3.1. Maximum Term.
the expiration of five (5) years from the date of this Agreement;
3.2. Involuntary Termination without Cause.
the expiration of three (3) months from the Service Termination Date if such
termination occurs for any reason other than permanent disability, death,
voluntary resignation; or for "cause;" provided, however, that if Optionee dies
during such three-month period the provisions of subsection 3.5 below shall
apply;
3.3. Voluntary Resignation.
the expiration of one (1) month from the Service Termination Date if such
termination occurs due to voluntary resignation; provided, however, that if
Optionee dies during such one-month period the provisions of subsection 3.5
below shall apply;
3.4. Permanent Disability.
the expiration of one (1) year from the Service Termination Date if such
termination is due to permanent disability of the Optionee (as defined in
Section 22(e)(3) of the Code);
3.5. Death.
the expiration of one (1) year from the Service Termination Date if such
termination is due to Optionee's death or if death occurs during either the
three-month or one-month period following the Service Termination Date pursuant
to subsection 3.2 or subsection 3.3 above, as the case may be;
3.6. Change in Control.
upon the consummation of a "Change in Control" (as defined in the Plan), unless
otherwise provided by the Administrator pursuant to Section 2.2 above; and
3.7. Termination for Cause.
upon termination of Optionee's Continuous Service by the Company for "cause,"
defined hereby to mean the performance of those acts identified in Section 2924
of the California Labor Code, at which time this Option, whether or not
exercisable on the Service Termination Date, shall terminate immediately and
become void and of no effect.
3.8. Breach and Non-Competition.
Notwithstanding the foregoing, the Administrator may cancel, rescind, suspend,
withhold or otherwise limit or restrict any Options or Common Stock, or the
exercise or purchase of any Options or Common Stock, at any time if the Optionee
engages in any "Adverse Activity." For purposes of this Section 3.8, "Adverse
Activity" shall include:
2
(i) the rendering of services for any organization or engaging directly or
indirectly in any business which is or becomes competitive with the Company, or
which organization or business, or the rendering of services to such
organization or business, is or becomes otherwise prejudicial to or in conflict
with the interests of the Company; (ii) the disclosure to anyone outside the
Company, or the use in other than the Company's business, without prior written
authorization from the Company, of any confidential information or material
relating to the business of the Company, acquired by Optionee either during or
after employment with the Company; (iii) the failure or refusal to disclose
promptly and to assign to the Company, all right, title and interest in any
invention or idea, patentable or not, made or conceived by Optionee during
employment by the Company, relating in any manner to the actual or anticipated
business, research or development work of the Company; (iv) activity that
results in termination of Optionee's Continuous Service for "cause," defined
here to mean those acts identified in Section 2924 of the California Labor Code;
(v) any material violation of any terms or provisions of this Agreement; or (vi)
any attempt directly or indirectly to induce any employee of the Company to be
employed or perform services elsewhere or any attempt directly or indirectly to
solicit the trade or business of any current or prospective customer, supplier
or partner of the Company. In the event Optionee engages in Adverse Activity
prior to, or during the six (6) months after, any exercise, payment or delivery
pursuant to an Option Agreement, such exercise, payment or delivery may be
rescinded at the sole election of the Company within two years thereafter. In
the event of any such rescission, the Optionee shall pay to the Company the
amount of any gain realized or payment received as a result of the disposition
of Shares or Options, in such manner and on such terms and conditions as may be
required, and the Company shall be entitled to set-off against the amount of any
such gain any amount owed to the Optionee by the Company.
4. Exercise of Option.
4.1. Persons Permitted to Exercise Option.
This Option may be exercised in whole or in part only by the Optionee or by a
Successor designated in Section 5 below.
4.2. Exercise as to Vested Portion of Option.
This Option may be exercised only on or after the vesting of any portion of this
Option in accordance with Section 2 above, and only as to the cumulative amount
vested at the date of exercise, except pursuant to provisions made, if any, by
the Administrator pursuant to subsection 4.5 below.
4.3. No Exercise after Termination.
This Option may not be exercised at the time of, or any time after, termination
of this Option in accordance with Section 3 above.
4.4. Mechanics of Exercise.
Exercise of this Option shall be made by delivery of the following to the
Company at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement and
states the number of Shares then being purchased (but no fractional
Shares may be purchased);
(b) a check or cash in the amount of the Exercise Price (or payment of
the Exercise Price in such other form of lawful consideration as the
Administrator may approve from time to time under the provisions of
the Plan);
(c) a check or cash in the amount reasonably requested by the Company to
satisfy the Company's withholding obligations under federal, state
or other applicable tax laws with respect to the taxable income, if
any, recognized by the Optionee in connection with the exercise of
this Option (unless the Company and Optionee shall have made other
arrangements for deductions or withholding from Optionee's wages,
bonus or other compensation payable to Optionee, or by the
withholding of Shares issuable upon exercise of this Option or the
delivery of Shares owned by the Optionee in accordance with the
provisions of the Plan, provided such arrangements satisfy the
requirements of applicable tax laws); and
(d) a letter, if requested by the Company, in such form and substance as
the Company may require, setting forth the investment intent of the
Optionee, or of a Successor designated in Section 5, as the case may
be.
A check shall be considered payment only when honored by the bank against which
it is drawn upon first presentment.
3
4.5. Exercise Prior to Vesting; Purchase of Restricted Stock.
The Administrator also has discretion, but not the obligation, to permit this
Option to be exercised as to the unvested portion prior to vesting, and in that
case to deliver Restricted Shares to the Optionee upon exercise of this Option.
The Administrator's determination to permit exercise of the unvested portion of
this Option shall be evidenced by the Company's and the Optionee's mutual
execution and delivery of a Restricted Stock Purchase Agreement in form and
substance determined by the Administrator, having the same or a different
Vesting Measurement Date and vesting schedule, as the Administrator and the
Optionee may agree.
5. Transfers on Death of Optionee; Restrictions on Lifetime Assignments.
Any attempt to sell, pledge, assign, hypothecate, transfer or dispose of this
Option in contravention of this Agreement or the Plan shall be void and shall
have no effect.
5.1. No Assignment of Incentive Stock Options.
If and to the extent that this Option comprises an incentive stock option, this
Option can be assigned or transferred (subject to all other restrictions in this
Agreement) only as follows:
(a) the rights of the Optionee under this Agreement may not be assigned
or transferred except by will or by the laws of descent and
distribution,
(b) this Option may be exercised during the lifetime of the Optionee
only by such Optionee;
(c) if the Optionee's Continuous Service terminates as a result of his
or her death, and provided Optionee's rights hereunder shall have
vested pursuant to Section 2 hereof, Optionee's legal
representative, his or her legatee, or the person who acquired the
right to exercise this Option by reason of the death of the Optionee
(with regard to incentive stock options, each individually, a
"Successor") shall succeed to the Optionee's rights and obligations
under this Agreement; and
(d) after the death of the Optionee, only a Successor may exercise this
Option.
In the context of incentive stock options, the term "Successor" refers to
each of the transferees, successors or assigns described in this
subsection 5.1.
5.2. Limited Assignability of Nonqualified Stock Options.
If and to the extent that this Option comprises a nonqualified stock option,
this Option can be assigned or transferred (subject to all other restrictions in
this Agreement) only as follows:
(a) the rights of the Optionee under this Agreement may be assigned or
transferred by will or by the laws of descent and distribution, and
Optionee's legal representative, his or her legatee, or the person
who acquired the right to exercise this Option by reason of the
death of the Optionee shall succeed to the Optionee's rights and
obligations under this Agreement, and
(b) the rights of the Optionee under this Agreement also may be assigned
and transferred by the Optionee for estate planning purposes to
members of the immediate family of the Optionee, including for this
purpose, but not limited to, spouses, parents, descendants, brothers
and sisters, or to trusts established for the benefit of such
persons.
In the context of nonqualified stock options, the term "Successor" refers
to each of the transferees, successors or assigns described in this
subsection 5.2.
6. Representations and Warranties of Optionee.
6.1. Investment Intent as to Options.
Optionee represents and warrants that this Option is being acquired by Optionee
for Optionee's personal account, for investment purposes only, and not with a
view to the distribution, resale or other disposition thereof.
4
6.2. Investment Intent as to Shares.
Optionee acknowledges that the Company may issue Shares upon the exercise of the
Option without registering such Shares under the Securities Act of 1933, as
amended (the "Act"), on the basis of certain exemptions from such registration
requirement. Accordingly, Optionee agrees that his or her exercise of the Option
may be expressly conditioned upon his or her delivery to the Company of an
investment certificate and agreement including such representations and
undertakings as the Company may reasonably require in order to assure the
availability of such exemptions, including representations, warranties and
agreements that--
(a) The Optionee is purchasing the Shares solely for the Optionee's own
account for investment and not with a view to or for sale or
distribution of the Shares or any portion thereof and not with any
present intention of selling, offering to sell or otherwise
disposing of or distributing the Shares or any portion thereof. The
Optionee also represents that the entire legal and beneficial
interest of the Shares the Optionee is purchasing is being purchased
for, and will be held for the account of, the Optionee only and
neither in whole nor in part for any other person.
(b) The Optionee has discussed the Company and its plans, operations and
financial condition with its officers and that the Optionee has
received all such information as the Optionee deems necessary and
appropriate to enable the Optionee to evaluate the financial risk
inherent in making an investment in the Shares of the Company, and
has received satisfactory and complete information concerning the
business and financial condition of the Company in response to all
inquiries in respect thereof.
(c) The Optionee realizes that the purchase of the Shares will be a
highly speculative investment.
(d) The Optionee is able, without impairing the Optionee's financial
condition, to hold the Shares for an indefinite period of time and
to suffer a complete loss on the investment.
(e) The Optionee acknowledges that he is aware that the Shares to be
issued to him by the Company pursuant to this Agreement have not
been registered under the Act, and--
(i) the Shares must be held indefinitely unless a transfer of them
is subsequently registered under the Act or an exemption from
such registration is available;
(ii) the share certificate(s) representing the Shares will be
stamped with the legends restricting transfer as specified in
this Agreement in Section 13 below; and
(iii) the Company will make a notation in its records of the
aforementioned restrictions on transfer and legends as
described in Section 14 below.
(f) The Optionee understands that the Shares are restricted securities
within the meaning of Rule 144 promulgated under the Act; that the
exemption from registration under Rule 144 will not be available in
any event for at least one year from the date of sale of the Shares
to the Optionee, and even then will not be available unless (i) a
public trading market then exists for the Shares of the Company,
(ii) adequate current public information concerning the Company is
then available to the public, (iii) the Optionee has been the
beneficial owner and the Optionee has paid the full purchase price
for the Shares at least one year prior to the sale, and (iv) other
terms and conditions of Rule 144 are complied with; and that any
sale of the Shares may be made by it only in limited amounts in
accordance with such terms and conditions of Rule 144, as amended
from time to time.
(g) Without in any way limiting any of the other provisions of this
Agreement, Optionee's further agreement that the Optionee shall in
no event make any disposition of all or any portion of the Shares
which the Optionee is purchasing unless and until:
(i) there is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is
made in accordance with said Registration Statement; or
(ii) (A) the Optionee shall have notified the Company of the
proposed disposition and shall have furnished the Company with
a detailed statement of the circumstances surrounding the
proposed disposition, (B) the Optionee shall have furnished
the Company with an opinion of counsel to the effect that such
disposition will not require registration of such shares under
the Act, and (C) such opinion of counsel shall have been
concurred in by counsel for the Company and the Company shall
have advised the Optionee of such concurrence.
(h) The Optionee represents and warrants that he or she has not engaged
in any Adverse Activity as defined in Section 3.8.
(i) The Optionee acknowledges that the Optionee has been furnished with
a copy of the Plan, has read the Plan and this Agreement, and
understands that all rights and obligations connected with this
Agreement are set forth in this Agreement and in the Plan.
5
7. Adjustments Upon Changes in Capital Structure.
In the event that the outstanding shares of Common Stock of the Company are
hereafter changed into or exchanged for a different number or kind of shares or
other securities of the Company by reason of a recapitalization, stock split,
combination of shares, reclassification, stock dividend (in excess of two
percent (2%)) or other change in the capital structure of the Company, then
appropriate adjustments shall be made by the Administrator to the number of
Shares subject to the unexercised portion of this Option and to the Exercise
Price per share, in order to preserve, as nearly as practical, but not to
increase, the benefits of the Optionee under this Option, in accordance with the
provisions of the Plan. No fractional share shall be issued under this Option or
upon any such adjustment.
8. No Creation or Enlargement of Optionee's Rights to Continue in any Capacity.
The right of the Company and any Affiliated Company (as defined in the Plan) to
terminate at will the Optionee's services to the Company or any Affiliated
Company at any time (whether by dismissal, discharge or otherwise), with or
without cause, is specifically reserved. Nothing in this Agreement shall
diminish or impair in any manner whatsoever the right or power of the Company or
any Affiliated Company to terminate the Optionee's Continuous Service for any
reason, with or without cause.
9. Rights as Shareholder.
The Optionee (or transferee of this option by will or by the laws of descent and
distribution) shall have no rights as a shareholder with respect to any Shares
covered by this Option until the date of the issuance of a stock certificate or
certificates to him or her for such Shares, notwithstanding the exercise of this
Option.
10. "Market Stand-Off" Agreement.
Optionee agrees that, if requested by the Company or the managing underwriter of
any proposed public offering of the Company's securities, Optionee will not sell
or otherwise transfer or dispose of any Shares held by Optionee without the
prior written consent of the Company or such underwriter, as the case may be,
during such period of time, not to exceed 180 days following the effective date
of the registration statement filed by the Company with respect to such
offering, as the Company or the underwriter may specify.
11. Restrictive Legends.
In addition to all other legends that the Company or its legal counsel consider
appropriate under applicable securities laws, the certificates representing any
Shares purchased pursuant to this Agreement shall bear substantially the
following legend:
-------------------------------------------------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (INCLUDING ANY
SECURITIES ISSUABLE ON EXERCISE OR WITH RESPECT TO ANY OTHER RIGHT
CONNECTED HEREWITH) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT
AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE
SECURITIES ACT OF 1933, AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER. IN ADDITION ANY TRANSFEREE OR ISSUEE OF SUCH SECURITIES
MAY BE REQUIRED TO PROVIDE APPROPRIATE INVESTMENT REPRESENTATIONS
PRIOR TO ANY SUCH TRANSFER OR ISSUANCE.
-------------------------------------------------------------------
6
12. Stop-Transfer Notices.
Optionee understands and agrees that, in order to ensure compliance with the
restrictions referred to herein, the Company may issue appropriate
"stop-transfer" instructions to its transfer agent, if any, and that, if the
Company transfers its own securities, it may make appropriate notations to the
same effect in its own records.
13. Interpretation.
This Option is granted pursuant to the terms of the Plan, and shall in all
respects be interpreted in accordance therewith. The Administrator shall
interpret and construe this Option and the Plan, and any action, decision,
interpretation or determination made in good faith by the Administrator shall be
final and binding on the Company and the Optionee. As used in this Agreement,
the term "Administrator" shall refer to the committee of the Board of Directors
of the Company appointed to administer the Plan, and if no such committee has
been appointed, the term Administrator shall mean the Board of Directors.
14. Notices.
Any notice, demand or request required or permitted to be given under this
Agreement shall be in writing and shall be deemed given when delivered
personally or three (3) days after being deposited in the United States mail, as
certified or registered mail, with postage prepaid, and addressed, if to the
Company, at its principal place of business, Attention: the Chief Financial
Officer, and if to the Optionee, at his or her most recent address as shown in
the records of the Company.
15. Governing Law.
The validity, construction, interpretation, and effect of this Option shall be
governed by the laws of the State of California, excluding any conflicts of law
or choice of law rule or principle that might otherwise refer construction and
interpretation of the plan and such agreements to the substantive law of another
jurisdiction. Optionee hereby agrees to submit to the exclusive jurisdiction and
venue of federal or state courts of Orange County, California, to resolve any
and all issues that may arise out of or relate to this Option.
16. Severability.
Should any provision or portion of this Agreement be held to be unenforceable or
invalid for any reason, the remaining provisions and portions of this Agreement
shall be unaffected by such holding.
17. Entire Agreement.
This Agreement and the Plan constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all prior or
contemporaneous written or oral agreements and understandings of the parties,
either express or implied. The option evidenced hereby may, in the discretion of
the Company, also be evidenced by a certificate in such form as the Company may
approve, in which case such option certificate and this Agreement shall evidence
one and the same option, which shall be governed by and construed in accordance
with this Agreement and the Plan.
18. Amendment.
The Board shall have full power and authority (subject to certain amendments
requiring shareholder approval pursuant to applicable laws or regulations) from
time to time to alter, amend, suspend or terminate the Plan in any or all
respects as the Board may deem advisable, and to alter this Agreement in ways
which shall not substantially adversely affect or impair the Optionee's rights
under this Agreement No such alteration, amendment, suspension or termination
shall be made which shall substantially affect or impair the rights of any
Optionee under an outstanding Option Agreement without such Optionee's consent.
The Board may alter or amend the Plan to comply with requirements under the Code
relating to Incentive Options or other types of options which give Optionees
more favorable tax treatment than that applicable to Options granted under the
Plan. Upon any such alteration or amendment, any outstanding Option granted
hereunder may, if the Administrator so determines and if permitted by applicable
law, be subject to the more favorable tax treatment afforded to an Optionee
pursuant to such terms and conditions.
7
19. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument. Execution and delivery of this Agreement or any
notices, certificates or instruments contemplated herein by fax, facsimile, or
telecopier shall be deemed the execution and delivery of an originally signed
agreement, notice or instrument, as the case may be.
IN WITNESS WHEREOF, the parties have executed this Stock Option Agreement
as of the date first above written. "COMPANY"
HiEnergy Technologies, Inc.
By: _________________________________
Name: _________________________________
Title: _________________________________
"OPTIONEE"
____________________________
(Signature)
____________________________
(Type or Print Name)
Address:________________________________
________________________________
8
RSPA No.
HiEnergy Technologies, Inc.
RESTRICTED STOCK PURCHASE AGREEMENT
UNDER 2006 STOCK INCENTIVE PLAN
This Restricted Stock Purchase Agreement is entered into as of ________, by and
between HiEnergy Technologies, Inc., a Delaware corporation (the "Company"), and
______________________ (the "Purchaser") pursuant to the Company's 2006 Stock
Incentive Plan (the "Plan").
1. Purchase and Sale of Shares.
The Purchaser hereby agrees to purchase from the Company, and the Company hereby
agrees to sell to the Purchaser, ____________ (____________) shares of its
Common Stock (the "Shares") for a purchase price of _________ (__________) per
share. The Shares shall be duly issued and a certificate or certificates for the
Shares are concurrently herewith being issued in the name of Purchaser.
Purchaser shall thereupon be a shareholder with respect to all of the Shares
represented by such certificate(s) and shall have all of the rights of a
shareholder with respect to all of the Shares, including the right to vote the
Shares and to receive all dividends and other distributions paid with respect to
the Shares, subject to the transfer restrictions provided in this Agreement. The
purchase price is payable as follows:
(a) by delivery of cash,
(b) by check (considered payment only when honored by the bank against
which it is drawn upon first presentment);
(c) by delivery of a promissory note payable to the Company, bearing
interest from the date hereof and substantially in the form attached
as Exhibit A; or
(d) any combination of cash, check and promissory note, so long as the
total consideration equals the aggregate purchase price as set forth
above.
In the event payment of any portion or all of the purchase price is to be
made by delivery of a promissory note, Purchaser shall deliver to the
Company a pledge of the Shares or other securities or assets which may be
listed in the Pledge Agreement dated the date hereof and substantially in
the form attached as Exhibit B. If the note is to be unsecured by the
Shares or other collateral, the Pledge Agreement shall so indicate.
The Purchaser's rights to acquire the Shares hereunder are nontransferable other
than by will or the laws of descent and distribution, and Purchaser's legal
representative, his or her legatee, or the person who acquired the Purchaser
rights to acquire the Shares by reason of the death of the Purchaser shall
succeed to the Purchaser's rights and obligations under this Agreement. The
rights of the Purchaser under this Agreement also may be assigned and
transferred by the Purchaser (a) for estate planning purposes to members of the
immediate family of the Purchaser, including for this purpose, but not limited
to, spouses, parents, descendants, brothers and sisters, or to trusts
established for the benefit of such persons, and (b) in a transfer described in
Section 1041(a) of the Code between spouses or incident to divorce.
2. Internal Revenue Code ss. 83(b) Election.
Purchaser hereby agrees to file the election provided under ss. 83(b) of the
Internal Revenue Code of 1986, as amended (herein called the "Code"), within
thirty (30) days of the transfer of the Shares, substantially in the form
attached as Exhibit C hereto and, if required, a comparable form of election
with the California Franchise Tax Board. The parties hereto acknowledge and
agree that the total fair market value of the Shares on the date hereof is per
Share, or an aggregate of _____________ for ____________ shares.
3. Company Repurchase Option.
In addition to all other restrictions imposed by this Agreement or applicable
caw, the Shares acquired by the Purchaser pursuant to this Agreement shall be
subject to the following restrictions and repurchase options.
3.1. Vesting Schedule.
Vesting will be measured from (the "Vesting Measurement Date"). The Shares
acquired hereunder shall vest and become "Vested Shares" in accordance with the
following vesting schedule:
On or After: .................................................... Shares Vested As To:
- ----------- -------------------
The first anniversary of Vesting Measurement Date: .............. ____% of the Shares
Last day of each calendar month after such first anniversary .... ____% of the Shares
The vesting schedule of this Agreement would result, assuming Continuous Service
shall have theretofore not terminated, in One Hundred Percent (100%) of the
Restricted Shares being Vested Shares at the end of the calendar month in which
the ______ anniversary of the Vesting Measurement Date falls. Shares which have
not yet become vested are herein called "Unvested Shares." In the event the
Continuous Service of the Purchaser ceases (the "Service Termination Date"), all
vesting shall cease unless otherwise determined by the Board of Directors. As
used herein, the term "Continuous Service" has the meaning given in the Plan.
In the event of a Change in Control of the Company, the Administrator in its
discretion may take one or more of the following actions with respect to the
Shares (whether Vested Shares or Unvested Shares):
(a) provide for the purchase or exchange of any Vested Shares for an
amount of cash or other property having a value equal to the value
of the cash or other property that the Purchaser would have received
pursuant to such Change in Control transaction in exchange for the
Vested Shares and provide for the repurchase by the Company of
Unvested Shares at the repurchase price provided in this Agreement,
(b) adjust the terms of this Agreement in a manner determined by the
Administrator to reflect the Change in Control,
(c) cause this Agreement to be assumed, or new rights substituted
therefor, by another entity, through the continuance of the Plan and
the assumption of this Agreement, or the substitution for this
Agreement of a new agreement of comparable value covering shares of
a successor or parent corporation, with appropriate adjustments as
to the number and kind of shares, in which event the Plan and this
Agreement, or the new agreement substituted therefor, shall continue
in the manner and under the terms so provided, or
(d) make such other provision as the Administrator may consider
equitable.
If the Administrator does not take any of the forgoing actions, this Agreement
shall terminate upon the consummation of the Change in Control and the
Administrator shall cause written notice of the proposed transaction to be given
to the Purchaser not less than fifteen (15) days prior to the anticipated
effective date of the proposed transaction.
3.2. Company Option to Repurchase Shares following Termination of Continuous
Service.
Concurrent with the Service Termination Date and for the period and under the
procedures set forth in Section 3.3 below, the Company shall have the option to
repurchase (the "Repurchase Option") all or any portion of the Purchaser's
Unvested Shares on the terms and subject to the limitations set forth herein.
3.3. Procedures for Exercise of Repurchase Option.
For sixty (60) days after the Service Termination Date or other event described
in this Section 3, the Company may exercise its Repurchase Option by giving
Purchaser and/or any other person obligated to sell written notice of the number
of Shares that the Company desires to purchase. The Company shall pay for such
Shares by the delivery of its check in the aggregate amount of the repurchase
price determined pursuant to Section 3.5 below against delivery of the
certificate(s) representing the Shares.
2
3.4. Deposit of Shares.
In aid of the repurchase provisions set forth herein, Purchaser shall,
immediately upon receipt of the certificate or certificates representing the
Shares, deposit the certificate or certificates, together with a stock power or
other instrument of transfer appropriately endorsed in blank, with the Company
as escrow holder of the certificate(s). Upon Shares becoming Vested Shares, and
in the event that the repurchase rights with respect to any Shares are not
exercised by the Company following any Service Termination Date, the Company
shall cause the certificate or certificates representing such Shares to be
delivered into the possession of Purchaser.
3.5. Repurchase Price.
The per share price for the Unvested Shares ("Unvested Stock Repurchase Price")
repurchased by the Company pursuant to this Section 3 shall be an amount equal
to the per share purchase price paid for the Shares by the Purchaser pursuant to
Section 1 above.
3.6. Repurchase in the Event of Personal Bankruptcy.
If the Purchaser:
(a) files a voluntary petition under any bankruptcy or insolvency law or
a petition for the appointment of a receiver or makes an assignment
for the benefit of creditors;
(b) is subjected involuntarily to such a petition or assignment or to an
attachment or other legal or equitable interest with respect to the
Shares and such involuntary petition or assignment or attachment is
not discharged within sixty (60) days after its date; or
(c) is required to transfer the Shares by operation of law or by order
or decree of any court,
then the Company shall have the option to exercise the Repurchase Right,
exercisable at any time during the period of 60 days after receiving notice
thereof, to purchase all of the Unvested Shares owned by the Purchaser upon the
terms set forth in this Section 3, whether or not the Continuous Service of the
Purchaser has terminated.
3.7. Assignment of Rights.
The Company may assign its rights under this Section 3 and Section 4.
4. Breach and Non-Competition.
The Administrator may cancel, rescind, suspend, withhold or otherwise limit or
restrict any Shares or rights of Purchaser under this Agreement at any time if
the Purchaser engages in any "Adverse Activity." For purposes of this Section 5,
"Adverse Activity" shall include: (i) the rendering of services for any
organization or engaging directly or indirectly in any business which is or
becomes competitive with the Company, or which organization or business, or the
rendering of services to such organization or business, is or becomes otherwise
prejudicial to or in conflict with the interests of the Company; (ii) the
disclosure to anyone outside the Company, or the use in other than the Company's
business, without prior written authorization from the Company, of any
confidential information or material relating to the business of the Company,
acquired by Purchaser either during or after employment with the Company; (iii)
the failure or refusal to disclose promptly and to assign to the Company, all
right, title and interest in any invention or idea, patentable or not, made or
conceived by Purchaser during employment by the Company, relating in any manner
to the actual or anticipated business, research or development work of the
Company; (iv) activity that results in termination of Purchaser's employment for
"cause," defined here to mean those acts identified in Section 2924 of the
California Labor Code; (v) any material violation of any terms or provisions of
this Agreement; or (vi) any attempt directly or indirectly to induce any
employee of the Company to be employed or perform services elsewhere or any
attempt directly or indirectly to solicit the trade or business of any current
or prospective customer, supplier or partner of the Company. At the request of
the Administrator, the Purchaser shall certify in a manner acceptable to the
Company that he or she is in compliance with the terms and conditions of this
Section 5. In the event Purchaser engages in Adverse Activity prior to, or
during the six (6) months after, any exercise, payment or delivery pursuant to
an Option Agreement, such exercise, payment or delivery may be rescinded at the
sole election of the Company within two years thereafter. In the event of any
such rescission, the Purchaser shall pay to the Company the amount of any gain
realized or payment received as a result of the disposition of Shares, in such
manner and on such terms and conditions as may be required, and the Company
shall be entitled to set-off against the amount of any such gain any amount owed
to the Purchaser by the Company.
3
5. Recapitalization.
In the event that, as the result of a stock split or stock dividend or
combination of shares or any other change, or exchange for other securities, by
reclassification, or recapitalization of the Shares, Purchaser shall be entitled
to new or additional or different shares of stock or securities, the certificate
or certificates for, or other evidences of, such new or additional or different
shares or securities shall be imprinted with the legend(s) provided in Section
6, and shall be deposited with the Company as escrow holder under the terms and
conditions provided in Section 3.4 herein, together with a stock power or other
instrument or transfer appropriately endorsed. In such event, any and all new,
substituted or additional securities or other property (other than cash) to
which the Purchaser is entitled by reason of his ownership of the Shares shall
be immediately subject to the Repurchase Right and First Right of Refusal and be
included in the word "Shares" for all purposes of the Repurchase Right and First
Right of Refusal with the same force and effect as the Shares subject to the
Repurchase Right and the First Right of Refusal under the terms of Section 3 and
Section 4. While the total Vested Stock Repurchase Price and Unvested Stock
Repurchase Price shall remain the same after each such event, the per share
price shall be appropriately adjusted. Shares acquired as provided in this
Section 6 shall be deemed to have been acquired at the time of acquisition of
the Shares on which such Shares were distributed.
6. Restrictive Legends.
In addition to all other legends that the Company or its legal counsel consider
appropriate under applicable securities laws, the certificates representing any
Shares, whether Vested Shares or Unvested Shares, purchased pursuant to this
Agreement shall bear substantially the following legend:
--------------------------------------------------------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (INCLUDING ANY
SECURITIES ISSUABLE WITH RESPECT TO ANY RIGHT CONNECTED HEREWITH) HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN
ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT AS MAY
BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933, AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER. IN ADDITION ANY TRANSFEREE OR
ISSUEE OF SUCH SECURITIES MAY BE REQUIRED TO PROVIDE APPROPRIATE
INVESTMENT REPRESENTATIONS PRIOR TO ANY SUCH TRANSFER OR ISSUANCE.
--------------------------------------------------------------------------
Until such time as the Company's Repurchase Rights terminate pursuant to Section
3.6, the stock certificates for the Shares purchased pursuant to this Agreement
shall be endorsed with substantially the following legend:
--------------------------------------------------------------------------
ANY DISPOSITION OF ANY INTEREST IN THE SECURITIES REPRESENTED BY THIS
CERTIFICATE (INCLUDING ANY SECURITIES ISSUABLE WITH RESPECT TO ANY
RIGHT CONNECTED HEREWITH) IS SUBJECT TO RESTRICTIONS, AND THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO REPURCHASE
RIGHTS, RIGHTS OF RESCISSION AND OTHER RIGHTS CONTAINED IN A RESTRICTED
STOCK PURCHASE AGREEMENT BETWEEN THE REGISTERED HOLDER (OR HIS
PREDECESSOR IN INTEREST) AND THE CORPORATION. THESE SECURITIES ARE NOT
TRANSFERABLE EXCEPT BY WILL OR PURSUANT TO THE LAWS OF DESCENT AND
DISTRIBUTION, OR AS EXPRESSLY PERMITTED IN THE RESTRICTED STOCK
PURCHASE AGREEMENT AND THE PLAN AS DEFINED THEREIN. A COPY OF SUCH
AGREEMENT AND SUCH PLAN ARE ON FILE AT THE PRINCIPAL OFFICE OF THE
COMPANY, AND A COPY THEREOF WILL BE MAILED TO ANY HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE WITHIN 5 DAYS OF RECEIPT BY THE CORPORATION
OF A WRITTEN REQUEST THEREFOR.
--------------------------------------------------------------------------
4
7. Stop-Transfer Notices.
Purchaser understands and agrees that, in order to ensure compliance with the
restrictions referred to herein, the Company may issue appropriate
"stop-transfer" instructions to its transfer agent, if any, and that, if the
Company transfers its own securities, it may make appropriate notations to the
same effect in its own records.
8. Representations and Warranties of Purchaser.
The Purchaser warrants and represents to the Company as follows:
(a) The Purchaser is purchasing the Shares solely for the Purchaser's
own account for investment and not with a view to or for sale or
distribution of the Shares or any portion thereof and not with any
present intention of selling, offering to sell or otherwise
disposing of or distributing the Shares or any portion thereof. The
Purchaser also represents that the entire legal and beneficial
interest of the Shares the Purchaser is purchasing is being
purchased for, and will be held for the account of, the Purchaser
only and neither in whole nor in part for any other person.
(b) The Purchaser has heretofore discussed the Company and its plans,
operations and financial condition with its officers, has heretofore
received all such information as the Purchaser deems necessary and
appropriate to enable the Purchaser to evaluate the financial risk
inherent in making an investment in the Shares of the Company, and
has received satisfactory and complete information concerning the
business and financial condition of the Company in response to all
inquiries in respect thereof.
(c) The Purchaser realizes that the purchase of the Shares will be a
highly speculative investment.
(d) The Purchaser is able, without impairing the Purchaser's financial
condition, to hold the Shares for an indefinite period of time and
to suffer a complete loss on the investment.
(e) The Purchaser acknowledges that he is aware that the Shares to be
issued to him by the Company pursuant to this Agreement have not
been registered under the Act. The Purchaser hereby acknowledges
that:
(i) the Shares must be held indefinitely unless a transfer of them
is subsequently registered under the Act or an exemption from
such registration is available;
(ii) the share certificate(s) representing the Shares will be
stamped with the legends restricting transfer as specified in
this Agreement; and
(iii) the Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
(f) The Purchaser understands that the Shares are restricted securities
within the meaning of Rule 144 promulgated under the Act; that the
exemption from registration under Rule 144 will not be available in
any event for at least one year from the date of sale of the Shares
to the Purchaser, and even then will not be available unless (i) a
public trading market then exists for the Shares of the Company,
(ii) adequate current public information concerning the Company is
then available to the public, (iii) the Purchaser has been the
beneficial owner and the Purchaser has paid the full purchase price
for the Shares at least one year prior to the sale, and (iv) other
terms and conditions of Rule 144 are complied with; and that any
sale of the Shares may be made by it only in limited amounts in
accordance with such terms and conditions of Rule 144, as amended
from time to time.
5
(g) Without in any way limiting any of the other provisions of this
Agreement, the Purchaser further agrees that the Purchaser shall in
no event make any disposition of all or any portion of the Shares
which the Purchaser is purchasing unless and until:
(i) there is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is
made in accordance with said Registration Statement; or
(ii) (A) the Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with
a detailed statement of the circumstances surrounding the
proposed disposition, (B) the Purchaser shall have furnished
the Company with an opinion of counsel to the effect that such
disposition will not require registration of such shares under
the Act, and (C) such opinion of counsel shall have been
concurred in by counsel for the Company and the Company shall
have advised the Purchaser of such concurrence.
(h) The Purchaser represents and warrants that he or she has not engaged
in any Adverse Activity as defined in Section 5.
(i) The Purchaser acknowledges that the Purchaser has been furnished
with a copy of the Plan, has read the Plan and this Agreement, and
understands that all rights and obligations connected with this
Agreement are set forth in this Agreement and in the Plan.
9. Unauthorized Transfers.
The Company shall not be required (a) to transfer on its books any Shares of the
Company which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement or (b) to treat as owner of such shares
or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such shares shall have been so transferred. In the event of a
sale of Shares by the Purchaser pursuant to Section 4, the Purchaser shall
furnish to the Company proof that such sale was made in compliance with the
provisions of Section 4 as to price and general terms of such sale.
Notwithstanding any other provision of this Agreement, if the Company is an
electing small business corporation under Subchapter S of the Code, at the time
Purchaser seeks to transfer his or her Shares, (a) no transfer shall be
effective unless the transferee covenants to comply with any rules and
regulations of the Internal Revenue Service then in effect relating to the
Company's Subchapter S election and to take no action which will jeopardize such
election; and (b) Purchaser hereby agrees that he or she will not transfer or
attempt to transfer any Shares to any transferee whose ownership of the Shares
could automatically invalidate the Company's Subchapter S election and that such
a sale or transfer shall be void and ineffectual.
10. "Market Stand-Off" Agreement.
Purchaser agrees that, if requested by the Company or the managing underwriter
of any proposed Public Offering of the Company's securities, Purchaser will not
sell or otherwise transfer or dispose of any Shares held by Purchaser without
the prior written consent of the Company or such underwriter, as the case may
be, during such period of time, not to exceed 180 days following the effective
date of the registration statement filed by the Company with respect to such
Public Offering, as the Company or the underwriter may specify.
11. Entire Agreement.
This Agreement and the Plan constitutes the entire agreement between the parties
pertaining to its subject matter and supersedes all contemporaneous written or
oral agreements and understandings of the parties, either express or implied.
The parties agree to execute such further instruments and to take such further
action as may reasonably be necessary to carry out the intent of this Agreement.
12. No Creation or Enlargement of Participant's Rights to Continue in any
Capacity.
The right of the Company and any Affiliated Company (as defined in the Plan) to
terminate at will the Purchaser's services to the Company or any Affiliated
Company at any time (whether by dismissal, discharge or otherwise), with or
without cause, is specifically reserved. Nothing in this Agreement shall
diminish or impair in any manner whatsoever the right or power of the Company or
any Affiliated Company to terminate the Purchaser's Continuous Service for any
reason, with or without cause.
6
13. Notices.
Any notice, demand or request required or permitted to be given under this
Agreement shall be in writing and shall be deemed given when delivered
personally or three (3) days after being deposited in the United States mail, as
certified or registered mail, with postage prepaid, and addressed, if to the
Company, at its principal place of business, Attention: the Chief Financial
Officer, and if to the Purchaser, at his or her most recent address as shown in
the records of the Company.
14. Successors and Assigns.
This Agreement shall inure to the benefit of the successors and assigns of the
Company and be binding upon the Purchaser and his heirs, executors,
administrators, successors and assigns.
15. Governing Law.
The validity, construction, interpretation, and effect of this Option shall be
governed by the laws of the State of California, excluding any conflicts of law
or choice of law rule or principle that might otherwise refer construction and
interpretation of the plan and such agreements to the substantive law of another
jurisdiction. Optionee hereby agrees to submit to the exclusive jurisdiction and
venue of federal or state courts of Orange County, California, to resolve any
and all issues that may arise out of or relate to this Option.
16. Interpretation. This Agreement is entered into pursuant to the terms of the
Plan, and shall in all respects be interpreted in accordance therewith. The
Administrator shall interpret and construe this Agreement and the Plan, and any
action, decision, interpretation or determination made in good faith by the
Administrator shall be final and binding on the Company and the Purchaser. As
used in this Agreement, the term "Administrator" shall refer to the committee of
the Board of Directors of the Company appointed to administer the Plan, and if
no such committee has been appointed, the term Administrator shall mean the
Board of Directors.
17. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument. Execution and delivery of this Agreement or any
notices, certificates or instruments contemplated herein by fax, facsimile, or
telecopier shall be deemed the execution and delivery of an originally signed
agreement, notice or instrument, as the case may be.
18. Severability.
Should any provision or portion of this Agreement be held to be unenforceable or
invalid for any reason, the remaining provisions and portions of this Agreement
shall be unaffected by such holding.
19. Amendment.
The Board shall have full power and authority (subject to certain amendments
requiring shareholder approval pursuant to applicable laws or regulations) from
time to time to alter, amend, suspend or terminate the Plan in any or all
respects as the Board may deem advisable, and to alter this Agreement in ways
which shall not substantially adversely affect or impair the Purchaser's rights
under this Agreement No such alteration, amendment, suspension or termination
shall be made which shall substantially affect or impair the rights of any
Purchaser under an outstanding Restricted Stock Purchase Agreement without such
Purchaser's consent.
7
IN WITNESS WHEREOF, the parties have executed this Restricted Stock Purchase
Agreement as of the day and year first above written.
"COMPANY"
HiEnergy Technologies, Inc.
By: _________________________________
Name: _________________________________
Title: _________________________________
"PURCHASER"
________________________________________
(Signature)
________________________________________
(Type or Print Name)
Address:________________________________
________________________________
8
CONSENT OF SPOUSE
I acknowledge that I have read the foregoing Agreement and that I know its
contents. I am aware that by its provisions, my spouse agrees, among other
things, to a first right of refusal, to the granting of rights to repurchase and
to the imposition of certain restrictions on the transfer of the shares of
HiEnergy Technologies, Inc., a Delaware corporation (the "Company"), including
my community interest therein (if any), which rights and restrictions may
survive my spouse's death. I hereby consent to such rights and restrictions and
approve of the provisions of the Agreement.
I further agree that in the event of a dissolution of the marriage between
myself and my spouse, in connection with which I secure or am awarded shares of
the common stock of the Company, or any interest therein through property
settlement agreement or otherwise, I shall receive and hold said shares subject
to all the provisions and restrictions contained in the foregoing Agreement,
including any option of a shareholder or the Company to purchase such shares or
interest from me.
I also acknowledge that I have been advised to obtain independent counsel to
represent my interests with respect to this Agreement but that I have declined
to do so and I hereby expressly waive my right to such independent counsel.
Date:_____________________
________________________________________
(Signature)
________________________________________
(Type or Print Name)
Spouse of ______________________________
9
EXHIBIT A
TO RESTRICTED STOCK PURCHASE AGREEMENT
PROMISSORY NOTE
(_____ YEAR, [_____]%* Interest)
___________________, ____ ____________, California
For value received, the undersigned promises to pay HiEnergy Technologies,
Inc., a Delaware Corporation (the "Company"), at the address of its principal
office, the sum of Dollars ($_____) in full by or before the ________
anniversary date of the date hereof, together with interest thereon as
hereinafter provided.
The undersigned shall have the right to prepay said principal amount at any time
in whole or in part without penalty. Simple annual interest at the rate (1) of
____________ percent (_____%) per annum on unpaid principal shall be paid
annually on each anniversary of the date hereof and upon each prepayment of
principal, if any.
The entire outstanding principal and interest shall be due and payable if any
one or more of the following events shall have occurred:
(a) The making by the undersigned of any assignment for the benefit of
creditors or the filing by or against the undersigned of any
petition in bankruptcy if such proceeding not be discharged within
ninety (90) days of any such making or filing.
(b) The occurrence of any termination of Continuous Service as set forth
in the Restricted Stock Purchase Agreement of even date herewith
between the undersigned and the Company.
If any installment of principal and/or interest is not paid when due, the holder
hereof may, at its option, declare the entire amount of this note immediately
due and payable.
All payments hereon shall be credited first to accrued but unpaid interest, and
the balance, if any, shall be credited to principal.
If legal action is instituted for the collection of this note, the undersigned
promises to pay such sum as the Court may adjudge reasonable as attorneys' fees.
This note is given pursuant to that certain Restricted Stock Purchase Agreement
of even date herewith, between the Company and the undersigned and is subject to
all of the terms, rights and remedies set forth therein. This note is secured by
a Pledge Agreement of even date herewith between the Company and the
undersigned.
________________________________________
(Signature)
________________________________________
(Type or Print Name)
*A fixed rate of interest is to be determined from time to time by action of the
Board of Directors in accordance with prevailing rates and the Internal Revenue
Service prescribed interest rules.
A-1
EXHIBIT B
TO RESTRICTED STOCK PURCHASE AGREEMENT
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement') is executed as of this _____ day of
____________, ____, between HiEnergy Technologies, Inc., a Delaware corporation
(the "Company"), and ("Purchaser").
WITNESSETH:
For the considerations and undertakings set forth herein, the parties do hereby
agree as follows:
1. To secure payment to the Company of a promissory note ("Note") in
the face amount of _______________________ Dollars ($__________),
and extensions or renewals thereof, which was executed concurrently
with the execution of this Pledge Agreement pursuant to a Restricted
Stock Purchase Agreement of even date herewith between the Company
and Purchaser, Purchaser hereby assigns and grants to the Company a
security interest in ___________________ (______) shares ("Shares")
of the Common Stock of the Company acquired under the Restricted
Stock Purchase Agreement, together with securities or other
collateral (if any) other than such Shares, all described as
follows:
Issuer:_______________________________
Certificate Number:___________________
Number of Shares:_____________________
Registered Owner:_____________________
Purchaser does hereby deposit with the Company, as pledge holder,
such certificates, together with duly executed stock transfer
powers.
2. Subject to any obligations of Purchaser under the Restricted Stock
Purchase Agreement, the Company agrees that within a reasonable time
after all or any portion of the Note is paid by Purchaser, the
Company shall release and deliver to Purchaser the number of Shares
held hereunder for which such payment was received. The Company, in
its discretion, may release portions of the Shares upon periodic
principal payments or deposit of other or additional security under
the Note. All Shares released and delivered to Purchaser shall be
free and clear of the restrictions of this Pledge Agreement.
3. Unless and until Purchaser defaults in his performance under the
terms of the Note, the terms of this Pledge Agreement and/or the
terms of the Restricted Stock Purchase Agreement, the Shares held by
the Company at any time under this Pledge Agreement shall remain
registered in the name of Purchaser on the records of the Company,
and Purchaser may vote the Shares on all corporate questions (if the
same shall be entitled to voting rights) and shall be entitled to
receive all dividends and other amounts accruing as a result of his
ownership of the Shares.
4. In the event the Purchaser defaults in the performance of any of the
terms of the Note, this Pledge Agreement or the Restricted Stock
Purchase Agreement, the Company may exercise any and all rights
which it may have under the California Uniform Commercial Code or
any other applicable statute, case, ruling regulation or law;
subject, however, to all permits, orders, consents, rules and
regulations of the California Commissioner of Corporations and the
Securities and Exchange Commission and the Federal Reserve Board
relating hereto, to which Purchaser agrees to be bound.
5. If during the term of this Pledge Agreement the Company should
become a party to any merger, consolidation or other reorganization,
this Pledge Agreement shall be adjusted so as to apply to the
securities to which a holder of the Shares subject to this Pledge
Agreement would have been entitled upon such merger, consolidation
or reorganization; and, if during the term of this Pledge Agreement
the Company shall be dissolved or its existence otherwise
terminated, then that portion of the assets and consideration to
which a holder of the Shares subject to this Pledge Agreement would
have been entitled in such transaction shall be the subject matter
of this Pledge Agreement for the remainder of its term. This shall
in no way limit the right of the Company to repurchase shares under
the Restricted Stock Purchase Agreement.
B-1
6. This Pledge Agreement shall inure to the benefit of and be binding
upon the heirs, executors and administrators of the parties hereto.
7. The rights, powers and remedies given to the Company by this
Agreement shall be in addition to all rights, powers and remedies
given to the Company under the Restricted Stock Purchase Agreement
or any statute or rule of law. Any forbearance or failure or delay
by the Company in exercising any right, power or remedy hereunder
shall not be deemed to be a waiver of such right, power or remedy,
nor shall any single or partial exercise of any right, power or
remedy preclude the further exercise thereof.
8. The Board of Directors may demand and receive payment or additional
security if for any reason the collateral hereunder is insufficient
to meet minimum requirements established under federal or state
securities or banking regulations or as may be necessary to bring
the Note and the security into compliance with any such law or
regulations. Any failure of Purchaser to meet any such demand shall
be deemed a default under this Pledge Agreement and under the note
secured hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and
year first above written. "COMPANY"
"COMPANY"
HiEnergy Technologies, Inc.
By: _________________________________
Name: _________________________________
Title: _________________________________
"PURCHASER"
________________________________________
(Signature)
________________________________________
(Type or Print Name)
Address:________________________________
________________________________
B-2
EXHIBIT C
TO RESTRICTED STOCK PURCHASE AGREEMENT
SECTION 83(b) ELECTION
Date: ___________, ______
Internal Revenue Service Center
5045 East Butler Avenue
Fresno, California 93888
Re: Election Under Section 83(b) of the Internal Revenue Code
Dear Sir or Madam:
The undersigned performed services in connection with which property was
transferred to the undersigned that, at the time of transfer, was not
transferable by the undersigned and was subject to a substantial risk of
forfeiture. The undersigned hereby makes this election pursuant to Section 83(b)
of the Internal Revenue Code.
In connection with this election, the undersigned hereby provides you with the
following information:
1. The undersigned's name, address, social security number, and the
taxable year of the person who performed the services are as
follows:
Name and Address:
__________________________________
__________________________________
__________________________________
__________________________________
Social Security No.: _________________________________
Taxable Year: Calendar Year
2. A description of the property with respect to which the election is
being made:
_____________ shares of Common Stock (the "Shares") of HiEnergy
Technologies, Inc., a Delaware corporation (the "Company").
3. The date on which the property was transferred:
4. A description of the nature of the restrictions to which the
property is subject:
The Company may reacquire all or any part of the Shares from the undersigned in
accordance with a repurchase schedule set forth in a Restricted Stock Purchase
Agreement (the "Agreement") between the undersigned and the Company. In the
event the undersigned should cease to be a service provider to the Company at
any time, the Company may repurchase unvested Shares at the original price paid
by the undersigned. The Shares acquired under the Agreement shall vest and
become "Vested Shares" from and after (the "Vesting Measurement Date") in
accordance with the following vesting schedule:
On or After: .......................................................... Shares Vested As To:
- ----------- -------------------
The first anniversary of Vesting Measurement Date: .................... _____% of the Shares
Last day of each calendar month after such first anniversary .......... _____% of the Shares
The vesting schedule of this Agreement would result, assuming Continuous Service
shall have theretofore not terminated, in One Hundred Percent (100%) of the
Restricted Shares being Vested Shares at the end of the calendar month in which
the ______ anniversary of the Vesting Measurement Date falls. Shares which have
not yet become vested are herein called "Unvested Shares." In the event
Purchaser ceases his employment or service provider status with the Company, all
vesting shall cease unless otherwise determined by the Board of Directors.
Concurrent with the Service Termination Date, the Company shall have the option
to repurchase (the "Repurchase Option") all or any portion of the Purchaser's
Unvested Shares.
6. The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its
terms will never lapse) of the property with respect to which the
election is being made:
_________ per share, which equals an aggregate fair market
value of ______________________.
7. The amount paid for such property:
_________ per share, which equals an aggregate fair market
value of ______________________.
There are enclosed herewith two copies of this written statement for filing.
Please stamp the third copy enclosed herewith as having been received and return
it to the undersigned in the enclosed, self-addressed, postage-paid envelope.
The undersigned has also submitted a copy of this statement to the person for
whom the services were performed.
If you have any questions or comments, or if any additional information is
required, please do not hesitate to contact:
_____________________
_____________________
_____________________
_____________________
(___) ___-____
Very truly yours,
________________________________________
(Signature)
________________________________________
(Type or Print Name)
APPENDIX D
HIENERGY TECHNOLOGIES, INC.
ANNUAL REPORT ON
FORM 10-KSB FOR
FISCAL YEAR ENDED
APRIL 30, 2007
ANNUAL MEETING OF SHAREHOLDERS
OF HIENERGY TECHNOLOGIES, INC.
JANUARY 26, 2007
PROXY ANNUAL MEETING OF HIENERGY TECHNOLOGIES, INC. SHAREOWNERS, JANUARY 26,
2007 THIS PROXY IS SOLICITED ON BEHALF OF THE CORPORATION'S BOARD OF DIRECTORS
The undersigned hereby appoints William A. Nitze and David R. Baker, and each of
them with full power of substitution, to vote, as designated on the reverse
side, all common shares of. HiEnergy Technologies, Inc. held of record by the
undersigned on December 15, 2006, at the Annual Meeting of Shareholders to be
held on January 26, 2007, or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES TO
SERVE AS DIRECTORS AND "FOR" APPROVAL OF PROPOSALS NOS. 1, 2, 3, 4, AND 5. THE
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE.
IF NO DIRECTION IS GIVEN IN THE SPACE PROVIDED ON THE REVERSE SIDE, THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES SPECIFIED ON THE REVERSE SIDE
AND "FOR" THE APPROVAL OF PROPOSALS 1, 2, 3, 4, AND 5. HAS YOUR ADDRESS CHANGED?
DO YOU HAVE ANY COMMENTS?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE REVERSE (CONTINUED AND TO BE DATED AND SIGNEDON THE REVERSE SIDE)
HIENERGY TECHNOLOGIES, INC.
1601-B ALTON PARKWAY
IRVINE, CA, USA 92606
YOUR VOTE IS IMPORTANT.
CASTING YOUR VOTE AS DESCRIBED ON THIS INSTRUCTION CARDVOTES ALL
COMMON SHARES OF HIENERGY TECHNOLOGIES, INC. THAT YOU ARE ENTITLED
TO VOTE.
PLEASE CONSIDER THE ISSUES DISCUSSED IN THE PROXY STATEMENT AND CAST YOUR
VOTE BY COMPLETING THE PROXY AND MAILING IT TO THE COMPANY.
Please mark votes by shading in the boxes to the left of your choices with a
black or dark blue pen or with a Number 2 pencil.
This Proxy, when properly executed, will be voted in the manner directed. If no
direction is made, this Proxy will be voted FOR all of the Director nominees
listed below and FOR approval of Proposals No. 2 through 5.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the Director nominees listed below
and FOR approval of Proposals 2 through 5.
- --------------------------------------------------------------------------------
1. Election of Directors - If Shareholders approve Proposal No. 1, each nominee
will be elected for a one-year term or until his or her successor is elected.
Nominees for election as Directors:
01 - Mr. William A. Nitze
02 - Mr. Peter J. Le Beau
03 - Mr. David R. Baker
04 - Colonel William J. Lacey, Jr.
05 - Roger W.A. Spillmann
|_| FOR ALL NOMINEES |_| WITHHELD FROM ALL NOMINEES
- ----------------------------------------------
|_| For all nominees, except as written above.
2. To approve an amendment of our Certificate of Incorporation to increase the
number of authorized shares of common stock from 100,000,000 to 200,000,000
shares.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To amend our Certificate of Incorporation to remove unimplemented provisions
relating to Board classification.
|_| FOR |_| AGAINST |_| ABSTAIN
4. To approve the HiEnergy Technologies, Inc. 2006 Stock Incentive Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
5. To ratify the appointment of Singer Lewak Greenbaum & Goldstein LLP as the
Company's independent registered public accounting firm for the fiscal year
ending April 30, 2007.
|_| FOR |_| AGAINST |_| ABSTAIN
6. To transact such other business as may properly come before the meeting or
any adjournment or postponement of the meeting.
|_| FOR |_| AGAINST |_| ABSTAIN
Change of Address and/or Comments Mark Here |_|
The signer hereby revokes all Proxies previously given by the signer to vote at
the meeting or any adjournments.
Please mark, sign, date, and return this Proxy promptly using the enclosed
envelope.
Please sign exactly as the name appears on this card. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by general partner.
- --------------------------------------------------------------
Signature
- --------------------------------------------------------------
Date
- --------------------------------------------------------------
Signature
- --------------------------------------------------------------
Date