SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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14a-6(e)(2))
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[_] Soliciting Material Under Sec. 240.14a-12
HIENERGY TECHNOLOGIES, INC.
---------------------------------------
(Name of Registrant as Specified in Its Charter)
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or the Form or Schedule and the date of its filing.
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[HIENERGY TECHNOLOGIES LETTERHEAD]
September 10, 2002
Dear Shareholder:
You are cordially invited to attend the 2002 Annual Meeting of Shareholders
of HiEnergy Technologies, Inc. to be held at 11:00 a.m. Pacific Daylight Time on
Thursday, October 10, 2002, at the Hilton Hotel located at 18800 MacArthur
Blvd., Irvine, California.
The accompanying Notice of the 2002 Annual Meeting of Shareholders and
Proxy Statement describe the matters to be presented at the Annual Meeting. The
Board of Directors recommends that shareholders vote in favor of each of the
matters presented.
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 voted by proxy.
I look forward very much to seeing you on October 10th.
Sincerely,
/s/ B.C. Maglich
Dr. Bogdan C. Maglich
Chairman of the Board
NOTICE OF 2002 ANNUAL MEETING OF SHAREHOLDERS
OF HIENERGY TECHNOLOGIES, INC.
TO BE HELD AT 11:00 A.M. ON OCTOBER 10, 2002
To the Shareholders of HiEnergy Technologies, Inc.:
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of Shareholders of HiEnergy
Technologies, Inc., a Washington corporation, will be held at 11:00 a.m. Pacific
Daylight Time on Thursday, October 10, 2002, at the Hilton Hotel located at
18800 MacArthur Blvd., Irvine, California, and all adjournments and
postponements thereof, for the following purposes:
1. To elect five directors to serve staggered terms of one, two and three
years and until their respective successors are elected and qualified;
2. To ratify the Board's appointment of Singer Lewak Greenbaum &
Goldstein LLP, Certified Public Accountants, as the independent
auditors for HiEnergy Technologies for the fiscal year ending April
30, 2003;
3. To ratify the Board's grant of a stock option to Dr. Bogdan Maglich to
purchase 2,482,011 shares of HiEnergy Technologies' Common Stock;
4. To ratify the Board's approval of HiEnergy Technologies' Employment
Agreement, as amended, with Dr. Bogdan Maglich, including the issuance
of additional stock options to Dr. Maglich during the term of the
Employment Agreement;
5. To ratify the Board's grant of a stock option to Isaac Yeffet to
purchase 1,000,000 shares of HiEnergy Technologies' Common Stock;
6. To adopt and approve the Agreement and Plan of Merger to effect a
change of domicile of HiEnergy Technologies from the State of
Washington to the State of Delaware; and
7. 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 August 12, 2002 as the record date for determining shareholders entitled
to receive notice of, and to vote at, the Annual Meeting or any adjournment or
postponement thereof. Only shareholders of record at the close of business on
that date will be entitled to notice of and to vote at the Annual Meeting.
With respect to Proposal No. 6, regarding a change of domicile, shareholders are
or may be entitled to assert dissenters' rights pursuant to Chapter 23B.13 of
the Revised Code of Washington. See the Proxy Statement under Proposal No. 6 for
more information about dissenters' rights.
ALL SHAREHOLDERS 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. SHAREHOLDERS ATTENDING THE
ANNUAL MEETING MAY VOTE IN PERSON EVEN IF THEY HAVE PREVIOUSLY VOTED BY PROXY.
By Order of the Board of Directors,
/s/ Michal Levy
Michal Levy
Secretary
Irvine, California
September 10, 2002
HIENERGY TECHNOLOGIES, INC.
10 MAUCHLY DRIVE
IRVINE, CALIFORNIA 92618
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PROXY STATEMENT
FOR THE
2002 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 10, 2002
GENERAL
This Proxy Statement is furnished to the shareholders of HiEnergy Technologies,
Inc., a Washington corporation, in connection with the solicitation of proxies
by the Board of Directors of HiEnergy Technologies. The proxies are to be voted
at the 2002 Annual Meeting of Shareholders of HiEnergy Technologies (the "Annual
Meeting") to be held at the Hilton Hotel located at 18800 MacArthur Blvd.,
Irvine, California, at 11:00 a.m., Pacific Daylight Time, on Thursday, October
10, 2002, 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 form of
proxy have been mailed to shareholders on or about September 10, 2002.
HiEnergy Technologies' principal offices are located at 10 Mauchly Drive,
Irvine, California 92618, and its telephone number is 949.727.3389.
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 shareholders. 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 to Shareholders on Form 10-KSB (the "Annual Report"),
containing financial statements for the fiscal year ended April 30, 2002,
accompanies this Proxy Statement. Shareholders 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
Ms. Michal Levy, Secretary of HiEnergy Technologies, at HiEnergy Technologies'
principal address at 10 Mauchly Drive, Irvine, California 92618 or by calling
949.727.3389. In the alternative, you may find the Annual Report and the
exhibits to the Annual Report on the Security and Exchange Commission's web-site
at www.sec.gov.
RECORD DATE AND VOTING RIGHTS
Only holders of record of HiEnergy Technologies shares of common stock, par
value $0.0001 per share (the "Common Stock"), at the close of business on August
12, 2002 (the "Record Date") will be entitled to notice of, and to vote at, the
Annual Meeting. On the Record Date, HiEnergy Technologies had 22,613,098 shares
of Common Stock outstanding. Each share of Common Stock is entitled to one vote
at the Annual Meeting.
1
The following table summarizes the voting requirements for the six proposals:
PROPOSAL VOTE REQUIRED
- ---------------------------------------- ---------------------------------------------------------
Proposal No. 1: Election of five Plurality of the votes of shares of Common Stock
directors. present or represented and entitled to vote at the
Annual Meeting. There is no cumulative voting;
therefore, persons controlling a majority of the shares
of Common Stock present or represented and entitiled to
vote at the Annual Meeting can elect all of the
directors.
- ---------------------------------------- ---------------------------------------------------------
Proposal No. 2: Ratification of the The votes cast in favor of ratification must exceed the
Board's appointment of Singer Lewak votes cast opposing ratification.
Greenbaum & Goldstein as HiEnergy
Technologies' auditors for fiscal year
ending April 30, 2003.
- ---------------------------------------- ---------------------------------------------------------
Proposal No. 3: Ratification of the The votes cast in favor of ratification must exceed the
Board's grant of a stock option to Dr. votes cast opposing ratification (excluding the shares of
Maglich to purchase 2,482,011 shares of Common Stock beneficially owned by Dr. Maglich).
Common Stock.
- ---------------------------------------- ---------------------------------------------------------
Proposal No. 4: Ratification of the The votes cast in favor of ratification must exceed the
Board's approval of HiEnergy votes cast opposing ratification (excluding the shares of
Technologies' Employment Agreement, Common Stock beneficially owned by Dr. Maglich).
as amended, with Dr. Maglich, including
the issuance of additional stock options
during the term of the Employment
Agreement.
- ---------------------------------------- ---------------------------------------------------------
Proposal No. 5: Ratification of the The votes cast in favor of ratification must exceed the
Board's grant of a stock option to Isaac votes cast opposing ratification.
Yeffet to purchase 1,000,000 shares of
HiEnergy Technologies' Common Stock
in connection with a consulting
agreement with Yeffet Security
Consultant, Inc.
- ---------------------------------------- ---------------------------------------------------------
Proposal No. 6: Adoption and approval A vote "for" adoption and approval by a majority of all
of the Agreement and Plan of Merger to of the issued and outstanding shares of Common Stock
effect a change of domicile of HiEnergy (as determined on the Record Date and not limited to
Technologies from the State of the Common Stock present or represented at the
Washington to the State of Delaware Annual Meeting).
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.
2
Note that the proposal to change the domicile of HiEnergy Technologies requires
a favorable vote by a majority of all of the issued and outstanding shares of
Common Stock as of the Record Date. Abstentions and broker non-votes, because
they are not affirmative votes, will have the same practical effect as votes
against Proposal No. 6.
LIST OF SHAREHOLDERS ENTITLED TO VOTE
At least 10 days before the Annual Meeting, the Secretary of HiEnergy
Technologies will make a complete list of the shareholders entitled to vote at
the Annual Meeting arranged in alphabetical order, with the address of and
number of shares held by each shareholder. The list will be kept on file at the
principal offices of HiEnergy Technologies and will be subject to inspection by
any shareholder 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 shareholder 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.
3
REVOCATION
Any shareholder 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 shareholder 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.
DATE AND TIME OF OPENING AND CLOSING OF THE POLLS
The date and time of the opening of the polls for the Annual Meeting shall be
11:00 a.m. on October 10, 2002. The time of the closing of the polls for voting
shall be announced at the Annual Meeting. No ballot, proxies or votes, nor any
revocations or changes to a vote, shall be accepted after the closing of the
polls unless a court of equity, upon application by a shareholder, determines
otherwise.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
The directors and executive officers of HiEnergy Technologies do not have any
substantial interest in the matters to be acted upon at the Annual Meeting
except that Dr. Maglich, Chairman of the Board and Chief Scientist, has a direct
interest in the ratification and approval by the shareholders of his employment
agreement and the stock option grants made to him and contemplated to be made to
him as provided in Proposal No. 3 and Proposal No. 4, respectively.
Also, the change of domicile of HiEnergy Technologies from Washington to
Delaware may benefit its directors and executive officers in that Delaware law
affords some protection and certainty about the rules that can potentially
determine whether their personal assets might need to be spent in defense of
claims by HiEnergy Technologies, shareholders or third parties.
- --------------------------------------------------------------------------------
PROPOSAL NO. 1: ELECT DIRECTORS
- --------------------------------------------------------------------------------
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
for one, two or three years, as provided below, and until his successor shall
have been elected and qualified: Dr. Bogdan Maglich; Mr. Richard Alden; Mr.
Gregory Gilbert; Mr. Harb Al Zuhair; and Mr. Barry Alter. 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.
CHANGE IN CONTROL TRANSACTION
HiEnergy Technologies' corporate structure includes a parent public company and
an operating subsidiary. HiEnergy Technologies is the parent public company and
was incorporated under the laws of the State of Washington on March 20, 2000,
under the name SLW Enterprises Inc. On April 30, 2002, SLW changed its name to
HiEnergy Technologies, Inc. following its acquisition of an approximately 92%
ownership interest in HiEnergy Microdevices, Inc. on April 25, 2002 in a reverse
take-over transaction. As a result of this transaction, former shareholders of
HiEnergy Microdevices came to own approximately 65% of the outstanding equity of
the parent public company and the five directors of HiEnergy Microdevices became
five of the six directors of the parent public company.
HiEnergy Microdevices is a Delaware corporation formed in 1995. It is the entity
where the remote detection technology has been developed. Dr. Bogdan Maglich,
HiEnergy Technologies' Chairman of the Board and Chief Scientist, founded
HiEnergy Microdevices to commercialize the technology he invented to remotely
and non-intrusively decipher the chemical composition of a substance.
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 Articles of
Incorporation of HiEnergy Technologies, the directors are to serve staggered
terms, which is intended to prevent the replacement of the entire Board at an
annual meeting of the shareholders. The Board will be divided into three
classes, with each class to be as nearly equal in number as possible, as
specified by resolution of the Board of Directors. The term of office of
directors of the first class shall expire at the first annual meeting of
shareholders after their election. The term of office of directors of the second
class shall expire at the second annual meeting after their election. The term
of office of directors of the third class shall expire at the third annual
meeting after their election. At each annual meeting after such classification,
4
a number of directors equal to the number of the class whose term expires at the
time of such meeting shall be elected to hold office until the third succeeding
annual meeting. 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. If elected, the directors will serve
staggered terms of one, two and three years as follows:
Class I - One Year
- ----------------------
- BARRY ALTER has served as CEO, President, Treasurer and a Director of
HiEnergy Technologies since February 2002.
- RICHARD F. ALDEN has served as a Director of HiEnergy Technologies
since April 2002 and has been a director of HiEnergy Microdevices
since June 1997.
Class II - Two Years
- ------------------------
- GREGORY F. GILBERT has served as a Director of HiEnergy Technologies
since April 2002 and has been a director of HiEnergy Microdevices
since 1996.
- HARB S. ALZUHAIR has served as a Director of HiEnergy Technologies
since April 2002 and has been a director of HiEnergy Microdevices
since June 1997.
Class III - Three Years
- ---------------------------
- BOGDAN C. MAGLICH has served as Chairman of the Board and Chief
Scientist of HiEnergy Technologies since April 2002 and has been
Chairman of the Board of HiEnergy Microdevices since August 1995.
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
To HiEnergy Technologies' knowledge, the following table sets forth information
with respect to the beneficial ownership of its outstanding Common Stock as of
the record date, August 12, 2002, by: (i) each person known by HiEnergy
Technologies to beneficially own more than 5% of its Common Stock; (ii) each of
its executive officers; (iii) each of its directors; and (iv) all of its
executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Unless otherwise indicated, the address for those
listed below is c/o HiEnergy Technologies, Inc., 10 Mauchly Drive, Irvine,
California 92618. 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. The number of shares of Common Stock outstanding
used in calculating the percentage for each listed person includes the shares of
Common Stock underlying options held by such persons that are exercisable within
60 days of August 12, 2002, but excludes shares of Common Stock underlying
options held by any other person. The number of shares of HiEnergy Technologies'
Common Stock outstanding as of August 12, 2002 was 22,613,098. Except as
otherwise noted, the amounts reflected below are based upon information provided
to HiEnergy Technologies and in filings with the Securities and Exchange
Commission.
5
PERCENT OF
NAME OF BENEFICIAL OWNER NUMBER OF SHARES OUTSTANDING
- ------------------------------------------------------- ----------------- ------------
Dr. Bogdan C. Maglich, Chairman of the Board and Chief 10,898,370 (1) 43.43%
Scientist
Barry Alter, CEO, President, Treasurer and Director 1,542,500 5.90%
Michal Levy, Secretary and Vice President 110,588 (2) *
Gregory F. Gilbert, Director (3) 0 *
Richard F. Alden, Director 953,411 (4) 4.20%
Harb S. Al Zuhair, Director 828,422 (5) 3.66%
ALL EXECUTIVE OFFICERS & DIRECTORS AS A GROUP 14,333,291 56.83%
(7 Persons)
<FN>
* Indicates less than one percent of the Common Stock.
(1) Includes 2,334,023 shares owned directly by Dr. Maglich, 1,236,735 shares owned by
Advanced Projects Group, Inc., a Delaware corporation, of which Dr. Maglich is sole
director and officer and a ten percent shareholder, 3,345,601 shares owned by Maglich
Family Holdings, Inc., a Delaware corporation, of which Dr. Maglich is sole director and
officer and a ten percent shareholder, and 1,500,000 shares owned by Maglich Innovations
Fund Inc., a Delaware corporation, of which Dr. Maglich is sole director, officer and
shareholder. Dr. Maglich disclaims beneficial ownership of the stock held by Maglich
Family Holdings, Inc. and Advanced Projects Group, Inc. beyond his pecuniary interest.
Also includes 2,482,011 shares of Common Stock issuable upon the exercise of currently
exercisable stock options.
(2) Includes 89,410 shares of Common Stock issuable upon the exchange of 4,000 shares
of HiEnergy Microdevices Common Stock held by Ms. Levy. The 4,000 shares of HiEnergy
Microdevices Common Stock are subject to payment of a promissory note in the amount of
$3.50 per share, or a total of $14,000. Also includes 11,178 shares of Common Stock
issuable upon exchange of 500 shares of HiEnergy Mircodevices Common Stock held by Ms.
Levy.
(3) Mr Gilbert's business address is 8776 Killdee, Suite 100, Orangevalle, California
95662.
(4) Includes 2,236 shares of Common Stock held by Richmar Associates, a California
general partnership, of which Mr. Alden is the Managing Partner. Also includes 15,000
shares held by Rimar Investments, Inc., a California corporation, of which Mr. Alden is
a director and shareholder. Mr. Alden disclaims beneficial ownership of the stock held
by Richmar Associates and Rimar Investments beyond his pecuniary interest. Also
includes 75,999 shares of Common Stock issuable upon the exchange of 3,400 shares of
HiEnergy Microdevices Common Stock held by Mr. Alden. The 3,400 shares of HiEnergy
Microdevices Common Stock are subject to payment of a promissory note in the amount of
$3.50 per share, or a total of $11,900. Mr. Alden's business address is 11340 West
Olympic Boulevard, Suite 280, Los Angeles, California 90061
(5) Includes 17,882 shares of Common Stock issuable upon the exchange of 800 shares of
HiEnergy Microdevices Common Stock held by Mr. Al Zuhair. The 800 shares of HiEnergy
Microdevices Common Stock are subject to payment of a promissory note in the amount of
$3.50 per share, or a total of $2,800.
6
CHANGE IN CONTROL
HiEnergy Technologies is not aware of any arrangement that would upset the
control mechanisms currently in place over the corporation. Although it is
conceivable that a third party could attempt a hostile takeover of HiEnergy
Technologies, it has not received notice of any such effort.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of April 30, 2002 with respect to
compensation plans under which HiEnergy Technologies is authorized to issue
shares of its Common Stock, aggregated as follows:
- all compensation plans previously approved by security holders;
and
- all compensation plans not previously approved by security
holders.
(a) (b) (c)
- --------------------- ------------------------ ---------------------- ------------------------
Plan Category Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation
plans (excluding
securities reflected in
column (a))
- --------------------- ------------------------ ---------------------- ------------------------
Equity compensation
plans approved by 0 0 0
security holders
- --------------------- ------------------------ ---------------------- ------------------------
Equity compensation
plans not approved by 2,482,011 (1) $ 0.134 (2)
security holders
- --------------------- ------------------------ ---------------------- ------------------------
Total 2,482,011 $ 0.134 (2)
<FN>
(1) On April 24, 2002, the Board of Directors of HiEnergy Technologies approved
the issuance and grant of a non-qualified stock option to Dr. Maglich to
purchase 2,483,011 shares of HiEnergy Technologies 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 HiEnergy Technologies Common Stock
for each share of HiEnergy Microdevices, which resulted in an exercise price of
$0.134 per share. The Board has recommended that the shareholders of HiEnergy
Technologies ratify the grant of the stock option at the 2002 Annual Meeting of
Shareholders. See Proposal No. 3 of this Proxy Statement for further information
about the stock option granted to Dr. Maglich.
7
(2) The Employment Agreement, as amended, between Dr. Maglich and HiEnergy
Technologies contemplates the issuance of the following stock options to Dr.
Maglich annually through the term of the Employment Agreement, or until December
31, 2006: options to purchase one percent per year of HiEnergy Technologies'
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. In no case may the number of options granted in a given
year be less than ten percent of the total number of options granted by HiEnergy
Technologies for services in that year. See Proposal No. 4 of this Proxy
Statement for further information about the employment agreement.
Other than outstanding options to purchase 2,482,011 shares of HiEnergy
Technologies' Common Stock granted to Dr. Maglich at an exercise price of $0.134
per share, HiEnergy Technologies had no other options or warrants outstanding or
arrangements for the issuance of options or stock grants outstanding as of April
30, 2002.
In July 2002, HiEnergy Technologies executed a Consulting Agreement with Yeffet
Security Consultant, Inc. The Consulting Agreement contemplates the issuance of
a non-qualified stock option to Isaac Yeffet, the principal of Yeffet Security
Consultant, to purchase 1,000,000 shares of HiEnergy Technologies' Common Stock
at an exercise price of $1.00 per share. One half of the shares are exercisable
immediately and the other half are exercisable beginning one year after HiEnergy
Technologies' Minisenzor product is operational and ready to be shown for
approval to appropriate authorities. The Board of Directors has recommended that
the stockholders of HiEnergy Technologies ratify the grant of the stock option
at the Annual Meeting. See Proposal No. 5 of this Proxy Statement for further
information about the stock option granted to Mr. Yeffet.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each director and
executive officer of HiEnergy Technologies as of the date of this Proxy
Statement.
NAME AGE POSITION TERM
--------------------- --- --------------------- ----
Dr. Bogdan C. Maglich 64 Chairman of the Board April 25, 2002 to present
and Chief Scientist
Barry Alter 47 Director, CEO, February 20, 2002 to
President and present
Treasurer
Michal Levy 30 Secretary and Vice April 25, 2002 to present
President
Gregory F. Gilbert 53 Director April 25, 2002 to present
Richard F. Alden 77 Director April 25, 2002 to present
Harb S. Al Zuhair 64 Director April 25, 2002 to present
At the Annual Meeting, the directors will be divided into three classes. The
three classes will have staggered terms of one, two and three years, which they
will serve until the respective annual meeting of shareholders and until their
successors have been elected and qualified. There are no family relationships
among any of the directors and executive officers of HiEnergy Technologies.
Mr. Edward Finch resigned as a director of HiEnergy Technologies and HiEnergy
Microdevices effective September 6, 2002.
8
All of the executive officers identified above serve at the discretion of the
Board and have consented to act as executive officers of HiEnergy Technologies.
The biographies for the above individuals covering the past five years are as
follows:
BOGDAN C. MAGLICH
- -------------------
As HiEnergy Technologies' Chairman and Chief Scientist, Dr. Maglich has 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 working on safety measures for Soviet reactors in Europe. Currently,
Dr. Maglich is involved in the development and testing of three detectors based
on his stoichiometric technology.
Dr. Maglich has served as a professor of physics at 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 following: the CERN European
Center for High Energy (nuclear) Physics in Geneva, Switzerland; the U.S.
National Laboratories, the Air Force Weapons Laboratory (now known as the Air
Force Phillips Laboratory); and the British-Swedish-American Consortium for the
design of the King Abdulaziz Energy Research Center in Saudi Arabia. Dr.
Maglich received a Ph.D. in high-energy physics and nuclear engineering from the
Massachusetts Institute of Technology (MIT), a Master of Science from Britain's
University of Liverpool, and a Bachelor of Science from the University of
Belgrade.
BARRY ALTER
- ------------
Prior to becoming an officer and director of HiEnergy Technologies and during
the period from November 2000 through December 2001, Mr. Alter served as Chief
Operating Officer of SBS Interactive Inc., a private Nevada corporation in the
business of developing, marketing and licensing consumer electronic products,
including the use of the television as an interactive medium. Since 1998, Mr.
Alter has also worked through his own consulting company, Challure Capital
Investment Corporation, to provide business management expertise and assistance
with raising working capital to companies in financial difficulty, including
Indian Motorcycle, a private California corporation in the motorcycle production
business, and xseeksy.com, a private Delaware corporation online relationship
dot.com company. From 1983 to 1998, Mr. Alter served as President of Sweet
Expressions Inc., a private Ontario company in the business of distributing
confectionery.
MICHAL LEVY
- ------------
Ms. Levy was appointed Secretary and Vice President on April 25, 2002. As Vice
President and Secretary, Ms. Levy handles Investor Relations, Public Relations
and maintains HiEnergy Technologies' records. Originally from Israel, Ms. Levy
served as Vice President and Secretary for seven years at Tapuz Enterprises,
Inc., a successful California construction corporation. Prior to her employment
with HiEnergy Technologies, Ms. Levy worked with prize-winning writer Arthur A.
Ross as an administrative assistant and was a managing partner at a California
LLC dedicated to film production. Ms. Levy has studied at Ben-Zvi, Israel, LAVC
and UCLA Extension.
GREGORY F. GILBERT
- --------------------
Mr. Gilbert has diverse legal, accounting, business, science and engineering
skills. He has been a member of the Board of Directors of HiEnergy Microdevices
since 1996 and served as HiEnergy Microdevices' CEO and President since March,
2002. He is a licensed attorney in California with 25 years of extensive
experience in international law, banking, corporate law, and business.
Currently, he is the CEO of Metabolic Industries, and Hamilton-Biophile, a
public company that manufactures creams and lotions, Hamilton-Clarke, a private
9
company and Hamilton-May, a private company. He is also the Administrative
Director of the Diabetes Research Institute in Sacramento, California. In
addition to the above companies, he is also on the boards of World Medical
Organizations, Nevada Pacific Lands, and Xentrol Pharma. He has engineering
company experience as a past officer and director of L&H Airco,
Hamilton-Detroit, and Sunrise Systems. Prior to his career in business, he
practiced law as an international lawyer, representing many foreign companies
and entities, including OPEC, TTI and Novartis. He is currently admitted to
practice and has practiced in the California Courts of Appeal, the California
Supreme Court, the U.S. District Courts, U.S. Court of Appeals, Federal
Bankruptcy Courts, the U.S. Court of Claims, the U.S. Tax Court and the U.S.
Supreme Court. He remains a member of each bar. He is the recipient of the
American Diabetes Association volunteer of the year award (Northern California)
and the U.S. Air Force ROTC Outstanding Service Award for 1993, and was
nominated for Philanthropist of the Year (1995), Central California, for
charitable work to benefit mankind.
RICHARD F. ALDEN
- ------------------
Mr. Richard F. Alden was raised in Southern California. He served as an officer
in the South Pacific during World War II. Mr. Alden received his Bachelor of
Arts Degree in 1946 from the University of Southern California and his J.D. from
the University of Southern California School of Law in 1949, where he served on
the Board of Editors of the Law Review. Following graduation, Mr. Alden joined
the national law firm of Latham & Watkins, where he remained until 1985,
practicing tax, real estate and business acquisition law. In 1985 Mr. Alden
retired from Latham & Watkins to assume the position of Vice Chairman of the
Board and General Counsel of Hughes Aircraft Company after having served as that
company's General Counsel for over a decade and a director of Hughes since 1976.
He retired from Hughes in 1988. Mr. Alden is also a director of Safety
Associates, Inc. He is trustee of the California State Parks Foundation, a
trustee of the Episcopal Diocesan Investment Trust, and has served as Finance
Chairperson for the Doheny Eye Institute.
HARB S. AL ZUHAIR
- --------------------
Born on July 4, 1938, Mr. Al Zuhair received his primary education in Beirut and
obtained a degree in civil engineering from the Portsmouth College of
Technology, U.K. in 1961. In 1971, he established Electronics Equipment
Marketing Co. as a division of SADCO, a company run by his family. Electronics
Equipment Marketing Co. is one of the leading high-tech companies in Saudi
Arabia. Presently Mr. Al Zuhair wholly owns or has investments in a variety of
businesses, among them: construction, industrial, banking, mining, aviation and
trading companies. Mr. Al Zuhair is also serving as chairman, member of the
board of directors and founding member of various companies in the Saudi Kingdom
and abroad.
EDWARD R. FINCH
- -----------------
Mr. Edward R. Finch has been an attorney since 1948. He has also been an
author, lecturer and diplomat. Mr. Finch served as a Special Ambassador for
President Nixon and as a U.S. Delegate for three other Presidents of the United
States - Presidents Ford, Reagan and Clinton. He was a U.S. Delegate to Unispace
Two for President Reagan in Vienna, Austria and to Unispace Three in 1999 for
President Clinton. Mr. Finch is a recognized expert in the following areas of
law: trusts and estates law, nonprofit and charitable organizations law; and
international outer space law. Since 1986, Mr. Finch has been the President of
the Adams J. Memorial Fund, Inc. Mr. Finch is currently involved with a number
of organizations in varying capacities, including the following: General
Counsel, Saint Giles Foundation, Inc., (since 1986); New York Institute for
Special Education (since 1948) (past President); Board of Governors, National
Space Society (Member since 1984); Council of American Ambassadors (since 1972);
New York State, Federal, American Bar Association-Vice Chairman, committee on
Real Property, Wills, Trusts & Estates (since 1979); International Bar
Association; The Florida Bar; The International Institute of Space Law; The
International Astronautical Academy; American Bar Foundation (Fellow); St.
Andrew's Dune, South Hampton, N.Y., and St. Bartholomew's Church in N.Y.; and
St. Nicholas Society of the City of N.Y. (Trustee). Mr. Finch is also a former
commissioner of the City of New York.
10
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the year ended April 30, 2002, there were no meetings of the Board of
Directors. However, all matters which required approval were consented to in
writing by all directors.
The Board of Directors established an Audit Committee on May 14,2002. The Board
of Directors has not established a Nominating Committee or a Compensation
Committee. The Audit Committee is responsible to the full Board of Directors.
The functions performed by the Audit Committee are summarized below:
AUDIT COMMITTEE. The Audit Committee makes recommendations to the Board of
Directors regarding the selection and retention of independent auditors, reviews
the scope and results of the audit and reports the results to the Board of
Directors. In addition, the Audit Committee reviews the adequacy of internal
accounting, financial and operating controls and reviews HiEnergy Technologies'
financial reporting compliance procedures. The members of the Audit Committee
are Mr. Alter and Mr. Alden. Mr. Alden is an independent director. Mr. Alter
currently serves as HiEnergy Technologies' CEO, President and Treasurer. There
have been two meetings of the Audit Committee, one held on June 11, 2002 and the
other on June 27, 2002.
The Board of Directors authorized the Audit Committee to adopt a written
Charter, which the Committee did on June 11, 2002. A copy of the Audit Committee
Charter accompanies this Proxy Statement as Appendix A.
EXECUTIVE COMPENSATION
The following table sets forth the compensation that HiEnergy Technologies has
paid to its Named Executive Officers for the three fiscal years ended April 30,
2002, 2001 and 2000, respectively. With the exception of Dr. Maglich, no
executive officer or director received more than $100,000 in annual compensation
during the year ended April 30, 2002. HiEnergy Technologies does not currently
have a long-term compensation plan and does not grant any long-term compensation
to HiEnergy Technologies' executive officers. No other compensation was granted
for the periods covered.
11
- ----------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
----------------------------- ----------------------------------------
Awards Pay-Outs
--------------------- -----------------
Other Securities All
Annual Restricted Under- Other
Name and Fiscal Compen- Stock lying LTIP Compen-
Principal Year Salary Bonus sation Award(s) Options/ Payouts sation
Position Ended ($) ($) ($) ($) SARs (#) ($) ($)
- ----------------------------------------------------------------------------------------------------
BOGDAN 2002 $ 80,734 $ 50,000 $ 24,952 $ 196,148 2,482,011 -0- -0-
MAGLICH 2001 $ 20,140 -0- $ 26,666 $ 25,000 -0- -0- -0-
Chairman and 2000 $ 11,430 -0- $ 19,792 $ 41,300 -0- -0- -0-
Chief Scientist (1)
- ----------------------------------------------------------------------------------------------------
BARRY 2002 -0- -0- -0- -0- -0- -0- -0-
ALTER
Director , CEO
and President
- ----------------------------------------------------------------------------------------------------
SUZANNE 2002 -0- -0- -0- -0- -0- -0- -0-
WOOD 2001 -0- -0- -0- -0- -0- -0- -0-
Former Director
and President
- ----------------------------------------------------------------------------------------------------
<FN>
(1) Dr. Maglich served as Chairman and Chief Scientist of HiEnergy Microdevices
during the three fiscal years covered. He was appointed Chairman and Chief
Scientist of HiEnergy Technologies on April 25, 2002. The Other Annual
Compensation amounts paid to Dr. Maglich consisted of the following personal
expense reimbursements:
EXPENSE CATEGORY: FISCAL YEAR ENDED 2002 FISCAL YEAR ENDED 2001 FISCAL YEAR ENDED 2000
- --------------------- ----------------------- ----------------------- ----------------------
Auto Lease $ 6,705 $ 15,745 $ 8,454
Auto Insurance $ 1,438 $ 2,017 $ 1,267
Auto Expenses (other) $ 500 $ 471 $ 150
Home Rent $ 13,750 $ 6,500 $ 6,925
Medical Insurance $ 2,559 $ 1,933 $ 2,996
TOTAL $ 24,952 $ 26,666 $ 19,792
Dr. Maglich also received compensation in the form of shares of restricted
Common Stock of HiEnergy Microdevices as follows: 196,149 shares with an
estimated value of $196,149 during the fiscal year ended April 30, 2002; 35,000
shares with an estimated value of $25,000 during the fiscal year ended April 30,
2001; and 51,500 shares with an estimated value of $41,300 during the fiscal
year ended April 30, 2000. These shares were subsequently converted by Dr.
Maglich into shares of HiEnergy Technologies Common Stock through participation
in the voluntary share exchange transaction with HiEnergy Technologies. In
connection with the renegotiation of Dr. Maglich's employment agreement with
HiEnergy Microdevices, he received a signing bonus in the form of a $100,000
promissory note subject to HiEnergy Technologies meeting specific financing
goals. Dr. Maglich received $50,000 of the signing bonus upon receipt by
HiEnergy Technologies of $1,000,000 raised through equity financing during
April 2002.
12
STOCK OPTION GRANTS
The following table sets forth information with respect to options to purchase
Common Stock granted to each of HiEnergy Technologies' Named Executive Officers
during its most recent fiscal year ended April 30, 2002:
- ----------------------------------------------------------------------------------------
Number of Percent of Total
Securities Options/SARs Exercise or Base
Underlying Granted to Price
Options/SARs Employees in ($/Share)
Name Granted Fiscal Year Expiration Date
- ---------------------------------------------------------------------------------------
BOGDAN 2,482,011 100% $ 0.134/share November 30, 2008
MAGLICH
Chairman and
Chief Scientist
- ---------------------------------------------------------------------------------------
EXERCISES OF STOCK OPTIONS AND YEAR-END OPTION VALUES
No stock options were exercised by the Named Executive Officers during the
fiscal year ended April 30, 2002.
COMPENSATION OF DIRECTORS
To date, HiEnergy Technologies' directors have not been compensated for their
service as directors. HiEnergy Technologies plans to compensate its directors
with stock options for their service as directors. All directors are reimbursed
for any reasonable expenses incurred in the course of fulfilling their duties as
a director of HiEnergy Technologies.
HiEnergy Microdevices compensated its directors with shares of its common stock
for their service as directors prior to the reverse takeover by HiEnergy
Technologies. During the fiscal year ended April 30, 2002, the following
HiEnergy Microdevices directors received shares of HiEnergy Microdevices common
stock for their service as directors: Mr. Richard Alden received 3,500 shares
with an estimated value of $3,500; Mr. Gregory Gilbert received 1,000 with an
estimated value of $1,000; and Mr. Edward Finch, a former director of HiEnergy
Microdevices, received 1,000 shares with an estimated value of $1,000. These
shares were subsequently converted by each of the directors into shares of
HiEnergy Technologies Common Stock through participation in the voluntary share
exchange transaction with HiEnergy Technologies.
EMPLOYMENT CONTRACTS
In March 2002, HiEnergy Microdevices entered into an employment agreement with
Dr. Maglich, its Chairman and Chief Scientist. On July 16, 2002, the Employment
Agreement was assigned by HiEnergy Microdevices to HiEnergy Technologies
pursuant to an Assignment and Assumption Agreement approved by the Boards of
Directors of HiEnergy Technologies and HiEnergy Microdevices at meetings held on
July 16, 2002 and executed by HiEnergy Microdevices, HiEnergy Technologies and
Dr. Maglich. The material terms of the Employment Agreement are summarized under
Proposal No. 4 of this Proxy Statement below. A copy of the Employment Agreement
and the Assignment and Assumption Agreement accompany this Proxy Statement as
Appendix B and Appendix C, respectively.
13
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
HiEnergy Technologies directors, executive officers and persons who own more
than ten percent of its Common Stock to file with the Securities Exchange
Commission and the company reports on Forms 4 and Forms 5 reflecting
transactions affecting beneficial ownership. Based solely upon HiEnergy
Technologies' review of the copies of such forms received by it, HiEnergy
Technologies believes that, during fiscal year ended April 30, 2002, all persons
complied with such filing requirements except that Dr. Bogdan Maglich, Maglich
Family Holdings, Inc., Mr. Gregory Gilbert, Mr. Harb Al Zuhair, Mr. Richard
Alden, Mr. Edward Finch and Ms. Levy each did not timely file a Form 3 reporting
their initial beneficial ownership. HiEnergy Technologies has received a written
representation from each of HiEnergy Technologies' directors and executive
officers that no Forms 5 are required for the fiscal year ended April 30, 2002.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions with management or other parties occurred since the beginning of
HiEnergy Technologies' last fiscal year that would otherwise be reported under
this section.
During the fiscal years ended April 30, 2002 and 2001, however, HiEnergy
Microdevices, whose results of operations are included in HiEnergy Technologies'
consolidated financial statements, has incurred the following material notes
payable to current and former officers and directors:
- HiEnergy Microdevices had unsecured notes totaling $59,083 payable to
Dr. Maglich for past due employment compensation with interest payable
at 6% per annum, maturing in December 2002. Subsequent to April 30,
2002, the notes were paid in full.
- HiEnergy Technologies had an unsecured note totaling $100,000 payable
to Dr. Maglich as a signing bonus pursuant to his employment
agreement. The amount is non-interest-bearing, $50,000 payable upon
receipt of $1,000,000 or more from any source, and $50,000 payable
upon revenue in excess of $500,000 or $1,000,000 of additional funds
from any source. Subsequent to April 30, 2002, $50,000 was paid to Dr.
Maglich by HiEnergy Technologies.
- During March, 2002, Mr. Barry Alter, a director and officer of
HiEnergy Technologies, made a non-interest-bearing loan to HiEnergy
Microdevices of $50,000. Subsequent to April 30, 2002, the note was
paid in full.
- During March and April, 2002, Mr. Rheal Cote, a former director of
HiEnergy Technologies, made several non-interest-bearing loans to
HiEnergy Microdevices totaling $150,000. Subsequent to April 30, 2002,
the notes were paid in full. In consideration for paying the notes
late, in May, 2002, HiEnergy Technologies issued to Mr. Cote, upon
approval by the Board, a warrant to purchase 150,000 shares of
HiEnergy Technologies' Common Stock at a conversion price of $1.00
with a three year term.
- HiEnergy Microdevices had a secured note totaling $10,400 payable to
Mr. Edward Finch, a former director of HiEnergy Technologies, interest
payable at 8% per annum, and due in July 2001. The note is secured by
the patent applications for Europe, Canada, and Japan. The holder of
the note has the option to convert the principal and interest into
shares of common stock. As of April 30, 2002, the note was in default.
14
- HiEnergy Microdevices had a secured note totaling $5,000 payable to
Mr. Gregory Gilbert, a director of HiEnergy Technologies, with
interest payable at 8% per annum, and due in July 2001. Subsequent to
April 30, 2002, the note was paid in full.
- HiEnergy Microdevices had an unsecured note totaling $5,000 payable to
Hamilton-Clarke, a corporation of which Mr. Gilbert is a shareholder,
director and officer. Subsequent to April 30, 2002, the note was paid
in full.
- In July, 2002, HiEnergy Technologies issued 11,218 shares of Common
Stock to Mr. Harb Al Zuhair, a director of HiEnergy Technologies,
valued at $1.00 per share to retire the principal and interest owing
to Mr. Al Zuhair on two notes payable in the amounts of $5,780 and
$5,438, respectively. The notes are considered paid in full.
- In July, 2002, HiEnergy Technologies issued 11,678 shares of Common
Stock to Mr. Richard Alden valued at $1.00 per share to retire the
principal and interest owing to Mr. Alden on a note payable totaling
$11,678. The note is considered paid in full. In July, 2002, HiEnergy
Technologies issued 15,000 shares of Common Stock to Rimar
Investments, Inc., a California corporation, valued at $1.00 per share
to retire the principal and interest owing to Rimar Investments, Inc.
on a note payable totaling $15,000. The note is considered paid in
full. Mr. Alden is one of three shareholders and directors of Rimar
Investments, Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH NOMINEE NAMED ABOVE.
- --------------------------------------------------------------------------------
PROPOSAL NO. 2: RATIFY APPOINTMENT OF INDEPENDENT AUDITORS FOR 2003
- --------------------------------------------------------------------------------
Singer Lewak Greenbaum & Goldstein LLP served as HiEnergy Technologies'
independent auditors for the fiscal year ended April 30, 2002, and has been
appointed by the Board of Directors to continue as its independent auditors for
the fiscal year ending April 30, 2003.
Although the appointment of Singer Lewak Greenbaum & Goldstein LLP is not
required to be submitted to a vote of the shareholders, the Board believes it
appropriate as a matter of policy to request that the shareholders ratify the
appointment of the independent public accountant for the fiscal year ending
April 30, 2003. In the event that the votes in opposition to ratification exceed
the votes in favor of ratification, the adverse vote will be considered as a
direction to the Board of Directors of HiEnergy Technologies to select other
auditors for the fiscal year ending April 30, 2003.
A representative from Singer Lewak Greenbaum & Goldstein LLP is expected to be
present at the Annual Meeting. The representative will have the opportunity to
make a statement and will be able to respond to appropriate questions submitted
either orally or in writing at the meeting.
From March 24, 2000, inception, through May 7, 2002, HiEnergy Technologies'
principal accountant was Manning Elliott, Chartered Accountants, of Vancouver,
British Columbia. Effective May 7, 2002, the Board of Directors of HiEnergy
Technologies approved a change of accountants. On May 7, 2002, management of
HiEnergy Technologies dismissed Manning Elliott and engaged Singer Lewak
Greenbaum and Goldstein of Los Angeles, California, as its independent public
accountants to audit its financial statements.
15
HiEnergy Technologies believes, and has been advised by Manning Elliott that it
concurs with such belief, that, for the period ended April 30, 2000 and the
fiscal year ended April 30, 2001 and in the subsequent periods through the date
of dismissal, HiEnergy Technologies and Manning Elliott did not have any
disagreement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Manning Elliott would have caused it to make
reference in connection with its report on HiEnergy Technologies' financial
statements to the subject matter of the disagreement. The report of Manning
Elliott on HiEnergy Technologies financial statements for the period ended April
30, 2000 and the fiscal year ended April 30, 2001, did not contain an adverse
opinion or a disclaimer of opinion, but did contain a qualification that the
financial statements were prepared under the assumption that HiEnergy
Technologies will continue as a going concern. Prior to engaging the new
accountants, Singer Lewak Greenbaum & Goldstein LLP, on May 7, 2002, HiEnergy
Technologies, or someone on its behalf, did not consult with the new accountants
regarding the application of accounting principles to a specific completed or
contemplated transaction, or the type of audit opinion that might be rendered on
HiEnergy Technologies' financial statements, and no written or oral advice was
provided by the new accountants that was an important factor considered by
HiEnergy Technologies in reaching a decision as to an accounting, auditing or
financial reporting issue. HiEnergy Technologies has furnished the above
disclosure, made in response to Item 304 of Regulation S-B, to both Singer Lewak
Greenbaum & Goldstein LLP and Manning Elliott, Chartered Accountants for their
review.
During the fiscal year ended April 30, 2002, Singer Lewak Greenbaum & Goldstein
LLP and Manning Elliott, Chartered Accountants, billed HiEnergy Technologies the
fees set forth below in connection with services rendered by those firms to
HiEnergy Technologies.
AUDIT FEES. For professional services rendered by Singer Lewak Greenbaum &
Goldstein LLP for the audit of HiEnergy Technologies' Consolidated Financial
Statements for the fiscal year ended April 30, 2002, Singer Lewak Greenbaum &
Goldstein LLP billed HiEnergy Technologies fees in the aggregate amount of
$35,000. For professional services rendered by Manning Elliott, Chartered
Accountants, for the reviews of the financial statements included in HiEnergy
Technologies' Quarterly Reports on Form 10-QSB for the fiscal year ended April
30, 2002, Manning Elliott billed HiEnergy Technologies fees in the aggregate
amount of $1,575.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. For the fiscal
year ended April 30, 2002, neither Singer Lewak Greenbaum & Goldstein LLP nor
Manning Elliott, Chartered Accountants, rendered professional services to
HiEnergy Technologies in connection with (i) directly or indirectly operating,
or supervising the operation of HiEnergy Technologies' information system or
managing its local area network, (ii) designing or implementing a hardware or
software system that aggregates source data underlying HiEnergy Technologies'
financial statements or generates information that is significant to HiEnergy
Technologies' financial statements taken as a whole or (iii) assessing,
designing and implementing internal accounting controls and risk management
controls. Therefore, neither Singer Lewak Greenbaum & Goldstein LLP nor Manning
Elliott, Chartered Accountants, billed HiEnergy Technologies fees for such types
of services because no such services were rendered.
ALL OTHER FEES. For professional services other than those described above
rendered by Singer Lewak Greenbaum & Goldstein LLP and Manning Elliott,
Chartered Accountants, to HiEnergy Technologies for the fiscal year ended April
30, 2002, Manning Elliott, Chartered Accountants, billed HiEnergy Technologies
fees in the aggregate amount of $1,000 to prepare pro forma financial
information in connection with the business combination between HiEnergy
Technologies and HiEnergy Microdevices.
Pursuant to Item 9(e) of Schedule 14A, the Audit Committee, and the Board of
Directors prior to the formation of the Audit Committee, has considered the
provision of services provided in the above referenced items and has determined
that the provision of these services is compatible with maintaining the
principal auditor's independence.
16
There were no hours expended on the principal auditor's engagement to audit
HiEnergy Technologies' financial statements for the most recent fiscal year that
were attributed to work performed by persons other than the principal auditor's
full-time, permanent employees.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
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 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, 2002, 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 for the year ended April 30, 2002, for filing with the Securities
and Exchange Commission.
Respectfully submitted by the Audit Committee of the Board of Directors of
HiEnergy Technologies:
Barry Alter
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP, CERTIFIED PUBLIC ACCOUNTANTS, AS
HIENERGY TECHNOLOGIES' INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING APRIL 30,
2003.
17
- --------------------------------------------------------------------------------
PROPOSAL NO. 3: RATIFY GRANT OF STOCK OPTION TO DR. MAGLICH
- --------------------------------------------------------------------------------
On April 24, 2002, the Board of Directors of HiEnergy Technologies authorized
and approved the grant and issuance of a non-qualified stock option to Dr.
Bogdan Maglich, HiEnergy Technologies' current Chairman and Chief Scientist, to
purchase 2,482,011 shares of HiEnergy Technologies' Common Stock, par value
$0.0001 per share, at an exercise price of $0.134 per share. On July 16, 2002, a
Special Committee of the Board of Directors that included all of the directors
except for Dr. Maglich reaffirmed HiEnergy Technologies' grant and issuance of
the stock option to Dr. Maglich.
The option is fully vested and will terminate on November 30, 2008. The market
value of the Common Stock underlying the stock option as of August 12, 2002 was
$3,896,757, based on a closing sale price of $1.57.
The stock option was granted and issued in exchange for Dr. Maglich's agreement
to cancel a HiEnergy Microdevices stock option to purchase 111,040 shares of
HiEnergy Microdevices at $3.00 per share that had been issued to him in
connection with his employment agreement with HiEnergy Microdevices. The
2,482,011 shares underlying the HiEnergy Technologies stock option were
calculated at the same rate as the voluntary share exchange transaction, or
22.3524 per HiEnergy Microdevices share, which also resulted in the exercise
price going from $3.00 to $0.134 per share. The HiEnergy Microdevices stock
options have been cancelled.
U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE STOCK OPTION
The following is a brief summary of certain of the United States federal income
tax consequences relating to the stock options granted to Dr. Maglich based on
federal income tax laws currently in effect. This summary applies to the Stock
Option Agreement and is not intended to provide or supplement tax advice to Dr.
Maglich. The summary contains general statements based on current United States
federal income tax statutes, regulations and currently available interpretations
thereof. This summary is not intended to be exhaustive and does not describe
state, local or foreign tax consequences or the effect, if any, of gift, estate
and inheritance taxes. The Stock Option Agreement is not qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
As a general rule, no federal income tax is imposed on the optionee upon the
grant of a Non-Qualified Stock Option such as those granted to Dr. Maglich, and
HiEnergy Technologies is not entitled to a tax deduction by reason of such
grant. Generally, upon the exercise of a Non-Qualified Stock Option, the
optionee will be treated as receiving compensation taxable as ordinary income in
the year of exercise in an amount equal to the excess of the fair market value
of the shares of stock at the time of exercise over the option price paid for
such shares. Upon the exercise of a Non-Qualified Stock Option, HiEnergy
Technologies may claim a deduction for compensation paid at the same time and in
the same amount as compensation income is recognized by the optionee assuming
any federal income tax reporting requirements are satisfied, and subject to the
application of Section 162(m) of the Code, which may limit the deduction to
HiEnergy Technologies.
Upon a subsequent disposition of the shares received upon exercise of a
Non-Qualified Stock Option, any difference between the fair market value of the
shares at the time of exercise and the amount realized on the disposition would
be treated as capital gain or loss.
If the shareholders do not ratify the Board of Directors' grant of the stock
option to Dr. Maglich: (1) HiEnergy Technologies will remain contractually bound
to the stock option agreement with Dr. Maglich based upon the approval of the
grant and issuance of the stock option by the Board of Directors; (2) the Board
of Directors may have additional liability exposure because the shareholders
refuse to limit the directors' liability as permitted by the directors' conflict
of interest statute; and (3) it may complicate HiEnergy Technologies' ability to
have its common stock listed on a stock market or exchange in the future.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE GRANT OF THE
STOCK OPTION TO DR. MAGLICH.
18
- --------------------------------------------------------------------------------
PROPOSAL NO. 4: RATIFY APPROVAL OF DR. MAGLICH'S EMPLOYMENT AGREEMENT, AS
AMENDED, INCLUDING THE GRANT OF ADDITIONAL STOCK OPTIONS TO
DR. MAGLICH
- --------------------------------------------------------------------------------
On March 6, 2002, HiEnergy Microdevices executed an Employment Agreement with
Dr. Bogdan Maglich, its Chairman and Chief Scientist. On July 16, 2002,
following the voluntary share exchange transaction with HiEnergy Technologies, a
Special Committee of the Board of Directors of HiEnergy Technologies that
included a majority of the directors, but did not include Dr. Maglich,
authorized and approved the assignment and assumption of Dr. Maglich's
Employment Agreement from HiEnergy Microdevices to HiEnergy Technologies.
The material terms of the Employment Agreement, as adopted by the Special
Committee of the Board of Directors, are as follows:
- Term: The term of the Employment Agreement is from March 6, 2002
----
through December 31, 2006.
- Base Salary: During the term of the Employment Agreement, HiEnergy
------------
Technologies must pay, in cash on a monthly basis, a base salary to
Dr. Maglich as follows:
January 1, 2002 to December 31, 2002 $125,000 per year
January 1, 2003 to December 31, 2003 $137,500 per year
January 1, 2004 to December 31, 2004 $151,250 per year
January 1, 2005 to December 31, 2005 $166,375 per year
January 1, 2006 to December 31, 2006 $283,013 per year
- Signing Bonus: HiEnergy Technologies must pay a signing bonus of
--------------
$100,000, $50,000 payable upon receipt of $1,000,000 or more from any
source, and $50,000 payable upon generation of revenue in excess of
$500,000 or receipt of $1,000,000 of additional funds from any source.
Subsequent to April 30, 2002, $50,000 was paid to Dr. Maglich by
HiEnergy Technologies.
- Annual Bonus: At the end of each fiscal year, HiEnergy Technologies
-------------
must pay an annual bonus to Dr. Maglich, which must not be less than
twenty percent (20%) of the total amount of bonuses paid to officers
of HiEnergy Technologies. If the pretax profit in any fiscal year
during the term of the Employment Agreement exceeds $0.20 per share,
then Dr. Maglich's bonus in that year must not be less than $50,000.
- Stock Options: The Employment Agreement, as amended by the Assignment
-------------
and Assumption of Employment Agreement executed by HiEnergy
Technologies, HiEnergy Microdevices and Dr. Maglich on July 16, 2002,
provides for the issuance of the following stock options to Dr.
Maglich annually through the term of the Employment Agreement: options
to purchase one percent (1%) per year of HiEnergy Technologies' Common
Stock issued and outstanding at the end of each year with an exercise
price equal to the average trading price for the preceding 30 days and
with terms of five (5) years. In no case may the number of options
granted in a given year be less than ten percent (10%) of the total
number of options granted by HiEnergy Technologies for services in
that year.
- Other Benefits: HiEnergy Technologies will provide Dr. Maglich a car,
--------------
pay his and his family's health insurance, provide life and disability
insurance and will reimburse him for reasonable out-of-pocket
expenses, not to exceed $20,000 in any one year, and reimburse him for
any personal tax liabilities arising up to $75,000.
19
- Termination: HiEnergy Technologies may terminate Dr. Maglich's
-----------
employment at any time upon Dr. Maglich's gross negligence or willful
malfeasance in the material performance of his duties and
responsibilities to HiEnergy Technologies under Section 3 of the
Employment Agreement. Such discharge shall be effected by a Discharge
Notice to Dr. Maglich which shall specify the reasons for Dr.
Maglich's discharge and effective date thereof. In each instance, such
termination shall not be effective if the gross negligence or willful
malfeasance specified in the Discharge Notice is cured by Dr. Maglich
within ten (10) days following the date of receipt by Dr. Maglich of
the Discharge Notice.
- Severance: If the Employment Agreement is terminated, HiEnergy
---------
Technologies shall pay to Dr. Maglich, on the termination date, an
amount of money equal to the aggregate unpaid balance of the minimum
annual base salaries provided for in Section 4(a) of the Employment
Agreement through a period of two (2) years after the termination
date. Additionally, HiEnergy Technologies must continue to pay Dr.
Maglich, for the two (2) year period, all of the benefits provided for
under Other Benefits, above, and, thereafter, all premiums associated
with the continuation of Dr. Maglich's insurance under COBRA for the
period that COBRA is available to Dr. Maglich. Upon termination, all
of Dr. Maglich's options respecting shares of the capital stock of
HiEnergy Technologies will forthwith vest in Dr. Maglich and become
immediately exercisable. If Dr. Maglich terminates the Employment
Agreement, all of the benefits provided to Dr. Maglich by HiEnergy
Technologies will terminate on the effective date of the termination.
- Non-Compete: During the term of the Employment Agreement, and for a
-----------
period of five (5) years following the date of termination of the
Employment Agreement, Dr. Maglich is precluded from, directly or
indirectly, engaging (whether for compensation or without
compensation) as an individual proprietor, partner, shareholder,
officer, employee, director, consultant, joint venturer, lender, or in
any other capacity whatsoever (otherwise than as a holder of no more
than 1% of the total outstanding stock of a publicly held company) in
any business activity or business activities that compete with the
remote-non-intrusive detection business of HiEnergy Technologies;
except that the "other endeavors" of Dr. Maglich referred to and
listed in Section 3 of the Employment Agreement are not to be
considered as competing activities to those of HiEnergy Technologies.
A copy of the Employment Agreement dated March 6, 2002 and the Assignment and
Assumption of Employment Agreement dated July 16, 2002 accompany this Proxy
Statement as Appendix B and Appendix C, respectively. Please review the
agreements carefully before deciding whether to ratify the Board's approval of
them. If you vote to ratify the Board's approval of the Assignment and
Assumption of Employment Agreement and the Employment Agreement, you are also
voting to ratify the Board's issuance of the additional stock options to Dr.
Maglich as contemplated therein.
Dr. Maglich's Employment Agreement is considered a "conflicting interest
transaction" because he is a director and an executive officer of HiEnergy
Technologies. The Washington Business Corporation Act, specifically Section
23B.08.710 of the Revised Code of Washington, provides a means of insulating a
board of directors and an interested director from civil liability arising from
action taken with respect to a transaction between the corporation and an
interested director. Section 23B.08.710 of the Revised Code of Washington
provides that "[a] director's conflicting interest transaction may not be
enjoined, set aside, or give rise to an award of damages or other sanctions, in
a proceeding by a shareholder or by or in the right of the corporation, because
the director, or any person with whom or which the director has a personal,
economic, or other association, has an interest in the transaction, if: (a)
directors' action respecting the transaction was approved by a majority of the
directors excluding the interested director; (b) shareholders' action respecting
the transaction was at any time taken to approve the transaction, excluding
those shares beneficially owned by the interested director; or (c) the
transaction, judged according to the circumstances at the time of commitment, is
established to have been fair to the corporation." HiEnergy Technologies' Board
of Directors has met the requirements of the first provision. Although not
necessary to take advantage of the protections provided by Section 23B.08.710,
HiEnergy Technologies' Board of Directors now seeks to meet the requirements of
the second provision by having the shareholders of HiEnergy Technologies ratify
its approval of Dr. Maglich's Employment Agreement, as amended.
20
The U.S. federal income tax consequences of the issuance and exercise of stock
options to Dr. Maglich is discussed above under Proposal No. 3 and is
incorporated herein by reference.
If the shareholders do not ratify the Board of Directors' approval of Dr.
Maglich's Employment Agreement, as amended, including the grant of stock options
to Dr. Maglich: (1) HiEnergy Technologies will remain contractually bound to the
Employment Agreement with Dr. Maglich based upon the approval of the agreement
by the Board of Directors; (2) the Board of Directors may have additional
liability exposure because the shareholders refuse to limit the directors'
liability as permitted by the directors' conflict of interest statute; and (3)
it may complicate HiEnergy Technologies' ability to have its common stock listed
on a stock market or exchange in the future.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE BOARD OF
DIRECTORS' APPROVAL OF DR. MAGLICH'S EMPLOYMENT AGREEMENT, AS AMENDED, INCLUDING
THE GRANT OF THE STOCK OPTIONS TO DR. MAGLICH AS CONTEMPLATED IN THE EMPLOYMENT
AGREEMENT.
- --------------------------------------------------------------------------------
PROPOSAL NO. 5: RATIFY GRANT OF STOCK OPTION TO ISAAC YEFFET
- --------------------------------------------------------------------------------
HiEnergy Technologies recently retained the consulting services of Isaac Yeffet,
a leading expert on airline security due to his years of service as director of
security operations for El Al, Israel's national airline. HiEnergy Technologies
believes that Mr. Yeffet will be instrumental in helping it to communicate the
advantages of its technology to government officials and the public.
On July 12, 2002, HiEnergy Technologies executed a Consulting Agreement with
Yeffet Security Consultant, Inc. to provide consulting services to the
corporation, which include assisting it with securing government grants and
bringing HiEnergy Technologies products to market once development and testing
are completed. The Consulting Agreement has a term of three years and provides
for cash payments to Yeffet Security Consultant, Inc. and the grant of an option
to Mr. Yeffet, the principal of Yeffet Security Consultant, Inc., to purchase
1,000,000 shares of HiEnergy Technologies' Common Stock at an exercise price of
$1.00 per share. The Consulting Agreement also provides that Yeffet Security
Consultant, Inc. will be paid five percent (5%) of gross revenues generated from
business it produces for HiEnergy Technologies.
The parties executed a Stock Option Agreement on July 12, 2002 to effect the
issuance of a non-qualified stock option to Mr. Yeffet to purchase 1,000,000
shares of HiEnergy Technologies' Common Stock at an exercise price of $1.00 per
share and with a term of six years beginning on July 12, 2002. One half of the
shares (500,000 shares) are exercisable immediately and the other half (500,000
shares) are exercisable beginning one year after the Minisenzor product is
operational and ready to be shown for approval to appropriate authorities.
The Stock Option Agreement executed on July 12, 2002 was amended and restated in
September 2002 to add a cashless exercise provision. In the First Amended and
Restated Stock Option Agreement, Mr. Yeffet may tender the Option Exercise Price
to HiEnergy Technologies, (i) by cash, check, wire transfer or such other method
of payment (e.g., delivery or attestation of shares already owned) as may be
acceptable to the Company, (ii) by "cashless exercise", but only when a
registration statement under Securities Act qualifying a public offering of the
underlying Shares is not then in effect, or (iii) by a combination of the
foregoing methods of payment selected by Mr. Yeffet.
The "cashless exercise" provision of the First Amended Stock Option Agreement
will enable Mr. Yeffet to exercise his stock option by paying the exercise price
in the form of shares of Common Stock based on the market price of the Common
Stock on the date of exercise. This will allow him to commence the one-year
holding period for purposes of Rule 144 on the date of grant, or July 12, 2002,
instead of the date of exercise. If he does not exercise the stock option and
sell the shares of Common Stock through a registered offering, he will have the
option of exercising the stock option using the cashless exercise method and
selling the restricted shares of Common Stock he receives beginning one (1) year
after the grant date, or July 12, 2003, subject to the provisions of Rule 144.
21
Mr. Yeffet may transfer vested options in whole or in part, subject to the
consent of HiEnergy Technologies; provided, however, that Mr. Yeffet must, in
the case of each such transfer, provide HiEnergy Technologies with an opinion of
counsel reasonably acceptable to HiEnergy Technologies that such transfer may be
accomplished in accordance with all applicable securities laws. Any transferee
must execute a writing in form and substance satisfactory to HiEnergy
Technologies and its counsel agreeing to be bound by the terms of the Stock
Option Agreement.
If Mr. Yeffet's status as a consultant is terminated at any time after the grant
of the stock option for any reason other than death or disability, then any
vested options will terminate on the expiration date otherwise provided in the
Stock Option Agreement. Any nonvested options will terminate immediately upon
the effective date of termination of the Consulting Agreement.
The Board of Directors of HiEnergy Technologies approved the issuance and grant
of the stock option to Mr. Yeffet and has recommended that the shareholders of
HiEnergy Technologies ratify the grant of the stock option at the Annual
Meeting.
U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE STOCK OPTION
The following is a brief summary of certain of the United States federal income
tax consequences relating to the stock options granted to Mr. Yeffet based on
federal income tax laws currently in effect. This summary applies to the Stock
Option Agreement and is not intended to provide or supplement tax advice to Mr.
Yeffet. The summary contains general statements based on current United States
federal income tax statutes, regulations and currently available interpretations
thereof. This summary is not intended to be exhaustive and does not describe
state, local or foreign tax consequences or the effect, if any, of gift, estate
and inheritance taxes. The Stock Option Agreement is not qualified under Section
401(a) of the Code.
As a general rule, no federal income tax is imposed on the optionee upon the
grant of a Non-Qualified Stock Option such as those granted to Mr. Yeffet, and
HiEnergy Technologies is not entitled to a tax deduction by reason of such
grant. Generally, upon the exercise of a Non-Qualified Stock Option, the
optionee will be treated as receiving compensation taxable as ordinary income in
the year of exercise in an amount equal to the excess of the fair market value
of the shares of stock at the time of exercise over the option price paid for
such shares. Upon the exercise of a Non-Qualified Stock Option, HiEnergy
Technologies may claim a deduction for compensation paid at the same time and in
the same amount as compensation income is recognized by the optionee assuming
any federal income tax reporting requirements are satisfied.
Upon a subsequent disposition of the shares received upon exercise of a
Non-Qualified Stock Option, any difference between the fair market value of the
shares at the time of exercise and the amount realized on the disposition would
be treated as capital gain or loss.
If the shareholders do not ratify the Board of Directors' grant of the stock
option to Mr. Yeffet: (1) HiEnergy Technologies will remain contractually bound
to the stock option agreement with Mr. Yeffet based upon the approval of the
grant and issuance of the stock option by the Board of Directors; (2) the Board
of Directors may have additional liability exposure in connection with the
issuance of the stock option; and (3) it may complicate HiEnergy Technologies'
ability to have its common stock listed on a stock market or exchange in the
future.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE GRANT OF THE
STOCK OPTION TO MR. ISAAC YEFFET.
22
- --------------------------------------------------------------------------------
PROPOSAL NO. 6: CHANGE DOMICILE OF HIENERGY TECHNOLOGIES FROM
WASHINGTON TO DELAWARE
- --------------------------------------------------------------------------------
You are being asked to approve a resolution of the Board of Directors
recommending to change HiEnergy Technologies' domicile from the State of
Washington to Delaware.
PRINCIPAL REASONS FOR THE RE-INCORPORATION
HiEnergy Technologies in currently incorporated in the State of Washington. The
Board of Directors believes that HiEnergy Technologies' growth objectives and
status as a publicly-traded company make it appropriate and advisable to change
the state of incorporation to Delaware.
The principal reasons for reincorporation into Delaware are the greater
flexibility of Delaware corporation law and the substantial body of case law
interpreting Delaware corporate law. The directors and management of HiEnergy
Technologies believe that the company and its shareholders will benefit from the
certainty afforded by the well-established principles of corporate governance
under Delaware law.
Another reason for the move to Delaware is an increased ability on HiEnergy
Technologies' part to attract and retain qualified directors. The Board of
Directors considers it important to attract talented and qualified directors,
especially outside and independent directors. HiEnergy Technologies believes
that Delaware corporate law is considered preferable to Washington corporate law
by directors for various reasons, including the relative certainty of rights to
indemnification under Delaware law and the relative certainty as to the scope
and extent of the directors' duties.
POTENTIAL EFFECTS OF CHANGING DOMICILE FROM WASHINGTON TO DELAWARE
The change of domicile will effect a change in the legal domicile of HiEnergy
Technologies, but not its physical location. The change will not result in any
change in the business, management, fiscal year, assets or liabilities (except
to the extent of legal and other costs of effecting the change and maintaining
ongoing corporate status) or location of the principal offices of the company.
There will be a significant increase in the corporate fees and franchise taxes
that must be paid in Delaware as compared to Washington.
PROCEDURE FOR CHANGING DOMICILE
Delaware law provides that to change the domicile of a foreign corporation to
Delaware, the corporation must merge with a Delaware corporation. Subject to the
approval of Proposal No. 6 of this Proxy Statement, HiEnergy Technologies will:
(i) file a Certificate of Incorporation with the state of Delaware creating a
Delaware corporation; (ii) enter into an Agreement and Plan of Merger with the
newly formed Delaware corporation; and (iii) file a Certificate of Merger with
the state of Delaware and Articles of Merger with the state of Washington to
effect the merger between the corporations. Immediately following the merger,
the Delaware corporation would be the surviving entity and the separate
existence of the Washington corporation would cease. The change of domicile
would become effective upon the filing date of the Certificate of Merger with
the state of Delaware, which will be done by the surviving entity as soon as
practicable after an adoption and approval of the Agreement and Plan of Merger
by HiEnergy Technologies' shareholders.
A copy of the Agreement and Plan of Merger accompanies this Proxy Statement as
Appendix D. A copy of the form of Certificate of Incorporation and Bylaws of the
Delaware corporation are enclosed herewith as Appendix E and Appendix F,
respectively.
23
SUMMARY OF TERMS OF MERGER AGREEMENT
At a meeting held on July 16, 2002, the Board of Directors of HiEnergy
Technologies approved the change of domicile and advised the approval and
adoption of the Merger Agreement by HiEnergy Technologies' shareholders at the
Annual Meeting. Shareholders are encouraged to review the Agreement and Plan of
Merger in connection with the information contained herein.
- Merger. The merger would be pursuant to the applicable provisions of
------
the laws of Washington and Delaware with respect to mergers and in
accordance with the Agreement and Plan of Merger.
- Articles of Incorporation and Bylaws. The Articles of Incorporation
-------------------------------------
and Bylaws of the Delaware corporation would be the Articles of
Incorporation and Bylaws of the surviving entity following the merger.
- Directors and Officers. The directors and officers of HiEnergy
------------------------
Technologies would be the directors and officers of the surviving
entity following the merger.
- Conversion of Shares. Every one issued and outstanding share of the
---------------------
Common Stock, par value $0.0001 per share, of HiEnergy Technologies
would be converted into and become one new fully paid and
nonassessable share of Common Stock, par value $0.001 per share, of
the surviving entity. Every one issued and outstanding share of Series
A Convertible Preferred Stock, par value $0.0001 per share, of
HiEnergy Technologies would be converted into and become one new fully
paid and nonassessable share of Series A Convertible Preferred Stock,
par value $0.001 per share, of the surviving entity. The surviving
entity would honor the stock certificates of HiEnergy Technologies as
if they were issued by the surviving entity.
- Conversion of Stock Options. Every one employee option granted and
-----------------------------
convertible into shares of Common Stock of HiEnergy Technologies,
whether or not vested, would be converted into and become one option
convertible into common stock of the surviving entity. The employee
options would remain subject to substantially similar provisions to
that of HiEnergy Technologies' stock options.
- Conversion of Other Equity Instruments. Every other equity
------------------------------------------
instrument of HiEnergy Technologies would be converted into a similar
equity instrument of the surviving entity on economic terms
substantially similar to those of the existing equity instruments.
- Termination. The Agreement and Plan of Merger may be terminated for
-----------
any reason at any time before the filing of the Articles or
Certificate of Merger with the Secretaries of State of Washington and
Delaware, respectively, by resolution of the Board of Directors of the
merging corporations.
- Amendment. The Agreement and Plan of Merger may be amended or
---------
supplemented by a vote or consent of the shareholders of HiEnergy
Technologies in accordance with applicable law.
- Effect of the Merger. HiEnergy Technologies would cease to exist and
---------------------
the surviving entity would be domiciled in Delaware.
CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION
As part of the merger, the Certificate of Incorporation of the Delaware
corporation will completely supersede the Articles of Incorporation of HiEnergy
Technologies. There is no material difference between the form of Certificate of
Incorporation of the Delaware corporation and the Articles of Incorporation of
HiEnergy Technologies. The par value of the common and preferred authorized
shares will change from $0.0001 to $0.001. There are some differences between
the Washington Business Corporation Act (the "WBCA") and the Delaware General
Corporation Law (the "DGCL").
24
ANTI-TAKEOVER PROVISIONS. The following is a summary of the anti-takeover
provisions that currently exist in the Articles of Incorporation of HiEnergy
Technologies and that will exist in the Certificate of Incorporation of the
surviving entity:
- Authority to Set Rights and Preferences of Preferred Stock. The Board
----------------------------------------------------------
has exclusive discretion to issue preferred stock with rights that may
trump those of common stock. The effect may be to dilute the stock
ownership of holders of common stock and thereby reduce their voting
power and reduce their rights to the net assets of the corporation
upon dissolution. Blank-check preferred stock can delay or hinder a
change in control of the Board and management.
- Directors Have Staggered Terms. A staggered board affects every
---------------------------------
election of directors. Such a system of electing directors makes it
more difficult for shareholders to change the majority of directors
even when the only reason for the change may be the performance of the
present directors. Changing the majority of directors under the
staggered system requires two separate annual meetings. As an
anti-takeover measure, the effect is to prevent insurgent shareholders
from immediately seizing control of the Board, either through stock
acquisitions or a proxy contest.
- Authority to Call a Special Meeting of Shareholders. This provision
-----------------------------------------------------
ensures that shareholders will not be authorized to call a special
meeting. The effect is to limit the ability of one or more
shareholders from bringing matters before the shareholders that may be
contrary to the objectives of the Board. This limitation, in
conjunction with the provisions on staggered elections of directors
and removal of directors, prevents shareholders from effecting a
change in control.
- Removal of Directors by Shareholders Only at a Special Meeting of
----------------------------------------------------------------------
Shareholders. In combination with the prohibition against shareholders
------------
calling a special meeting, this provision effectively limits the
removal of directors to an annual meeting or board action. This
represents an additional measure to deter a change in control of the
corporation.
INCREASE IN NUMBER OF DIRECTORS. The Certificate of Incorporation and
Bylaws of the surviving corporation authorize the corporation to have up to nine
directors. The current Articles of Incorporation of HiEnergy Technologies
authorize the corporation to have up to six directors. The three additional
directors will provide the surviving corporation with the flexibility to add
additional independent directors to the board of directors to meet corporate
governance and stock market requirements.
SERIES A CONVERTIBLE PREFERRED STOCK. On August 11, 2002, pursuant to the
blank check provisions contained in Section 2.2 of the Articles of Incorporation
of HiEnergy Technologies, the Board authorized and approved an amendment to
HiEnergy Technologies' Articles of Incorporation to establish, from the
corporation's 20,000,000 shares of authorized blank check preferred stock, a
Series A Convertible Preferred Stock, par value $0.0001 per share (the "Series A
Preferred Stock"), subject to further modification as the Executive Committee
members shall approve, so long as such modifications do not alter the basic
economic terms of the Series A Convertible Preferred Stock. A summary of the
relative rights and preferences of the Series A Preferred Stock, as adopted by
the Board, are as follows:
- Number of Authorized Shares. The maximum number of Series A Preferred
---------------------------
Stock shall be 345 shares.
- Price Per Share. The price of each share of Series A Preferred Stock
---------------
is $10,000.
- Dividends. The holders of Series A Preferred Stock shall be entitled
---------
to receive, when and as declared by the Board of Directors, dividends
at the rate of 8% of the price paid for each share held, or $800 per
share in advance for each of the first two years. The dividends may be
in cash or Common Stock, at the election of the Board of Directors. If
shares of Common Stock are paid, the resale of the shares must be
registered by HiEnergy Technologies. As long as shares of the Series A
Preferred Stock are outstanding, HiEnergy Technologies may not pay
dividends to holders of its Common Stock, unless all of the dividends
owed to the Series A Preferred Stock holders have been paid.
- Class Voting Rights. The Series A Preferred Stock has the following
--------------------
class voting rights. Without the affirmative vote or consent of the
holders of at least three-fourths (3/4) of the shares of the Series A
Preferred Stock outstanding at the time, HiEnergy Technologies shall
not: (i) authorize, create, issue or increase the authorized or issued
amount of any class or series of stock ranking prior to the Series A
Preferred Stock, with respect to the distribution of assets on
liquidation, dissolution or winding up; (ii) amend, alter or repeal
25
the provisions of the Series A Preferred Stock, whether by merger,
consolidation or otherwise, so as to adversely affect any right,
preference, privilege or voting power of the Series A Preferred Stock
(except for the creation and issuance of another series of stock
junior to the Series A Preferred Stock); (iii) repurchase, redeem or
pay dividends on shares of HiEnergy Technologies common stock, or any
other stock that is junior to the Series A Preferred Stock; (iv) amend
the Articles of Incorporation or By-laws of HiEnergy Technologies so
as to affect materially and adversely any right, preference, privilege
or voting power of the Series A Preferred Stock (except for the
creation and issuance of another series of stock junior to or on
parity with the Series A Preferred Stock); effect any distribution
with respect to stock that is junior to the Series A Preferred Stock;
or (vi) reclassify HiEnergy Technologies' outstanding securities.
- General Voting Rights. Except as provided in the previous section
-----------------------
regarding Class Voting Rights, the Series A Preferred Stock will not
have voting rights. The Common Stock into which the Series A Preferred
Stock is convertible will, upon issuance, have all of the same voting
rights as other issued and outstanding Common Stock of HiEnergy
Technologies.
- Liquidation Preference. In the event of the liquidation, dissolution
----------------------
or winding up of the affairs of HiEnergy Technologies, after payment
or provision for payment of the debts and other liabilities of
HiEnergy Technologies, the holders of shares of the Series A Preferred
Stock then outstanding will be entitled to receive, out of the assets
of HiEnergy Technologies, an amount equal to $10,000 per share of the
Series A Preferred Stock plus any accrued and unpaid dividends before
any payment will be made or any assets distributed to the holders of
Common Stock or any other stock that is junior to the Series A
Preferred Stock. If the assets of HiEnergy Technologies are
insufficient to cover what is owed to the Series A Preferred Stock
holders, whatever assets exist are to be distributed on a pro rata
basis among the holders of Series A Preferred Stock. No cash will be
paid to holders of Common Stock unless the holders of the outstanding
shares of Series A Preferred Stock have been paid in cash the full
amount due to them.
- Conversion to Common Stock. At any time on or after being issued
-----------------------------
shares of Series A Preferred Stock, the holder of such shares may, at
the holder's option, elect to convert all or any portion of the shares
into a number of shares of Common Stock equal to $10,000 divided by
$1.15, the conversion price, or 8,695 shares of Common Stock per share
of Series A Preferred Stock. The conversion price is subject to
adjustment due to changes in the number of outstanding shares of
Common Stock of HiEnergy Technologies from stock splits, stock
dividends or distributions, reclassifications, exchanges or
substitutions, reorganization, merger, consolidation or sales of
assets. If all 345 shares of Series A Preferred Stock are sold and
converted, HiEnergy Technologies will issue at least 3,000,000 shares
of Common Stock to the holders of the shares of Series A Preferred
Stock.
- Mandatory Conversion. After two (2) years from the date of issuance,
---------------------
the shares of Series A Preferred Stock shall be automatically
converted into Common Stock at the conversion rate disclosed above.
- Redemption Option Upon Major Transaction. A holder of Series A
--------------------------------------------
Preferred Stock shall have the right to require the corporation to
redeem all or a portion of the holder's shares of Series A Preferred
Stock at a price per share equal to $10,000 per share plus accrued but
unpaid dividends and liquidated damages if any of the following
occurs: (i) HiEnergy Technologies consolidates, mergers or combines
with another entity, except for a merger to change the domicile of the
corporation or where the shareholders of HiEnergy Technologies
continue to hold the voting power of the surviving entity necessary to
elect a majority of the members of the Board of Directors of the
surviving entity; (ii) the sale or transfer of all or substantially
all of HiEnergy Technologies' assets; or (iii) consummation of a
purchase, tender or exchange offer made to the holders of more than
30% of the outstanding shares of Common Stock.
- Redemption Option Upon Triggering Event. A holder of Series A
-------------------------------------------
Preferred Stock shall have the right to require the corporation to
redeem all or a portion of the holder's shares of Series A Preferred
Stock at a price per share equal to $10,000 per share plus accrued but
unpaid dividends and liquidated damages if any of the following
occurs: (i) the effectiveness of the registration statement, filed to
26
register the offer and sale of the Common Stock underlying the Series
A Preferred Stock, lapses for any reason or is unavailable to the
holder of Series A Preferred Stock for sale of the shares of Common
Stock, unless the lapse or unavailability is due to factors solely
within the control of the holder of the Series A Preferred Stock; (ii)
the suspension from listing or the failure of the Common Stock to be
listed on the OTC Bulletin Board for a period of five (5) consecutive
days; (iii) HiEnergy Technologies' notice to any holder of Series A
Preferred Stock of its inability to comply with proper requests for
conversion of any Series A Preferred Stock into shares of Common
Stock; (iv) HiEnergy Technologies' failure to comply within ten (10)
business days to a notice to convert received from a holder of Series
A Preferred Stock; or (v) HiEnergy Technologies breaches any
representation, warranty, covenant or other term or condition of any
agreement, document, certificate or other instrument delivered in
connection with the transaction to acquire shares of Series A
Preferred Stock.
- Sunset Provision. Upon conversion of all shares of Series A Preferred
----------------
Stock, the provisions pertaining to the Series A Preferred Stock in
the Articles of Incorporation shall be deemed completely performed and
discharged. HiEnergy Technologies will be empowered to restate its
Articles of Incorporation as though the Series A Preferred Stock
provisions had never existed.
The same designation of relative rights and preferences of the Series A
Preferred Stock in HiEnergy Technologies' Articles of Incorporation, as amended,
shall be part of the Certificate of Incorporation of the Delaware corporation.
HiEnergy Technologies Board of Directors may establish additional series of
preferred stock in connection with HiEnergy Technologies' efforts to raise
additional equity funding. The surviving entity shall have the same number and
classes of authorized common and preferred stock as HiEnergy Technologies.
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION. The WBCA authorizes a
corporation's board of directors to make certain changes to its articles of
incorporation without shareholder action. These changes includes changes in
corporate name, the par value of its stock, and the number of outstanding shares
when effectuating a stock split or stock dividend in the corporation's own
shares. Otherwise, amendments to the articles of incorporation of a Washington
corporation that is public must be approved by a majority of all the votes
entitled to be cast by any voting group entitled to vote on the amendment.
Under the DGCL, all amendments to a corporation's certificate of
incorporation require the approval of shareholders holding a majority of the
voting power of the corporation unless a higher proportion is specified in the
certificate of incorporation, under Delaware law, separate voting by class is
required by law in certain circumstances.
APPRAISAL OR DISSENTERS' RIGHTS. Under the WBCA, a shareholder is entitled
to dissent and, upon perfection of his or her appraisal right, to obtain fair
value of his or her shares in the event of certain corporate actions, including
certain mergers, consolidations, share exchanges, sales of substantially all of
the corporation's assets and amendments to the corporation's articles of
incorporation that materially and adversely affect shareholder rights. The
proposed reincorporation of HiEnergy Technologies gives rise to dissenters'
rights for HiEnergy Technologies' shareholders. See the section below entitled
"Dissenters' Rights of Appraisal" for further details.
Under the DGCL, appraisal rights are available only in connection with
certain mergers or consolidations, unless otherwise provided in the
corporation's certificate of incorporation. In the event of certain mergers or
consolidations, unless the certificate of incorporation otherwise provides, the
DGCL does not provide appraisal rights if (i) shares of the corporation are
listed on a national securities exchange or designated as a "National Market
System" security or held of record by more than 2,000 shareholders (as long as
in the merger the shareholders receive shares of the surviving corporation or
any other corporation whose shares are listed on a national securities exchange,
designated as a National Market System security, or held of record by more than
2,000 shareholders); or (ii) the corporation is the surviving corporation and no
vote of its shareholders is required for the merger under the DGCL.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
HiEnergy Technologies' and HiEnergy Delaware's directors and officers are
indemnified according to their respective charters and bylaws and according to
applicable state law. However, such indemnification shall not apply to acts of
27
intentional misconduct, a knowing violation of the law or any transaction where
an officer or director personally received a benefit in money, property, or
services to which the officer or director was not legally entitled.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), may be permitted to directors, officers
and controlling persons of HiEnergy Technologies pursuant to the foregoing
provisions, or otherwise, HiEnergy Technologies has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The following is a discussion of the federal income tax considerations that may
be relevant to holders of HiEnergy Technologies' Common Stock, who will receive
common stock of the surviving entity in exchange for their HiEnergy
Technologies' Common Stock. The discussion does not address all of the tax
consequences of the reincorporation that may be relevant to particular HiEnergy
Technologies shareholders, such as dealers in securities, or those HiEnergy
Technologies shareholders who acquired their shares upon the exercise of stock
options, nor does it address the tax consequences to holders of options or
warrants to acquire HiEnergy Technologies Common Stock. Furthermore, no foreign,
state or local tax considerations are addressed herein. In view of the varying
nature of such tax consequences, each shareholder is urged to consult his or her
own tax advisor as to the specific tax consequences of the proposed
reincorporation, including the applicability of federal, state, local or foreign
tax laws. This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), the applicable Treasury Regulations promulgated
thereunder, judicial authority and current administrative rulings and practices
in effect on the date of this Proxy Statement.
The reincorporation is expected to qualify as a reorganization within the
meaning of Section 368(a) of the Code, with the following tax consequences:
(a) No gain or loss will be recognized by holders of HiEnergy Technologies
Common Stock upon receipt of the surviving corporation's common stock
pursuant to the Agreement and Plan of Merger;
(b) The aggregate tax basis of the surviving corporation common stock
received by each shareholder in the reincorporation will equal the
aggregate tax basis of HiEnergy Technologies Common Stock surrendered
in exchange therefore;
(c) The holding period of the surviving corporation common stock received
by each shareholder of HiEnergy Technologies will include the period
during which such shareholder held the HiEnergy Technologies Common
Stock surrendered in exchange therefore; provided that such HiEnergy
Technologies Common Stock was held by the shareholder as a capital
asset at the time of the reincorporation; and
(d) No gain or loss will be recognized by HiEnergy Technologies or the
Delaware corporation in connection with the reincorporation.
Management of HiEnergy Technologies knows of no reason why the Internal Revenue
Service (the "IRS") would challenge the described income tax consequences of the
reincorporation. However, a successful IRS challenge to the reorganization
status of the reincorporation would result in a shareholder recognizing gain or
loss with respect to each share of HiEnergy Technologies Common Stock exchanged
in the reincorporation equal to the difference between the shareholder's basis
in such share and the fair market value, as of the time of the reincorporation,
of the HiEnergy Technologies Common Stock received in exchange therefore. In
such event, a shareholder's aggregate basis in the shares of HiEnergy
Technologies Common Stock received in the exchange would equal their fair market
value on such date, and the shareholder's holding period for such shares would
not include the period during which the shareholder held HiEnergy Technologies
Common Stock.
DISSENTERS' RIGHTS OF APPRAISAL
Shareholders have dissenters' rights of appraisal under Washington law with
respect solely this Proposal No. 6 regarding approval of an Agreement and Plan
of Merger to effect a change of domicile of HiEnergy Technologies. Shareholders
are
28
or may be entitled to assert dissenters' rights under Chapter 23B.13 of the
Revised Code of Washington. A copy of this Chapter is included with these proxy
materials as Appendix G. A shareholder who wishes to assert dissenters' rights
must (a) deliver to HiEnergy Technologies before the vote is taken written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the change of domicile is effected, and (b) not vote such shares in
favor of the change of domicile. A vote for Proposal No. 6 will serve as a
waiver of dissenters' rights pursuant to Chapter 23B.13. Shareholders are
encouraged to examine Chapter 23B.13 for more information on the nature and
limitations of such dissenters' rights and the manner in which a shareholder, if
the shareholder so desires, must perfect such rights.
ADDITIONAL INFORMATION
Shareholders are hereby offered the opportunity to ask questions of and receive
answers from HiEnergy Technologies concerning the terms and conditions of the
merger and to obtain such additional information as the shareholder and/or the
shareholder's representative may deem necessary to formulate a decision. To
obtain additional information, the shareholder or authorized representative
should contact Micky Levy, Secretary of HiEnergy Technologies, at 949.727.3389.
All such additional information, however, must be in writing and identified as
such by HiEnergy Technologies. No information other than that contained in the
Proxy Statement and the accompanying appendices may be relied upon in connection
with this merger.
If shareholders do not approve the change of domicile, the Board of Directors
will not proceed with the change.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER TO EFFECT A
CHANGE OF DOMICILE FROM WASHINGTON TO DELAWARE AS SET FORTH ABOVE.
____________________________________
PROPOSALS OF SHAREHOLDERS
A shareholder proposal is a shareholder's recommendation or requirement that
HiEnergy Technologies and/or its Board of Directors take certain action, which
the shareholder intends to present at a meeting of HiEnergy Technologies'
shareholders. The proposal should state as clearly as possible the course of
action that the shareholder 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 shareholders are given careful consideration by HiEnergy
Technologies in accordance with Rule 14a-8 under the Securities Exchange Act of
1934, as amended. Shareholder proposals are eligible for consideration for
inclusion in the proxy statement for the 2003 Annual Meeting of Shareholders if
they are received by HiEnergy Technologies on or before April 25, 2003. Any
shareholder proposal should be directed to the attention of the Secretary of
HiEnergy Technologies, at 10 Mauchly Drive, Irvine, California 92618.
In order for a shareholder 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 July 15, 2003 (not more than
90, but not less than 60, days prior to the date of the Annual Meeting).
HiEnergy Technologies will have discretionary authority with respect to
shareholder proposals submitted for consideration at the 2003 Annual Meeting of
Shareholders 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.
29
ADDITIONAL INFORMATION
Shareholders should direct communications regarding change of address, transfer
of stock ownership or lost stock certificates to: Signature Stock Transfer,
Inc., Attn: Jason M. Bogutski, 14675 Midway Road, Suite 221, Addison, Texas
75001. HiEnergy Technologies' transfer agent may also be reached by telephone at
972.788.4193 or by facsimile at 972.788.4194.
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
/s/ B.C. Maglich
Dr. Bogdan C. Maglich
Chairman of the Board
Irvine, California
September 10, 2002
30
INDEX TO APPENDICES
Appendix Description
- -------- --------------------------------------------------
A Audit Committee Charter
B Employment Agreement with Dr. Maglich dated March 6, 2002
C Assignment and Assumption of Employment Agreement dated
July 16, 2002
D Agreement and Plan of Merger
E Certificate of Incorporation (Delaware corporation)
F Bylaws (Delaware corporation)
G Washington Statutes re Dissenters' Rights (RCW Chapter
23B.13)
31
APPENDIX A
----------
AUDIT COMMITTEE CHARTER
OF
HIENERGY TECHNOLOGIES, INC.
This Audit Committee Charter ("Charter") is the duly adopted governing
document of the HiEnergy Technologies, Inc. ("Company") audit committee
("Committee"), a duly constituted committee of the Company's Board of Directors
("Board").
1. RESPONSIBILITIES OF THE COMMITTEE. The scope of the Committee's
responsibilities shall include the following:
1.1. General Oversight. To assist the Board in fulfilling its
------------------
oversight responsibilities by reviewing the financial information that will be
provided to the shareholders and others, the systems of internal controls that
management and the Board have established, and the audit process;
1.2. Independent Auditors. To select, evaluate, and, where
---------------------
appropriate, replace the independent auditor (or to nominate the independent
auditor to be proposed for shareholder approval in any proxy statement);
1.3. Statement on Independence. To ensure receipt from the
---------------------------
independent auditors of a formal written statement delineating all relationships
between the auditor and the Company, consistent with Independence Standards
Board Standard 1;
1.4. Assessment of Independence. To actively engage in a dialogue
--------------------------
with the auditor with respect to any disclosed relationships or services that
may impact the objectivity and independence of the auditor; and
1.5. Oversight of Independence. To take, or recommend that the
---------------------------
full Board take, appropriate action to oversee the independence of the
independent auditor.
2. COMPOSITION OF THE COMMITTEE. Subject to subsections 2.1 and 2.2,
the Committee shall be comprised of at least two members, at least half of such
members being independent directors, and each of whom is able to read and
understand fundamental financial statements, including a company's balance
sheet, income statement, and cash flow statement or will become able to do so
within a reasonable period of time after his or her appointment to the audit
committee.
2.1. Independent Directors. Independent directors are not
----------------------
officers of the Company and are, in the view of the Board, free of any
relationship that would interfere with the exercise of independent judgment.
The following persons shall not be considered independent:
a. A director who is employed by the Company or any of its
affiliates for the current year or any of the past three years;
A - 1
b. A director who accepts any compensation from the Company
or any of its affiliates in excess of $60,000 during the previous fiscal year,
other than compensation for Board service, benefits under a tax-qualified
retirement plan, or non-discretionary compensation;
c. A director who is a member of the immediate family of an
individual who is, or has been in any of the past three years, employed by the
Company or any of its affiliates as an executive officer. Immediate family
includes a person's spouse, parents, children, siblings, mother-in-law,
father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, and
anyone who resides in such person's home;
d. A director who is a partner in, or a controlling
shareholder or an executive officer of, any for-profit business organization to
which the Company made, or from which the Company received, payments (other than
those arising solely from investments in the Company's securities) that exceed
5% of the Company's or business organization's consolidated gross revenues for
that year, or $200,000, whichever is more, in any of the past three years;
e. A director who is employed as an executive of another
entity where any of the Company's executives serve on that entity's compensation
committee.
2.2. Financial Experience. At least one member of the Committee
---------------------
shall have past employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable experience or
background which results in the individual's financial sophistication, including
being or having been a chief executive officer, chief financial officer or other
senior officer with financial oversight responsibilities.
3. SPECIFIC DUTIES OF THE COMMITTEE. In meeting its responsibilities,
the Committee is expected to:
3.1. Accountability of Independent Auditor. Communicate to the
----------------------------------------
independent auditor its ultimate accountability to the Board and the Committee,
as representatives of the shareholders.
3.2. Specific Responsibilities. Accomplish its specific
--------------------------
responsibilities set forth in subsections 1.2 through 1.5;
3.3. General Oversight. In connection with its general oversight
------------------
responsibility,
a. Provide an open avenue of communication between the
independent auditor and the Board;
b. Review and update the Committee's Charter annually;
A - 2
c. Inquire of management and the independent auditor about
significant risks or exposures and assess the steps management has taken to
minimize such risk to the Company;
d. Consider, in consultation with the independent auditor,
the audit scope and plan of the independent auditor;
e. Consider with management and the independent auditor the
rationale for employing audit firms other than the principal independent
auditor;
f. Consider and review with the independent auditor:
1. The adequacy of the Company's internal controls,
including computerized information system controls and security; and
2. Any related significant findings and recommendations
of the independent auditor together with management's responses thereto;
g. Review with management and the independent auditor at the
completion of the annual examination:
1. The Company's annual financial statements and related
footnotes;
2. The independent auditor's audit of the financial
statements and its report thereon;
3. Any significant changes required in the independent
auditor's audit plan;
4. Any serious difficulties or disputes with management
encountered during the course of the audit; and
5. Other matters related to the conduct of the audit
that are to be communicated to the Committee under generally accepted auditing
standards;
h. Consider and review with management:
1. Significant findings during the year and management's
responses thereto;
2. Any difficulties encountered in the course of the
audit, including any restrictions on the scope of the independent auditor's work
or access to required information; and
A - 3
3. Any changes required in the planned scope of the
independent auditor's plan;
i. Review filings with the SEC and other published documents
containing the Company's financial statements and consider whether the
information contained in these documents is consistent with the information
contained in the financial statements;
j. Review policies and procedures with respect to officers'
expense accounts and perquisites, including their use of corporate assets, and
consider the results of any review of these areas by the independent auditor;
k. Review legal and regulatory matters that may have a
material impact on the financial statements, related Company compliance
policies, and programs and reports received from regulators;
l. Meet with the independent auditor and management in
separate executive sessions to discuss any matters that the Committee or these
groups believe should be discussed privately with the Committee;
m. Report Committee actions to the Board with such
recommendations as the Committee may deem appropriate;
n. Prepare a letter that complies with Item 7 of Schedule 14A
under the Securities Exchange Act of 1934 for inclusion in the annual report
and/or proxy statement that describes the Committee's composition and
responsibilities, and how they were discharged;
o. Meet in connection with each regularly scheduled meeting
of the Board or more frequently as circumstances require, and the Committee may
ask members of management or others to attend the meeting and provide pertinent
information as necessary; and
p. Perform such other functions as assigned by law, the
Company's articles of incorporation or bylaws, or the Board.
4. MISCELLANEOUS. The duties and responsibilities of a member of the
Committee are in addition to those duties set out for a member of the Board.
Meetings of the Committee shall be noticed and conducted in accordance with the
provisions of the Company's articles of incorporation and bylaws governing
committees. This Charter may be amended from time to time by act of the
Committee, subject to the provisions of the Company's articles of incorporation
and bylaws governing committees.
A - 4
IN WITNESS WHEREOF, the undersigned hereby evidence the adoption of this
Audit Committee Charter as of the last date set forth next to their signatures
below.
/s/ Barry Alter 6/11/02 /s/ Richard F. Alden 6/11/02
- ----------------- ------- ---------------------- -------
(Signature) Date (Signature) Date
Barry Alter RICHARD F. ALDEN
- ----------------- ----------------------
(Print Name) (Print Name)
- ----------------- -------
(Signature) Date
- -----------------
(Print Name)
A - 5
APPENDIX B
----------
Employment Agreement
Agreement made this 6th day of March 2002, between HiEnergy Microdevices, Inc.,
a Delaware Corporation (the "Company"); and Bogdan C. Maglich, an individual
("Maglich").
WITNESSETH
IN CONSIDERATION of the mutual covenants contained herein, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby agrees to employ Maglich, during the
-----------
term specified in Paragraph 2, and Maglich agrees to accept such
employment, all subject to the terms and conditions hereinafter set
forth in this Agreement.
2. TERM. Subject to the terms and conditions of this Agreement, Maglich's
-----
employment by the Company shall be for a term commencing on the date
hereof and ending on December 31, 2006, unless sooner terminated as
hereinafter provided.
3. DUTIES AND RESPONSIBILITIES.
----------------------------
(a) During the term, Maglich shall serve as Chief
Scientific Officer and Chairman of the Company and
shall devote the stated time and attention to the
business of the Company. The business of the Company,
for purposes of this Agreement, shall include (i) the
detection of the substances of which objects are
comprised and the development, production, sale and
promotion of devices and technologies to effect such
detection, and (ii) such other endeavors as to which
Maglich and the Board shall mutually agree.
(b) Subject to the supervision of the Board of Directors,
Maglich, as Chief Scientific Officer of the Company,
will be responsible for the determination of the
Company's research and development program; its
research and development associations and consortiums;
its patent policy; the selection, hiring, and/or firing
of its scientific, engineering and technical personnel
and of any Principal Investigator or Co-principal
Investigator on research and development contracts of
the Company and of their clerical assistants, as well
as their respective remuneration and budgeting
priorities.
(c) Subject to such requirements as shall be imposed by law
or governmental regulation, Maglich, as Chief
Scientific Officer, shall be responsible for
determining what technical information may be publicly
disclosed by any officer or employee of the Company.
(d) As Chairman, Maglich agrees to perform, and shall
perform, the functions of the Chairman as set forth in
the By-Laws of the Company; shall be one of two
signatories on all checks and drafts of the Company in
excess of $1000; and, subject to review
B - 1
by the Board of Directors, shall be the officer of the
Company responsible for submitting budgetary
recommendations to the Board.
(e) It is recognized by the Company that Maglich has
heretofore been engaged, and in the future may be
engaged, in other endeavors, including, without
limitation, those relating to nuclear fusion energy,
satellite-borne nuclear power, and anti-missile
defense, as well as scientific education, including,
without limitation, scientific publications and
documentary films. It is recognized by the Company that
such activities are indirectly beneficial to its
reputation, standing and governmental and business
relations. It is further recognized that, provided the
company does not furnish its personnel, equipment,
facilities or funding for such other endeavors and that
the work conducted on such other endeavors does not
interfere with the services and time on the job
provided to the Company by Maglich, any patents or
other intellectual property or other benefits derived
from such other endeavors are the sole property of
Maglich and that the Company shall neither have or
claim any interest therein.
A list of Maglich's other endeavors, as discussed
above, shall be maintained mutually by the Company and
Maglich. All other work conducted by Maglich during his
employed time, or using the Company's personnel,
facilities or funding, and which is not so listed, will
be work for hire to the Company by Maglich.
(f) Maglich shall devote not less than 35 hours per week to
the business of the Company, it being understood that
he may give such time and attention to other endeavors
as does not materially detract from his services for,
and attention to, the business of the Company.
(g) It is contemplated that, for the continuance of this
Agreement, Maglich will be employed as Chief Scientific
Officer and Chairman of the Company. In the event
Maglich is not so elected and not so continued in any
or all of such posts, for any reason other than
termination for cause (as defined below), such failure
shall constitute a breach of this Agreement by the
Company and Maglich shall have the right to terminate
his employment hereunder forthwith by written notice of
such intention to the Company and the Company will be
obligated to make the severance payments set forth in
Paragraph 11 of this Agreement and to satisfy all other
obligations set forth in Paragraph 10.
4. COMPENSATION. In consideration of the services to be rendered by
-------------
Maglich hereunder, the Company agrees to pay Maglich, and he agrees to
accept, the following:
(a) BASE SALARY. For the period commencing January 1, 2002,
------------
and ending December 31, 2002, the Company shall pay
Maglich at the annual
B - 2
rate of $125,000 annually, payable in cash monthly. For
the period January 1, 2003, through December 31, 2006,
the Company shall pay Maglich as follows:
(i) For the period January 1, 2003, through December
31, 2003, $137,500 annually, payable in cash
monthly;
(ii) For the period January 1, 2004, through December
31, 2004, $151,250 annually, payable in cash
monthly;
(iii) For the period January 1, 2005, through December
31, 2005, $166, 375 annually, payable in cash
monthly; and
(iv) For the period January 1, 2006, through December
31, 2006, $183,012 annually, payable in cash
monthly.
(v) In the event that Maglich, with the approval of
the Company, shall work less than the time
required of him under Paragraph 3(c), his base
salary shall decrease proportionally.
(b) SIGNING BONUS.
--------------
In consideration of Maglich executing and delivering
this Agreement, the Company has agreed to pay Maglich a
signing bonus by issuing to him its promissory note in
the face amount of $100,000 in the form of Exhibit A
hereto, payable (i) $50,000 upon receipt by the Company
of One Million Dollars or more from any source, and
(ii) $50,000 upon receipt by the Company of in excess
of $500,000 from its sales or operations (including
grants not directed for equipment) or receipt by the
Company of a further cash infusion of One Million
Dollars or more.
(c) ANNUAL BONUS.
-------------
(i)At the beginning of each fiscal year, the Board of
Directors of the Company shall establish a bonus plan
based upon Company performance goals. At the end of the
fiscal year, officers of the Company, including
Maglich, shall receive a bonus based upon performance
against the established plan.
(ii) In no event shall Maglich's bonus be less than 20%
of the total amount of bonuses paid to officers of the
Company pursuant to the bonus plan referred to in "(i)"
above.
(iii) In the event the Company's gross pretax profit in
any fiscal year shall exceed $.20 per share, then
Maglich's bonus in that year shall not be less than
$50,000.
(d) STOCK OPTIONS.
-------------
(i) The Company represents, warrants, and confirms to
Maglich its agreement in 1998 to then issue to him
options entitling him to purchase 111,040 shares of the
Common Stock of the Company at an exercise price of $3
per share, such options to be exercisable at any time
and from time to time within the period ending November
30, 2008. The Company represents
B - 3
and warrants that it will take all corporate action
necessary or desirable to effect the valid issuance of
all such options to Maglich and the delivery of
certificates therefor to Maglich no later than March
30, 2002; and
(ii) The Company shall grant and issue to Maglich
annually during the term hereof five-year stock options
at a rate of not less than one (1%) per annum of the
Company's stock issued and outstanding at the end of
the year, such options to have an exercise price of the
most recent arms length sale, or if publicly traded,
the average price for the preceding thirty days. In no
event shall Maglich receive, in the aggregate, in any
one year less than 10% of the total number of options
granted by the Company for services in that year.
5. PENSION AND FRINGE BENEFITS.
----------------------------
(a) Maglich shall be entitled to participate in any
employee benefit plans generally available to senior
officers and/or key employees of the Company, including
medical, disability, pension, non-qualified deferred
compensation plans, the programs for the allowance for
or the reimbursement of automobile expenses, and any
other plans of general application to senior officers
and/or key employees of the Company on the date hereof
and such plans and programs adopted hereafter for the
benefit of senior officers and/or key employees of the
Company.
(b) As Maglich is covered by Medicare, the Company shall
pay his supplemental Blue Cross, TIAA Long-Term Care
insurance, medical insurance for his children under
eighteen (18) years of age, and dental insurance for
himself and his children, and not less than $1000 per
month into his TIAA annuity pension fund until August
31, 2003.
(c) The Company will provide Maglich with a Lincoln,
Cadillac, or equivalent U.S. brand automobile of his
choosing for his business and personal use and will pay
for all related expenses thereof, including, without
limitation, the costs of registration, fuel, repairs,
and insurance.
(d) Maglich shall be entitled to take time off for vacation
or illness in accordance with the Company's policy for
senior executives and/or key employees and to receive
all other fringe benefits as from time to time made
generally available to senior executives and/or key
employees of the Company.
(d) The Company shall reimburse Maglich for reasonable and
necessary personal attorneys' fees, costs and expenses
incurred in connection with matters relating to the
affairs of the Company, excluding any disputes with the
Company itself. Such reimbursement shall not exceed
$20,000 in any one year, except as may be necessary to
protect the Company from actual or
B - 4
claimed liability to others or as shall be otherwise
agreed by the Company or provided for in Paragraph 12
hereof. Nothing contained herein shall limit the Board
of Directors from providing defense costs to all
officers and directors of the Company, including
Maglich.
6. REIMBURSEMENT. The Company shall reimburse Maglich for all proper
--------------
expenses, including, without limitation, travel and entertainment
expenses, incurred by him in the performance of his duties hereunder
in accordance with the Company's policies and procedures in effect
from time to time.
7. OFFICE AND LOCATION. The Company shall provide Maglich, at the
--------------------
Company's sole expense, with an executive office at its headquarters
commensurate with his positions as Chief Scientific Officer and
Chairman within the facility then occupied by the Company.
8. EXECUTIVE SECRETARY. The Company shall provide Maglich, at the
--------------------
Company's sole expense, with the services on a full-time basis of an
executive secretary of his choosing. Said executive secretary shall
perform those services for Maglich that are regularly performed for
the Chairman of the Board of a public company and shall also assist
Maglich in his positions as Chief Scientific Officer of the Company. A
salary customary in the area in which the Company's offices are
located shall be paid by the Company to Dr. Maglich's executive
secretary.
9. INSURANCE. The Company shall, at its sole expense, provide Maglich
----------
with the following insurance:
(a) Life Insurance. The Company shall provide Maglich with,
and pay up to $1,000 in premium per month for two key
man life insurance policies. The owner and beneficiary
of one policy shall be the Company. The owner of the
other ("Maglich Policy") shall be Maglich and/or the
beneficiary or beneficiaries designated by him. Every
time the Company increases its insurance on Maglich's
life the Maglich Policy shall increase at the Company's
expense by an identical amount.
(b) Disability Insurance. The Company shall pay the premium
on the disability insurance policy presently maintained
by Maglich and any renewals thereof provided the
premium shall not exceed $500 per month.
10. TERMINATION.
------------
(a) Termination for Cause. The Company may terminate
Maglich's employment at any time upon Maglich's gross
negligence or willful malfeasance in the material
performance of his duties and responsibilities to the
Company under Paragraph 3 of this Agreement. Such
discharge shall be effected by notice (the
B - 5
"Discharge Notice") to Maglich which shall specify the
reasons for Maglich's discharge and effective date
thereof. In each instance, such termination shall not
be effective if the gross negligence or willful
malfeasance specified in the Discharge Notice is cured
by Maglich within ten (10) days following the date of
receipt by Maglich of the Discharge Notice.
(b) TERMINATION FOR DISABILITY. In the event of disability
--------------------------
of Maglich rendering him unable to perform his services
hereunder for a period of one hundred eighty (180)
consecutive days, the Company shall have the right to
terminate this Agreement upon giving not less than
thirty (30) days' notice ("Termination Notice") of its
intention to do so. If Maglich shall have resumed his
duties hereunder within such a thirty (30) day period
and shall have continuously performed his services for
at least thirty (30) consecutive days thereafter, the
Termination Notice shall be deemed of no force and
effect and this Agreement shall thereupon continue in
full force as though such notice of termination had not
been given.
(c) TERMINATION BY MAGLICH. Maglich may terminate this
-----------------------
Agreement at any time by giving not less than three (3)
months' notice of his intention to terminate, in which
case all Company benefits shall be terminated "in due
course" as of the effective date of termination. Any
notes and earned stock options of Maglich shall
immediately vest and be paid as agreed.
11. SEVERANCE PAYMENTS. If this agreement is terminated, the Company shall
-------------------
pay Maglich, on the termination date, an amount of money equal to the
aggregate unpaid balance of the minimum annual base salaries provided for
in Paragraph 4(a) hereof through a period of two (2) years after the
termination date. Additionally, the Company shall continue to pay Maglich,
for said two year period, all of the benefits provided for in Paragraph
5(a) and (b) above and, thereafter, all premiums associated with the
continuation of Maglich's insurance under COBRA for the period that COBRA
shall be available to Maglich. Upon termination, all of Maglich's options
respecting shares of the capital stock of the Company shall forthwith vest
in Maglich and become immediately exercisable.
12. COMPROMISE OF UNPAID CONTRACTUAL OBLIGATIONS TO MAGLICH. Maglich
--------------------------------------------------------
and the Company have certain differences in their understanding of the
existence and magnitude of the Company's obligations to Maglich under
an Employment Agreement initially entered into between Maglich and
Advanced Physics Corporation on the 31st day of December 1993 and
understood by Maglich to have been adopted and approved by the Company
on August 23, 1995. If Maglich is correct, the Company's current
obligations to Maglich under the aforesaid Employment Agreement would
exceed $4,000,000. Maglich and the Company have agreed that Maglich
will cancel all obligations or alleged obligations of the Company to
Maglich respecting the aforesaid Employment Agreement in exchange for
indemnification of Maglich by the Company against any personal tax
liabilities arising from the issuance to
B - 6
Maglich of securities of the Company, up to a total possible
indemnification payment of Seventy-five Thousand dollars ($75,000).
Accordingly, upon the release by Maglich of the Company from his
claims under the aforesaid Employment Agreement, the Company agrees to
indemnify and hold harmless Maglich from and against any and all
personal tax liability or liabilities or alleged tax liability or
liabilities of any kind or description, and against all attorney's
fees, costs and expenses of counsel of Maglich's selection with
respect to such tax liabilities or alleged tax liabilities, to the
fullest extent permitted by law and subject to the payment of no more
than $75,000. It is understood by the Company that it is a material
condition of Dr. Maglich's entering into this Employment Agreement
with the Company that he have no tax liability whatsoever respecting
the issuance by the Company of securities to him, and it is the
intention of the Company that to the limit of $75,000, it bear any and
all such liability in full. The parties will execute and deliver such
other and further documents as shall be necessary or advisable to
carry out the transactions contemplated by this Paragraph 12. If the
ultimate determination of tax liability by Maglich is in excess of
$75,000, the Company will advance to Maglich an additional amount
equal to the excess, up to an additional $75,000, as an advance
against salary, without the collection of interest thereon.
13. EXCHANGE BY MAGLICH OF SHARES OF CLASS B COMMON STOCK FOR SHARES OF
-------------------------------------------------------------------
CLASS A COMMON STOCK OF THE COMPANY. Maglich is the owner of record of 100%
------------------------------------
of the authorized and issued Class B shares of the Company. The Company has
determined that it is in the best interests of the Company and its
shareholders for it to exchange Class A shares of the Company for all of
Maglich's Class B shares. Maglich agrees that he will accept 100,000 shares
of the Class A common stock of the Company in exchange for all of his Class
B shares, and the Company agrees that such an exchange is fair and
reasonable and agrees to such exchange. The Company represents and warrants
to Maglich that its Board of Directors has or will take all necessary or
appropriate action to vest in Maglich full and unfettered title to such
100,000 shares of Class A Common Stock, free and clear of any liens or
encumbrances of any kind whatsoever, upon Maglich's delivery to the Company
of his Class B Common Stock in exchange for said 100,000 shares of Class A
Common Stock.
14. REPRESENTATIONS AND WARRANTIES OF THE COMPANY RESPECTING CERTAIN SECURITIES
---------------------------------------------------------------------------
ISSUED TO MAGLICH AND ASSOCIATES AND RATIFICATION OF TRANSACTIONS RELATED
-------------------------------------------------------------------------
THERETO.
--------
(a) The Company hereby represents and warrants to Maglich that the
securities set forth below have been duly and validly issued by
the Company and registered by the Company in the names of the
persons listed below and are outstanding, fully paid and
non-assessable securities of the Company:
(i) Advanced Projects Group, Inc. 58,000 share of Class A
(majority owned by Bogdan Maglich Common Stock
and Maglich Family Holdings, Inc.)
B - 7
(ii) Bogdan C. Maglich 76,000 shares of
Class A Common Stock
and all shares of Class
B Common Stock
(converted by Maglich
into 100,000 shares of
Class A Common Stock
pursuant to Paragraph
13 hereof)
(iii) Maglich Family Holdings, Inc. 166,049 shares of
Class A Common
Stock
(b) The Company hereby ratifies and reaffirms all transactions which
resulted in the issuance of the securities listed in "(a)" above
and represents and warrants that its Board of Directors has or
will take all action necessary or appropriate to vest in the
parties listed above full and unfettered title to all of said
shares as stated above.
15. NON-DISCLOSURE AND COVENANT NOT TO COMPETEE
-------------------------------------------
(a) NON-DISCLOSURE. During the term of this Agreement and from and
---------------
after the termination of this Agreement, Maglich shall not, except as
required by law or to perform his duties under this Agreement,
divulge, disclose or communicate to any person, firm, or corporation,
any confidential information. The term "confidential information"
includes, without limitation, information about the business of the
Company (or any division, subsidiary or affiliate of the Company)
including, but not limited to, methods of operation, pricing
information and customer lists, but excluding such information that
was in the public domain at the time it was acquired by Maglich or
that comes into the public domain other than through disclosure by
Maglich. If confidential information is contained in any document or
writing or is fixed in any other tangible form, magnetically,
electronically, or otherwise, and if such confidential information is
in Maglich's possession or under his control, he shall return such
information and all copies thereof to the Company upon his
termination. Maglich shall not directly or indirectly, take, copy, or
transfer, in any manner whatsoever, any of the business records of the
Company (or any division, subsidiary or affiliate of the Company).
(b) NON-COMPETE. During the term of Maglich's employment hereunder,
-----------
and for a period of five (5) years following the date of
termination of Maglich's employment hereunder, Maglich shall not,
directly or indirectly, engage (whether for compensation or
without compensation) as an individual proprietor, partner,
stockholder, officer, employee, director, consultant, joint
venturer, lender, or in any other capacity whatsoever (otherwise
than as a holder of no more than 1% of the total outstanding
stock of a publicly held company) in any business activity or
business activities that compete with the remote-non-intrusive
detection business of the Company, it being understood and agreed
by the Company that "other endeavors" of Maglich referred to and
listed in Paragraph
B - 8
3(a) and 3(b) hereof are not and never shall be considered as
competing activities to those of the Company. During the term of
Maglich's employment hereunder, and for a period of the greater
of one year or any time during which Maglich is receiving
severance payments pursuant to Paragraph 11 hereof, Maglich shall
not, directly, or indirectly: either for himself or for any other
person, firm or corporation, divert or take away or attempt to
divert or take away any person, firm or corporation who was or is
a customer of the Company during the term of this Agreement, or
(b) induce or influence any person who is engaged by the Company
as an employee, agent or otherwise, to terminate his or her
engagement or to engage or otherwise participate in a business
activity directly or indirectly competitive with the Company.
(c) SCOPE OF RESTRICTIONS. The restrictions set forth in this
----------------------
Paragraph 15 are considered by the parties to be reasonable.
However, if any such restriction is found to be unenforceable
because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it
shall be interpreted to extend only over the maximum period of
time, range of activities or geographic area as to what may be
enforceable.
(d) REMEDIES. In the event of a breach or a threatened breach of this
--------
Paragraph 15 that is not cured by Maglich after receipt of ten
day's written notice from the Company, the Company shall be
entitled to an injunction restraining Maglich from committing or
continuing such breach, as well as to any and all other legal and
equitable remedies permitted by law.
16. MISCELLANEOUS.
--------------
(a) ENFORCEABILITY. The failure of any party at any time to require
---------------
performance by another party of any provision hereunder shall in
no way affect the right of that party thereafter to enforce the
same, nor shall it affect any other party's right to enforce the
same, or to enforce any of the other provisions of this
Agreement; nor shall the waiver by any party of the breach of any
provision hereof be taken or held to be a waiver of any
subsequent breach of such provision or as a waiver of the
provision itself.
(b) BINDING EFFECT. This Agreement shall be binding upon the Company,
--------------
its successors and assigns and Maglich, his heirs, and personal
representatives. This Agreement may not be assigned by either
party without the prior written consent of the other party being
first obtained.
(c) MODIFICATIONS. This Agreement may not be orally cancelled,
--------------
changed, modified or amended, and no cancellation, change,
codification or amendment shall be effective or binding, unless
in writing and signed by the parties to this Agreement.
(d) SEVERABILITY; SURVIVAL. In the event any provision or portion of
----------------------
this Agreement is determined to be invalid or unenforceable for
any reason, in whole or in part, the remaining provisions of this
Agreement shall nevertheless be binding upon the parties
B - 9
with the same effect as through the invalid or unenforceable part
had been severed and deleted. The respective rights and
obligations of the parties thereunder shall survive the
termination of the executive's employment to the extent provided
elsewhere herein and to the extent necessary to the intended
preservation of such rights and obligations.
(e) NOTICES. Any notice, request, instruction or other document to be
-------
given hereunder by any party to another party shall be in writing
and shall be deemed effective (i) upon personal delivery, if
delivered by hand against receipt, (ii) mailed postage prepaid,
by United States certified or registered mail, return receipt
requested, (iii) upon being sent by facsimile transmission (if
receipt is electronically confirmed) and, in each case, addressed
as follows:
If to the Company:
HiEnergy Microdevices, Inc.
10 Mauchly Drive
Irvine, CA 92618
With a copy to:
Blackwell Sanders Pepper Martin
2300 Main Street, Suite 1000
Kansas City, MO 62108
Attention: Steve Carman, Esq.
If to Maglich:
Bogdan C. Maglich
559 Vista Flora
Newport Beach, CA 92660
With a copy to:
James Monroe Marx, Esq.
590 Madison Avenue, 23rd Floor
New York, New York 10022
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
(f) APPLICABLE LAW. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of
California, without application of conflict of law provisions
applicable herein.
(g) ENTIRE AGREEMENT. This Agreement represents the entire agreement
----------------
between the Company and Maglich with respect to the subject
matter hereof, and all prior agreements, plans and arrangements
B - 10
relating to the employment of Maglich by the Company are
nullified and superceded hereby.
(h) HEADINGS. The headings contained in this Agreement are for
--------
reference purposes only, and shall not affect the meaning or
interpretation of this Agreement
(i) COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, all of which shall constitute one and the same
agreement, and each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
HiEnergy Microdevices, Inc., a Delaware Corporation
By: /s/ Gregory Gilbert
------------------------------------
Gregory Gilbert
President and Duly Authorized Signatory
/s/ B. C. Maglich
------------------------------------
Bogdan C. Maglich, Individually
B - 11
APPENDIX C
----------
ASSIGNMENT AND ASSUMPTION OF EMPLOYMENT AGREEMENT
BY AND AMONG HIENERGY TECHNOLOGIES, INC.,
HIENERGY MICRODEVICES, INC. AND DR. BOGDAN C. MAGLICH
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is entered into
as of the 16th day of July, 2002, by and among HiEnergy Technologies, Inc. (the
"Parent" or the "Company"), a Washington corporation, HiEnergy Microdevices,
Inc. (the "Subsidiary"), a Delaware corporation, and Dr. Bogdan C. Magich
("Maglich"), individually (together, the "parties").
RECITALS
WHEREAS, an employment agreement (the "Employment Agreement") was entered
into by and between the Subsidiary and Maglich on March 6, 2002; and
WHEREAS, the Subsidiary desires to assign to the Parent and the Parent
desires to assume from the Subsidiary the Employment Agreement; and
WHEREAS, the Employment Agreement contains a provision (i) granting Maglich
an option to purchase 111,040 shares of Class A common stock of the Subsidiary
(the "Option"), which grant was approved by resolution of the Board of
Subsidiary at a meeting held on March 19, 2002, and (ii) promising to grant to
Maglich additional stock options (the "Additional Options") annually during the
term of the Employment Agreement; and
WHEREAS, a separate Stock Option Agreement will be executed between the
Parent and Maglich granting Maglich an Option to purchase 2,482,011 shares of
common stock of the Parent in exchange for canceling the Option; and
WHEREAS, the parties seek to amend the Employment Agreement with respect to
the Option and the Additional Options and to cancel the Option;
NOW THEREFORE, in consideration of the promises and mutual covenants set forth
in this Agreement, the parties hereby agree as follows:
1. AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
a. Definitions; References. All capitalized terms used in this
------------------------
Amendment No. 1 to the Employment Agreement ("Amendment No. 1") not defined
herein shall have the meanings given them in the Employment Agreement.
References in this Amendment No. 1 and in the Employment Agreement to "this
Agreement," "herein," "hereto" and words of similar import shall mean the
Employment Agreement as modified by this Amendment No. 1.
C - 1
b. Effect of Amendment No. 1. This Amendment No. 1 modifies the
-----------------------------
Employment Agreement. The Employment Agreement, as amended by this Amendment
No. 1, is in full force and effect, and the parties hereby ratify and affirm the
same. In the event of any conflict between the provisions of the Employment
Agreement and this Amendment No. 1, the provisions of this Amendment No. 1 shall
control.
c. Amendment of Employment Agreement Section 4(d). The Employment
---------------------------------------------------
Agreement Section 4(d) is hereby superseded and replaced in its entirety by the
following:
(d) Stock Options.
---------------
The Company shall grant and issue to Maglich annually during the term
hereof five-year stock options at a rate of not less than one percent (1%)
per annum of the Company's common stock issued and outstanding at the end
of the year, such options to have an exercise price of the most recent arms
length sale or, if publicly traded, the average price for the preceding
thirty days. In no event shall Maglich receive, in the aggregate, in any
one year less than 10% of the total number of options granted by the
Company for services in that year.
d. Purpose and Effect. The purpose of this Amendment No. 1 is to
--------------------
revise the provision concerning the grant of the Additional Options to allow for
the grant of the stock options from the Parent through one or more separate
stock option agreements.
2. CANCELLATION OF OPTION
Maglich hereby agrees to rescind the grant of the Option to him by the
Company through the Employment Agreement. The Parties agree that the Option is
hereby cancelled. Upon execution of this Agreement and effective as of April
24, 2002, Maglich no longer holds the Option to purchase shares of the
Subsidiary's or the Company's common stock pursuant to the Employment Agreement.
Upon execution of this Agreement and effective as of April 24, 2002, the
Subsidiary no longer has any stock options outstanding in the name of Maglich
nor has any obligation to issue stock options to Maglich.
3. ASSIGNMENT AND ASSUMPTION
The Subsidiary hereby assigns all of its right, title and interest in and
to the Employment Agreement to the Parent. The Parent hereby accepts such
assignment, assumes all obligations of the Subsidiary arising out of the
Employment Agreement and agrees to indemnify and hold the Subsidiary harmless
from any liabilities, claims or demands based upon or arising under the
Employment Agreement.
4. OTHER PROVISIONS
C - 2
a. Applicable Law and Forum. This Agreement shall be construed and
---------------------------
enforced according to the laws of the State of California. All legal actions
arising under this Agreement shall be instituted in, and each party consents to
jurisdiction in the County of Orange, State of California.
b. Notices. Any notice or other communication required or permitted
-------
under this Agreement shall be given in writing and delivered by hand or by
registered or certified mail, postage prepaid and return receipt requested, to
the following persons (or their successors pursuant to due notice):
If to the Parent: HiEnergy Technologies, Inc.
10 Mauchly Drive
Irvine, CA 92618
Attn: President
If to the Subsidiary: HiEnergy Microdevices, Inc.
10 Mauchly Drive
Irvine, CA 92618
Attn: President
If to Maglich: Bogdan C. Maglich
559 Vista Flora
Newport Beach, CA 92660
Such address may be changed from time to time by any party by providing written
notice to the other parties in the manner set forth above.
c. Waiver. The failure of the parties to enforce any provision of this
------
Agreement shall not be construed as a waiver or limitation of that party's right
to subsequently enforce and compel strict compliance with every provision of
this Agreement.
d. Entire Agreement. This Agreement constitutes the entire agreement
-----------------
between the parties.
e. Amendments. This Agreement may be modified or amended if the
----------
amendment is made in writing and is signed by all parties.
f. Severability. If one or more provisions of this Agreement are held
------------
to be invalid or unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were excluded and shall be enforceable in
accordance with its terms.
C - 3
IN WITNESS WHEREOF, and in acknowledgment that the parties hereto have read and
understood each and every provision hereof, the parties have executed this
Agreement on the date first set forth above.
HIENERGY MICRODEVICES, INC. HIENERGY TECHNOLOGIES, INC.
By: /s/ Gregory F. Gilbert By: /s/ Barry Alter
----------------------------- --------------------------------
Gregory F. Gilbert, President Barry Alter, President and CEO
/s/ B. C. Maglich
- --------------------------------
Dr. Bogdan C. Maglich, Individually
C - 4
APPENDIX D
----------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
HIENERGY TECHNOLOGIES, INC., A WASHINGTON CORPORATION
AND
HIENERGY TECHNOLOGIES, INC., A DELAWARE CORPORATION
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is entered into as of the
____ day of _________________, 2002, by and between HiEnergy Technologies, Inc.,
a Washington corporation (hereinafter, the "Parent"), located at 10 Mauchly
Drive, Irvine, California, 92618, and HiEnergy Technologies, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Parent (hereinafter, the
"Subsidiary"), located at 10 Mauchly Drive, Irvine, California, 92618. The
Parent and the Subsidiary are referred to collectively herein as the "Parties."
RECITALS
A. The Parent is a corporation organized and existing under the laws of the
State of Washington. The authorized capital stock of the Parent consists of
100,000,000 shares of Common Stock, having a par value of $0.0001 per share, of
which 22,613,098 shares are duly issued and outstanding and 20,000,000 shares of
Preferred Stock, having a par value of $0.0001 per share, of which none are duly
issued and outstanding.
B. The Subsidiary is a corporation organized and existing under the laws
of the State of Delaware. The authorized capital stock of the Subsidiary
consists of 100,000,000 shares of Common Stock, having a par value of $0.001 per
share, of which 1,000 shares are duly issued and outstanding, and 20,000,000
shares of Preferred Stock, having a par value of $0.001 per share, of which none
are duly issued and outstanding. All 1,000 shares of issued and outstanding
Common Stock are held by the Parent.
C. This Agreement contemplates a merger of the Parent with and into the
Subsidiary. The Parent Stockholders will receive one (1) share of the
Subsidiary's Common Stock in exchange for each share of Common Stock of the
Parent outstanding at the Effective Time. The purpose of the Merger is to change
the domicile of the Parent from the State of Washington to the State of
Delaware.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Basic Transaction.
1.1 Merger. On and subject to the terms and conditions of this
------
Agreement, the Parent will merge with and into the Subsidiary (the "Merger") at
the Effective Time. The Subsidiary shall be the corporation surviving the
Merger (the "Surviving Corporation").
D - 1
1.2 Effect of Merger.
------------------
1.2.1 General. The Merger shall become effective at the time (the
-------
"Effective Time") the Surviving Entity signs the Certificate of Merger and the
Articles of Merger and files the Certificate of Merger with the Secretary of
State of Delaware and files the Articles of Merger with the Secretary of State
of Washington. The Merger shall have the effect set forth in the laws of the
States of Delaware and Washington. The Surviving Corporation may, at any time
after the Effective Time, take any action (including executing and delivering
any document) in the name and on behalf of either the Subsidiary or the Parent
in order to carry out and effectuate the transactions contemplated by this
Agreement.
1.2.2 Certificate of Incorporation. The Certificate of
------------------------------
Incorporation of the Subsidiary in effect at and as of the Effective Time will
remain the Certificate of Incorporation of the Surviving Corporation without any
modification or amendment in the Merger.
1.2.3 Bylaws. The Bylaws of the Subsidiary in effect at and as of
------
the Effective Time will remain the Bylaws of the Surviving Corporation without
any modification or amendment in the Merger.
1.2.4 Directors and Officers. The directors and officers of the
------------------------
Parent in office at and as of the Effective Time will become the directors and
officers of the Surviving Corporation (retaining their respective positions and
terms of office).
1.3 Conversion of Shares.
----------------------
1.3.1 Common Stock. At the Effective Time of the Merger, by virtue
------------
of the Merger and without any action on the part of the holder of any shares of
stock of the Parent or the Subsidiary, every one (1) issued and outstanding
share of the Common Stock of the Parent held as of the Effective Time shall be
converted into and become one (1) new fully paid and nonassessable share of
Common Stock, par value $0.001 per share, of the Surviving Corporation. The
Surviving Corporation will honor the stock certificates of the Parent as if they
were issued by the Surviving Corporation.
1.3.2 Conversion of Other Equity Instruments. At the Effective
---------------------------------------
Time of the Merger, by virtue of the Merger and without any action on the part
of the holder of any stock options or warrants of the Parent, every one (1)
employee option granted and convertible into shares of the Common Stock of the
Parent, whether or not vested, shall be converted into and become one (1) option
or warrant convertible into shares of the Common Stock of the Surviving
Corporation. Any employee stock options of the Surviving Corporation shall be
issued pursuant to a Stock Option Plan on economic terms substantially similar
to those of existing options in the Parent. At the Effective Time of the Merger,
every other equity instrument of the Parent not addressed elsewhere in this
Agreement shall be converted into a similar equity instrument in the Surviving
Corporation on economic terms substantially similar to those of the existing
other equity instruments in the Parent.
1.3.3 Cancellation of Parent Securities. At and as of the
------------------------------------
Effective Time, each outstanding share of Common Stock and other equity
instrument of the Parent shall be canceled.
D - 2
1.3.4 Cancellation of Subsidiary Shares. Each share of Common
------------------------------------
Stock and other equity instrument of the Subsidiary issued and outstanding
immediately before the Effective Time shall be canceled at or immediately after
the Effective Time.
2. RIGHTS, DUTIES, POWERS, LIABILITIES, ETC.
At the Effective Time of the Merger, the separate existence of the Parent
shall cease, and the Parent shall be merged, in accordance with the provisions
of this Agreement and the laws of Washington and Delaware, with and into the
Subsidiary, which shall possess all the properties and assets, and all the
rights, privileges, powers, immunities and franchises, of whatever nature and
description, and shall be subject to all restrictions, disabilities, duties and
liabilities of each of the Parties; and all such things shall be taken and
deemed to be transferred to and vested in the Surviving Corporation without
further act or deed; and the title to any real estate or other property, or any
interest therein, vested by deed or otherwise in either the Parent or the
Subsidiary, shall be vested in the Surviving Corporation without reversion or
impairment. Any claim existing or action or proceeding, whether civil, criminal
or administrative, pending by or against either the Parent or the Subsidiary,
may be prosecuted to judgment or decree as if the Merger had not taken place,
and the Surviving Corporation may be substituted in any such action or
proceeding.
3. IMPLEMENTATION.
Each of the Parties hereto shall take, or cause to be taken, all action or
do, or cause to be done, all things necessary, proper or advisable under the
laws of the States of Washington and Delaware to consummate and make effective
the Merger.
4. TERMINATION.
This Agreement may be terminated for any reason at any time before the
filing of the Certificate of Merger and Articles of Merger with the Secretaries
of State of the States of Delaware and Washington, respectively, (whether before
or after approval by the stockholders of either of the Parties) by resolution of
the Boards of Directors of both the Parent and the Subsidiary.
5. AMENDMENT.
This Agreement may, to the extent permitted by law, be amended,
supplemented or interpreted at any time by action taken by the Boards of
Directors of both of the Parties; provided, however, that, subject to the
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succeeding sentence, this Agreement may not be amended or supplemented after
having been approved by the stockholders of either the Parent or the Subsidiary
except by a vote or consent of stockholders of both Parties in accordance with
applicable law. Notwithstanding the preceding proviso, to the extent permitted
by law, the Boards of Directors of both Parties may amend, supplement or
interpret this Agreement following stockholder approval to correct technical
deficiencies that do not affect the economic or voting rights of the
stockholders.
D - 3
6. GOVERNING LAW.
This Agreement and all matters relating to this Agreement, except for
provisions pertaining to effecting the merger in the State of Washington, shall
be governed by, construed and interpreted in accordance with the laws of the
State of Delaware.
7. HEADINGS.
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
8. SEVERABILITY.
Any term or provision of this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
9. COUNTERPART AND FACSIMILE SIGNATURES.
This Agreement may be signed in counterparts, each of which shall be an
original, but all of which shall constitute one and the same document.
Signatures transmitted by facsimile shall be deemed valid execution of this
Agreement binding on the Parties.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first set forth above.
PARENT: SUBSIDIARY:
HiEnergy Technologies, Inc., HiEnergy Technologies, Inc.,
a Washington corporation a Delaware corporation
By ________________________________ By ________________________________
Name:______________________________ Name:______________________________
Title:_____________________________ Title:_____________________________
D - 4
ADOPTION OF THE AGREEMENT AND PLAN OF MERGER BY STOCKHOLDERS
OF RECORD OF THE PARENT AND SUBSIDIARY
PARENT:
The Agreement and Plan of Merger has been approved, adopted, certified, executed
and acknowledged by the Parent. The merger contemplated by the Agreement and
Plan of Merger was approved at the Annual Meeting of the Stockholders of the
Parent held on October 10, 2002 by stockholders of record holding
________________________ shares of voting common stock, which constitutes
___________% of the Parent's duly issued and outstanding shares.
HIENERGY TECHNOLOGIES, INC., a Washington corporation
By ________________________________ ___________________________
Name:______________________________ (Date)
Title: Secretary
SUBSIDIARY:
The Agreement and Plan of Merger has been approved, adopted, certified, executed
and acknowledged by the Subsidiary. The Agreement and Plan of Merger was
approved by unanimous written consent of the director and sole stockholder of
the Subsidiary on ___________________________, 2002.
HIENERGY TECHNOLOGIES, INC., a Delaware corporation
By ________________________________ ___________________________
Name:______________________________ (Date)
Title: Secretary
D - 5
APPENDIX E
----------
CERTIFICATE OF INCORPORATION
OF
HIENERGY TECHNOLOGIES, INC.
The undersigned, for the purpose of forming a corporation in the State of
Delaware, hereby adopts the following Certificate of Incorporation.
ARTICLE I
The name of the corporation is "HiEnergy Technologies, Inc."
ARTICLE II
2.1. Authorized Capital
The total number of shares that this corporation is authorized to issue is
120,000,000, consisting of 100,000,000 shares of Common Stock having a par value
of $0.001 per share and 20,000,000 shares of Preferred Stock having a par value
of $0.001 per share. The Common Stock is subject to the rights and preferences
of the Preferred Stock as set forth below.
2.2. Issuance of Preferred Stock by Class and in Series
The Preferred Stock may be issued from time to time in one or more classes
and one or more series within such classes in any manner permitted by law and
the provisions of this Certificate of Incorporation, as determined from time to
time by the Board of Directors and stated in the resolution or resolutions
providing for its issuance, prior to the issuance of any shares. The Board of
Directors shall have the authority to fix and determine and to amend the
designation, preferences, limitations and relative rights of the shares
(including, without limitation, such matters as dividends, redemption,
liquidation, conversion and voting) of any class or series that is wholly
unissued or to be established. Unless otherwise specifically provided in the
resolution establishing any class or series, the Board of Directors shall
further have the authority, after the issuance of shares of a class or series
whose number it has designated, to amend the resolution establishing such class
or series to decrease the number of shares of that class or series, but not
below the number of shares of such class or series then outstanding.
2.2.1. Series A Convertible Preferred Stock
2.2.1.1. Designation and Rank
The designation of such series of the Preferred Stock shall be the Series A
Convertible Preferred Stock, par value $0.001 per share (the "Series A Preferred
Stock"). The maximum number of shares of Series A Preferred Stock shall be Three
Hundred Forty-Five (345) Shares. The Series A Preferred Stock shall rank prior
to the common stock, par value $0.001 per share (the "Common Stock"), and to all
other classes and series of equity securities of the corporation which by its
terms does not rank senior to the Series A Preferred Stock ("Junior Stock"). The
Series A Preferred Stock shall be subordinate to and rank junior to all
indebtedness of the corporation now or hereafter outstanding.
E - 1
2.2.1.2. Dividends
(a) Payment of Dividends. The holders of record of
----------------------
shares of Series A Preferred Stock prior to the Mandatory Conversion Date shall
be entitled to receive, out of any assets at the time legally available therefor
and when and as declared by the Board of Directors, dividends at the rate of
eight percent (8%) of the stated Liquidation Preference Amount (as defined
below) per share per annum commencing on the first date of issuance (the
"Issuance Date") of the Series A Preferred Stock (the "Dividend Payment"), and
no more, payable at the option of the corporation in cash or in shares of Common
Stock, in an amount equal to the quotient of (i) the Dividend Payment divided by
(ii) the Conversion Price (as defined in Section 2.2.1.5(d) below).
Notwithstanding the foregoing, the Dividend Payment for the first year following
the Issuance Date shall be payable on the Issuance Date to the holders of record
of shares of Series A Preferred Stock in shares of Common Stock which shall be
registered pursuant to an effective registration statement under the Securities
Act of 1933, as amended, and the Dividend Payment for the second year following
the Issuance Date shall be payable within one day of the first year following
the Issuance Date which, if paid in shares of Common Stock, shall carry standard
piggyback registration rights. In the case of shares of Series A Preferred
Stock issued following the Issuance Date or otherwise outstanding for less than
a full year (measured with respect to the relevant anniversary of the Issuance
Date), dividends shall be pro rated based on the portion of each year during
which such shares are outstanding, and the holder of any Series A Preferred
Stock that ceases to be outstanding shall be liable to the corporation for the
unearned portion of any dividend paid in advance. Dividends on the Series A
Preferred Stock shall be cumulative, shall accrue and be payable in accordance
with the terms and provisions of this Section 2.2.1.2(a). Dividends on the
Series A Preferred Stock are prior and in preference to any declaration or
payment of any distribution (as defined below) on any outstanding shares of
Common Stock or any other equity securities of the corporation ranking junior to
the Series A Preferred Stock as to the payment of dividends. Such dividends
shall accrue on each share of Series A Preferred Stock from day to day whether
or not earned or declared so that if such dividends with respect to any previous
dividend period at the rate provided for herein have not been paid on, or
declared and set apart for, all shares of Series A Preferred Stock at the time
outstanding, the deficiency shall be fully paid on, or declared and set apart
for, such shares on a pro rata basis with all other equity securities of the
corporation ranking on a parity with the Series A Preferred Stock as to the
payment of dividends before any distribution shall be paid on, or declared and
set apart for Common Stock or any other equity securities of the corporation
ranking junior to the Series A Preferred Stock as to the payment of dividends.
(b) So long as any shares of Series A Preferred Stock
are outstanding, the corporation shall not declare, pay or set apart for payment
any dividend or make any distribution on any Junior Stock (other than dividends
or distributions payable in additional shares of Junior Stock), unless at the
time of such dividend or distribution the corporation shall have paid all
accrued and unpaid dividends on the outstanding shares of Series A Preferred
Stock.
(c) In the event of a dissolution, liquidation or
winding up of the corporation pursuant to Section 2.2.1.4, all accrued and
unpaid dividends on the Series A Preferred Stock shall be payable on the day
immediately preceding the date of payment of the preferential amount to the
holders of Series A Preferred Stock. In the event of (i) a mandatory redemption
pursuant to Section 2.2.1.9 or (ii) a redemption upon the occurrence of a Major
Transaction (as defined in Section 2.2.1.8(c)) or a Triggering Event (as defined
in Section 2.2.1.8(d)), all accrued and unpaid dividends on the Series A
Preferred Stock shall be payable on the day immediately preceding the date of
such redemption. In the event of a voluntary conversion pursuant to Section
2.2.1.5(a), all accrued and unpaid dividends on the
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Series A Preferred Stock being converted shall be payable on the day immediately
preceding the Voluntary Conversion Date (as defined in Section 2.2.1.5(b)(i)).
(d) For purposes hereof, unless the context otherwise
requires, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
shares of Common Stock or other equity securities of the corporation, or the
purchase or redemption of shares of the corporation (other than redemptions set
forth in Section 2.2.1.8 below or repurchases of Common Stock held by employees
or consultants of the corporation upon termination of their employment or
services pursuant to agreements providing for such repurchase or upon the
cashless exercise of options held by employees or consultants) for cash or
property.
2.2.1.3. Voting Rights
(a) Class Voting Rights. The Series A Preferred Stock
---------------------
shall have the following class voting rights (in addition to the voting rights
set forth in Section 2.2.1.3(b) hereof). So long as any shares of the Series A
Preferred Stock remain outstanding, the corporation shall not, without the
affirmative vote or consent of the holders of at least three-fourths (3/4) of
the shares of the Series A Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting, in which the holders of
the Series A Preferred Stock vote separately as a class: (i) authorize, create,
issue or increase the authorized or issued amount of any class or series of
stock ranking prior to the Series A Preferred Stock, with respect to the
distribution of assets on liquidation, dissolution or winding up, including but
not limited to the issuance of any more shares of previously authorized Common
Stock or Preferred Stock, ranking prior to the Series A Preferred Stock, with
respect to the distribution of assets on liquidation, dissolution or winding up;
(ii) amend, alter or repeal the provisions of the Series A Preferred Stock,
whether by merger, consolidation or otherwise, so as to adversely affect any
right, preference, privilege or voting power of the Series A Preferred Stock;
provided, however, that any creation and issuance of another series of Junior
- -------- -------
Stock shall not be deemed to adversely affect such rights, preferences,
privileges or voting powers; (iii) repurchase, redeem or pay dividends on,
shares of the corporation's Junior Stock; (iv) amend the Certificate of
Incorporation or By-Laws of the corporation so as to affect materially and
adversely any right, preference, privilege or voting power of the Series A
Preferred Stock; provided, however, that any creation and issuance of another
-------- -------
series of Junior Stock or any other class or series of equity securities which
by its terms shall rank on parity with the Series A Preferred Stock shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers; (v) effect any distribution with respect to Junior Stock; or
(vi) reclassify the corporation's outstanding securities.
(b) General Voting Rights. Except with respect to
-----------------------
transactions upon which the Series A Preferred Stock shall be entitled to vote
separately as a class pursuant to Section 2.2.1.3(a) above and except as
otherwise required by Delaware law, the Series A Preferred Stock shall have no
voting rights. The Common Stock into which the Series A Preferred Stock is
convertible shall, upon issuance, have all of the same voting rights as other
issued and outstanding Common Stock of the corporation.
2.2.1.4. Liquidation Preference
(a) In the event of the liquidation, dissolution or
winding up of the affairs of the corporation, whether voluntary or involuntary,
after payment or provision for payment of
E - 3
the debts and other liabilities of the corporation, the holders of shares of the
Series A Preferred Stock then outstanding shall be entitled to receive, out of
the assets of the corporation whether such assets are capital or surplus of any
nature, an amount equal to $10,000 per share (the "Liquidation Preference
Amount") of the Series A Preferred Stock plus any accrued and unpaid dividends
before any payment shall be made or any assets distributed to the holders of the
Common Stock or any other Junior Stock. If the assets of the corporation are
not sufficient to pay in full the Liquidation Preference Amount plus any accrued
and unpaid dividends payable to the holders of outstanding shares of the Series
A Preferred Stock and any series of preferred stock or any other class of stock
on a parity, as to rights on liquidation, dissolution or winding up, with the
Series A Preferred Stock, then all of said assets will be distributed among the
holders of the Series A Preferred Stock and the other classes of stock on a
parity with the Series A Preferred Stock, if any, ratably in accordance with the
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full. The liquidation payment with respect to each
outstanding fractional share of Series A Preferred Stock shall be equal to a
ratably proportionate amount of the liquidation payment with respect to each
outstanding share of Series A Preferred Stock. All payments for which this
Section 2.2.1.4(a) provides shall be in cash, property (valued at its fair
market value as determined by the corporation's independent, outside accountant)
or a combination thereof; provided, however, that no cash shall be paid to
-------- -------
holders of Junior Stock unless each holder of the outstanding shares of Series A
Preferred Stock has been paid in cash the full Liquidation Preference Amount
plus any accrued and unpaid dividends to which such holder is entitled as
provided herein. After payment of the full Liquidation Preference Amount plus
any accrued and unpaid dividends to which each holder is entitled, such holders
of shares of Series A Preferred Stock will not be entitled to any further
participation as such in any distribution of the assets of the corporation.
(b) A consolidation or merger of the corporation with or
into any other corporation or corporations, or a sale of all or substantially
all of the assets of the corporation, or the effectuation by the corporation of
a transaction or series of transactions in which more than 50% of the voting
shares of the corporation is disposed of or conveyed, shall not be deemed to be
a liquidation, dissolution, or winding up within the meaning of this Section
2.2.1.4. In the event of the merger or consolidation of the corporation with or
into another corporation, the Series A Preferred Stock shall maintain its
relative powers, designations and preferences provided for herein and no merger
shall result inconsistent therewith.
(c) Written notice of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the corporation,
stating a payment date and the place where the distributable amounts shall be
payable, shall be given by mail, postage prepaid, no less than forty-five (45)
days prior to the payment date stated therein, to the holders of record of the
Series A Preferred Stock at their respective addresses as the same shall appear
on the books of the corporation.
E - 4
2.2.1.5. Conversion
The holder of Series A Preferred Stock shall have the following conversion
rights (the "Conversion Rights"):
(a) Right to Convert. At any time on or after the
------------------
Issuance Date, the holder of any such shares of Series A Preferred Stock may, at
such holder's option, subject to the limitations set forth in Section 2.2.1.7
herein, elect to convert (a "Voluntary Conversion") all or any portion of the
shares of Series A Preferred Stock held by such person into a number of fully
paid and nonassessable shares of Common Stock (the "Conversion Rate") equal to
the quotient of (i) the Liquidation Preference Amount of the shares of Series A
Preferred Stock being converted divided by (ii) the Conversion Price (as defined
in Section 2.2.1.5(d) below) then in effect as of the date of the delivery by
such holder of its notice of election to convert.
(b) Mechanics of Voluntary Conversion. The Voluntary
------------------------------------
Conversion of Series A Preferred Stock shall be conducted in the following
manner:
(i) Holder's Delivery Requirements. To convert
--------------------------------
Series A Preferred Stock into full shares of Common Stock on any date (the
"Voluntary Conversion Date"), the holder thereof shall (A) transmit by facsimile
(or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on
such date, a copy of a fully executed notice of conversion in the form attached
hereto as Exhibit I (the "Conversion Notice"), to the corporation, and (B)
----------
surrender to a common carrier for delivery to the corporation as soon as
practicable following such Voluntary Conversion Date but in no event later than
six (6) business days after such date the original certificates representing the
shares of Series A Preferred Stock being converted (or an indemnification
undertaking with respect to such shares in the case of their loss, theft or
destruction) (the "Preferred Stock Certificates") and the originally executed
Conversion Notice.
(ii) Corporation's Response. Upon receipt by the
-----------------------
corporation of a facsimile copy of a Conversion Notice, the corporation shall
immediately send, via facsimile, a confirmation of receipt of such Conversion
Notice to such holder. Upon receipt by the corporation of the Preferred Stock
Certificates to be converted pursuant to a Conversion Notice, together with the
originally executed Conversion Notice, the corporation or its designated
transfer agent (the "Transfer Agent"), as applicable, shall, subject to
compliance with all applicable securities laws and as provided by relevant
agreements between the holder and the corporation, within three (3) business
days following the date of receipt by the corporation of both, issue and deliver
to the Depository Trust corporation ("DTC") account on the Holder's behalf via
---
the Deposit Withdrawal Agent Commission System ("DWAC") as specified in the
----
Conversion Notice, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled. If the
number of shares of Preferred Stock represented by the Preferred Stock
Certificate(s) submitted for conversion is greater than the number of shares of
Series A Preferred Stock being converted, then the corporation shall, as soon as
practicable and in no event later than three (3) business days after receipt of
the Preferred Stock Certificate(s) and at the corporation's expense, issue and
deliver to the holder a new Preferred Stock Certificate representing the number
of shares of Series A Preferred Stock not converted. If shares of Common Stock
may not, in the opinion of the corporation's counsel, be delivered to the DTC
via the DWAC, and the holder refuses to make such accommodations as would
satisfy the corporation's counsel to clear the shares through the DWAC, the
corporation may issue the holder shares of Common Stock bearing a restrictive
legend.
E - 5
(iii) Dispute Resolution. In the case of a dispute
------------------
as to the arithmetic calculation of the number of shares of Common Stock to be
issued upon conversion, the corporation shall promptly issue to the holder the
number of shares of Common Stock that is not disputed and shall submit the
arithmetic calculations to the holder via facsimile as soon as possible, but in
no event later than two (2) business days after receipt of such holder's
Conversion Notice. If such holder and the corporation are unable to agree upon
the arithmetic calculation of the number of shares of Common Stock to be issued
upon such conversion within one (1) business day of such disputed arithmetic
calculation being submitted to the holder, then the corporation shall within one
(1) business day submit via facsimile the disputed arithmetic calculation of the
number of shares of Common Stock to be issued upon such conversion to the
corporation's independent, outside accountant. The corporation shall cause the
accountant to perform the calculations and notify the corporation and the holder
of the results no later than seventy-two (72) hours from the time it receives
the disputed calculations. Such accountant's calculation shall be binding upon
all parties absent manifest error. The reasonable expenses of such accountant in
making such determination shall be paid by the corporation, in the event the
holder's calculation was correct, or by the holder, in the event the
corporation's calculation was correct, or equally by the corporation and the
holder in the event that neither the corporation's or the holder's calculation
was correct. The period of time in which the corporation is required to effect
conversions or redemptions under this Certificate of Designation shall be tolled
with respect to the subject conversion or redemption pending resolution of any
dispute by the corporation made in good faith and in accordance with this
Section 2.2.1.5(b)(iii).
(iv) Record Holder. The person or persons entitled
-------------
to receive the shares of Common Stock issuable upon a conversion of the Series A
Preferred Stock shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on the Conversion Date.
(v) Corporation's Failure to Timely Convert. If
------------------------------------------
within three (3) business days of the corporation's receipt of the Conversion
Notice and the Preferred Stock Certificates to be converted (the "Share Delivery
Period") the corporation shall fail to issue and deliver to a holder the number
of shares of Common Stock to which such holder is entitled upon such holder's
conversion of the Series A Preferred Stock or to issue a new Preferred Stock
Certificate representing the number of shares of Series A Preferred Stock to
which such holder is entitled pursuant to Section 2.2.1.5(b)(ii) (a "Conversion
Failure"), in addition to all other available remedies which such holder may
pursue hereunder and under the Series A Convertible Preferred Stock Purchase
Agreement dated as of September, 2002 (the "Purchase Agreement") between the
corporation and the initial holders of the Series A Preferred Stock (including
indemnification pursuant to Section 2.2.1.6 thereof), the corporation shall pay
additional damages to such holder on each business day after such third (3rd)
business day that such conversion is not timely effected in an amount equal 0.5%
of the product of (A) the sum of the number of shares of Common Stock not issued
to the holder on a timely basis pursuant to Section 2.2.1.5(b)(ii) and to which
such holder is entitled and, in the event the corporation has failed to deliver
a Preferred Stock Certificate to the holder on a timely basis pursuant to
Section 2.2.1.5(b)(ii), the number of shares of Common Stock issuable upon
conversion of the shares of Series A Preferred Stock represented by such
Preferred Stock Certificate, as of the last possible date which the corporation
could have issued such Preferred Stock Certificate to such holder without
violating Section 2.2.1.5(b)(ii) times (B) the Closing Bid Price (as defined in
Section 2.2.1.5(d)(ii) below) of the Common Stock on the last possible date
which the corporation could have issued such Common Stock and such Preferred
Stock Certificate, as the case may be, to such holder without violating Section
2.2.1.5(b)(ii). If the corporation fails to pay the
E - 6
additional damages set forth in this Section 2.2.1.5(b)(v) within five (5)
business days of the date incurred, then such payment shall bear interest at the
rate of 2% per month (pro rated for partial months) until such payments are
made.
(c) Mandatory Conversion.
---------------------
(i) Subject to Section 2.2.1.7 hereof, each share
of Series A Preferred Stock outstanding on the Mandatory Conversion Date shall,
automatically and without any action on the part of the holder thereof, convert
into a number of fully paid and nonassessable shares of Common Stock equal to
the quotient of (i) the Liquidation Preference Amount of the shares of Series A
Preferred Stock outstanding on the Mandatory Conversion Date divided by (ii) the
Conversion Price in effect on the Mandatory Conversion Date.
(ii) As used herein, "Mandatory Conversion Date"
shall be the date which is two (2) years following the Issuance Date.
Notwithstanding the foregoing, the Mandatory Conversion Date shall be extended
for as long as (A) a Triggering Event, as defined in Section 2.2.1.8(d)(ii)
through (v) hereof, shall have occurred and be continuing or (B) any event shall
have occurred and be continuing which with the passage of time and the failure
to cure would result in such a Triggering Event. The Mandatory Conversion Date
and the Voluntary Conversion Date collectively are referred to in this
Certificate of Designation as the "Conversion Date."
(iii) On the Mandatory Conversion Date, the
outstanding shares of Series A Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the corporation or its
transfer agent; provided, however, that the corporation shall not be obligated
-------- -------
to issue the shares of Common Stock issuable upon conversion of any shares of
Series A Preferred Stock unless certificates evidencing such shares of Series A
Preferred Stock are either delivered to the corporation or the holder notifies
the corporation that such certificates have been lost, stolen, or destroyed, and
executes an agreement satisfactory to the corporation to indemnify the
corporation from any loss incurred by it in connection therewith. Upon the
occurrence of the automatic conversion of the Series A Preferred Stock pursuant
to this Section 2.2.1.5, the holders of the Series A Preferred Stock shall
surrender the Preferred Stock Certificates representing the Series A Preferred
Stock for which the Mandatory Conversion Date has occurred to the corporation
and the corporation shall deliver the shares of Common Stock issuable upon such
conversion (in the same manner set forth in Section 2.2.1.5(b)(ii)) to the
holder within three (3) business days of the holder's delivery of the applicable
Preferred Stock Certificates.
(d) Conversion Price.
-----------------
(i) The term "Conversion Price" shall mean $1.15
per share, subject to adjustment under Section 2.2.1.5(e) hereof.
(ii) The term "Closing Bid Price" shall mean, for
any security as of any date, the last closing bid price of such security in the
OTC Bulletin Board, or such other senior United States trading facility as it
may elect, for such security as reported by Bloomberg, or, if no closing bid
price is reported for such security by Bloomberg, the last closing trade price
of such security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such
E - 7
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as mutually determined by the
corporation and the holders of a majority of the outstanding shares of Series A
Preferred Stock.
(e) Adjustments of Conversion Price.
----------------------------------
(i) Adjustments for Stock Splits and Combinations.
----------------------------------------------
If the corporation shall at any time or from time to time after the Issuance
Date, effect a stock split of the outstanding Common Stock, the Conversion Price
shall be proportionately decreased. If the corporation shall at any time or from
time to time after the Issuance Date, combine the outstanding shares of Common
Stock, the Conversion Price shall be proportionately increased. Any adjustments
under this Section 2.2.1.5(e)(i) shall be effective at the close of business on
the date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and
-----------------------------------------
Distributions. If the corporation shall at any time or from time to time after
- -------------
the Issuance Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in shares of Common Stock, then, and in each event, the Conversion Price
shall be decreased as of the time of such issuance or, in the event such record
date shall have been fixed, as of the close of business on such record date, by
multiplying, as applicable, the Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date; and
(2) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such dividend or
distribution.
(iii) Adjustment for Other Dividends and
--------------------------------------
Distributions. If the corporation shall at any time or from time to time after
- -------------
the Issuance Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the holders of Series A Preferred Stock shall receive upon conversions
thereof, in addition to the number of shares of Common Stock receivable thereon,
the number of securities of the corporation which they would have received had
their Series A Preferred Stock been converted into Common Stock on the date of
such event and had thereafter, during the period from the date of such event to
and including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 2.2.1.5(e)(iii)
with respect to the rights of the holders of the Series A Preferred Stock.
(iv) Adjustments for Reclassification, Exchange or
----------------------------------------------
Substitution. If the Common Stock issuable upon conversion of the Series A
- ------------
Preferred Stock at any time or from time to time after the Issuance Date shall
be changed to the same or different number of shares of any class or classes of
stock, whether by reclassification, exchange, substitution or otherwise (other
than by way of a stock split or combination of shares or stock dividends
provided for in Sections 2.2.1.5(e)(i),
E - 8
(ii) and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 2.2.1.5(e)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall be made and provisions shall be made (by
adjustments of the Conversion Price or otherwise) so that the holder of each
share of Series A Preferred Stock shall have the right thereafter to convert
such share of Series A Preferred Stock into the kind and amount of shares of
stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
into which such share of Series A Preferred Stock might have been converted
immediately prior to such reclassification, exchange, substitution or other
change, all subject to further adjustment as provided herein.
(v) Adjustments for Reorganization, Merger,
------------------------------------------
Consolidation or Sales of Assets. If at any time or from time to time after the
-------------------------
Issuance Date there shall be a capital reorganization of the corporation (other
than by way of a stock split or combination of shares or stock dividends or
distributions provided for in Section 2.2.1.5(e)(i), (ii) and (iii), or a
reclassification, exchange or substitution of shares provided for in Section
2.2.1.5(e)(iv)), or a merger or consolidation of the corporation with or into
another corporation, or the sale of all or substantially all of the
corporation's properties or assets to any other person (an "Organic Change"),
then as a part of such Organic Change an appropriate revision to the Conversion
Price shall be made and provision shall be made (by adjustments of the
Conversion Price or otherwise) so that the holder of each share of Series A
Preferred Stock shall have the right thereafter to convert such share of Series
A Preferred Stock into the kind and amount of shares of stock and other
securities or property of the corporation or any successor corporation resulting
from Organic Change. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 2.2.1.5(e)(v) with respect to
the rights of the holders of the Series A Preferred Stock after the Organic
Change to the end that the provisions of this Section 2.2.1.5(e)(v) (including
any adjustment in the Conversion Price then in effect and the number of shares
of stock or other securities deliverable upon conversion of the Series A
Preferred Stock) shall be applied after that event in as nearly an equivalent
manner as may be practicable.
(f) No Impairment. The corporation shall not, by
--------------
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
corporation, but will at all times in good faith, assist in the carrying out of
all the provisions of this Section 2.2.1.5 and in the taking of all such action
as may be necessary or appropriate in order to protect the Conversion Rights of
the holders of the Series A Preferred Stock against impairment. In the event a
holder shall elect to convert any shares of Series A Preferred Stock as provided
herein, the corporation cannot refuse conversion based on any claim that such
holder or any one associated or affiliated with such holder has been engaged in
any violation of law, unless, an injunction from a court, on notice, restraining
and/or adjoining conversion of all or of said shares of Series A Preferred Stock
shall have been issued and the corporation posts a surety bond for the benefit
of such holder in the amount of the difference between the Conversion Price and
the Closing Bid Price on the trading day preceding the date of the attempted
conversion multiplied by the number of shares of Series A Preferred Stock sought
to be converted, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such holder in the event it obtains judgment.
(g) Certificates as to Adjustments. Upon occurrence of
-------------------------------
each adjustment or readjustment of the Conversion Price or number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock pursuant
to this Section 2.2.1.5, the corporation at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and furnish
E - 9
to each holder of such Series A Preferred Stock a certificate setting forth such
adjustment and readjustment, showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall, upon written request
of the holder of such affected Series A Preferred Stock, at any time, furnish or
cause to be furnished to such holder a like certificate setting forth such
adjustments and readjustments, the Conversion Price in effect at the time, and
the number of shares of Common Stock and the amount, if any, of other securities
or property which at the time would be received upon the conversion of a share
of such Series A Preferred Stock. Notwithstanding the foregoing, the
corporation shall not be obligated to deliver a certificate unless such
certificate would reflect an increase or decrease of at least one percent of
such adjusted amount.
(h) Issue Taxes. The corporation shall pay any and all
------------
issue and other taxes, excluding federal, state or local income taxes, that may
be payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series A Preferred Stock pursuant thereto; provided,
--------
however, that the corporation shall not be obligated to pay any transfer taxes
- -------
resulting from any transfer requested by any holder in connection with any such
conversion.
(i) Notices. All notices and other communications
-------
hereunder shall be in writing and shall be deemed given if delivered personally
or by facsimile or three (3) business days following being mailed by certified
or registered mail, postage prepaid, return-receipt requested, addressed to the
holder of record at its address appearing on the books of the corporation. The
corporation will give written notice to each holder of Series A Preferred Stock
at least twenty (20) days prior to the date on which the corporation closes its
books or takes a record (I) with respect to any dividend or distribution upon
the Common Stock, (II) with respect to any pro rata subscription offer to
holders of Common Stock or (III) for determining rights to vote with respect to
any Organic Change, dissolution, liquidation or winding-up and in no event shall
such notice be provided to such holder prior to such information being made
known to the public. The corporation will also give written notice to each
holder of Series A Preferred Stock at least twenty (20) days prior to the date
on which any Organic Change, dissolution, liquidation or winding-up will take
place and in no event shall such notice be provided to such holder prior to such
information being made known to the public.
(j) Fractional Shares. No fractional shares of Common
------------------
Stock shall be issued upon conversion of the Series A Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be entitled, the
corporation shall pay cash equal to the product of such fraction multiplied by
the average of the Closing Bid Prices of the Common Stock for the five (5)
consecutive trading immediately preceding the Voluntary Conversion Date or
Mandatory Conversion Date, as applicable.
(k) Reservation of Common Stock. The corporation shall,
---------------------------
so long as any shares of Series A Preferred Stock are outstanding, reserve and
keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Series A Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Series A Preferred Stock then outstanding; provided
--------
that the number of shares of Common Stock so reserved shall at no time be less
than 200% of the number of shares of Common Stock for which the shares of Series
A Preferred Stock are at any time convertible. The initial number of shares of
Common Stock reserved for conversions of the Series A Preferred Stock and each
increase in the number of shares so reserved shall be allocated pro rata among
the holders of the Series A Preferred Stock based on the number of shares of
Series A Preferred Stock held by each holder at the time of issuance of the
Series A Preferred Stock or increase in the number of reserved shares, as the
case may
E - 10
be. In the event a holder shall sell or otherwise transfer any of such holder's
shares of Series A Preferred Stock, each transferee shall be allocated a pro
rata portion of the number of reserved shares of Common Stock reserved for such
transferor. Any shares of Common Stock reserved and which remain allocated to
any person or entity which does not hold any shares of Series A Preferred Stock
shall be allocated to the remaining holders of Series A Preferred Stock, pro
rata based on the number of shares of Series A Preferred Stock then held by such
holder. The corporation shall, from time to time in accordance with the
Delaware General Corporation Law, increase the authorized number of shares of
Common Stock if at any time the unissued number of authorized shares shall not
be sufficient to satisfy the corporation's obligations under this Section
2.2.1.5(k).
(l) Retirement of Series A Preferred Stock. Conversion
---------------------------------------
of Series A Preferred Stock shall be deemed to have been effected on the
applicable Voluntary Conversion Date or Mandatory Conversion Date, and such date
is referred to herein as the "Conversion Date". Upon conversion of only a
portion of the number of shares of Series A Preferred Stock represented by a
certificate surrendered for conversion, the corporation shall issue and deliver
to such holder at the expense of the corporation, a new certificate covering the
number of shares of Series A Preferred Stock representing the unconverted
portion of the certificate so surrendered as required by Section 2.2.1.5(b)(ii).
(m) Regulatory Compliance. If any shares of Common
----------------------
Stock to be reserved for the purpose of conversion of Series A Preferred Stock
require registration or listing with or approval of any governmental authority,
stock exchange or other regulatory body under any federal or state law or
regulation or otherwise before such shares may be validly issued or delivered
upon conversion, the corporation shall, at its sole cost and expense, in good
faith and as expeditiously as possible, endeavor to secure such registration,
listing or approval, as the case may be.
2.2.1.6. No Preemptive Rights
Except as provided in Section 2.2.1.5 hereof and in the Purchase Agreement,
no holder of the Series A Preferred Stock shall be entitled to rights to
subscribe for, purchase or receive any part of any new or additional shares of
any class, whether now or hereinafter authorized, or of bonds or debentures, or
other evidences of indebtedness convertible into or exchangeable for shares of
any class, but all such new or additional shares of any class, or any bond,
debentures or other evidences of indebtedness convertible into or exchangeable
for shares, may be issued and disposed of by the Board of Directors on such
terms and for such consideration (to the extent permitted by law), and to such
person or persons as the Board of Directors in their absolute discretion may
deem advisable.
2.2.1.7. Conversion Restrictions
(a) Notwithstanding anything to the contrary set forth
in Section 2.2.1.5 of this Certificate of Designation, at no time may a holder
of shares of Series A Preferred Stock convert shares of the Series A Preferred
Stock if the number of shares of Common Stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of Common Stock
owned by such holder at such time, the number of shares of Common Stock which
would result in such holder owning more than 4.99% of all of the Common Stock
outstanding at such time; provided, however, that upon a holder of Series A
-------- -------
Preferred Stock providing the corporation with sixty-one (61) days notice
(pursuant to Section 2.2.1.5(i) hereof) (the "Waiver Notice") that such holder
would like to waive Section 2.2.1.7(a) of this Certificate of Designation with
regard to any or all shares of Common Stock issuable upon conversion of Series A
Preferred Stock, this Section 2.2.1.7(a) shall be of no force or
E - 11
effect with regard to those shares of Series A Preferred Stock referenced in the
Waiver Notice; provided, further, that this provision shall be of no further
-------- -------
force or effect during the sixty-one (61) days immediately preceding the
Mandatory Conversion Date.
(b) Notwithstanding anything to the contrary set forth
in Section 2.2.1.5 of this Certificate of Designation, at no time may a holder
of shares of Series A Preferred Stock convert shares of the Series A Preferred
Stock if the number of shares of Common Stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of Common Stock
owned by such holder at such time, would result in such holder beneficially
owning (as determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.999%
of the then issued and outstanding shares of Common Stock outstanding at such
time; provided, however, that upon a holder of Series A Preferred Stock
-------- -------
providing the corporation with a Waiver Notice that such holder would like to
waive Section 2.2.1.7(b) of this Certificate of Designation with regard to any
or all shares of Common Stock issuable upon conversion of Series A Preferred
Stock, this Section 2.2.1.7(b) shall be of no force or effect with regard to
those shares of Series A Preferred Stock referenced in the Waiver Notice;
provided, further, that this provision shall be of no further force or effect
- -------- -------
during the sixty-one (61) days immediately preceding the Mandatory Conversion
Date.
2.2.1.8. Redemption
(a) Redemption Option Upon Major Transaction. In
--------------------------------------------
addition to all other rights of the holders of Series A Preferred Stock
contained herein, simultaneous with the occurrence of a Major Transaction (as
defined below), each holder of Series A Preferred Stock shall have the right, at
such holder's option, to require the corporation to redeem all or a portion of
such holder's shares of Series A Preferred Stock at a price per share of Series
A Preferred Stock equal to 100% of the Liquidation Preference Amount plus any
accrued but unpaid dividends and liquidated damages (the "Major Transaction
Redemption Price").
(b) Redemption Option Upon Triggering Event. In
-------------------------------------------
addition to all other rights of the holders of Series A Preferred Stock
contained herein, after a Triggering Event (as defined below), each holder of
Series A Preferred Stock shall have the right, at such holder's option, to
require the corporation to redeem all or a portion of such holder's shares of
Series A Preferred Stock at a price per share of Series A Preferred Stock equal
to 100% of the Liquidation Preference Amount plus any accrued but unpaid
dividends and liquidated damages (the "Triggering Event Redemption Price" and,
collectively with the "Major Transaction Redemption Price," the "Redemption
Price").
(c) "Major Transaction". A "Major Transaction" shall be
-------------------
deemed to have occurred at such time as any of the following events:
(i) the consolidation, merger or other business
combination of the corporation with or into another Person (other than (A)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the corporation or (B) a consolidation, merger
or other business combination in which holders of the corporation's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities).
E - 12
(ii) the sale or transfer of all or substantially
all of the corporation's assets; or
(iii) consummation of a purchase, tender or
exchange offer made to the holders of more than 30% of the outstanding shares of
Common Stock.
(d) "Triggering Event". A "Triggering Event" shall be
-------------------
deemed to have occurred at such time as any of the following events:
(i) so long as any shares of Series A Preferred
Stock are outstanding, the effectiveness of the Registration Statement lapses
for any reason (including, without limitation, the issuance of a stop order) or
is unavailable to the holder of the Series A Preferred Stock for sale of the
shares of Common Stock, and such lapse or unavailability continues for a period
of ten consecutive trading days, provided that the cause of such lapse or
--------
unavailability is not due to factors solely within the control of such holder of
Series A Preferred Stock;
(ii) the suspension from listing or the failure of
the Common Stock to be listed on the OTC Bulletin Board for a period of five (5)
consecutive days;
(iii) the corporation's notice to any holder of
Series A Preferred Stock, including by way of public announcement, at any time,
of its inability to comply (including for any of the reasons described in
Section 2.2.1.9) or its intention not to comply with proper requests for
conversion of any Series A Preferred Stock into shares of Common Stock;
(iv) the corporation's failure to comply with a
Conversion Notice tendered in accordance with the provisions of this Certificate
of Designation within ten (10) business days after the receipt by the
corporation of the Conversion Notice and the Preferred Stock Certificates; or
(v) the corporation breaches any representation,
warranty, covenant or other term or condition of the Purchase Agreement, this
Certificate of Designation or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in the Purchase Agreement) and except, in
the case of a breach of a covenant which is curable, only if such breach
continues for a period of a least ten (10) days.
(e) Mechanics of Redemption at Option of Buyer Upon
----------------------------------------------------
Major Transaction. No sooner than fifteen (15) days nor later than ten (10)
- ------------------
days prior to the consummation of a Major Transaction, but not prior to the
public announcement of such Major Transaction, the corporation shall deliver
written notice thereof via facsimile and overnight courier ("Notice of Major
Transaction") to each holder of Series A Preferred Stock. At any time after
receipt of a Notice of Major Transaction (or, in the event a Notice of Major
Transaction is not delivered at least ten (10) days prior to a Major
Transaction, at any time within ten (10) days prior to a Major Transaction), any
holder of Series A Preferred Stock then outstanding may require the corporation
to redeem, effective immediately prior to the consummation of such Major
Transaction, all of the holder's Series A Preferred Stock then outstanding by
delivering written notice thereof via facsimile and overnight courier ("Notice
of Redemption at Option of Buyer Upon Major Transaction") to the corporation,
which Notice of Redemption at Option of Buyer Upon Major Transaction shall
indicate (i) the number of shares of Series
E - 13
A Preferred Stock that such holder is electing to redeem and (ii) the applicable
Major Transaction Redemption Price, as calculated pursuant to Section 2.2.1.8(a)
above.
(f) Mechanics of Redemption at Option of Buyer Upon
----------------------------------------------------
Triggering Event. Within one (1) day after the occurrence of a Triggering
- -----------------
Event, the corporation shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Triggering Event") to each holder of Series A
Preferred Stock. At any time after the earlier of a holder's receipt of a Notice
of Triggering Event and such holder becoming aware of a Triggering Event, any
holder of Series A Preferred Stock then outstanding may require the corporation
to redeem all of the Series A Preferred Stock by delivering written notice
thereof via facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Triggering Event") to the corporation, which Notice of Redemption at
Option of Buyer Upon Triggering Event shall indicate (i) the number of shares of
Series A Preferred Stock that such holder is electing to redeem and (ii) the
applicable Triggering Event Redemption Price, as calculated pursuant to Section
2.2.1.8(b) above.
(g) Payment of Redemption Price. Upon the corporation's
---------------------------
receipt of a Notice(s) of Redemption at Option of Buyer Upon Triggering Event or
a Notice(s) of Redemption at Option of Buyer Upon Major Transaction from any
holder of Series A Preferred Stock, the corporation shall immediately notify
each holder of Series A Preferred Stock by facsimile of the corporation's
receipt of such Notice(s) of Redemption at Option of Buyer Upon Triggering Event
or Notice(s) of Redemption at Option of Buyer Upon Major Transaction and each
holder which has sent such a notice shall promptly submit to the corporation
such holder's Preferred Stock Certificates which such holder has elected to have
redeemed. The corporation shall deliver the applicable Major Transaction
Redemption Price immediately prior to the consummation of the Major Transaction;
provided that a holder's Preferred Stock Certificates shall have been so
- --------
delivered to the corporation; provided further that if the corporation is unable
-------- -------
to redeem all of the Series A Preferred Stock to be redeemed, the corporation
shall redeem an amount from each holder of Series A Preferred Stock being
redeemed equal to such holder's pro-rata amount (based on the number of shares
of Series A Preferred Stock held by such holder relative to the number of shares
of Series A Preferred Stock outstanding) of all Series A Preferred Stock being
redeemed. If the corporation shall fail to redeem all of the Series A Preferred
Stock submitted for redemption (other than pursuant to a dispute as to the
arithmetic calculation of the Redemption Price), in addition to any remedy such
holder of Series A Preferred Stock may have under this Certificate of
Designation and the Purchase Agreement, the applicable Redemption Price payable
in respect of such unredeemed Series A Preferred Stock shall bear interest at
the rate of 2.0% per month (prorated for partial months) until paid in full.
Until the corporation pays such unpaid applicable Redemption Price in full to a
holder of shares of Series A Preferred Stock submitted for redemption, such
holder shall have the option (the "Void Optional Redemption Option") to, in lieu
of redemption, require the corporation to promptly return to such holder(s) all
of the shares of Series A Preferred Stock that were submitted for redemption by
such holder(s) under this Section 2.2.1.8 and for which the applicable
Redemption Price has not been paid, by sending written notice thereof to the
corporation via facsimile (the "Void Optional Redemption Notice"). Upon the
corporation's receipt of such Void Optional Redemption Notice(s) and prior to
payment of the full applicable Redemption Price to such holder, (i) the
Notice(s) of Redemption at Option of Buyer Upon Major Transaction shall be null
and void with respect to those shares of Series A Preferred Stock submitted for
redemption and for which the applicable Redemption Price has not been paid, (ii)
the corporation shall immediately return any Series A Preferred Stock submitted
to the corporation by each holder for redemption under this Section 2.2.1.8(d)
and for which the applicable Redemption Price has not been paid and (iii) the
Conversion Price of such returned shares of Series A Preferred Stock shall be
adjusted to the lesser of (A) the Conversion Price and (B) the lowest Closing
Bid Price during the period
E - 14
beginning on the date on which the Notice(s) of Redemption of Option of Buyer
Upon Major Transaction is delivered to the corporation and ending on the date on
which the Void Optional Redemption Notice(s) is delivered to the corporation;
provided that no adjustment shall be made if such adjustment would result in an
- --------
increase of the Conversion Price then in effect. A holder's delivery of a Void
Optional Redemption Notice and exercise of its rights following such notice
shall not effect the corporation's obligations to make any payments which have
accrued prior to the date of such notice. Payments provided for in this Section
2.2.1.8 shall have priority to payments to other stockholders in connection with
a Major Transaction.
2.2.1.9. Inability to Fully Convert
(a) Holder's Option If corporation Cannot Fully Convert.
---------------------------------------------------
If, upon the corporation's receipt of a Conversion Notice or on the Mandatory
Conversion Date, the corporation cannot issue shares of Common Stock registered
for resale under the Registration Statement for any reason, including, without
limitation, because the corporation (x) does not have a sufficient number of
shares of Common Stock authorized and available, (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the corporation or its securities from issuing all of the Common Stock which is
to be issued to a holder of Series A Preferred Stock pursuant to a Conversion
Notice or (z) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the corporation
shall issue as many shares of Common Stock as it is able to issue in accordance
with such holder's Conversion Notice and pursuant to Section 2.2.1.5(b)(ii)
above and, with respect to the unconverted Series A Preferred Stock, the holder,
solely at such holder's option, can elect, within five (5) business days after
receipt of notice from the corporation thereof to:
(i) require the corporation to redeem from such
holder those Series A Preferred Stock for which the corporation is unable to
issue Common Stock in accordance with such holder's Conversion Notice
("Mandatory Redemption") at a price per share equal to the Major Transaction
Redemption Price as of such Conversion Date (the "Mandatory Redemption Price");
(ii) if the corporation's inability to fully
convert Series A Preferred Stock is pursuant to Section 2.2.1.9(a)(z) above,
require the corporation to issue restricted shares of Common Stock in accordance
with such holder's Conversion Notice and pursuant to Section 2.2.1.5(b)(ii)
above;
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the shares of Series A Preferred Stock that were
to be converted pursuant to such holder's Conversion Notice (provided that a
holder's voiding its Conversion Notice shall not effect the corporation's
obligations to make any payments which have accrued prior to the date of such
notice).
(b) Mechanics of Fulfilling Holder's Election. The
---------------------------------------------
corporation shall immediately send via facsimile to a holder of Series A
Preferred Stock, upon receipt of a facsimile copy of a Conversion Notice from
such holder which cannot be fully satisfied as described in Section 2.2.1.9(a)
above, a notice of the corporation's inability to fully satisfy such holder's
Conversion Notice (the "Inability to Fully Convert Notice"). Such Inability to
Fully Convert Notice shall indicate (i) the reason why the corporation is unable
to fully satisfy such holder's Conversion Notice, (ii) the number of Series A
Preferred Stock which cannot be converted and (iii) the applicable Mandatory
Redemption Price. Such holder shall notify the corporation of its election
pursuant to Section 2.2.1.9(a) above by delivering written notice via facsimile
to the corporation ("Notice in Response to Inability to Convert").
E - 15
(c) Payment of Redemption Price. If such holder shall
-----------------------------
elect to have its shares redeemed pursuant to Section 2.2.1.9(a)(i) above, the
corporation shall pay the Mandatory Redemption Price in cash to such holder
within thirty (30) days of the corporation's receipt of the holder's Notice in
Response to Inability to Convert, provided that prior to the corporation's
--------
receipt of the holder's Notice in Response to Inability to Convert the
corporation has not delivered a notice to such holder stating, to the
satisfaction of the holder, that the event or condition resulting in the
Mandatory Redemption has been cured and all Conversion Shares issuable to such
holder can and will be delivered to the holder in accordance with the terms of
Section 2.2.1.5(b)(ii). If the corporation shall fail to pay the applicable
Mandatory Redemption Price to such holder on a timely basis as described in this
Section 2.2.1.9(c) (other than pursuant to a dispute as to the determination of
the arithmetic calculation of the Redemption Price), in addition to any remedy
such holder of Series A Preferred Stock may have under this Certificate of
Designation and the Purchase Agreement, such unpaid amount shall bear interest
at the rate of 2.0% per month (prorated for partial months) until paid in full.
Until the full Mandatory Redemption Price is paid in full to such holder, such
holder may (i) void the Mandatory Redemption with respect to those Series A
Preferred Stock for which the full Mandatory Redemption Price has not been paid,
(ii) receive back such Series A Preferred Stock, and (iii) require that the
Conversion Price of such returned Series A Preferred Stock be adjusted to the
lesser of (A) the Conversion Price and (B) the lowest Closing Bid Price during
the period beginning on the Conversion Date and ending on the date the holder
voided the Mandatory Redemption.
(d) Pro-rata Conversion and Redemption. In the event
-------------------------------------
the corporation receives a Conversion Notice from more than one holder of Series
A Preferred Stock on the same day and the corporation can convert and redeem
some, but not all, of the Series A Preferred Stock pursuant to this Section
2.2.1.9, the corporation shall convert and redeem from each holder of Series A
Convertible Preferred Stock electing to have Series A Preferred Stock converted
and redeemed at such time an amount equal to such holder's pro-rata amount
(based on the number shares of Series A Preferred Stock held by such holder
relative to the number shares of Series A Preferred Stock outstanding) of all
shares of Series A Preferred Stock being converted and redeemed at such time.
2.2.1.10. Vote to Change the Terms of or Issue Preferred
Stock
The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than three-fourths
(3/4) of the then outstanding shares of Series A Preferred Stock, shall be
required (a) for any change to this Certificate of Designation or the
corporation's Certificate of Incorporation which would amend, alter, change or
repeal any of the powers, designations, preferences and rights of the Series A
Preferred Stock or (b) for the issuance of shares of Series A Preferred Stock
other than pursuant to the Purchase Agreement.
2.2.1.11. Lost or Stolen Certificates
Upon receipt by the corporation of evidence satisfactory to the corporation
of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing the shares of Series A Preferred Stock, and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
holder to the corporation and, in the case of mutilation, upon surrender and
cancellation of the Preferred Stock Certificate(s), the corporation shall
execute and deliver new preferred stock certificate(s) of like tenor and date;
provided, however, the corporation shall not be obligated to re-issue Preferred
- -------- -------
Stock Certificates if
E - 16
the holder contemporaneously requests the corporation to convert such shares of
Series A Preferred Stock into Common Stock.
2.2.1.12. Remedies, Characterizations, Other Obligations,
Breaches and Injunctive Relief
The remedies provided in this Certificate of Designation shall be
cumulative and in addition to all other remedies available under this
Certificate of Designation, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the corporation to comply with the terms of this Certificate of
Designation. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the holder thereof and shall not, except as expressly provided
herein, be subject to any other obligation of the corporation (or the
performance thereof). The corporation acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the Series A
Preferred Stock and that the remedy at law for any such breach may be
inadequate. The corporation therefore agrees that, in the event of any such
breach or threatened breach, the holders of the Series A Preferred Stock shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
2.2.1.13. Specific Shall Not Limit General; Construction
No specific provision contained in this Certificate of Designation shall
limit or modify any more general provision contained herein. This Certificate of
Designation shall be deemed to be jointly drafted by the corporation and all
initial purchasers of the Series A Preferred Stock and shall not be construed
against any person as the drafter hereof.
2.2.1.14. Failure or Indulgence Not Waiver
No failure or delay on the part of a holder of Series A Preferred Stock in
the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
2.2.1.15. Integration with Certificate of Incorporation
This Designation of Series A Convertible Preferred Stock has been adopted
pursuant to and is an integral part of this corporation's Certificate of
Incorporation. Capitalized terms not defined herein shall have the meaning given
them elsewhere in the Certificate of Incorporation of the corporation.
2.2.1.16. Sunset Provision
Upon the conversion of all shares of the Series A Preferred Stock, whether
voluntarily by the holders thereof or pursuant to a mandatory conversion, these
provisions in the corporation's Certificate of Incorporation governing the
Series A Preferred Stock shall be deemed completely performed and discharged,
and the corporation shall be empowered to restate its Articles of Incorporation
as though these provisions governing the Series A Preferred Stock had never
existed. Any holder who disputes the
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treatment of their Series A Preferred Stock subsequent to such a restatement
shall nevertheless be entitled to rely on these provisions governing the Series
A Preferred Stock as contract rights.
ARTICLE III
The purpose of this corporation is to engage in any business, trade or
activity that may lawfully be conducted by a corporation organized under the
General Corporation Law of the State of Delaware (hereinafter, "applicable
corporate law") and to engage in any and all such activities as are incidental
or conducive to the attainment of the foregoing purpose or purposes.
ARTICLE IV
Except as may be authorized pursuant to Section 2.2 of Article II, no
preemptive rights shall exist with respect to shares of stock or securities
convertible into shares of stock of this corporation.
ARTICLE V
The right to cumulate votes in the election of Directors shall not exist
with respect to shares of stock of this corporation.
ARTICLE VI
6.1. Number of Directors
The Board of Directors shall be composed of not less than one nor more than
nine Directors. Except with respect to the initial Director, the specific number
of Directors shall be set by resolution of the Board of Directors or, if the
Directors in office constitute fewer than a quorum of the Board of Directors, by
the affirmative vote of a majority of all the Directors in office. The number of
Directors of this corporation may be increased or decreased from time to time in
the manner provided herein, but no decrease in the number of Directors shall
have the effect of shortening the term of any incumbent Director.
6.2. Classification of Directors
The Directors shall be divided into three classes, with each class to be as
nearly equal in number as possible, as specified by resolution of the Board of
Directors or, if the Directors in office constitute fewer than a quorum of the
Board of Directors, by the affirmative vote of a majority of all the Directors
in office. The term of office of Directors of the first class shall expire at
the first annual meeting of stockholders after their election. The term of
office of Directors of the second class shall expire at the second annual
meeting after their election. The term of office of Directors of the third
class shall expire at the third annual meeting after their election. At each
annual meeting after such classification, a number of Directors equal to the
number of the class whose term expires at the time of such meeting shall be
elected to hold office until the third succeeding annual meeting. Absent his or
her death, resignation or
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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.
6.3. Removal of Directors
The stockholders may remove one or more Directors with or without cause,
but only at a special meeting called for the purpose of removing the Director or
Directors, and the meeting notice must state that the purpose, or one of the
purposes, of the meeting is removal of the Director or Directors.
6.4. Vacancies on Board of Directors
If a vacancy occurs on the Board of Directors, including a vacancy
resulting from an increase in the number of Directors, the Board of Directors
may fill the vacancy, or, if the Directors in office constitute fewer than a
quorum of the Board of Directors, they may fill the vacancy by the affirmative
vote of a majority of all the Directors in office. The stockholders may fill a
vacancy only if there are no Directors in office.
6.5. Initial Board of Directors
The initial Board of Directors shall consist of One Director, who shall be
in the first class of Directors, and the name and address of the person who
shall serve as such Director until the first annual meeting of stockholders or
until successors are elected and qualified is:
Dr. Bogdan C. Maglich
10 Mauchly Drive
Irvine, California 92618
ARTICLE VII
This corporation reserves the right to amend or repeal any of the
provisions contained in this Certificate of Incorporation in any manner now or
hereafter permitted by the applicable corporate law, and the rights of the
stockholders of this corporation are granted subject to this reservation.
ARTICLE VIII
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws of this corporation, subject to the power of the stockholders to amend or
repeal such Bylaws. The stockholders shall also have the power to amend or
repeal the Bylaws of this corporation and to adopt new Bylaws.
ARTICLE IX
9.1. Stockholder Actions
Subject to any limitations imposed by applicable securities laws, any
action required or permitted to be taken at a stockholders meeting may be taken
without a meeting, without prior notice and without a
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vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
9.2. Number of Votes Necessary to Approve Actions
Whenever applicable corporate law permits a corporation's certificate of
incorporation to specify that a lesser number of shares than would otherwise be
required shall suffice to approve an action by stockholders, this Certificate of
Incorporation hereby specify that the number of shares required to approve such
an action shall be such lesser number.
9.3. Special Meetings of Stockholders
So long as this corporation is a public company, special meetings of the
stockholders of the corporation for any purpose may be called at any time by the
Board of Directors or the Chairman or, if the Directors in office constitute
fewer than a quorum of the Board of Directors, by the affirmative vote of a
majority of all the Directors in office, but such special meetings may not be
called by any other person or persons.
9.4. Quorum for Meetings of Stockholders.
Except with respect to any greater requirement contained in this
Certificate of Incorporation or the applicable corporate law, one-third of the
votes entitled to be cast on a matter by the holders of shares that, pursuant to
the Certificate of Incorporation or the applicable corporate law, are entitled
to vote and be counted collectively upon such matter, represented in person or
by proxy, shall constitute a quorum of such shares at a meeting of stockholders.
ARTICLE X
To the full extent that applicable corporate law, as it exists on the date
hereof or may hereafter be amended, permits the limitation or elimination of the
personal liability of Directors, a Director of this corporation shall not be
liable to this corporation or its stockholders for monetary damages for conduct
as a Director. Any amendments to or repeal of this Article X shall not adversely
affect any right or protection of a Director of this corporation for or with
respect to any acts or omissions of such Director occurring prior to such
amendment or repeal.
ARTICLE XI
11.1. Indemnification.
The corporation shall indemnify its directors to the full extent permitted
by applicable corporate law now or hereafter in force. However, such indemnity
shall not apply if the director did not (a) act in good faith and in a manner
the director reasonably believed to be in or not opposed to the best interests
of the corporation, and (b) with respect to any criminal action or proceeding,
have reasonable cause to believe the director's conduct was unlawful. The
corporation shall advance expenses for such persons pursuant to the terms set
forth in the Bylaws, or in a separate Board resolution or contract.
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11.2. Authorization.
The Board of Directors may take such action as is necessary to carry out
these indemnification and expense advancement provisions. It is expressly
empowered to adopt, approve, and amend from time to time such Bylaws,
resolutions, contracts, or further indemnification and expense advancement
arrangements as may be permitted by law, implementing these provisions. Such
Bylaws, resolutions, contracts or further arrangements shall include but not be
limited to implementing the manner in which determinations as to any indemnity
or advancement of expenses shall be made.
11.3. Insurance.
The corporation shall have the power, exercised by authority of the Board
of Directors, to purchase and maintain insurance on behalf of any person to whom
indemnity is provided under and through this Article XI to the full extent
permitted by applicable corporate law now or hereafter in force.
11.4. Effect of Amendment.
No amendment or repeal of this Article shall apply to or have any effect on
any right to indemnification provided hereunder with respect to acts or
omissions occurring prior to such amendment or repeal.
ARTICLE XII
The name and address of the incorporator is:
Mr. Derek W. Woolston
QED Law Group, P.L.L.C.
3200 N.W. 68th Street
Seattle, Washington 98117
The incorporator's authority on behalf of this corporation is limited to forming
it by the filing of this Certificate of Incorporation, and the incorporator has
no further power or authority on behalf of the corporation, express or implied,
by virtue of being the incorporator.
ARTICLE XIII
The corporation's registered office in the State of Delaware is to be
located at 15 East North Street, City of Dover, County of Kent, Delaware 19901.
The registered agent in charge thereof is Incorporating Services, Ltd.
ARTICLE XIV
This Certificate of Incorporation shall become effective upon filing.
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IN WITNESS WHEREOF, the incorporator has signed this Certificate of
Incorporation this _____ day of October, 2002.
______________________________
Derek W. Woolston
QED Law Group, P.L.L.C.
3200 N.W. 68th Street, Seattle, WA 98117
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EXHIBIT I
HIENERGY TECHNOLOGIES, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series A Preferred Stock of HiEnergy Technologies, Inc. (the
"Certificate of Designation"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series A Preferred Stock, par value $0.001 per share (the
"Preferred Shares"), of HiEnergy Technologies, Inc., a Delaware corporation (the
"Company"), indicated below into shares of Common Stock, par value $0.001 per
share (the "Common Stock"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.
Date of Conversion:______________________________________________________
Number of Preferred Shares to be converted:__________________________
Stock certificate no(s). of Preferred Shares to be converted:______________
The Common Stock have been sold pursuant to the Registration Statement (as
defined in the Purchase Agreement): YES ____ NO____
Please confirm the following information:
Conversion Price: __________________________________
Number of shares of Common Stock
to be issued: __________________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: __________________________________
__________________________________
Facsimile Number: __________________________________
Authorization: __________________________________
By:_______________________________
Title:____________________________
Dated:____________________________
PRICES ATTACHED
E - 23
APPENDIX F
----------
BYLAWS
OF
HIENERGY TECHNOLOGIES, INC.
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I - OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Date, Time and Place of Meeting . . . . . . . . . . . . 1
2.2 Annual Meeting. . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Special Meetings. . . . . . . . . . . . . . . . . . . . . . 1
2.4 Meetings by Communications Equipment. . . . . . . . . . . 1
2.5 Notice of Meeting. . . . . . . . . . . . . . . . . . . . . 1
2.6 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . 2
2.7 Fixing of Record Date for Determining Stockholders . . 2
2.8 Voting Record . . . . . . . . . . . . . . . . . . . . . . . 3
2.9 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 Manner of Acting . . . . . . . . . . . . . . . . . . . . . 4
2.11 Voting Shares . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.13 Voting for Directors . . . . . . . . . . . . . . . . . . . 4
2.14 Action by Stockholders Without a Meeting. . . . . . . . 4
2.15 Dividends 5
ARTICLE III - BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . 5
3.1 General Powers. . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Number, Classification and Tenure . . . . . . . . . . . . 5
3.3 Regular Meetings. . . . . . . . . . . . . . . . . . . . . . 6
3.4 Special Meetings. . . . . . . . . . . . . . . . . . . . . . 6
3.5 Notice of Special Meetings. . . . . . . . . . . . . . . . 6
3.6 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . 7
3.7 Meetings by Communications Equipment. . . . . . . . . . . 7
3.8 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.9 Manner of Acting . . . . . . . . . . . . . . . . . . . . . 8
3.10 Presumption of Assent. . . . . . . . . . . . . . . . . . . 8
3.11 Action by Board or Committees Without a Meeting . . . 8
3.12 Resignation. . . . . . . . . . . . . . . . . . . . . . . . . 8
3.13 Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.14 Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.15 Executive and Other Committees. . . . . . . . . . . . . . 9
3.16 Compensation . . . . . . . . . . . . . . . . . . . . . . . . 10
3.17 Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV - OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Appointment and Term . . . . . . . . . . . . . . . . . . . 10
4.2 Resignation. . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Contract Rights of Officers . . . . . . . . . . . . . . . 10
4.5 Chairman of the Board . . . . . . . . . . . . . . . . . . 10
4.6 President. . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.7 Vice President. . . . . . . . . . . . . . . . . . . . . . . 11
4.8 Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.10 Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS. . . . . . . . . 12
5.1 Execution of Documents and Action with Respect to Securities
of Other Corporations . . . . . . . . . . . . . . . . . . . 12
5.2 Loans to the Corporation. . . . . . . . . . . . . . . . . 12
5.3 Checks, Drafts, Etc. . . . . . . . . . . . . . . . . . . . 12
5.4 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER . . . . . 12
6.1 Issuance of Shares . . . . . . . . . . . . . . . . . . . . 12
6.2 Certificates for Shares. . . . . . . . . . . . . . . . . . 13
6.3 Stock Records . . . . . . . . . . . . . . . . . . . . . . . 13
6.4 Restriction on Transfer. . . . . . . . . . . . . . . . . . 13
6.5 Transfer of Shares . . . . . . . . . . . . . . . . . . . . 13
6.6 Lost or Destroyed Certificates. . . . . . . . . . . . . . 14
ARTICLE VII - BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . 14
7.1 Books and Records on File. . . . . . . . . . . . . . . . 14
7.2 Reliance on Books and Records. . . . . . . . . . . . . . 15
ARTICLE VIII - ACCOUNTING YEAR. . . . . . . . . . . . . . . . . . . . 15
ARTICLE IX - CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE X - INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 15
10.1 Right to Indemnification . . . . . . . . . . . . . . . . . 15
10.2 Restrictions on Indemnification. . . . . . . . . . . . . . 16
10.3 Advancement of Expenses. . . . . . . . . . . . . . . . . . 16
10.4 Right of Indemnitee to Bring Suit . . . . . . . . . . . 16
10.5 Nonexclusivity of Rights . . . . . . . . . . . . . . . . . 16
10.6 Insurance, Contracts and Funding. . . . . . . . . . . . . 17
10.7 Identification of Employees and Agents of the Corporation . 17
10.8 Persons Serving Other Entities. . . . . . . . . . . . . . 17
10.9 Effect of Amendment. . . . . . . . . . . . . . . . . . . . 17
ARTICLE XI - LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . 17
ARTICLE XII - TIME PERIODS. . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XIII - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . 18
BYLAWS
OF
HIENERGY TECHNOLOGIES, INC.
________________________________________________
ARTICLE I. OFFICES
The principal office of the corporation shall be located at the principal
place of business or such other place as the Board of Directors may designate.
The corporation may have such other offices as the Board of Directors may
designate or as the business of the corporation may require.
ARTICLE II. STOCKHOLDERS
SECTION 2.1. DATE, TIME AND PLACE OF MEETING
All meetings of the stockholders for the election of directors or for any
other purpose, including those held pursuant to demand by stockholders, shall be
held at such time and place, within or without the State of Delaware, as may be
designated by the Chairman of the Board, in the absence of a designation by the
Board of Directors, and stated in the notice of meeting or in a duly executed
waiver of notices thereof.
SECTION 2.2. ANNUAL MEETING
The annual meeting of the stockholders to elect directors and transact such
other business as may properly come before the meeting shall be held on a date
not more than 180 days after the end of the corporation's fiscal year, such date
and time to be determined by the Board of Directors.
SECTION 2.3. SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by law or by the Certificate of Incorporation, may be
called by the Board of Directors or the Chairman. If the directors in office
constitute fewer than a quorum of the Board of Directors, then the special
meeting may be called by the affirmative vote of a majority of all the directors
in office.
SECTION 2.4. MEETINGS BY COMMUNICATIONS EQUIPMENT
Stockholders may participate in any meeting of the stockholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall constitute
presence in person at a meeting.
SECTION 2.5. NOTICE OF MEETINGS
Written notice stating the place, day and hour of the meeting and, in the
case of a special meeting the purpose or purposes for which the meeting is
called, shall be given by or at the direction of the Board of Directors or the
Chairman of the Board to each stockholder entitled to notice of or to vote at
F - 1
the meeting not less than ten (10) nor more than sixty (60) days before the
meeting, except that notice of a meeting to act on an amendment to the
Certificate of Incorporation, a plan of merger or share exchange, the sale,
lease, exchange or other disposition of all or substantially all of the
corporation's assets other than in the regular course of business or the
dissolution of the corporation shall be given not less than twenty (20) or more
than sixty (60) days before such meeting. If an annual or special stockholders'
meeting is adjourned to a different date, time or place, no notice of the new
date, time or place is required if they are announced at the meeting before
adjournment; provided, however, that if the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, written notice of the place, date and time of the adjourned
meeting shall be given to stockholders entitled to notice of or to vote as of
the new record date.
Such notice may be transmitted by mail, private carrier, personal delivery,
telegraph, teletype or facsimile. If those forms of written notice are
impractical in the view of the Board of Directors or the Chairman of the Board,
written notice may be transmitted by an advertisement in a newspaper of general
circulation in the area of the corporation's principal office. If such notice is
mailed, it shall be deemed effective when deposited in the official government
mail, first-class postage prepaid, properly addressed to the stockholder at such
stockholder's address as it appears in the corporation's current record of
stockholders. Notice given in any other manner shall be deemed effective when
dispatched to the stockholder's address, telephone number or other number
appearing on the records of the corporation. Any notice given by publication as
herein provided shall be deemed effective five days after first publication.
SECTION 2.6. WAIVER OF NOTICE
Whenever any notice is required to be given to a stockholder under the
provisions of these Bylaws, the Certificate of Incorporation or the Delaware
General Corporation Law, a waiver of notice in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting or before or after the action to be
taken by consent is effective, shall be deemed equivalent to the giving of such
notice. Further, notice of the time, place and purpose of any meeting will be
deemed to be waived by any stockholder by attendance in person or by proxy,
unless such stockholder at the beginning of the meeting objects to holding the
meeting or transacting business at the meeting.
SECTION 2.7. FIXING OF RECORD DATE FOR DETERMINING STOCKHOLDERS
(a) STOCKHOLDER MEETINGS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date shall not be more than sixty (60)
nor less than ten (10) days before the date of such meeting. If no record date
is fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
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(b) ACTION BY STOCKHOLDERS WITHOUT A MEETING
In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
this chapter, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the corporation
by delivery to its registered office in Delaware, its principal place of
business or an officer or agent of the corporation having custody of the book in
which proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by this
chapter, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
(c) DIVIDENDS, OTHER DISTRIBUTIONS OR ALLOTMENTS, CONVERSIONS OR EXCHANGES
OF STOCK, ETC.
In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty (60) days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 2.8. VOTING RECORD
At least ten (10) days before each meeting of stockholders, an alphabetical
list of the stockholders entitled to notice of such meeting shall be made,
arranged by voting group and by each class or series of shares, with the address
of and number of shares held by each stockholder. This record shall be kept at
the principal office of the corporation for ten (10) days prior to such meeting,
and shall be kept open at such meeting, for the inspection of by any stockholder
or any stockholder's agent or attorney.
SECTION 2.9. QUORUM
Except with respect to any greater requirement contained in the Certificate
of Incorporation or the Delaware General Corporation Law, one-third of the votes
entitled to be cast on a matter by the holders of shares that, pursuant to the
Certificate of Incorporation or the Delaware General Corporation Law, are
entitled to vote and be counted collectively upon such matter, represented in
person or by proxy, shall constitute a quorum of such shares at a meeting of
stockholders. If less than the required number of such votes are represented at
a meeting, a majority of the votes so represented may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. Any business may be transacted at a
reconvened meeting that might have been transacted at the meeting as originally
called, provided a quorum is present or represented at such meeting. Once a
share is represented for any purpose at a meeting other than solely to object to
holding the meeting or
F - 3
transacting business, it is deemed present for quorum purposes for the remainder
of the meeting and any adjournment thereof (unless a new record date is or must
be set for the adjourned meeting), notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 2.10. MANNER OF ACTING
If a quorum is present, action on a matter other than the election of
directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed the
votes cast against such action by the shares entitled to vote and be counted
collectively thereon, unless the Certificate of Incorporation or the Delaware
General Corporation Law requires a greater number of affirmative votes. Whenever
the Delaware General Corporation Law permits a corporation's bylaws to specify
that a lesser number of shares than would otherwise be required shall suffice to
approve an action by stockholders, these Bylaws hereby specify that the number
of shares required to approve such an action shall be such lesser number. The
vote upon any question brought before a meeting of the stockholders may be by
voice vote, unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at such
meeting shall so determine. A vote taken by written ballot shall be counted by
one or more inspectors of election appointed by the Board of Directors.
SECTION 2.11. VOTING SHARES
Except as otherwise provided by law or in the Certificate of Incorporation,
each stockholder shall be entitled at every meeting of the stockholders to one
vote for each share of stock having voting power standing in the name of such
stockholder on the books of the corporation on the record date for the meeting.
SECTION 2.12. PROXIES
A stockholder may vote by proxy executed in writing by the stockholder or
by his or her attorney-in-fact or agent. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes. A proxy with respect to a specified meeting shall entitle its holder to
vote at any reconvened meeting following adjournment of such meeting but shall
not be valid after the final adjournment. A stockholder may revoke any proxy
which is not irrevocable by attending the meeting and voting in person or by
filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary. A proxy shall become invalid
eleven (11) months after the date of its execution, unless otherwise provided in
the proxy.
SECTION 2.13. VOTING FOR DIRECTORS
Each stockholder entitled to vote to an election of directors may vote, in
person or by proxy, the number of shares owned by such stockholder for as many
persons as there are directors to be elected and for whose election such
stockholder has a right to vote. Stockholders shall not have the right to
cumulate their votes. Unless otherwise provided in the Certificate of
Incorporation, the candidates elected shall be those receiving the largest
number of votes cast, up to the number of directors to be elected.
SECTION 2.14. ACTION BY STOCKHOLDERS WITHOUT A MEETING
Any action that may be or is required to be taken at a meeting of the
stockholders may be taken without a meeting by unanimous consent if one or more
written consents setting forth the action so taken shall be signed by all the
stockholders entitled to vote with respect to the matter. Action may also be
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taken by less than unanimous consent. Action by less than unanimous consent may
be taken if one or more written consents describing the action taken shall be
signed by stockholders holding of record or otherwise entitled to vote in the
aggregate not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
on the action were present and voted. A stockholder may withdraw a consent only
by delivering a written notice of withdrawal to the corporation prior to the
time that consents sufficient to authorize taking the action have been delivered
to the corporation. Every written consent shall bear the date of signature of
each stockholder who signs the consent. A written consent is not effective to
take the action referred to in the consent unless, within sixty (60) days of the
earliest dated consent delivered to the corporation, written consents signed by
a sufficient number of stockholders to take action are delivered to the
corporation. Unless the consent specifies a later effective date, actions taken
by written consent of the stockholders are effective when (a) consents
sufficient to authorize taking the action are in possession of the corporation
and (b) the period of advance notice required by the Certificate of
Incorporation to be given to any nonconsenting or nonvoting stockholders has
been satisfied. Any such consent shall be inserted in the minute book as if it
were the minutes of a meeting of the stockholders.
SECTION 2.15. DIVIDENDS
The Board of Directors may from time to time declare and the corporation
may pay dividends upon its outstanding shares of capital stock, in the manner
and upon the terms and conditions provided by law and the Certificate of
Incorporation.
ARTICLE III. BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the corporation shall be managed under the direction
of, the Board of Directors, except as may be otherwise provided in these Bylaws,
the Certificate of Incorporation or by law.
SECTION 3.2. NUMBER, CLASSIFICATION AND TENURE
The Board of Directors shall be composed of not less than one nor more than
nine directors, the specific number to be set by resolution of the Board of
Directors or, if the directors in office constitute fewer than a quorum of the
Board of Directors, by the affirmative vote of a majority of all the directors
in office. The number of directors may be changed from time to time as provided
by the Certificate of Incorporation, but no decrease in the number of directors
shall have the effect of shortening the term of any incumbent director. The
directors shall be divided into three classes, with each class to be as nearly
equal in number as possible, as specified by resolution of the Board of
Directors or, if the directors in office constitute fewer than a quorum of the
Board of Directors, by the affirmative vote of a majority of all the directors
in office. The term of office of directors of the first class shall expire at
the first annual meeting of stockholders after their election. The term of
office of directors of the second class shall expire at the second annual
meeting after their election. The term of office of directors of the third class
shall expire at the third annual meeting after their election. At each annual
meeting after such classification, a number of directors equal to the number of
the class whose term expires at the time of such meeting shall be elected to
hold office until the third succeeding annual meeting. 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
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number of directors. directors need not be stockholders of the corporation or
residents of the state of Delaware.
SECTION 3.3. REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice
immediately after the annual meeting of the stockholders and at such time and
place as shall from time to time be determined by the Board of Directors or the
Chairman.
SECTION 3.4. SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by the Chairman of
the Board on one (1) day's written notice to each director by whom such notice
is not waived, given either personally or by mail or telegram, and shall be
called by the Chairman in like manner and on like notice on the written request
of any two directors. Special meetings of any committee designated by the Board
of Directors may be called by or at the request of the Chairman of the committee
with notice given either in writing or orally. The person or persons authorized
to call special meetings may fix any place for holding any special Board of
Directors or committee meeting called by them.
SECTION 3.5. NOTICE OF SPECIAL MEETINGS
Neither the business to be transacted at nor the purpose of any special
meeting need be specified in the notice of a special meeting of the Board of
Directors or a committee thereof.
(a) PERSONAL DELIVERY
If notice is given by personal delivery, the notice shall be delivered to a
director at least one (1) day before the meeting.
(b) DELIVERY BY MAIL
If notice is delivered by mail, the notice shall be deposited in the
official government mail at least five (5) days before the meeting, properly
addressed to a director at his or her address shown on the records of the
corporation, with postage thereon prepaid.
(c) DELIVERY BY PRIVATE CARRIER
If notice is given by private carrier, the notice shall be dispatched to a
director at his or her address shown on the records of the corporation at least
three (3) days before the meeting.
(d) FACSIMILE NOTICE
If a notice is delivered by wire or wireless equipment that transmits a
facsimile of the notice, the notice shall be dispatched at least one (1) day
before the meeting to a director at his or her telephone number or other number
appearing on the records of the corporation.
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(e) DELIVERY BY TELEGRAPH
If notice is delivered by telegraph, the notice shall be delivered to the
telegraph company for delivery to a director at his or her address shown on the
records of the corporation at least three (3) days before the meeting.
(f) ORAL NOTICE
If notice is delivered orally, by telephone or in person, the notice shall be
personally given to the director at least one (1) day before the meeting.
SECTION 3.6. WAIVER OF NOTICE
(a) IN WRITING
Whenever any notice is required to be given to any director under the
provisions of these Bylaws, the Certificate of Incorporation or the Delaware
General Corporation Law, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any regular or special meeting of the Board of Directors or any committee
designated by the Board of Directors need be specified in the waiver of notice
of such meeting.
(b) BY ATTENDANCE
A director's attendance at or participation in a Board of Directors or committee
meeting shall constitute a waiver of notice of such meeting, unless the director
at the beginning of the meeting, or promptly upon his or her arrival, objects to
holding the meeting or transacting business at such meeting and does not
thereafter vote for or assent to action taken at the meeting.
SECTION 3.7. MEETINGS BY COMMUNICATIONS EQUIPMENT
Members of the Board of Directors or any committee designated by the Board
of Directors may participate in a meeting of such Board of Directors or
committee by, or conduct the meeting through the use of, any means of
communication by which all directors participating in the meeting can hear each
other during the meeting. Participation by such means shall constitute presence
in person at a meeting.
SECTION 3.8. QUORUM
A majority of the number of directors fixed by or in the manner provided in
these Bylaws shall constitute a quorum for the transaction of business at any
Board of Directors meeting but, if less than a majority are present at a
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice until a quorum is present. A majority of the
number of directors composing any committee of the Board of Directors, as
established and fixed by resolution of the Board of Directors, shall constitute
a quorum for the transaction of business at any meeting of such committee but,
if less than a majority are present at a meeting, a majority of such directors
present may adjourn the committee meeting from time to time without further
notice until a quorum is present.
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SECTION 3.9. MANNER OF ACTING
If a quorum is present when the vote is taken, the act of the majority of
the directors present at a Board of Directors or committee meeting shall be the
act of the Board of Directors or such committee, unless the vote of a greater
number is required by these Bylaws, the Certificate of Incorporation or the
Delaware General Corporation Law.
SECTION 3.10. PRESUMPTION OF ASSENT
A director of the corporation who is present at a Board of Directors or
committee meeting at which any action is taken shall be deemed to have assented
to the action taken unless (a) the director objects at the beginning of the
meeting, or promptly upon the director's arrival, to holding the meeting or
transacting any business at such meeting, (b) the director's dissent or
abstention from the action taken is entered in the minutes of the meeting, or
(c) the director delivers written notice of the director's dissent or abstention
to the Chairman of the Board before the meeting's adjournment or to the
corporation within a reasonable time after adjournment of the meeting. The right
of dissent or abstention is not available to a director who votes in favor of
the action taken.
SECTION 3.11. ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING
Any action that could be taken at a meeting of the Board of Directors or of
any committee created by the Board of Directors may be taken without a meeting
if one or more written consents setting forth the action so taken are signed by
each of the directors or by each committee member either before or after the
action is taken and delivered to the corporation. Action taken by written
consent of directors without a meeting is effective when the last director signs
the consent, unless the consent specifies a later effective date. Any such
written consent shall be inserted in the minute book as if it were the minutes
of a Board of Directors or a committee meeting.
SECTION 3.12. RESIGNATION
Any director may resign from the Board of Directors or any committee of the
Board of Directors at any time by delivering either oral tender of resignation
at any meeting of the Board of Directors or any committee, or written notice to
the Chairman of the Board or the Board of Directors. Any such resignation is
effective upon delivery thereof unless the notice of resignation specifies a
later effective date.
SECTION 3.13. REMOVAL
At a meeting of stockholders called expressly for that purpose, one or more
members of the Board of Directors, including the entire Board of Directors, may
be removed with or without cause (unless the Certificate of Incorporation permit
removal for cause only) by the holders of the shares entitled to elect the
director or directors whose removal is sought if the number of votes cast to
remove the director exceeds the number of votes cast not to remove the director.
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SECTION 3.14. VACANCIES
If a vacancy occurs on the Board of Directors, including a vacancy
resulting from an increase in the number of directors, the Board of Directors
may fill the vacancy, or, if the directors in office constitute fewer than a
quorum of the Board of Directors, they may fill the vacancy by the affirmative
vote of a majority of all the directors in office. The stockholders may fill a
vacancy only if there are no directors in office. A director elected to fill a
vacancy shall serve only until the next election of directors by the
stockholders and until their successor is elected and qualified, except as
required by law.
SECTION 3.15. EXECUTIVE AND OTHER COMMITTEES
(a) CREATION OF COMMITTEES
The Board of Directors, by resolution adopted by the greater of a majority
of the directors then in office and the number of directors required to take
action in accordance with these Bylaws, may create standing or temporary
committees, including an Executive Committee, and appoint members from its own
number and invest such committees with such powers as it may see fit, subject to
such conditions as may be prescribed by the Board of Directors, the Certificate
of Incorporation, these Bylaws and applicable law. Each committee must have two
or more members, who shall serve at the pleasure of the Board of Directors. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee.
(b) AUTHORITY OF COMMITTEES
Each committee shall have and may exercise all the authority of the Board
of Directors to the extent provided in the resolution of the Board of Directors
creating the committee and any subsequent resolutions adopted in like manner,
except that no such committee shall have the authority to: (1) authorize or
approve a distribution except according to a general formula or method
prescribed by the Board of Directors; (2) approve or propose to stockholders
actions or proposals required by law to be approved by stockholders; (3) fill
vacancies on the Board of Directors or any committee thereof; (4) amend the
Certificate of Incorporation; (5) adopt, amend or repeal these Bylaws; (6)
approve a plan of merger not requiring stockholder approval; or (7) authorize or
approve the issuance or sale of contract for sale of shares, or determine the
designation and relative rights, preferences and limitations of a class or
series of shares except that the Board of Directors may authorize a committee or
a senior executive officer of the corporation to do so within limits
specifically prescribed by the Board of Directors.
(c) MINUTES OF MEETINGS
All committees shall keep regular minutes of their meetings and shall cause
them to be recorded in books kept for that purpose.
(d) REMOVAL
The Board of Directors may remove any member of any committee elected or
appointed by it but only by the affirmative vote of the greater of a majority of
directors then in office and the number of directors required to take action in
accordance with these Bylaws.
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SECTION 3.16. COMPENSATION
The Board of Directors may establish such compensation for, and
reimbursement of the expenses of, directors for attendance at meetings of the
Board of Directors or committees, or for other services by directors to the
corporation, as the Board of Directors may determine.
SECTION 3.17. RULES
Except as may be required by the Certificate of Incorporation, these Bylaws
or law, the Board of Directors may adopt such special rules and regulations for
the conduct of meetings of the Board of Directors and the management of the
affairs of the corporation as the directors may deem proper.
ARTICLE IV. OFFICERS
SECTION 4.1. APPOINTMENT AND TERM
The officers of the corporation shall be those officers appointed from time
to time by the Board of Directors or by any other officer empowered to do so.
The Board of Directors shall have sole power and authority to appoint executive
officers. As used herein, the term "executive officer" shall mean the Chairman
of the Board, the President, the chief financial officer and any other officer
designated by the Board of Directors as an executive officer. The Board of
Directors or the Chairman of the Board may appoint such other officers to hold
office for such period, have such authority and perform such duties as may be
prescribed. The Board of Directors may delegate to any other officer the power
to appoint any subordinate officers and to prescribe their respective terms of
office, authority and duties. Any two or more offices may be held by the same
person. Unless an officer dies, resigns or is removed from office, he or she
shall hold office until his or her successor is appointed.
SECTION 4.2. RESIGNATION
Any officer may resign at any time by delivering written notice to the
corporation. Any such resignation is effective upon delivery, unless the notice
of resignation specifies a later effective date, and, unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 4.3. REMOVAL
Any officer may be removed, at any time and with or without cause, by the
affirmative vote of a majority of the Board of Directors. An officer or
assistant officer, if appointed by another officer, may be removed at any time,
with or without cause, by any officer authorized to appoint such officer or
assistant officer.
SECTION 4.4. CONTRACT RIGHTS OF OFFICERS
The appointment of an officer does not itself create contract rights.
SECTION 4.5. CHAIRMAN OF THE BOARD
The Chairman of the Board shall preside at all meetings of the stockholders
and the Board of Directors. The Chairman shall be responsible for the active
management and direction of the business
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and affairs of the corporation. The Chairman may delegate to any qualified
person authority to chair any meeting of the stockholders or Board of Directors,
either on a temporary or a permanent basis.
SECTION 4.6. PRESIDENT
If appointed, the President shall be the chief executive officer of the
corporation, unless otherwise determined by the Board of Directors. In general,
the President shall perform all duties incident to the office of President and
such other duties as are prescribed by the Board of Directors from time to time.
If no Secretary has been appointed, the President shall have responsibility for
the preparation of minutes of meetings of the Board of Directors and
stockholders and for authentication of the records of the corporation.
SECTION 4.7. VICE PRESIDENT
Vice Presidents shall perform such duties as from time to time may be
assigned to them by the Chairman, President or by or at the direction of the
Board of Directors.
SECTION 4.8. SECRETARY
If appointed, the Secretary shall be responsible for preparation of minutes
of the meetings of the Board of Directors and stockholders, maintenance of the
corporation records and stock registers, and authentication of the corporation's
records, and shall in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the Chairman, President or by or at the direction of the Board of
Directors. In the absence of the Secretary, an Assistant Secretary may perform
the duties of the Secretary.
SECTION 4.9. TREASURER
If appointed, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws, and in general perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the President or by or at the direction of the Board of Directors. In the
absence of the Treasurer, an Assistant Treasurer may perform the duties of the
Treasurer.
SECTION 4.10. SALARIES
The salaries of the officers shall be fixed from time to time by the Board
of Directors or a committee of the Board of Directors or by any person or
persons to whom the Board of Directors has delegated such authority. No officer
shall be prevented from receiving such salary by reason of the fact that he or
she is also a director of the corporation.
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ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 5.1. EXECUTION OF DOCUMENTS AND ACTION WITH RESPECT TO SECURITIES OF
OTHER CORPORATIONS.
The Chairman shall have and is hereby given, full power and authority,
except as otherwise required by law or directed by the Board of Directors, (a)
to execute, on behalf of the corporation, (i) all duly authorized contracts,
agreements, deeds, conveyances or other obligations of the corporation, and (ii)
all applications, consents, proxies and other powers of attorney, stock
certificates and other documents and instruments, and (b) to vote and otherwise
act on behalf of the corporation, in person or by proxy, at any meeting of the
stockholders (or with respect to any action of such stockholders) of any other
entity in which the corporation may hold securities and otherwise to exercise
any and all rights and powers which the corporation may possess by reason of its
ownership of securities of such other entity. The Chairman may delegate in
writing to other officers, employees and agents of the corporation, the power
and authority to take any action that the Chairman is authorized to take under
this Section 5.1, with such limitations as the Chairman may specify. Such
authority so delegated by the Chairman shall not be redelegated by the person to
whom such execution authority has been delegated.
SECTION 5.2. LOANS TO THE CORPORATION
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board of Directors. Such authority may be general or confined to specific
instances.
SECTION 5.3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, or agent or agents, of the corporation and in such
manner as is from time to time determined by resolution of the Board of
Directors.
SECTION 5.4. DEPOSITS
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositories as the Board of Directors may authorize.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 6.1. ISSUANCE OF SHARES
No shares of the corporation shall be issued unless authorized by the Board
of Directors, or by a committee designated by the Board to the extent such
committee is empowered to do so.
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SECTION 6.2. CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be signed, either
manually or in facsimile, by the Chairman or the President and by the Treasurer
or any Assistant Treasurer or the Secretary or any Assistant Secretary and shall
include on their face written notice of any restrictions that may be imposed on
the transferability of such shares. All certificates shall be consecutively
numbered or otherwise identified and shall exhibit the holder's name and the
number of shares. Any or all of the signatures and the seal of the corporation,
if any, upon such certificates may be facsimiles, engraved or printed.
SECTION 6.3. STOCK RECORDS
The stock transfer books shall be kept at the principal office at the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of each person to whom certificates for shares are issued,
together with the class and number of shares represented by each such
certificate and the date of issue thereof, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
SECTION 6.4. RESTRICTION ON TRANSFER
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
shares of the corporation shall bear a legend on the face of the certificate, or
on the reverse of the certificate if a reference to the legend is contained on
the face, which reads substantially as follows:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS, AND NO INTEREST MAY BE SOLD,
DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED
UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION
INVOLVING SAID SECURITIES, (B) THIS CORPORAZTION RECEIVES AN OPINION
OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO
THIS CORPORATION STATING THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION, OR (C) THIS CORPORATION OTHERWISE SATISFIES ITSELF THAT
SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.
SECTION 6.5. TRANSFER OF SHARES
The transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and canceled.
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SECTION 6.6. LOST, STOLEN OR DESTROYED CERTIFICATES
In the case of a lost, stolen or destroyed certificate, a new certificate
may be issued in its place upon such terms and indemnity to the corporation as
the Board of Directors may prescribe. In the absence of any specific direction
from the Board of Directors, the Secretary may direct a new certificate to be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact, satisfactory to the Secretary, by the person claiming
the certificate of stock to be lost, stolen or destroyed. As a condition
precedent to the issuance of a new certificate or certificates, the Secretary
may require the owner of such lost, stolen or destroyed certificate or
certificates to give the corporation a bond in such sum and with such surety or
sureties as the Secretary may direct as indemnity against any claims that may be
made against the corporation with respect to the certificate or certificates
alleged to have been lost, stolen or destroyed or the issuance of the new
certificate or certificates.
ARTICLE VII. BOOKS AND RECORDS
SECTION 7.1. BOOKS AND RECORDS ON FILE
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its stockholders
and the Board of Directors, and any committee thereof, a record of all actions
taken by the stockholders or the Board of Directors, or any committee thereof,
without a meeting;
(b) Maintain appropriate accounting records;
(c) Maintain a record of its stockholders, in a form that permits
preparation of a list of the names and addresses of all stockholders, in
alphabetical order by class of shares showing the number and class of shares
held by each; provided, however, such record may be maintained by an agent of
the corporation;
(d) Maintain its records in written form or in another form capable of
conversion into written form within a reasonable time;
(e) Keep a copy of the following records at its principal office:
1. the Certificate of Incorporation and all amendments thereto as
currently in effect;
2. these Bylaws and all amendments thereto as currently in effect;
3. the minutes of all meetings of stockholders and records of all
action taken by stockholders without a meeting, for the past
three fiscal years;
4. the financial statements of the corporation, for the past three
fiscal years;
5. all written communications to stockholders generally within the
past three fiscal years;
6. a list of the names and business addresses of the current
directors and executive officers; and
7. the most recent annual report delivered to the Secretary of
State.
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SECTION 7.2. RELIANCE ON BOOKS AND RECORDS
Each director, each member of a committee designated by the Board of
Directors, and each officer of the corporation shall, in the performance of his
or her duties, be fully protected by relying in good faith upon the records of
the corporation and upon such information, opinions, reports or statements
presented to the corporation by any of the corporation's officers or employees,
or committees of the Board of Directors, or by any other person as to matters
the director, committee member or officer believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the corporation.
ARTICLE VIII. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year, provided
that if a different accounting year is at any time selected by the Board of
Directors for purposes of federal income taxes, or any other purpose, the
accounting year shall be the year so selected.
ARTICLE IX. CORPORATE SEAL
The Board of Directors may provide for a corporate seal that shall consist
of the name of the corporation, the state of its incorporation, and the year of
its incorporation. The seal may be used by causing it or a facsimile of it to be
impressed or affixed or reproduced.
ARTICLE X. INDEMNIFICATION
SECTION 10.1. RIGHT TO INDEMNIFICATION
Each person who was, is or is threatened to be made a party to or is
otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit, claim or proceeding, whether
civil, criminal, administrative or investigative and whether formal or informal
(hereinafter a "proceedings"), by reason of the fact that he or she is or was a
director or officer of the corporation or, that being or having been such a
director or officer of the corporation, he or she is or was serving at the
request of the corporation as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise (hereafter an "indemnitee"), whether the basis
of a proceeding is alleged action in an official capacity or in any other
capacity while serving as such a director, officer, partner, trustee, employee
or agent, shall be indemnified and held harmless by the corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the corporation to provide broader
indemnification rights than such law permitted the corporation to provide prior
to such amendment), against all losses, claims, damages (compensatory,
exemplary, punitive or otherwise), liabilities and expenses (including
attorneys' fees, costs, judgments, fines, ERISA excise taxes or penalties,
amounts to be paid in settlement and any other expenses) actually and reasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director or officer of the Corporation or a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise and shall inure to the benefit of the
indemnitee's heirs, executors and administrators. Except as provided in Section
10.4 of this Article X with respect to proceedings seeking to enforce rights to
indemnification,
F - 15
the corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if a proceeding
(or part thereof) was authorized or ratified by the Board of Directors. The
right to indemnification conferred in this Article X shall be a contract right.
SECTION 10.2. RESTRICTIONS ON INDEMNIFICATION
No indemnification shall be provided to any such indemnitee for acts or
omissions of the indemnitee (a) if the indemnitee did not (i) act in good faith
and in a manner the indemnitee reasonably believed to be in or not opposed to
the best interests of the corporation, and (ii) with respect to any criminal
action or proceeding, have reasonable cause to believe the indemnitee's conduct
was unlawful or (b) if the corporation is otherwise prohibited by applicable law
from paying such indemnification. Notwithstanding the foregoing, if the
Delaware General Corporation Law is hereafter amended, the restrictions on
indemnification set forth in this Section 10.2 shall be as set forth in such
amended statutory provision.
SECTION 10.3. ADVANCEMENT OF EXPENSES
The right to indemnification conferred in this Article X shall include the right
to be paid by the corporation the expenses reasonably incurred in defending any
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"). As advancement of expenses shall be made upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified.
SECTION 10.4. RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under Section 10.1 or 10.3 of this Article X is not paid in full by
the corporation within sixty (60) days after a written claim has been received
by the corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20) days, the
indemnitee may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim. If successful in whole or in part, in
any such suit or in a suit brought by the corporation to recover an advancement
of expenses pursuant to the terms of the undertaking, the indemnitee shall be
entitled to be paid also the expense of litigating such suit. The indemnitee
shall be presumed to be entitled to indemnification under this Section 10.4 upon
submission of a written claim (and, in an action brought to enforce a claim for
an advancement of expenses, when the required undertaking has been tendered to
the corporation) and thereafter the corporation shall have the burden of proof
to overcome the presumption that the indemnitee is so entitled.
SECTION 10.5. NONEXCLUSIVITY OF RIGHTS
The right to indemnification and the advancement of expenses conferred in this
Article X shall not be exclusive of any other right that any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation or Bylaws of the corporation, general or specific action of the
Board of Directors or stockholders, contract or otherwise.
F - 16
SECTION 10.6. INSURANCE, CONTRACTS AND FUNDING
The corporation may maintain insurance, at its expense, to protect itself and
any director, officer, partner, trustee, employee or agent of the corporation or
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any expense, liability or loss, whether or not the
corporation would have the authority or right to indemnify such person against
such expense, liability or loss under the Delaware General Corporation Law or
other law. The corporation may enter into contracts with any director, officer,
partner, trustee, employee or agent of the corporation in furtherance of the
provisions of this Article X and may create a trust fund, grant a security
interest, or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article X.
SECTION 10.7. IDENTIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION
In addition to the rights of indemnification set forth in Section 10.1 of
this Article X, the corporation may, by action of the Board of Directors, grant
rights to indemnification and advancement of expenses to employees and agents or
any class or group of employees and agents of the corporation (a) with the same
scope and effect as the provisions of this Section 10.7 with respect to
indemnification and the advancement of expenses of directors and officers of the
corporation; (b) pursuant to rights granted or provided by the Delaware General
Corporation Law; or (c) as are otherwise consistent with law.
SECTION 10.8. PERSONS SERVING OTHER ENTITIES
Any person who, while a director or officer of the corporation, is or was
serving (a) as a director, officer, employee or agent of another corporation of
which a majority of the shares entitled to vote in the election of its directors
is held by the corporation or (b) as a partner, trustee or otherwise in an
executive or management capacity in a partnership, joint venture, trust,
employee benefit plan or other enterprise of which the corporation or a majority
owned subsidiary of the corporation is a general partner or has a majority
ownership shall conclusively be deemed to be so serving at the request of the
corporation and entitled to indemnification and the advancement of expenses
under Sections 10.1 and 10.3 of this Article X.
SECTION 10.9. EFFECT OF AMENDMENT
Any amendment, repeal or modification of any provision of this Article X by
the stockholders or the Board of Directors of the corporation shall not
adversely affect any right or protection of a director or officer of the
corporation existing at the time of such amendment, repeal or modification.
ARTICLE XI. LIMITATION OF LIABILITY
To the full extent that the Delaware General Corporation Law, as it exists
on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of any person who would be considered an indemnitee
under Article X, an indemnitee of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for conduct in the capacity
based upon which such person is considered an indemnitee. Any amendments to or
repeal of this Article XI shall not adversely affect any right or protection of
any indemnitee of the corporation for or with respect to any acts or omissions
of such indemnitee occurring prior to such amendment or repeal.
F - 17
ARTICLE XII. TIME PERIODS
In applying any provision of these Bylaws that require that an act be done
or not be done a specified number of days prior to an event or that an act be
done during a period of a specified number of days prior to an event, calendar
days shall be used, the day of the doing of the act shall be excluded, and the
day of the event shall be included.
ARTICLE XIII. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board of Directors, except that the Board of Directors may not
repeal or amend any Bylaw that the stockholders have expressly provided. The
stockholders may also alter, amend and repeal these Bylaws or adopt new Bylaws.
All Bylaws made by the Board of Directors may be amended, repealed, altered or
modified by the stockholders.
The foregoing Bylaws were adopted by the Board of Directors on __________.
----------------------------------
Name:
---------------------------
Title: Secretary
---------------------------
F - 18
APPENDIX G
----------
WASHINGTON STATUTES RE DISSENTERS' RIGHTS
(RCW Chapter 23B.13)
SECTIONS
- -------------------------------------------------------------------------
23B.13.010 Definitions.
23B.13.020 Right to dissent.
23B.13.030 Dissent by nominees and beneficial owners.
23B.13.200 Notice of dissenters' rights.
23B.13.210 Notice of intent to demand payment.
23B.13.220 Dissenters' notice.
23B.13.230 Duty to demand payment.
23B.13.240 Share restrictions.
23B.13.250 Payment.
23B.13.260 Failure to take action.
23B.13.270 After-acquired shares.
23B.13.280 Procedure if shareholder dissatisfied with payment or offer.
23B.13.300 Court action.
23B.13.310 Court costs and counsel fees.
RCW 23B.13.010 - DEFINITIONS.
- ----------------------------
As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
[1989 c 165 Sec. 140.]
RCW 23B.13.020 - RIGHT TO DISSENT.
- ---------------------------------
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by RCW
23B.11.030, 23B.11.080, or the articles of incorporation and the
shareholder is entitled to vote on the merger, or (ii) if the corporation
is a subsidiary that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
G - 1
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
RCW 23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
[1991 c 269 Sec. 37; 1989 c 165 Sec. 141.]
RCW 23B.13.030 - DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
- ----------------------------------------------------------
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the dissenter
dissents and the dissenter's other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
[1989 c 165 Sec. 142.]
RCW 23B.13.200 - NOTICE OF DISSENTERS' RIGHTS.
- ---------------------------------------------
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220.
[1989 c 165 Sec. 143.]
RCW 23B.13.210 - NOTICE OF INTENT TO DEMAND PAYMENT.
- ---------------------------------------------------
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effected, and (b) not
vote such shares in favor of the proposed action.
G - 2
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter.
[1989 c 165 Sec. 144.]
RCW 23B.13.220 - DISSENTERS' NOTICE.
- -----------------------------------
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days
after the date the notice in subsection (1) of this section is delivered;
and
(e) Be accompanied by a copy of this chapter.
[1989 c 165 Sec. 145.]
RCW 23B.13.230 - DUTY TO DEMAND PAYMENT.
- ---------------------------------------
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
[1989 c 165 Sec. 146.]
RCW 23B.13.240 - SHARE RESTRICTIONS.
- -----------------------------------
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.
[1989 c 165 Sec. 147.]
RCW 23B.13.250 - PAYMENT.
- ------------------------
(1) Except as provided in RCW 23B.13.270, within thirty days of the later
of the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
G - 3
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
[1989 c 165 Sec. 148.]
RCW 23B.13.260 - FAILURE TO TAKE ACTION.
- ---------------------------------------
(1) If the corporation does not effect the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure.
[1989 c 165 Sec. 149.]
RCW 23B.13.270 - AFTER-ACQUIRED SHARES.
- --------------------------------------
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
[1989 c 165 Sec. 150.]
RCW 23B.13.280 - PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
- ----------------------------------------------------------------------------
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250
or offered under RCW 23B.13.270 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
[1989 c 165 Sec. 151.]
G - 4
RCW 23B.13.300 - COURT ACTION.
- -----------------------------
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that such
shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270.
[1989 c 165 Sec. 152.]
RCW 23B.13.310 - COURT COSTS AND COUNSEL FEES.
- ---------------------------------------------
(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess the costs against all
or some of the dissenters, in amounts the court finds equitable, to the extent
the court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
[1989 c 165 Sec. 153.]
G - 5
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HIENERGY TECHNOLOGIES, INC.
ANNUAL MEETING OF STOCKHOLDERS - OCTOBER 10, 2002
The undersigned stockholder(s) of HIENERGY TECHNOLOGIES, INC., a Washington
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and the Proxy Statement, and hereby appoints Dr. Bogdan
Maglich and Mr. Gregory Gilbert or either of them (but in the case of a matter
where Dr. Maglich is not eligible to vote, such as Proposal Nos. 3 and 4, solely
Mr. Gregory Gilbert), as proxies and attorneys-in-fact with full power to each
of substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the Annual Meeting of Stockholders of the Company to be held on
October 10, 2002, or at any adjournment(s) or postponement(s) thereof, and to
vote all shares of Common Stock that the undersigned would be entitled to vote
if then and there personally present, on the matters set forth below:
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE PROPOSALS
DESCRIBED IN THE PROXY STATEMENT. IF A PROXY IS SIGNED AND DATED BUT NOT MARKED,
YOU WILL BE DEEMED TO HAVE VOTED "FOR" THE PROPOSALS DESCRIBED IN THE PROXY
STATEMENT.
PROPOSAL NO. 1 - TO ELECT FIVE DIRECTORS, EACH TO HOLD OFFICE FOR ONE, TWO OR
THREE YEARS AND UNTIL HIS SUCCESSOR SHALL HAVE BEEN ELECTED AND QUALIFIED.
Nominees: Class I - One Year Term Class II - Two Year Term Class III - Three Year Term
----------------------- ------------------------ ---------------------------
Barry Alter Gregory F. Gilbert Bogdan C. Maglich
Richard F. Alden Harb Al Zuhair
[ ] For the Nominees Listed above (except as indicated below)
[ ] Withhold Authority to Vote for All Nominees
Instruction: To withhold authority to vote for any Nominee, write that
Nominee's name on the line immediately below.
---------------------------------------------------------------------------
PROPOSAL NO. 2 - TO RATIFY THE BOARD OF DIRECTORS' APPOINTMENT OF SINGER LEWAK
GREENBAUM & GOLDSTEIN LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL
YEAR ENDING APRIL 30, 2003.
[ ] For [ ] Against [ ] Abstain
PROPOSAL NO. 3 - TO RATIFY THE BOARD OF DIRECTORS' GRANT OF A STOCK OPTION TO
DR. BOGDAN MAGLICH TO PURCHASE 2,482,011 SHARES OF COMMON STOCK OF THE COMPANY
AT $0.134 PER SHARE.
[ ] For [ ] Against [ ] Abstain
PROPOSAL NO. 4 - TO RATIFY THE BOARD OF DIRECTORS' APPROVAL OF HIENERGY
TECHNOLOGIES' EMPLOYMENT AGREEMENT, AS AMENDED, WITH DR. BOGDAN MAGLICH,
INCLUDING THE ISSUANCE OF ADDITIONAL STOCK OPTIONS TO DR. MAGLICH DURING THE
TERM OF HIS EMPLOYMENT AGREEMENT.
[ ] For [ ] Against [ ] Abstain
PROPOSAL NO. 5 - TO RATIFY THE BOARD OF DIRECTORS' GRANT OF A STOCK OPTION TO
MR. ISAAC YEFFET TO PURCHASE 1,000,000 SHARES OF COMMON STOCK OF THE COMPANY AT
$1.00 PER SHARE.
[ ] For [ ] Against [ ] Abstain
PROPOSAL NO. 6 - TO ADOPT AND APPROVE THE AGREEMENT AND PLAN OF MERGER TO EFFECT
A CHANGE IN DOMICILE OF THE COMPANY FROM WASHINGTON TO DELAWARE.
[ ] For [ ] Against [ ] Abstain
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
Page 1 of 2
NOTE: THIS PROXY SHOULD BE MARKED, DATED AND SIGNED BY EACH STOCKHOLDER EXACTLY
AS HIS OR HER OR ITS NAME APPEARS ON THE STOCK CERTFICATE(S), AND RETURNED IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder(s). If you do not sign and return this proxy or
attend the meeting and vote by ballot, your shares cannot be voted. If you wish
to vote in accordance with the Board of Directors' recommendations, just sign
where indicated. You need not mark any boxes.
When shares of Common Stock are held of record 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 as its authorized officer. If a partnership, please sign in partnership
name as its authorized person.
DATED: , 2002.
--------------------
--------------------------------------------------------------------------
Print name(s) exactly as shown on Stock Certificate
-------------------------------- ------------------------------
Signature (and Title, if any) Signature (if held jointly)
Page 2 of 2