UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e) (2))
[X] Definitive Proxy Statement
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
HYDRO ENVIRONMENTAL RESOURCES, INC.
(Name of Registrant as Specified in Its Charter)
_________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
HYDRO ENVIRONMENTAL RESOURCES, INC.
July 17, 2001
To Our Shareholders:
We would like to thank you for supporting our company
throughout the growing and developing stages. After many months
of changing conditions, we are pleased to announce that the
Company is on a very positive track and settled in our new
corporate offices in Las Vegas, Nevada, where we feel the time
for better days has come.
After several press releases, we have had a flood of
inquiries about the technology and its potential markets.
Excitement is rising as well, because a new vista for potential
end user unfolds.
Negotiations were conducted with various groups and a
decision about the new direction of the company has been made. It
is thought that the best direction is for a direct relationship
with a leading fuel cell manufacturer and to this end we have
concluded negotiations with such a group who have the necessary
funding for the final development of our product and who have a
niche market in mind.
HERI is expecting to move at a more rapid pace. We have had
many inquiries involving not only power plants, but also various
residential and industrial companies, as well as a major
automotive company showing interest in our revolutionary and
unique technology. We have had numerous inquiries from several
shareholders in regards to their investment. While we cannot
advise you in this regard, we do want to stress the importance of
allowing the Company to grow and ask that you to have faith and
allow your investment to grow along with HERI. We would also
like to request that you consider all the potential of the
product, have confidence in our dedicated team, and stay true to
the initial belief in the Company.
After many years of growing pains (Research and
Development), the company is looking forward to finally
generating revenues.
You are cordially invited to attend the Annual Meeting of
Shareholders to be held on August 15, 2001, at 8:30 a.m. PDT, at
5725 South Valley View Blvd, Suite 3, Las Vegas, Nevada 89118.
Enclosed with this letter is a Notice of Annual Meeting together
with a Proxy Statement, which contains information with respect
to the proposals to be voted. We believe that the proposals
discussed in the Proxy Statement are very important to the
company and its shareholders. It is very important that your
shares be voted, and we hope that you will be able to attend the
Annual Meeting. In either case, we urge you to execute and
return the enclosed form of proxy as soon as possible, whether or
not you expect to attend the Annual Meeting in person.
Sincerely,
/s/ Jack H. Wynn
Jack H. Wynn, President
5725 S. VALLEY VIEW BLVD., STE. 3 - LAS VEGAS, NV - 89118
PHONE: 702-597-9070 - FAX: 702-597-0947
HYDRO ENVIRONMENTAL RESOURCES, INC.
5725 S. Valley View Blvd., Suite 3
Las Vegas, Nevada 89118
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 15, 2001
TO THE STOCKHOLDERS OF HYDRO ENVIRONMENTAL, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders
(the "Annual Meeting") of Hydro Environmental Resources, Inc., an
Oklahoma corporation (the "Company"), will be held at 8:30 a.m.
PDT, on Wednesday, August 15, 2001, at 5725 S. Valley View Blvd.,
Suite 3, Las Vegas, Nevada 89118, for the following purposes:
1. To elect the directors of the Company to serve for a one
year term;
2. To approve the reincorporation of Hydro Environmental
Resources, Inc. in the State of Nevada;
3. To approve the Stock Purchase Agreement between PowerTek
Holdings LTD and the Company, whereby PowerTek would purchase 50%
of the outstanding common stock of the Company and be given an
option to purchase an additional 20% of the Company's outstanding
common stock on a fully diluted basis. This stock purchase would
result in the immediate issuance of up to 7,129,016 shares of
the Company's common stock with an option to purchase at least
3,564,508 additional shares. Under the terms of the Agreement,
PowerTek would be able to nominate, elect and maintain a majority
of the board of directors of the Company.
4. To ratify the selection of Cordovano and Harvey, P.C., as
independent public accountants of the Company for the 2001 fiscal
year; and
5. To transact such other business as may properly come before
the meeting or any postponement or adjournment thereof.
The foregoing items of business are more fully described in the
Proxy Statement accompanying this Notice.
The Board of Directors has fixed the close of business on July
10, 2001 as the record date for the determination of stockholders
entitled to notice and to vote at this Annual Meeting and at any
adjournment or postponement thereof.
By Order of the Board of Directors,
/s/ Jack H. Wynn
Jack H. Wynn, President
Las Vegas, Nevada
July 17, 2001
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN
PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A
RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED
STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR
PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
PLEASE NOTE, HOWEVER, THAT ATTENDANCE AT THE MEETING WILL NOT BY
ITSELF REVOKE A PROXY. FURTHERMORE, IF YOUR SHARES ARE HELD OF
RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT
THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY
ISSUED IN YOUR NAME.
HYDRO ENVIRONMENTAL RESOURCES, INC.
5725 S. Valley View Blvd., Suite 3
Las Vegas, Nevada 89118
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
AUGUST 15, 2001
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of
Directors of Hydro Environmental Resources, Inc., an Oklahoma
corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held on August 15, 2001, at 8:30 a.m. PDT (the
"Annual Meeting"), or at any adjournment or postponement thereof,
for the purposes set forth herein and in the accompanying Notice
of Annual Meeting. The Annual Meeting will be held at 5725 S.
Valley View Blvd., Suite 3, Las Vegas, Nevada 89118 in Las Vegas,
Nevada. The Company intends to mail this proxy statement and
accompanying proxy card on or about July 17, 2001 to all
stockholders entitled to vote at the Annual Meeting.
Voting Rights and Outstanding Shares
Only holders of record of shares of the Company's Common Stock at
the close of business on July 10, 2001 will be entitled to notice
of and to vote at the Annual Meeting. At the close of business on
July 10, 2001, the Company had outstanding and entitled to vote
34,645,078 shares of Common Stock. Each holder of record of the
Company's Common Stock on such date will be entitled to one vote
for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election
appointed for the meeting, who will separately tabulate
affirmative and negative votes, abstentions and broker non-votes.
Abstentions will be counted towards the tabulation of votes cast
on proposals presented to the stockholders and will have the same
effect as negative votes. Broker non-votes are counted towards
establishment of the required quorum, but are not counted for any
purpose in determining whether a matter has been approved.
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the
power to revoke it at any time before it is voted. It may be
revoked by filing with the Secretary of the Company at the
Company's principal executive office at 5725 S. Valley View
Blvd., Suite 3, Las Vegas, Nevada 89118, Attention: Secretary, a
written notice of revocation or a duly executed proxy bearing a
later date, or it may be revoked by attending the meeting and
voting in person. Please note, however, that attendance at the
meeting will not by itself revoke a proxy. Furthermore, if the
shares are held of record by a broker, bank or other nominee and
the stockholder wishes to vote at the meeting, the stockholder
must obtain from the record holder a proxy issued in the
stockholder's name.
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Solicitation
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this
proxy statement, the proxy and any additional information
furnished to stockholders. Copies of solicitation materials will
be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock
beneficially owned by others to forward to such beneficial
owners. The Company may reimburse persons representing beneficial
owners of Common Stock for their costs of forwarding solicitation
materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, facsimile,
telegram or personal solicitation by directors, officers or other
regular employees of the Company. No additional compensation will
be paid to directors, officers or other regular employees for
such services.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to the
Company with respect to the beneficial ownership of its common
stock as of July 10, 2001, by (i) each person known by the
Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director of the Company,
(iii) each named executive officer, and (iv) all directors and
officers as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject
to community property laws where applicable.
Name and Address
of Beneficial Owner (1) Amount of Ownership (2) Percent of Class (3)
----------------------- ----------------------- --------------------
Jack H. Wynn 7,600,000 22.0%
Julio P. Focaracci (4) 213,200 *
Drew Sakson 300,000 *
Lane J. Austin 217,000 *
David A. Youngblood 180,000 *
Officers and directors as
a Group (5 persons) 8,510,200 24.6%
* constitutes less than one 1 percent (1%) of all issued and
outstanding shares of Common Stock.
- ----------
(1) Unless otherwise indicated, the address of each
beneficial owner is that of the Company.
(2) Beneficial ownership is determined in accordance with the
rules of the SEC, based on factors including voting and
investment power with respect to shares. Common stock
subject to options currently exercisable, or exercisable
within 60 days after July 10, 2001, are deemed outstanding
for computing the percentage ownership of the person holding
such options, but are not deemed outstanding for computing
the percentage ownership for any other person.
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(3) Based on an aggregate of 34,645,078 shares of Company's
Common Stock issued and outstanding as of July 10, 2001.
(4) Mr. Focaracci directly owns 100,000 shares and owns as joint
tenant with his wife 8,200 shares. His wife owns 105,000
shares, therefore, Mr. Focaracci is deemed to be the
beneficial owner of these shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), requires that the Company's
officers and directors, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities,
file reports of ownership and changes of ownership with the SEC.
Officers, directors and greater than ten percent (10%)
shareholders are required by SEC regulation to furnish the
Company with copies of all such reports they file.
Based solely on its review of the copies of such reports received
by the Company, and on written representations by the Company's
officers and directors regarding their compliance with the
applicable reporting requirements under Section 16(a) of the
Exchange Act, the Company believes that, with respect to its
fiscal year ended December 31, 2000, all of the Company's
directors and officers and all of the persons known to the
Company to own more than ten percent (10%) of the Company's
Common Stock, either failed to file, on a timely basis, or have
yet to file the required beneficial ownership reports with the
SEC.
Compensation of Directors and Executive Officers
None of the Company's officers and/or directors receive any
compensation for their respective services rendered to the
Company, nor have they received such compensation in the past.
They have agreed to act without compensation until authorized by
the Board of Directors, which is not expected to occur until the
Company has generated revenues from operations. As of the date of
this proxy statement, the Company has no funds available to pay
directors. Further, none of the directors are accruing any
compensation pursuant to any agreement with the Company.
No retirement, pension, profit sharing, stock option or insurance
programs or other similar programs have been adopted by the
Company for the benefit of its employees.
PROPOSAL 1
ELECTION OF DIRECTORS
As provided in the By-Laws of the Company, the Board of Directors
has nominated a slate of candidates for election to the Board of
Directors for a term of one year and until his successor has been
elected and qualified. The By-Laws also provide that the Board of
Directors shall have the right at any time during the ensuing
year to increase the number of directors and to elect such
directors by a majority vote. The Board has no standing
committees of any kind.
Directors are elected by a plurality of the votes present in
person or represented by proxy and entitled to vote at the
meeting. Shares represented by executed proxies will be voted, if
authority to do so is not withheld, for the election of the two
nominees named below. In the event that any nominee should be
unavailable for election as a result of an unexpected occurrence,
such shares will be voted for the election of such substitute
nominee as the Board of Directors may propose. The persons
3
nominated for election have agreed to serve if elected, and the
Board of Directors has no reason to believe that these nominees
will be unable to serve.
Nominees Standing for Election
The following nominees are standing for election to serve as
members of the Board of Directors to serve until the next annual
meeting of shareholders or until their successors are duly
elected and qualified.
Name Age Position Director Since
- ---- --- -------- --------------
Jack H. Wynn 71 President and Director November 1998
Julio P. Focaracci 47 Secretary, Treasurer December 2000
and Director
Drew Sakson 42 Director December 2000
Lane J. Austin 53 Director April 2001
David A. Youngblood 43 Director July 2001
Set forth below is biographical information for each person
nominated to serve in office for a one-year term expiring at the
2002 Annual Meeting.
Jack H. Wynn
Mr. Wynn was the sole officer and a director of the Company from
its inception in November 1998 until December 2000. Mr. Wynn
helped the Company raise funds for research and development as
well as developing a present marketing plan and was instrumental
in taking the Company public. He also is currently the owner of
North Bay Corporate Services Firm in Hayward, California which he
founded in 1998. Prior to founding Hydro Environmental
Resources, Inc., from 1980 to 1983, Mr. Wynn was Chairman of the
Board of Scanner Energy, an Oklahoma leasing and oil production
corporation with leases in numerous states. From 1984 to 1989,
Mr. Wynn formed and operated the Oklahoma Transfer and Registrar
Corporation, which was later transferred to San Francisco,
California as Securities Transfer Pacifica Corporation. During
his years as owner and manager, the company contracted and
transferred shares for over 60 public corporations. While at the
company, Mr. Wynn developed a state of the art computer system
used by many transfer agents today. During this time, he was
also instrumental in the development and growth of Power Train
corporation, a company which successfully developed the hydraulic
power system used in heavy industry today. From 1972 to 1980, Mr.
Wynn was a partner with Scholen, Wynn & Associates, a securities
and insurance brokerage firm. Mr. Wynn has over twenty years
experience in the life insurance industry, including ten years
with Occidental Life Insurance.
Julio P. Focaracci
Mr. Focaracci was appointed as the Company's Secretary and
Treasurer on April 7, 2001. Mr. Focaracci brings to the Company
over 20 years experience in engineering, manufacturing, project
management, quality and package development. From 1998 to
present, Mr. Focaracci has been the Senior Manufacturing Engineer
for Applied Biosystems in Foster City, California. From 1996 to
1998, Mr. Focaracci was the Quality and Process Manager for Xerox
Corporation, Digital
4
Desktop Division in Palo Alto, California. He provided team
facilitation for new products and provided project management
training. Mr. Focaracci has a Masters of Business and Administration
from St. Mary's College in Moraga, California, and a Bachelor of
Science degree in Engr. Tech/Mechanical Engr. From Cal Poly State
University in San Luis Obispo, California.
Drew Sakson
Since 1987, Mr. Sakson has owned and operated Drew Sakson
Management, the largest retail sub-prime mortgage lender in
western Colorado. The company closes in excess of 15 million
dollars of loans annually and has recently expended its sales
into conventional and non-conventional borrowers. They also
owned and operate several million dollars worth of real estate,
including a hotel in Rifle and a condominium in Aspen, Colorado.
From October 1987 to September 1993, Mr. Sakson owned and
operated several hotels on the South Miami Beach, Florida. He
sold his interest in the South Beach real estate in August 1993.
In Miami he was instrumental in the development of Viatical
settlement financing and served on the Board of Directors of
American Life Resources, the company that created the concept of
purchasing life insurance policies from the terminally ill. From
1993 to 1995 he served on the board of directors of CAPX, a
publicly traded corporation, which later became known as
Autolend, the third largest financing company for cars at
auctions to dealers in the United States.
Lane J. Austin
From October 1997 to present, Mr. Austin has been self-employed
as a consultant providing corporate manufacturing, quality and
operations consulting services to technology companies. He
reports to executive management defining, developing, documenting
and implementing complete corporate business strategies from
order receipt to delivery of products to customers. From January
1994 to October 1997, Mr. Austin was the Senior Corporate Quality
Manager for Quicklogic. He developed, implemented and directed
all corporate quality activities for Field Progammable Gate Array
(FPGA) products and PCB programmer assemblies. He was
responsible for staffing, managing and budgeting Quality
activities. Additional responsibilities included extensive
customer presentations, and resolution of customer quality
issues. Mr. Austin has a Bachelor of Arts degree in Experimental
Psychology from California State University at Hayward and has
his ISO9000 Lead Assessor Certification.
David A. Youngblood
Mr. Youngblood is the Supervisor of Research of the Company. Prior
to the opening of the Company's headquarters in February 2001, he was
instrumental in Finance, Human Resources, Lab Design and many other
facets of company start-up as a consultant. Since taking the Research
and Development position, he orchestrated the development of an all-new
ECHFR unit, converted hydrogen vehicle, support systems, and is currently
developing several projects not yet released. Prior to his
positions with the Company, Mr. Youngblood from 1997-2000 accepted a
R&D Technician position with Nikon Research Corporation of America in
Belmont, California. His role was developing of concepts and projects
related to Microphotolithography manufacturing processes for optically
exposing of silicon wafers and new products with the NRCA Engineering
staff. His duties were reporting and supporting the Director of
Electronics and support of mechanical designers, mechanical engineers
and consultants. Other responsibilities included Electromechanical
packaging, quality manufacturing, lab/facility support, equipment and
component specification, Cad Design, Mechanical and Electronic inspection,
circuit board proofing and general manufacturing practices.
5
The five candidates receiving the highest number of affirmative
votes cast at the meeting will be elected directors of the
Company. Abstentions and broker non-votes will have the same
effect as a vote against this Proposal 1.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF THE NAMED NOMINEES
PROPOSAL 2
THE REDOMICILE OF THE COMPANY'S PLACE OF INCORPORATION
FROM OKLAHOMA TO NEVADA
INTRODUCTION
For the reasons set forth below, the Board believes that the best
interests of the Company and its shareholders will be served by
changing the Company's state of incorporation from Oklahoma to
Nevada (the "Reincorporation"). The Board has approved the
Reincorporation, which will be effected pursuant to the Agreement
and Plan of Merger (the "Merger Agreement") described below.
Under the Merger Agreement, the Company will be merged with and
into its newly formed Nevada subsidiary, Hydro Environmental
Resources, Inc., ("Hydro-Nevada"). Hydro-Nevada is a wholly-owned
subsidiary of the Company recently incorporated in Nevada solely
for the purpose of effecting the Reincorporation. Hydro-Nevada
currently has no material assets and no business operations. Upon
the effectiveness of the Reincorporation, the Company will cease
to exist and Hydro-Nevada will continue to operate the Company's
business under the name "Hydro Environmental Resources, Inc."
At the Annual Meeting, the shareholders of the Company (the
"Shareholders") will be asked to consider and vote upon the
Reincorporation as outlined in the Plan of Merger by and between
Hydro-Nevada and Hydro-Oklahoma, attached as Appendix A. For the
reasons set forth below, the Board believes that approval of the
Reincorporation is in the best interests of the Company and its
shareholders. Shareholder approval of the Reincorporation will
constitute approval of the Merger Agreement and all related
transactions, which will effect the change in the legal domicile
of the company.
REASONS FOR THE REINCORPORATION
The Board believes that the Reincorporation will provide
flexibility for both the management and business of the Company.
For many years, Nevada has followed a policy of encouraging
incorporation in that state and has been a leader in adopting,
construing and implementing comprehensive, flexible corporate
laws responsive to the legal and business needs of corporations
organized under its laws. Such an environment will enhance the
Company's operations and its ability to obtain equity financing
and to effect acquisitions and other transactions. Consequently,
many corporations originally domiciled elsewhere have
subsequently changed corporate domicile to Nevada in a manner
similar to that proposed by the Company.
THE MERGER
After the Reincorporation is effected by the Merger Agreement,
Hydro-Nevada will emerge as the surviving corporation. The terms
and conditions of the
6
Merger are set forth in the Plan of Merger attached as an appendix
to this Proxy Statement, and the summary of the terms and conditions
of the Merger set forth below is qualified by reference to the full
text of the Merger Agreement. Upon consummation of the Merger,
Hydro-Nevada will continue to exist in its present form under the name
"Hydro Environmental Resources, Inc.," and the Company will cease to
exist. The Reincorporation will change the legal domicile of the Company,
but will not result in a change in the principal offices,
business, management, assets or liabilities of the Company. By
operation of law, Hydro-Nevada will succeed to all of the assets
and assume all of the liabilities of the Company.
The Board of Directors of Hydro-Nevada will be comprised of the
persons elected to the Company's Board of Directors at the Annual
Meeting. The Hydro-Nevada Board of Directors will be of one
class, and shall serve for a term of one year commencing upon
election subsequent to the Reincorporation. It is anticipated
that the directors of Hydro-Nevada will elect as officers of
Hydro-Nevada the same persons who are elected as officers of the
Company following the Annual Meeting.
After the Merger, the rights of shareholders and the Company's
corporate affairs will be governed by the Nevada Revised Statutes
(the "NRS") and by the Articles of Incorporation and bylaws of
Hydro-Nevada, instead of the Oklahoma General Corporation Act
(the "OGCA") and the articles of incorporation and bylaws of the
Company. Certain material differences are discussed below under
"Comparison of Shareholders Rights under Nevada and Oklahoma
Corporate Law and Charter Documents." A copy of the Articles of
Incorporation of Hydro-Nevada (the "Nevada Articles") are
included as Appendix C to this Proxy Statement. The articles of
incorporation and bylaws of the Company and the bylaws of Hydro-
Nevada (the "Nevada Bylaws") are available for inspection by
shareholders of the Company at the principal offices of the
Company located at 5725 S. Valley View Blvd., Suite 3, Las Vegas,
Nevada 89118. Our telephone number is (702) 597-9070.
Upon the effectiveness of the Merger, each share of Common Stock
of the Company issued and outstanding immediately prior thereto
shall be converted into shares of fully paid and nonassessable
shares of Hydro-Nevada. Shareholders will receive one (1) share
of common stock Hydro-Nevada for every five (5) shares of Hydro-
Oklahoma. There are no shares of common stock of Hydro-Nevada
issued and outstanding.
The change in domicile by corporate merger will not materially
affect the proportionate equity interest in the Company of any
shareholder or the relative rights, preferences, privileges or
priorities of any such stockholder. Upon completion of the
merger, each five (5) shares of Hydro-Oklahoma common stock will
be exchanged for one (1) share of the new Nevada corporation's
common stock. The stock issued in the change of domicile merger
transaction will be fully paid and non-assessable. All shares
will have the same par value of $0.001 per share. The common
shares will have voting rights and other rights as presently
possessed by our shareholders.
Consummation of the Merger is subject to the approval of the
Company's shareholders. The affirmative vote, a majority of all
votes entitled to be cast, whether or not present at the Annual
Meeting, who are entitled to vote at the Annual Meeting is
required for the approval and adoption of the Merger. The Merger
is expected to become effective as soon as practicable after
shareholder approval is obtained and all other conditions to the
Merger have been satisfied, including the receipt of all
consents, orders and approvals necessary for consummation of the
Merger. Prior to its effectiveness, however, the Merger may be
abandoned by the Board if, for any reason, the Board determines
that consummation of the Merger is no longer advisable.
7
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The Reincorporation of the Company pursuant to the Merger
Agreement will be a tax free reorganization under the Internal
Revenue Code of 1986, as amended. Accordingly, a holder of the
Common Stock (a "Holder") will not recognize gain or loss in
respect of Holder's Common Stock as a result of the
Reincorporation. The Holder's basis in a share of Hydro-Nevada
will be the same as Holder's basis in five (5) of the
corresponding shares of the Company held immediately prior to the
Reincorporation. The Holder's holding period in a share of Hydro-
Nevada will include the period during which Holder held the
corresponding five (5) shares of the Company, provided Holder
held the corresponding five (5) shares as a capital asset at the
time of the Reincorporation.
In addition, neither the Company nor Hydro-Nevada will recognize
gain or loss as a result of the Reincorporation, and Hydro-Nevada
will generally succeed, without adjustment, to the tax attributes
of the Company. Nevada has no corporate income tax, no taxes on
corporate shares, no franchise tax, no personal income tax, no
I.R.S. information sharing agreement, nominal annual fees,
minimal reporting and disclosure requirements, and shareholders
are not public record.
The foregoing summary of federal income tax consequences is
included for general information only and does not address all
income tax consequences to all of the Company's shareholders. The
Company's shareholders are urged to consult their own tax
advisors as to the specific tax consequences of the
Reincorporation with respect to the application and effect of
state, local and foreign income and other tax laws.
SECURITIES ACT CONSEQUENCES
Pursuant to Rule 145(a)(2) under the Securities Act of 1933, as
amended (the "Securities Act"), a merger which has the sole
purpose of changing an issuer's domicile within the United States
does not involve a sale of securities for the purposes of the
Securities Act. Accordingly, separate registration of shares of
common stock of Hydro-Nevada will not be required.
DESCRIPTION OF CAPITAL STOCK AND VOTING RIGHTS
The Company's authorized capital in Oklahoma consists of
50,000,000 shares of Common Stock, $0.001 par value and 5,000,000
shares of Preferred Stock, $0.001 par value. As of July 10, 2001,
there were 34,645,078 shares of Common Stock outstanding and no
shares of Preferred Stock outstanding. The holders of Common
Stock are entitled to vote on all matters to come before a vote
of the shareholders of the Company.
COMPARISON OF SHAREHOLDER RIGHTS UNDER NEVADA AND OKLAHOMA
CORPORATE LAW AND CHARTER DOCUMENTS
GENERAL. Subject to shareholder approval prior to the effective
time (the "Effective Time") of the Reincorporation, the Company
will change its domicile to Nevada and shall thereafter be
governed by the Nevada Revised Statues ("NRS") and by the Nevada
Articles and the Nevada Bylaws (together, the "Nevada Charter
Documents"). Upon the filing with and acceptance by the Secretary
of State of Nevada of Articles of Merger in Nevada, the Company
will become Hydro Environmental Resources, Inc., a Nevada
Corporation, ("Hydro-Nevada") and each five (5) outstanding
shares of Company Common Stock will be deemed for all purposes to
evidence ownership of, and to represent, one (1) share of Hydro-
Nevada Common Stock.
8
The Nevada Charter Documents effectively replace the Company's
current Articles of Incorporation, as amended ("Oklahoma
Articles") and the Oklahoma Bylaws (together, the "Oklahoma
Charter Documents") including providing officers, directors and
agents of Hydro-Nevada with certain indemnification rights in
addition to those currently provided for the Company.
If the Reincorporation is consummated, holders of Common Stock
will become holders of Nevada Common Stock, which will result in
their rights as shareholders being governed by the laws of the
State of Nevada. In addition, their rights as shareholders will
be governed by the Nevada Charter Documents. It is not practical
to describe all of the differences between the Nevada Articles
and the Oklahoma Articles and the Nevada Bylaws and the Oklahoma
Bylaws or all of the differences between the laws of the States
of Nevada and Oklahoma. The following is a summary of some of the
significant rights of the shareholders under Oklahoma and Nevada
law and under the Oklahoma and Nevada Charter Documents. This
summary is qualified in its entirety by reference to the full
text of such documents and laws.
AUTHORIZED CAPITAL STOCK
The following discussion is qualified in its entirety by
reference to the Nevada Charter Documents. The authorized capital
stock of Hydro-Nevada, upon effectuation of the transaction set
forth in the Merger Agreement is 55,000,000 shares as hereinafter
set forth. The description of the classes of shares and a
statement of the number of shares in each class and the relative
rights, voting power, restrictions and preferences granted to and
imposed upon the shares of each class are discussed below.
COMMON STOCK. The total number of shares of Common Stock this
Corporation shall have the authority to issue is 50,000,000. The
Common Stock shall have a stated par value of $0.001 per share.
Each share of Common Stock shall have, for all purposes one vote
per share. The holders of Common Stock issued and outstanding
have and possess the right to receive notice of shareholders'
meetings and to vote upon the election of directors or upon any
other matter as to which approval of the outstanding shares of
Common Stock or approval of the common shareholders is required
or requested.
PREFERRED STOCK. The total number of shares of Preferred Stock
this Corporation is authorized to issue is 5,000,000 shares with
a stated par value of $0.001 per share. The Board of Directors is
hereby authorized from time to time, without shareholder action,
to provide for the issuance of Preferred Stock in one or more
series not exceeding in the aggregate the number of Preferred
Stock authorized by these Articles of Incorporation, as amended
from time to time. The Board of Directors of the Corporation is
vested with authority to determine and state the designations and
the preferences, limitations, relative rights, and voting rights,
if any of each such series by the adoption and filing in
accordance with the Nevada Revised States, before the issuance of
any shares of such series, of an amendment or amendments to these
Articles of Incorporation determining the terms of such series,
which amendment need not be approved by the shareholder or the
holders of any class or series of shares except as provided by
law. All shares of Preferred Stock of the same series shall be
identical with each other in all respects.
9
VOTING RIGHTS WITH RESPECT TO EXTRAORDINARY
CORPORATE TRANSACTIONS
NEVADA. Approval of consolidations and sales, leases or exchanges
of all or substantially all of the property or assets of a
corporation, requires the affirmative vote or consent of the
holders of a majority of the outstanding shares entitled to vote
thereon.
OKLAHOMA. Because the Oklahoma Charter Documents are silent on
the matter of the vote of shareholders required to approve a plan
of merger or a plan of share exchange, or to approve a
transaction involving a sale, lease, exchange, or other
disposition of all, or substantially all, of its property, with
or without its good will, otherwise than in the usual and regular
course of business, such plan requires the approval of a majority
of all the votes entitled to be cast thereon.
If the Reincorporation is consummated there will be no change in
the shareholder vote needed to pass such transactions which will
remain a majority of all of the votes entitled to be cast on the
transaction by each voting group entitled to vote thereon.
SHAREHOLDERS CONSENT WITHOUT A MEETING
NEVADA. Any action required or permitted to be taken at a meeting
of the shareholders may be taken without a meeting if, before or
after the action, a written consent thereto is signed by
shareholders holding at least a majority of the voting power,
except that if a different proportion of voting power is required
for such an action at a meeting, then that proportion of written
consents is required. In no instance where action is authorized
by written consent need a meeting of shareholders be called or
notice given.
OKLAHOMA. Any action required or permitted by the Oklahoma
General Corporation Act (OGCA) to be taken at a shareholders'
meeting may be taken without a meeting if a consent or consents
in writing, setting forth the action so taken, shall be signed by
the holders of the outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or
take the action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered to the
corporation by delivery to its registered office in Oklahoma, its
principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of
meetings of shareholders are recorded. Every written consent
shall bear the date of signature of each shareholder who signs
the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60)
days of the earliest dated consent delivered to the corporation,
written consents signed by a sufficient number of holders are
delivered to the corporation in the manner set forth above.
If the Reincorporation is consummated, the number of shareholders
required to consent to an action without a shareholders meeting
will remain the same which requires a majority of the voting
power shareholders consenting to the action in writing. However,
such action may be taken without a meeting before or after a
majority of the voting shareholders have consented to such action
in writing.
ANTI-TAKEOVER STATUTES
NEVADA. Except under certain circumstances Nevada law prohibits a
"business combination" between the corporation and an "interested
shareholder", however the Nevada Articles expressly
10
elect not to be governed by these provisions as contained in NRS 78.411
to 78.444 inclusive. To the extent permissible under the applicable
law of any jurisdiction to which the corporation may become
subject by reason of the conduct of business, the ownership of
assets, the residence of shareholders, the location of offices or
facilities, or any other item, the Company has elected not to be
governed by the provisions of any statute that (i) limits,
restricts, modified, suspends, terminates, or otherwise affects
the rights of any shareholder to cast one vote for each share of
common stock registered in the name of such shareholder on the
books of the corporation, without regard to whether such shares
were acquired directly from the Company or from any other person
and without regard to whether such shareholder has the power to
exercise or direct the exercise of voting power over any specific
fraction of the shares of common stock of the Company issued and
outstanding or (ii) grants to any shareholder the right to have
his or her stock redeemed or purchased by the corporation or any
other shareholder on the acquisition by any person or group of
persons of shares of the Company. In particular, to the extent
permitted under the laws of the state of Nevada, the Company
elects not to be governed by any such provision of the Nevada
Revised Statutes.
OKLAHOMA. Although O.S. 18-1090.3.B.1. allows for corporations to
elect not to be governed by Oklahoma law prohibiting "business
combinations" between the corporation and "interested
shareholders" the Corporation did not make such election in its
Articles of Incorporation, therefore the Corporation is
prohibited from such business combinations with interested
shareholders.
If the Reincorporation is consummated, the Board of Directors
will not be prohibited from entering into business combinations,
such as mergers and/or acquisitions, with interested shareholders
of the Corporation if the Board of Directors deems it beneficial
to the Corporation's business and its shareholders. The Board of
Directors has a fiduciary duty to its shareholders to ensure any
such business combination would be fair and not result in any
unwanted takeover of corporate control.
QUORUM OF DIRECTORS
NEVADA. A majority of the Board of Directors in office shall
constitute a quorum for the transaction of business, but if at
any meeting of the Board there be less than a quorum present, a
majority of those present may adjourn from time to time, until a
quorum shall be present, and no notice of such adjournment shall
be required. The Board of Directors may prescribe rules not in
conflict with these Bylaws for the conduct of its business;
provided, however, that in the fixing of salaries of the officers
of the corporation, the unanimous action of all the directors
shall be required.
OKLAHOMA. A quorum at all meetings of the Board of Directors
consists of a majority of the number of directors then holding
office. The act of a majority of the Directors present at a
meeting which a quorum is present shall be the act of the Board
of Directors.
SPECIAL MEETINGS OF SHAREHOLDERS
NEVADA. Special meetings of the shareholders may be held at the
office of the corporation in the State of Nevada, or elsewhere,
whenever called by the President, or by the Board of Directors,
or by vote of, or by an instrument in writing signed by the
holders of a majority of the issued and outstanding capital
stock. Not less than ten (10) nor more than sixty (60) days
written notice of such meeting, specifying the day, hour and
place, when and where such meeting shall be convened, and the
objects for calling the same, shall be mailed in the United
States Post Office, or via express or overnight mail, addressed
to each of the shareholders of record at the time of issuing the
notice, and at his, her, or its address last known, as the same
appears on the books of the corporation.
11
The written certificate of the officer or officers calling any
special meeting setting forth the substance of the notice, and
the time and place of the mailing of the same to the several
shareholders, and the respective addresses to which the same were
mailed, shall be prima facie evidence of the manner and fact of
the calling and giving such notice.
OKLAHOMA. A corporation shall hold a special meeting of
shareholders: (a) On call of its board of directors or the person
or persons authorized by the bylaws or resolution of the board of
directors to call such a meeting. The bylaws provide that a
meeting may be called by the Chief Executive Officer of the
corporation or by a majority of the Board of Directors, and shall
be called after the corporation's receipt of the request in
writing from shareholders owning of record one-fourth of the
amount of each class or series of the stock of the corporation
issued and outstanding and entitled to vote. Special
shareholders' meetings may be held in or out of this state at the
place stated in or fixed in accordance with the bylaws at a place
stated in or fixed by the Chief Executive Officer. Only business
within the purpose or purposes described in the notice of the
meeting may be conducted at a special shareholders' meeting.
ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS.
The Oklahoma Law and the Nevada Law both provide that, unless the
articles of incorporation provide otherwise, any action required
or permitted to be taken at a meeting of the shareholders may be
taken without a meeting if the holders of outstanding stock,
having at least the minimum number of votes that would be
necessary to authorize or take such action at a meeting, consent
to the action in writing. In addition, the Oklahoma law requires
the corporation to give prompt notice of the taking of corporate
action without a meeting by less than unanimous written consent
to those shareholders who did not consent in writing. Therefore,
there will not be any significant difference in shareholder
rights with respect to actions by written consent.
AMENDMENTS TO CHARTER
NEVADA. The articles of incorporation may be amended in any of
the following respects by a vote of a majority of the
shareholders entitled to vote on an amendment: (a) by addition to
its corporate powers and purposes, or diminution thereof, or
both, (b) by substitution of other powers and purposes, in whole
or in part, for those prescribed by its articles of
incorporation, (c) by increasing, decreasing or reclassifying its
authorized stock, by changing the number, par value, preferences,
or relative, participating, optional or other rights, or the
qualifications, limitations or restrictions of such rights, of
its shares, or of any class or series of any class thereof
whether or not the shares are outstanding at the time of the
amendment, or by changing shares with par value, whether or not
the shares are outstanding at the time of the amendment, into
shares without par value or by changing shares without par value,
whether or not the shares are outstanding at the time of the
amendment, into shares with par value, either with or without
increasing or decreasing the number of shares, and upon such
basis as may be set forth in the certificate of amendment, (d) by
changing the name of the corporation, (e) by making any other
change or alteration in its articles of incorporation that may be
desired. If any proposed amendment would alter or change any
preference or any relative or other right given to any class or
series of outstanding shares, then the amendment must be approved
by the vote, in addition to the affirmative vote otherwise
required, of the holders of shares representing a majority of the
voting power of each class or series affected by the amendment
regardless of limitations or restrictions on the voting power
thereof.
12
OKLAHOMA. The articles of incorporation may be amended at any
time, or from time to time, by the affirmative vote of two-thirds
of the members present at any annual meeting of the stockholders,
if notice of the proposed amendment shall have been given in the
call for such meeting. Such amendments shall be put into effect
by the directors, who shall sign and acknowledge and file new or
revised articles containing such amendments and superseding the
original articles.
NOTICE, ADJOURNMENT AND PLACE OF
SHAREHOLDERS' MEETINGS
NEVADA. The Board of Directors may designate any place, either
within or without the state of incorporation, as the place of
meeting for any annual or special meeting. A waiver of notice,
signed by all shareholders entitled to vote at a meeting, may
designate any place, either within or without the state of
incorporation, as the place for the holding of such meeting. If
no designation is made, the place of meeting shall be the
registered office of the corporation in the state of
incorporation. Nevada Bylaws provide that the notification of the
annual meeting shall state the purpose or purposes for which the
meeting is called and the date, time, and the place, which may be
within or without this state, where it is to be held. A copy of
such notice shall be either delivered personally to, or shall be
mailed with postage prepaid, to each shareholder of record
entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before such meeting.
OKLAHOMA. Written notice stating the place, day, and hour of the
meeting, and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not
less than ten (10) days nor more than sixty (60) days before the
date of the meeting to each shareholder entitled to vote at such
meeting. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the shareholder at this
address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the
transfer agent of the corporation that the notice has been given,
in the absence of fraud, shall be prima facie evidence of the
facts stated therein. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting
if the time and place thereof are announced at the meeting at
which the adjournment is taken. 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, a notice of the
adjourned meeting shall be given to each shareholder of record
entitled to vote at the meeting.
DIRECTORS
NEVADA. The Nevada Certificate provides that the initial number
of members of the Nevada board shall be five (5), and thereafter
shall not be less than one (1) nor more than seven (7), and may,
at any time or times, be increased or decreased by a duly adopted
amendment to the Articles of Incorporation, or in such manner as
shall be provided in the Bylaws of the corporation or by an
amendment to the Bylaws of the corporation duly adopted by either
the Board of Directors or the Shareholders.
OKLAHOMA. The Oklahoma Bylaws provide that the Board of Directors
shall consist of such number of directors as may be determined
from time to time by resolution of the Board of Directors. No
director need be an officer or shareholder of the Corporation,
but each director shall be a natural person 21 years of age or
older.
13
ELECTION AND REMOVAL OF DIRECTORS
NEVADA. The Nevada Bylaws provide each director shall hold office
until the next annual meeting of shareholders and until his or
her successor shall have been elected and qualified. At a meeting
expressly called for the removal of one or more directors, such
directors may be removed by a vote of a majority of the shares of
outstanding stock of the corporation entitled to vote at an
election of directors. Vacancies on the board may be filled by
the remaining directors.
OKLAHOMA. The Oklahoma Bylaws provide each director shall serve
until the next annual meeting of the shareholders or until the
director's successor shall have been duly elected and qualified,
except in the event of the director's death, resignation or
removal. Any director may be removed, with or without cause, at
any meeting of shareholders by the affirmative vote of a majority
in number of shares of the shareholders present in person or by
proxy at such meeting and entitled to vote for the election of
such director; provided notice of the intention to act upon such
matter shall have been given in the notice calling such meeting.
Vacancies on the board may be filled by the remaining directors.
INSPECTION OF BOOKS AND RECORDS
NEVADA. Pursuant to the Bylaws of Hydro-Nevada, the Board of
Directors shall have power to close the share books of the
corporation for a period of not to exceed sixty (60) days
preceding the date of any meeting of shareholders, or the date
for payment of any dividend, or the date for the allotment of
rights, or capital shares shall go into effect, or a date in
connection with obtaining the consent of shareholders for any
purpose. In lieu of closing the share transfer books as
aforesaid, the Board of Directors may fix in advance a date, not
exceeding sixty (60) days preceding the date of any meeting of
shareholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or
conversion or exchange of capital shares shall go into effect, or
a date in connection with obtaining any such consent, as a record
date for the determination of the shareholders entitled to a
notice of, and to vote at, any such meeting and any adjournment
thereof, or entitled to receive payment of any such dividend, or
to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital
stock, or to give such consent.
OKLAHOMA. Pursuant to the Oklahoma Bylaws, the Secretary shall
make available at the executive office of the corporation, at
least ten days before such meeting of shareholders, a complete
record of the shareholders entitled to vote at each meeting of
shareholders or any adjournment thereof, arranged in alphabetical
order, with the address and the number of shares held by each.
Such record shall be produced and kept open at the time and place
of the meeting and shall be subject to the inspection of any
shareholder for any purpose germane to the meeting during the
whole time of the meeting for the purposes thereof. Oklahoma law
provides that any shareholder, in person or by attorney or other
agent, upon written demand under oath stating the purpose
thereof, shall have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger,
a list of its shareholders, and its other books and records, and
to make copies or extracts therefrom.
LIMITATION ON LIABILITY OF DIRECTORS;
INDEMNIFICATION OF OFFICERS AND DIRECTORS
NEVADA. Pursuant to the Nevada Charter Documents, the corporation
shall have the power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
14
pending, or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he or she is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other
enterprise, against expenses (including attorneys' fees)
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him or her in connection with any such
action, suit or proceeding, if he or she acted in good faith and
in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or
proceeding, he or she had reasonable cause to believe that his or
her conduct was unlawful.
Hydro-Nevada Bylaws specifically provide that the corporation
shall have the power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he or she is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other
enterprise, against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit, if he or she acted
in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such a person shall have been
adjudged to be liable for negligence or misconduct in the
performance of his or her duty to the corporation, unless and
only to the extent that the court in which the action or suit was
brought shall determine on application that, despite the
adjudication of liability but in view of all circumstances of the
case, the person is fairly and reasonably entitled to indemnity
for such expenses as the court deems proper.
OKLAHOMA. The Oklahoma Bylaws provide that to the full extent not
prohibited by the law as in effect from time to time, the
corporation shall indemnify any person (and the heirs, executors
and representatives of such person) who is or was a director,
officer, employee or agent of the corporation, or who, at the
request of the corporation, is or was a director, officer,
employee, agent, partner, or trustee, as the case may be, of any
other corporation, partnership, proprietorship, trust,
association or other entity in which the corporation owns an
interest, against any and all liabilities and reasonable expenses
incurred by such person in connection with or resulting from any
claim, action, suit or proceeding, whether brought by or in the
right of the corporation or otherwise and whether civil,
criminal, administrative or investigative in nature, and in
connection with an appeal relating thereto, in which such person
is a party or is threatened to be made a party by reason of
serving or having served in any such capacity.
DISSENTERS' RIGHTS AS A RESULT OF THE REINCORPORATION MERGER
Shareholders have dissenters' rights in Oklahoma as a result of
the proposed Reincorporation. Shareholders who oppose the
Reincorporation will have the right to receive payment for the
value of their shares pursuant to Section 1091 of Title 18 of the
Oklahoma Statutes("O.S."). A copy of Section 1091 is attached
hereto as Appendix D to this Proxy Statement. The material
15
requirements for a shareholder to properly exercise his or her
rights are summarized below. However, these provisions are very
technical in nature, and the following summary is qualified in
its entirety by the actual statutory provisions that should be
carefully reviewed by any shareholder wishing to assert such
rights.
Under the Oklahoma Law, such dissenters' rights will be available
only to those shareholders of the Company who (i) object to the
proposed Reincorporation in writing prior to or at the Annual
Meeting before the vote on the matter is taken (a negative vote
will not itself constitute such a written objection); and (ii) do
not vote any of their shares in favor of the proposed
Reincorporation at the Annual Meeting.
Within ten days after the effective date of the Reincorporation,
Hydro-Nevada will send to each shareholder who has satisfied both
of the foregoing conditions a written notice in which Hydro-
Nevada will notify such shareholders of their right to demand
payment for their shares and will supply a form for dissenting
shareholders to demand payment. Shareholders will have 30 days to
make their payment demands or lose such rights. If required in
the notice sent by Hydro-Nevada, each dissenting shareholder must
also certify whether or not he or she acquired beneficial
ownership of such shares before or after the date of the first
announcement to the news media of the proposed transaction.
Upon receipt of each demand for payment, Hydro-Nevada will pay
each dissenting shareholder the amount that Hydro-Nevada
estimates to be the fair value of such shareholder's shares, plus
interest from the date of the completion of the Reincorporation
to the date of payment. With respect to any dissenting
shareholder who does not certify that he or she acquired
beneficial ownership of the shares prior to the first public
announcement of the transaction, Hydro-Nevada may, instead of
making payment, offer such payment if the dissenter agrees to
accept it in full satisfaction of his or her demand. "Fair value"
with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the
Reincorporation, excluding any appreciation or depreciation in
anticipation of such events. Any dissenter who does not wish to
accept the payment or offer made by Hydro-Nevada must notify
Hydro-Nevada in writing of his or her own estimate of the fair
value of the shares within 30 days after the date Hydro-Nevada
makes or offers payment. If the dissenting shareholder and Hydro-
Nevada are unable to agree on the fair value of the shares, then
Hydro-Nevada will commence a proceeding with the Oklahoma courts
within 60 days after receiving the dissenter's notice of his or
her own estimate of fair value. If Hydro-Nevada does not commence
such a proceeding within the 60-day period, it must pay each
dissenter whose demand remains unresolved the amount demanded by
such dissenter. If a proceeding is commenced, the court will
determine the fair value of the shares and may appoint one or
more appraisers to help determine such value.
All dissenting shareholders must be a party to the proceeding,
and all such shareholders will be entitled to judgment against
Hydro-Nevada for the amount of the fair value of their shares, to
be paid on surrender of the certificates representing such
shares. The judgment will include an allowance for interest (at a
rate determined by the court) to the date of payment. The costs
of the court proceeding, including the fees and expenses of any
appraisers, will be assessed against Hydro-Nevada unless the
court finds that the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment at a higher amount than
that offered by Hydro-Nevada. Both Hydro-Nevada and the
dissenters must bear their own respective legal fees and
expenses, unless the court requires one party to pay such legal
fees and expenses because of the conduct of such party. The loss
or forfeiture of appraisal rights simply means the loss of the
right to receive a cash payment from Hydro-Nevada
16
in exchange for shares. In such event the shareholder would still
hold the appropriate number of shares of Hydro-Nevada.
VOTE REQUIRED
Under Oklahoma law, the affirmative vote of a majority of all the
votes entitled to be cast is needed to approve the proposed
Reincorporation. As a result, abstentions and broker non-votes
will have the same effect as negative votes. Although the Board
has recommended that the foregoing proposal be adopted,
shareholders should be aware that the continuing Directors may
have a personal interest in the Reincorporation because it
broadens the scope of indemnification available to Directors. The
broader scope of indemnification available under Nevada law could
result in increased costs and expenses to the Company to the
potential indirect detriment of the shareholders.
AMENDMENT TO THE MERGER AGREEMENT; TERMINATION
The Merger Agreement may be terminated and the Reincorporation
abandoned, notwithstanding shareholder approval, by the Board of
Directors of the Company at any time before consummation of the
Reincorporation if (i) shareholders holding more than five
percent (5%) of the issued and outstanding shares of the
Company's Common Stock dissent and seek appraisal rights; or (ii)
the Board of Directors of the Company determines that in its
judgment the Reincorporation does not appear to be in the best
interests of the Company or its shareholders. In the event the
Merger Agreement is terminated or the shareholders fail to
approve the Reincorporation, the Company would remain as an
Oklahoma corporation.
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE
TRANSACTIONS CONTEMPLATED BY THE PROPOSED REINCORPORATION MERGER
ARE DESIRABLE AND IN THE BEST INTERESTS OF THE COMPANY'S
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE IN FAVOR OF PROPOSAL 2.
PROPOSAL 3
APPROVAL OF THE STOCK PURCHASE AGREEMENT
WITH POWERTEK HOLDINGS LTD.
Summary of the Agreement
PowerTek Holdings, Ltd., a Swiss holding company, desires to
acquire from the Company (a) the number of shares of the
Company's common stock such that after the acquisition of said
shares, PowerTek shall have acquired 50% of the outstanding
common stock of the Company, on a fully diluted basis (the
"Shares"); and (b) an option to purchase from the Company up to
the number of shares of the Company's outstanding common stock
such that after PowerTek's full exercise of the option, PowerTek
shall have acquired an additional 20% of the outstanding common
stock of the Company, on a fully diluted basis (the "Option
Shares"). A copy of the Stock Purchase Agreement is attached
hereto as Appendix E.
Purchase Price
The purchase price for the Shares shall be $500,000. As
additional consideration to the Company, during the two years
following the Closing, PowerTek (or an affiliate) agrees to
expend no less than
17
$2,000,000 on research and development in the field of hydrogen
powered fuel cell technology, which research and development and
related technology shall be licensed to the Company on a non-exclusive,
royalty free basis for a period of 7 years after the date of the
commencement of said research and development subject to certain terms
and conditions set forth in the Agreement.
Closing
Closing shall be on August 15, 2001, or at such other date
mutually acceptable to the parties.
Additional Agreements
1. Loans to the Company. Provided that the Company is not in
default under the Agreement, prior to Closing, PowerTek agrees to
advance to the Company up to $200,000, which shall be treated as loans
from PowerTek to the Company, bearing interest at the rate of 10%
per annum. Upon Closing, the amounts owing under the loans shall
be credited against the $2,000,000 research and development
expenditure obligation. If Closing does not occur for any reason,
PowerTek shall have the option to either demand immediate payment
in full of the loans or convert the amount of the loans to
Hydro's common stock at 75% of the average of the quoted market
price of the stock at the close of the 30 business days
immediately preceding the demand conversion date. The Company
agrees to deliver to PowerTek convertible promissory notes to
memorialize such loans. The Company's delivery to PowerTek of
appropriate convertible notes is a condition to PowerTek's
obligations to make any said loans.
2. Stock Warrants. At Closing, the Company shall issue to
PowerTek a warrant to purchase the Option Shares at a purchase
price equal to 75% of the average of the quoted market price of
the stock at the close of the 30 business days immediately
preceding the Warrant exercise date.
3. Board Appointments. At Closing, the Company agrees to cause
certain shareholders to execute and deliver to PowerTek a Voting
Agreement pursuant to which said shareholders shall agree to vote
their common shares in the Company in a manner that ensures that
PowerTek may nominate, elect and maintain a majority of the board
of directors of the Company.
4. Relocation of the Company's Office. The Company agrees to
relocate its principal place of business and head office to
Sacramento, California upon 30 days' written notice at any time
following the Closing.
5. Registration Rights. The Company agrees to execute and
deliver to PowerTek a Registration Rights Agreement providing for
the registration of PowerTek's common shares to be acquired under
the Agreement.
18
6. No Further Interest in Company Going Concern. If, after
Closing, PowerTek notifies the Company that it is not in favor of
the Company continuing to develop or exploit the technology of
the Company, then PowerTek agrees to cause at least one of its
designated board members to resign from the Company's board and
thereafter PowerTek agrees to vote for the director that the
Company may nominate as the replacement director and any
successor thereof.
Change of Control
Upon Closing, Jack H. Wynn, Julio P. Focaracci and Lane J.
Austin, three of the Company's five directors, will resign their
positions as officers and directors of the Company, and the three
board vacancies will be filled by PowerTek nominees.
Termination
The Agreement may be terminated at any time prior to or on the
Closing Date by the Company or by PowerTek upon written notice to
the other party. The Company grants to PowerTek the right, upon
24-hours' written notice delivered to the Company at any time
until 72 hours after termination of the Agreement prior to
Closing, to purchase and acquire from the Company the number of
shares of the Company's outstanding common stock such that after
PowerTek's full exercise of said option, PowerTek shall have
acquired 19.9% of the outstanding common stock of the Company, on
a fully diluted basis, against delivery to the Company of an
amount equal to 75% of the average of the quoted market price of
the stock at the close of the 30 business days immediately
preceding the exercise date, times the number of such shares of
stock with respect to which such option is being exercised. Upon
termination of the Agreement, no party shall have any liability
to the other except for the Company's obligations to repay the
loans previously made to the Company by PowerTek, and to deliver
the stock issuable upon exercise of the option granted to
PowerTek upon termination.
Vote Required
The affirmative vote of the holders of a majority of the shares
casting their votes at the Annual Meeting will be required to
approve the adoption of the Plan. Abstentions and broker non-
votes will be have the same effect as a vote against this
Proposal 5.
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE
TRANSACTIONS CONTEMPLATED BY THE STOCK PURCHASE AGREEMENT WITH
POWERTEK ARE DESIRABLE AND IN THE BEST INTERESTS OF THE COMPANY'S
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE IN FAVOR OF PROPOSAL 3.
PROPOSAL 4
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Cordovano and Harvey, P.C. as
the Company's independent public accountants for the fiscal year
ending December 31, 2001. Cordovano and Harvey, P.C. has audited
the Company's financial statements since fiscal 2000. A
representative of Cordovano and Harvey, P.C. is not expected to
be present at the Annual Meeting.
19
Shareholder ratification of the selection of Cordovano and
Harvey, P.C. as the Company's independent public accountants is
not required by the Company's By-Laws or other applicable legal
requirement. However, the Board is submitting the selection of
Cordovano and Harvey, P.C. to the shareholders for ratification
as a matter of good corporate practice. If the shareholders fail
to ratify the selection, the Board will reconsider whether or not
to retain that firm. Even if the selection is ratified, the Board
at its discretion may direct the appointment of a different
independent accounting firm at any time during the year if it
determines that such a change would be in the best interests of
the Company and its shareholders.
Audit Fees
During the fiscal year ended December 31, 2000, the aggregate
fees billed by Cordovano and Harvey, P.C. for the audit of the
Company's financial statements for such fiscal year and for the
reviews of the Company's interim financial statements were
$3,912.50.
Financial Information Systems Design and Implementation Fees
During the fiscal year ended December 31, 2000, the Company was
not billed by Cordovano and Harvey, P.C. for any fees relating to
information technology consulting fees.
All Other Fees
During the fiscal year ended December 31, 2000, there were no
fees billed by Cordovano and Harvey, P.C. for professional
services other than audit fees.
Vote Required
The affirmative vote of the holders of a majority of the shares
represented and entitled to vote at the meeting will be required
to ratify the selection of Cordovano and Harvey, P.C. as the
Company's independent public accountants for the fiscal year
ending December 31, 2001. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the
shareholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has
been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF
THE RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
STOCKHOLDER PROPOSALS
The next annual meeting of the Company is scheduled for July 19,
2002. The deadline for submitting a stockholder proposal for
inclusion in the Company's proxy statement and form of proxy for
the Company's 2002 Annual Meeting of stockholders pursuant to
Rule 14a-8 of the Securities and Exchange Commission is February
19, 2002. If the date of the annual meeting is advanced by more
than 30 calendar days or delayed by more than 90 calendar days
from the above meeting date, the Company shall, in a timely
manner, inform all shareholders of the changed meeting date and
of the date by which such proposals must be received.
20
OTHER MATTERS
The Board of Directors knows of no other business to come before
the meeting. If, however, other matters properly come before the
meeting, it is the intention of the persons named in the enclosed
proxy to vote the shares represented thereby in accordance with
their best judgment.
ANNUAL REPORT
Included with this proxy statement is a copy of the Company's
annual report for the year ended December 31, 2000. This annual
report is taken from the Company's Form 10-KSB, filed with the
United States Securities and Exchange Commission on April 17,
2001, with certain exhibits excluded. The entire filings, with
all exhibits attached, are available online at the SEC's website,
www.sec.gov, or at FreeEdgar, www.FreeEdgar.com. (Note that some
of those exhibits are not attached to the Form 10-KSB but are
included in other Forms filed with the SEC; those Forms are
referenced from the Form 10-KSB, and are also available online at
the addresses mentioned above.) The exhibits listed in the table
below are not included with this proxy statement. Any shareholder
who wishes to receive a copy of any of these exhibits may view
them online at the addresses mentioned above, or may receive a
copy from the Company by written request sent to the Company at
the address shown on the cover page of this proxy statement,
together with a check in the amount of $20 for each exhibit
requested, which covers the cost of copying, handling, and
mailing the exhibits. CERTAIN OTHER INFORMATION IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST. PLEASE CONTACT HYDRO
ENVIRONMENTAL RESOURCES, INC., TELEPHONE (702) 597-9070, IF YOU
WOULD LIKE TO REQUEST A COPY OF THE COMPANY'S QUARTERLY REPORT ON
FORM 10-QSB FOR THE PERIOD ENDED MARCH 31, 2001, OR ADDITIONAL
REPORTS.
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation (incorporated by
reference to Exhibit 2.1 to the Registration
Statement on Form 10-SB filed with the Commission
on March 22, 2000).
3.2 By-laws (incorporated by reference to Exhibit 2.2
to the Registration Statement on Form 10-SB filed
with the Commission on March 22, 2000).
4.1 Form of Common Stock Certificate (incorporated by
reference to Exhibit 3.1 to the Registration
Statement on Form 10-SB filed with the Commission
on March 22, 2000).
10.1 Assignment of Patent and Intellectual Property
Rights related to the ElectroChem Hydrogen Fuel
Reactor (incorporated by reference to Exhibit 6.1
the Registration Statement on Form 10-SB filed
with the Commission on March 22, 2000).
BY ORDER OF THE BOARD OF DIRECTORS
By: /s/ Jack H. Wynn
Jack H. Wynn, President
21
APPENDIX A
FORM OF PLAN OF MERGER
This Plan of Merger was authorized by the Board of Directors of
Hydro Environmental Resources, Inc., an Oklahoma corporation, at
a special meeting held at ______ p.m. on ___________, 2001, and
by the Board of Directors of Hydro Environmental Resources, Inc.,
a Nevada corporation at a special meeting held at _______ p.m. on
the same day. The Plan of Merger is adopted in order to re-
domicile the Company from Oklahoma to Nevada.
1. The constituent entities are:
a) Hydro Environmental Resources, Inc., an Oklahoma
corporation, ("Hydro-OK") with business address of 5725 S. Valley
View Blvd., Suite 3, Las Vegas, NV 89118. This shall be the
merging company of the merger; and
b) Hydro Environmental Resources, Inc., a Nevada corporation,
("Hydro-NV") with business address of 5725 S. Valley View Blvd.,
Suite 3, Las Vegas, NV 89118. This shall be the surviving company
of the merger.
2. There are a total of 34,645,078 shares of common stock
outstanding in Hydro-OK, each of which is entitled to one vote.
There are no shares of preferred stock outstanding in Hydro-OK.
No common stock or preferred stock of Hydro-NV has been issued.
3. There is a total of 50,000,000 shares of Hydro-OK common
stock authorized, $0.001 par value per share and 5,000,000 shares
of preferred stock authorized, $0.001 par value per share.
Immediately prior to the merger, there shall be a total of
50,000,000 shares of Hydro-NV common stock authorized, $0.001 par
value per share and 5,000,000 shares of preferred stock
authorized, $0.001 par value per share.
4. Upon completion of the merger, each five (5) shares of Hydro-OK
common stock will be exchanged for one (1) share of Hydro-NV
common stock and one (1) share of Hydro-NV Series A Preferred
Stock. There will, upon completion of the merger, be 6,929,016
shares of Hydro-NV voting common stock outstanding, each with the
same rights and privileges as the shares of Hydro-OK had prior to
the merger.
5. Upon completion of the merger, Hydro-OK shall promptly pay
to dissenting Hydro-OK shareholders, if any, the amounts to which
they are entitled under provisions of Oklahoma Business
Corporation Law, and will make an irrevocable appointment of the
Oklahoma Secretary of State as Hydro-NV's agent for acceptance of
service in the State of Oklahoma.
6. After the completion of the merger, the corporate existence
of Hydro-OK shall cease.
7. Upon approval of the merger by the shareholders of Hydro-OK,
the Articles of Merger shall be prepared and filed in the
appropriate offices in Oklahoma and Nevada.
8. This Plan of Merger may be executed in two or more
counterparts, and by fax. Each counterpart shall be deemed an
original, and all counterparts collectively shall constitute one
and the same document.
A-1
9. This Plan of Merger shall be governed by and construed in
accordance with the laws of the State of Nevada, regardless of
the laws that would otherwise govern under the Nevada conflicts
of law statutes.
10. This Plan of Merger constitutes the entire agreement between
the parties.
This Plan of Merger is approved and adopted by the Boards of
Directors of the two companies, as testified by the signatures of
the directors below.
Hydro Environmental Resources, Hydro Environmental Resources,
Inc. - Oklahoma Inc. - Nevada
By By
------------------------------ -------------------------------
Jack Wynn, Director Jack Wynn, Director
By By
------------------------------ -------------------------------
Julio P. Focaracci, Director Julio P. Focaracci, Director
By By
------------------------------ -------------------------------
Drew Sakson, Director Drew Sakson, Director
By By
------------------------------ -------------------------------
Lane J. Austin, Director Lane J. Austin, Director
By By
------------------------------ -------------------------------
David A. Youngblood, Director David A. Youngblood, Director
A-2
APPENDIX B
FORM OF ARTICLES OF MERGER OF
HYDRO ENVIRONMENTAL RESOURCES, INC. (OKLAHOMA)
AND
HYDRO ENVIRONMENTAL RESOURCES, INC. (NEVADA)
We, Jack H. Wynn and Julio P. Focaracci, President and Secretary,
respectively, of Hydro Environmental Resources, Inc. (Oklahoma)
and Hydro Environmental Resources, Inc. (Nevada), hereby certify:
1. A Plan of Merger was adopted by the Boards of Directors of
both of the constituent corporations in meetings held on
______________, 2001. A copy of this executed Plan of Merger, is
on file at the firm's resident office in Nevada.
2. The constituent entities are Hydro Environmental Resources,
Inc. (Oklahoma), an Oklahoma Corporation and Hydro Environmental
Resources, Inc. (Nevada), a Nevada Corporation. Hydro
Environmental Resources, Inc. (Nevada) shall be the surviving
company, with Hydro Environmental Resources, Inc. (Oklahoma)
being the acquired company.
3. Each five (5) shares of Hydro Environmental Resources, Inc.
(Oklahoma) common stock will be exchanged for one (1) share of
common stock and on share of Series A Preferred Stock of Hydro
Environmental Resources, Inc. (Nevada). There will, upon
completion of the merger, be 6,929,016 shares of Hydro
Environmental Resources, Inc. (Nevada) voting common stock
outstanding.
4. Prior to the merger, no shares of common stock of Hydro
Environmental Resources, Inc. (Nevada) had been issued.
5. The Plan of Merger was submitted to the shareholders of
Hydro Environmental Resources, Inc. (Oklahoma) by its Board of
Directors. There were a total of ________ shares of common stock
eligible to be voted, all of which were present when the vote was
taken. The Plan of Merger was approved by ____% of the vote of
the shareholders on _____________, 2001.
6. Hydro Environmental Resources, Inc. (Nevada), the acquiring
company, shall be the surviving entity.
7. No amendment to the Articles of Incorporation of Hydro
Environmental Resources, Inc. are required as a result of this
merger.
B-1
For Hydro Environmental Resources, Inc. (Nevada)
------------------------------------------------
- ------------------------------ ----------------------------------
Jack H. Wynn, President Julio P. Focaracci, Secretary
State of Nevada )
) ss.
County of Clark )
On , 2001, personally appeared before me, a Notary public,
Jack H. Wynn and Julio P. Focaracci, who acknowledged that they are
the President and Secretary, respectively, of Hydro Environmental
Resources, Inc., a Nevada corporation, and that they executed the
above instrument in those capacities.
- ------------------------------------------------
A Notary Public in and for said County and State
For Hydro Environmental Resources, Inc. (Oklahoma)
--------------------------------------------------
- ------------------------------ ----------------------------------
Jack H. Wynn, President Julio P. Focaracci, Secretary
State of Nevada )
) ss.
County of Clark )
On , 2001, personally appeared before me, a Notary public,
Jack H. Wynn and Julio P. Focaracci, who acknowledged that they are
the President and Secretary, respectively, of Hydro Environmental
Resources, Inc., an Oklahoma corporation, and that they executed the
above instrument in those capacities.
- ------------------------------------------------
A Notary Public in and for said County and State
B-2
APPENDIX C
FORM OF CHARTER OF NEVADA SUBSIDIARY
Articles of Incorporation
of
Hydro Environmental Resources, Inc.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, for the purpose of association to
establish a corporation for the transaction of business and the
promotion and conduct of the objects and purposes hereinafter
stated, under the provisions of and subject to the requirements
of the laws of the State of Nevada, do make, record and file
these Articles of Incorporation in writing.
AND WE DO HEREBY CERTIFY:
Article One: The name of this Corporation is:
Hydro Environmental Resources, Inc.
Article Two: The principal office in the State of Nevada is to
be located at:
5725 S. Valley View Blvd., Suite 3
Las Vegas, NV 89118
The Resident agent for this Corporation shall be:
Chapman & Flanagan, Ltd.
777 N. Rainbow Blvd., Suite 390
Las Vegas, NV 89107
This Corporation may also maintain an office or offices at
such other places within or outside the State of Nevada, as it
may from time to time determine. Corporate business of every
kind and nature may be conducted, and meetings of directors
and stockholders held outside the State of Nevada, the same as
in the State of Nevada.
Article Three: This Corporation may engage in any lawful activity.
C-1
Article Four: This Corporation is authorized to issue two
classes of capital stock, referred to as Common Stock and
Preferred Stock, each with par value of $0.001 per share. This
Corporation shall be authorized to issue a maximum of 50,000,000
(fifty million) shares of Common Stock, and a maximum of
5,000,000 (five million) shares of Preferred Stock.
Each share of Common Stock Such stock may be issued by this
Corporation from time to time by the Board of Directors
thereof. The shares of stock shall be designated "Common
Stock" and the holders thereof shall be entitled to one (1)
vote for each share held by them.
The Board of Directors is hereby authorized to provide for the
issuance of the Preferred Stock in one or more series, and may
determine and state the designations, preferences,
limitations, terms, and rights associated with each series of
Preferred Stock, without additional shareholder approval.
Article Five: No Director or Officer of this Corporation shall
be liable to this Corporation or its stockholders for any breach
of fiduciary duty as Officer or Director of this Corporation.
This provision shall not affect liability for acts or omissions
which involve intentional misconduct, fraud, a knowing violation
or law, or the payment of dividends in violation of NRS 78.300.
All expenses incurred by Officers or Directors in defending a
civil or criminal action, suit, or proceeding, must be paid by
this Corporation as they are incurred in advance of a final
disposition of the action, suit or proceeding, upon receipt of
an undertaking by or on behalf of a Director or Officer to
repay the amount if it is ultimately determined by a court of
competent jurisdiction, that he or she did not act in good
faith, and in the manner he or she reasonably believed to be
or not opposed to the best interests of this Corporation.
C-2
The members of the governing Board shall be styled Directors,
and the number of Directors shall not be less than one (1)
pursuant to the terms of NRS 78.115. The names and addresses
of the first Board of Directors, which shall consist of five
(5) members are:
Jack H. Wynn 5725 S. Valley View Blvd., Suite 3
Las Vegas, NV 89118
Julio P. Focaracci 5725 S. Valley View Blvd., Suite 3
Las Vegas, NV 89118
Drew Sakson 5725 S. Valley View Blvd., Suite 3
Las Vegas, NV 89118
Lane J. Austin 5725 S. Valley View Blvd., Suite 3
Las Vegas, NV 89118
David A. Youngblood 5725 S. Valley View Blvd., Suite 3
Las Vegas, NV 89118
The number of Directors of this Corporation may from time to
time be increased or decreased as set forth hereinabove by an
amendment to the By-Laws in that regard, and without the
necessity of amending these Articles of Incorporation.
The name and address of the incorporator is:
Daniel G. Chapman 777 N. Rainbow Blvd., Suite 390
Las Vegas, NV 89107
Article Six: The capital stock of this Corporation, after the
amount of the subscription price has been paid in cash or in
kind, shall be and remain non-assessable and shall not be subject
to assessment to pay debts of this Corporation.
Article Seven: This Corporation shall have perpetual
existence.
Article Eight: No holder of any shares of this Corporation
shall have any preemptive right to purchase, subscribe for, or
otherwise acquire any shares of this Corporation of any class now
or hereafter authorized, or any securities exchangeable for or
C-3
convertible into such shares, or warrants or other instruments
evidencing rights or options to subscribe for, purchase or
otherwise acquire such shares.
Article Nine: This Corporation shall not be governed by the
provisions of NRS 78.411 to 78.444, inclusive.
Executed this ______ day of ____________, 2001.
--------------------------------------
Daniel G. Chapman, Incorporator
C-4
CERTIFICATE OF ACCEPTANCE OF
APPOINTMENT AS RESIDENT AGENT
In the matter of Hydro Environmental Resources, Inc., I
hereby certify that on the ____ day of ____________, 2001, I
accepted the appointment as Resident Agent of the above-entitled
corporation in accordance with NRS 78.090.
IN WITNESS WHEREOF, I have hereunto set my hand this ____ day
of ____________, 2001.
-----------------------------------
Chapman & Flanagan, Ltd.
by Daniel G. Chapman, its Secretary
C-5
APPENDIX D
APPRAISAL RIGHTS
Oklahoma Revised Statutes
18-1091.
A. Any shareholder of a corporation of this state who holds
shares of stock on the date of the making of a demand pursuant to
the provisions of subsection D of this section with respect to
the shares, who continuously holds the shares through the
effective date of the merger or consolidation, who has otherwise
complied with the provisions of subsection D of this section and
who has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to the provisions of
Section 1073 of this title shall be entitled to an appraisal by
the district court of the fair value of the shares of stock under
the circumstances described in subsections B and C of this
section. As used in this section, the word "shareholder" means a
holder of record of stock in a stock corporation and also a
member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a
nonstock corporation; and "depository receipt" means an
instrument issued by a depository representing an interest in one
or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository. The
provisions of this subsection shall be effective only with
respect to mergers or consolidations consummated pursuant to an
agreement of merger or consolidation entered into after November
1, 1988.
B.1. Except as otherwise provided for in this subsection,
appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or
consolidation, or of the acquired corporation in a share
acquisition, to be effected pursuant to the provisions of Section
1081, other than a merger effected pursuant to subsection G of
Section 1081, and Sections 1082, 1086, 1087, 1090.1 or 1090.2 of
this title.
2. a. No appraisal rights under this section shall be
available for the shares of any class or series of stock which
stock, or depository receipts in respect thereof, at the record
date fixed to determine the shareholders entitled to receive
notice of and to vote at the meeting of shareholders to act upon
the agreement of merger or consolidation, were either:
(1) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.;
or
(2) held of record by more than two thousand holders.
No appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the shareholders of the
surviving corporation as provided in subsection G of Section 1081
of this title.
b. In addition, no appraisal rights shall be available for any
shares of stock, or depository receipts in respect thereof, of
D-1
the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the shareholders of the
surviving corporation as provided for in subsection F of Section
1081 of this title.
3. Notwithstanding the provisions of paragraph 2 of this
subsection, appraisal rights provided for in this section shall
be available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
the provisions of Sections 1081, 1082, 1086, 1087, 1090.1 or
1090.2 of this title to accept for the stock anything except:
a. shares of stock of the corporation surviving or resulting
from the merger or consolidation or depository receipts thereof,
or
b. shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation
will be either listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than two thousand
holders, or
c. cash in lieu of fractional shares or fractional depository
receipts described in subparagraphs a and b of this paragraph, or
d. any combination of the shares of stock, depository receipts,
and cash in lieu of the fractional shares or depository receipts
described in subparagraphs a, b, and c of this paragraph.
4. In the event all of the stock of a subsidiary Oklahoma
corporation party to a merger effected pursuant to the provisions
of Section 1083 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Oklahoma
corporation.
C. Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as a
result of an amendment to its certificate of incorporation, any
merger or consolidation in which the corporation is a constituent
corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those
set forth in subsections D and E of this section, shall apply as
nearly as is practicable.
D. Appraisal rights shall be perfected as follows:
1. If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for
approval at a meeting of shareholders, the corporation, not less
than twenty (20) days prior to the meeting, shall notify each of
its shareholders entitled to appraisal rights that appraisal
rights are available for any or all of the shares of the
constituent corporations, and shall include in the notice a copy
of this section. Each shareholder electing to demand the
appraisal of the shares of the shareholder shall deliver to the
corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of the shares of
the shareholder. The demand will be sufficient if it reasonably
informs the corporation of the identity of the shareholder and
that the shareholder intends thereby to demand the appraisal of
the shares of the shareholder. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A
shareholder electing to take such action must do so by a separate
written demand as herein provided. Within five (5) days after the
D-2
effective date of the merger or consolidation, the surviving or
resulting corporation shall notify each shareholder of each
constituent corporation who has complied with the provisions of
this subsection and has not voted in favor of or consented to the
merger or consolidation as of the date that the merger or
consolidation has become effective; or
2. If the merger or consolidation is approved pursuant to the
provisions of Section 1073 or 1083 of this title, each
constituent corporation, either before the effective date of the
merger or consolidation or within five (5) days thereafter, shall
notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal
rights are available for any or all of the shares of the class or
series of stock of the constituent corporation, and shall include
in such notice a copy of this section; provided, if the notice is
given on or after the effective date of the merger or
consolidation, the notice shall be given by the surviving or
resulting corporation to all the holders of any class or series
of stock of a constituent corporation that are entitled to
appraisal rights. The notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify
the shareholders of the effective date of the merger or
consolidation. Any shareholder entitled to appraisal rights may,
within twenty (20) days after the date of mailing of the notice,
demand in writing from the surviving or resulting corporation the
appraisal of the holder's shares. The demand will be sufficient
if it reasonably informs the corporation of the identity of the
shareholder and that the shareholder intends to demand the
appraisal of the the holder's shares. If the notice does not
notify shareholders of the effective date of the merger or
consolidation either:
a. each constituent corporation shall send a second notice
before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of
the constituent corporation that are entitled to appraisal rights
of the effective date of the merger or consolidation, or
b. the surviving or resulting corporation shall send a second
notice to all holders on or within five (5) days after the
effective date of the merger or consolidation; provided, however,
that if the second notice is sent more than twenty (20) days
following the mailing of the first notice, the second notice need
only be sent to each shareholder who is entitled to appraisal
rights and who has demanded appraisal of the holder's shares in
accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation
that is required to give either notice that the notice has been
given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein. For purposes of determining the
shareholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not
more than five (5) days prior to the date the notice is given;
provided, if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be the
effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given.
E. Within one hundred twenty (120) days after the effective
date of the merger or consolidation, the surviving or resulting
corporation or any shareholder who has complied with the
provisions of subsections A and D of this section and who is
otherwise entitled to appraisal rights, may file a petition in
district court demanding a determination of the value of the
stock of all such shareholders; provided, however, at any time
within sixty (60) days after the effective date of the merger or
consolidation, any shareholder shall have the right to withdraw
the demand of the shareholder for appraisal and to accept the
terms offered upon the merger or consolidation. Within one
hundred twenty (120) days after the effective date of the merger
or consolidation, any shareholder who has complied with the
requirements of subsections A and D of this section, upon written
request, shall be entitled to receive from the corporation
D-3
surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number
of holders of the shares. The written statement shall be mailed
to the shareholder within five (5) days after the shareholder's
written request for a statement is received by the surviving or
resulting corporation or within five (5) days after expiration of
the period for delivery of demands for appraisal pursuant to the
provisions of subsection D of this section, whichever is later.
F. Upon the filing of any such petition by a shareholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which, within twenty (20) days after
service, shall file, in the office of the court clerk of the
district court in which the petition was filed, a duly verified
list containing the names and addresses of all shareholders who
have demanded payment for their shares and with whom agreements
regarding the value of their shares have not been reached by the
surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition
shall be accompanied by such duly verified list. The court clerk,
if so ordered by the court, shall give notice of the time and
place fixed for the hearing on the petition by registered or
certified mail to the surviving or resulting corporation and to
the shareholders shown on the list at the addresses therein
stated. Notice shall also be given by one or more publications at
least one (1) week before the day of the hearing, in a newspaper
of general circulation published in the City of Oklahoma City,
Oklahoma, or other publication as the court deems advisable. The
forms of the notices by mail and by publication shall be approved
by the court, and the costs thereof shall be borne by the
surviving or resulting corporation.
G. At the hearing on the petition, the court shall determine
the shareholders who have complied with the provisions of this
section and who have become entitled to appraisal rights. The
court may require the shareholders who have demanded an appraisal
of their shares and who hold stock represented by certificates to
submit their certificates of stock to the court clerk for
notation thereon of the pendency of the appraisal proceedings;
and if any shareholder fails to comply with this direction, the
court may dismiss the proceedings as to that shareholder.
H. After determining the shareholders entitled to an appraisal,
the court shall appraise the shares, determining their fair value
exclusive of any element of value arising from the accomplishment
or expectation of the merger or consolidation, together with a
fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. In determining the fair value,
the court shall take into account all relevant factors. In
determining the fair rate of interest, the court may consider all
relevant factors, including the rate of interest which the
surviving or resulting corporation would have to pay to borrow
money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any shareholder
entitled to participate in the appraisal proceeding, the court
may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to
the final determination of the shareholder entitled to an
appraisal. Any shareholder whose name appears on the list filed
by the surviving or resulting corporation pursuant to the
provisions of subsection F of this section and who has submitted
the certificates of stock of the shareholder to the court clerk,
if required, may participate fully in all proceedings until it is
finally determined that the shareholder is not entitled to
appraisal rights pursuant to the provisions of this section.
I. The court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or
resulting corporation to the shareholders entitled thereto.
Interest may be simple or compound, as the court may direct.
Payment shall be made to each shareholder, in the case of holders
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of uncertificated stock immediately, and in the case of holders
of shares represented by certificates upon the surrender to the
corporation of the certificates representing the stock. The
court's decree may be enforced as other decrees in the district
court may be enforced, whether the surviving or resulting
corporation be a corporation of this state or of any other state.
J. The costs of the proceeding may be determined by the court
and taxed upon the parties as the court deems equitable in the
circumstances. Upon application of a shareholder, the court may
order all or a portion of the expenses incurred by any
shareholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the
value of all of the shares entitled to an appraisal.
K. From and after the effective date of the merger or
consolidation, no shareholder who has demanded appraisal rights
as provided for in subsection D of this section shall be entitled
to vote the stock for any purpose or to receive payment of
dividends or other distributions on the stock, except dividends
or other distributions payable to shareholders of record at a
date which is prior to the effective date of the merger or
consolidation; provided, however, that if no petition for an
appraisal shall be filed within the time provided for in
subsection E of this section, or if the shareholder shall deliver
to the surviving or resulting corporation a written withdrawal of
the shareholder's demand for an appraisal and an acceptance of
the merger or consolidation, either within sixty (60) days after
the effective date of the merger or consolidation as provided for
in subsection E of this section or thereafter with the written
approval of the corporation, then the right of the shareholder to
an appraisal shall cease; provided further, no appraisal
proceeding in the district court shall be dismissed as to any
shareholder without the approval of the court, and approval may
be conditioned upon terms as the court deems just.
L. The shares of the surviving or resulting corporation into
which the shares of any objecting shareholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
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APPENDIX E
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of the 29th day of June, 2001, by and between
PowerTek Holdings LTD, a Swiss holding company (the "Purchaser")
and Hydro Environmental Resources, Inc., an Oklahoma corporation
(the "Company").
W I T N E S S E T H:
WHEREAS, the Purchaser desires to acquire from the Company:
(a) the number of shares of the Company's common stock such that
after and through the Purchaser's acquisition of said shares, the
Purchaser shall have acquired fifty percent (50%) of the
outstanding common stock of the Company, on a fully diluted basis
(the "Shares"); and (b) an option to purchase from the Company up
to the number of shares of the Company's outstanding common stock
such that after and through the Purchaser's full exercise of the
option, the Purchaser shall have acquired twenty percent (20%) of
the outstanding common stock of the Company, on a fully diluted
basis (the "Option Shares");
WHEREAS, the Purchaser additionally desires that certain
management and administrative changes be made in connection with
its acquisition of the Shares; and
WHEREAS, the Company desires to issue and grant to the
Purchaser the Shares and the option to purchase the Option Shares
and to arrange for said management and administrative changes;
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements herein contained, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows:
1. PURCHASE AND SALE.
1.1 Agreement to Purchase and Sell. At the Closing, the Company
agrees to sell, issue and convey to the Purchaser and the
Purchaser agrees to purchase and acquire from the Company the
Shares, which shall number in an amount equal to the total number
of the Company's shares of common stock then outstanding, on a
fully diluted basis, for the purchase price of FIVE HUNDRED
THOUSAND DOLLARS ($500,000) (the "Purchase Price"). The Shares
shall be issued to the Purchaser free and clear of any and all
mortgages, pledges, security interests, claims, liens, charges,
assessments or other encumbrances ("Liens").
1.2 Additional Consideration. As additional consideration to
the Company, within the two (2)-year period following the
Closing, the Purchaser (or an affiliate of the Purchaser) agrees
to expend no less than TWO MILLION DOLLARS ($2,000,000 on
research and development in the field of hydrogen powered fuel
cell technology, which research and development and related
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technology shall be licensed to the Company on a non-exclusive,
royalty free basis for a period of seven (7) years after date of
the commencement of said research and development, subject to
each of the following terms and conditions:
(a) The Purchaser shall designate the specific research and
development project or efforts that will be subject to this
arrangement and shall keep and maintain appropriate records to
document the related expenditures and resulting technology to be
licensed to the Company;
(b) Subject to the Company's licensed rights, the Purchaser
shall be the exclusive owner of all the intellectual property
rights in and to said research and development and related
technology and any derivatives thereof whether created by the
Purchaser or the Company or both of them. The license
arrangement shall be on such additional terms and conditions as
are usual and customary terms and conditions of technology
licenses of similar subject matter, as the Purchaser and the
Company mutually agree (and if they cannot agree, either party
may invoke binding arbitration under the rules of the American
Arbitration Association for determination of such terms by
arbitration with a single arbitrator);
(c) If the Company is in material default or breach of any
agreement to which the Purchaser and the Company are parties or
any representation or warranty made by the Company, which default
or breach the Company fails to cure within thirty (30) days after
being notified of same, then the Purchaser's obligations to make
expenditures under this Section 1.2 shall cease and be of no
further force or effect and any licensed rights shall
automatically terminate;
(d) If the Company dissolves, ceases to operate business as a
going concern, sells all or substantially all of its assets or
becomes Bankrupt (defined below), then the Purchaser's
obligations to make expenditures under this Section 1.2 shall
cease and be of no further force or effect and any licensed
rights shall automatically terminate; "Bankrupt" means any of
the following: (i) the filing of a voluntary petition under any
federal or state law for the relief of debtors including the
filing of a voluntary petition under any Chapter of Title 11 of
the United States Code; (ii) the filing of an involuntary
proceeding under any such law; (iii) the making of a general
assignment for the benefit of the assignor's creditors; (iv) the
appointment of a receiver or trustee of a substantial portion of
the Company's assets; or (v) the seizure by a sheriff, receiver
or trustee of a substantial portion of the Company's assets;
provided that Company shall not become Bankrupt in the case of an
event described in clause (ii), (iv) or (v) above, until the
proceeding, appointment or seizure has been pending or has been
in force for at least thirty (30) days; and
(e) Any amounts that the Purchaser makes as contributions to the
capital of the Company without having received in exchange any
additional equity or debt instruments from the Company (e.g.,
monthly operating capital and payment of outstanding debt) shall
be counted as expenditures against said $2,000,000 amount;
however, the Purchaser is under no obligation to make any such
contributions (but the Purchaser is under an obligation to make
or cause to be made said $2,000,000 expenditure, subject to the
credits described herein).
1.3 Closing. The closing of the transactions contemplated in
this Agreement (the "Closing") shall be held at the offices of
Chapman & Flanagan, Ltd., 777 N. Rainbow Blvd., Suite 390, Las
Vegas, NV, on August 15, 2001 at 10:00 a.m. or at such other
date, time or place as shall be mutually acceptable to the
parties (the "Closing Date"). However, if the SEC comments on
the proxy materials, then the parties agree to extend the Closing
Date by a period of time reasonably necessary for the Company to
respond to the SEC comments, not to exceed thirty (30) days. At
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the Closing, the Company shall deliver to the Escrow Agent a duly
executed stock certificate representing the Shares, or a letter
of transmittal to the transfer agent for execution of a stock
certificate representing the Shares, together with all such other
agreements, documents and instruments required of or by the
Company hereunder, and upon such delivery by the Company, the
Purchaser shall wire to the Escrow Agent the Purchase Price. All
deliveries, payments and other transactions and documents of the
parties relating to the Closing shall be interdependent and none
shall be effective unless and until all are effective (except for
any of the same as to which the party entitled to the benefit
thereof has waived satisfaction or performance thereof as a
condition precedent to Closing). An independent escrow company,
mutually agreeable to the parties, shall serve as Escrow Agent
for purposes of this Agreement. Upon receipt of all items
discussed herein, the Escrow Agent shall be instructed to release
the stock certificate, other documents and the funds accordingly.
1.4 Certain Post-Closing Assistance. From time to time and at
any time, at the Purchaser's request, whether on or after the
Closing Date, and without further consideration, the Company
shall, at its sole expense, execute and deliver such further
documents and instruments and shall take such further reasonable
actions as may be necessary or convenient to carry out the
intents and purposes of this Agreement, including but not limited
to vesting title in the Shares in the Purchaser free and clear of
all Liens.
1.5 Shareholders' Meeting. Prior to the Closing Date, the
Company will call a special meeting of its shareholders and will
send its shareholders a copy of the executed Agreement together
with proxy materials.
2. ADDITIONAL AGREEMENTS.
2.1 Purchaser's Loans. Prior to the Closing, provided that the
Company is not in default under this Agreement, the Purchaser
agrees to advance the below-specified amounts to the Company as
of the below-specified dates, which amounts shall be treated as
loans from the Purchaser to the Company, bearing interest at the
rate of ten percent (10%) per annum (the "Loans"). Upon Closing,
the amounts owing under the Loans shall be credited against the
Purchaser's $2,000,000 research and development expenditure
obligation described in Section 1.2. If the Closing does not
occur for any reason, the Purchaser shall have the option to
either demand immediate payment in full of the Loans (which Loans
the Company hereby agrees to pay) or convert the amount of the
Loans to common stock in the Company at seventy-five percent
(75%) of the average of the quoted market price of the stock at
the close of the thirty (30) business days immediately preceding
the conversion demand date, which demand may be made at anytime
up to one year after the Closing Date, (which stock the Company
hereby agrees to issue to the Purchaser upon the Purchaser's
election to convert). Within ten (10) days after the date of
this Agreement, the Company agrees to prepare, issue, execute and
deliver to the Purchaser promissory notes (which shall include
stock conversion agreements) (the "Convertible Notes") to
memorialize such Loans as were made on or prior to the date
hereof, in form and content reasonably acceptable to the
Purchaser's legal counsel; however, the failure of the Company to
do so shall not invalidate or otherwise diminish the Purchaser's
rights or the Company's obligation regarding repayment or
conversion of such Loans. The Company's delivery to the
Purchaser of appropriate Convertible Notes shall be a condition
to the Purchaser's obligations to make any said Loans scheduled
for delivery by the Purchaser after the date hereof.
E-3
Loan Amount Loan Date
- ----------- ---------
$50,000 April 30, 2001 (hereby
acknowledged by Company as
received)
$25,000 May 15, 2001 (hereby
acknowledged by Company as
received)
$25,000 May 30, 2001 (hereby
acknowledged by the Company as
received)
$65,000 June 29, 2001 (hereby
acknowledged by the Company as
received)
up to $35,000, based After June 30, 2001, and before
on the Company's need August 15, 2001, provided that
for operating capital the Company has provided
prior to the Closing. documentation satisfactory to
the Purchaser evidencing the
Company's operating capital
needs and further provided that
the Company is not in default
under this Agreement.
2.2 Stock Warrants. To induce the Purchaser to enter into this
Agreement and purchase the Shares as provided herein, and in
partial consideration thereof, at the Closing, the Company agrees
to issue, execute and deliver to the Purchaser a warrant,
pursuant to which the Purchaser is entitled to purchase the
Option Shares on or before August 15, 2002, at a purchase price
equal to seventy-five percent (75%) of the average of the quoted
market price of the stock at the close of the thirty (30)
business days immediately preceding the Warrant exercise date
(the "Warrant"). The Warrant shall be in a form and content
reasonably acceptable to the Purchaser's legal counsel and shall
be attached to this Agreement as an exhibit prior to Closing.
The Warrant shall provide that the Purchaser may pay the purchase
price under the Warrant either in cash or, if allowed by
applicable securities laws and subject to prior compliance with
applicable securities laws, common stock of the Purchaser, at the
Purchaser's election. The value of the Purchaser's common stock
shall be as follows: a) if the stock is traded on a national
exchange, then the value shall be the average of the quoted
market price of the stock at the close of the five (5) business
days immediately preceding the Warrant exercise date; or b) if
the stock is not traded on a national exchange, then the value
shall be the fair value as determined by the mutual agreement of
the Company and the Purchaser. If the parties are unable to
agree upon the fair value within fifteen (15) days, then either
party may give the other formal notice of its determination of
the fair value. Upon receipt of the notice, the other party
shall within five (5) days respond with formal notice of its own
determination of the fair value. The parties shall then proceed
to select an appraiser, who shall determine the fair value of the
Purchaser's common stock. If the parties are unable to agree
upon an appraiser, the parties agree that the American
Arbitration Association shall be employed to choose an appraiser,
and such person shall determine the fair value of the Purchaser's
common stock for purposes of this section. Each party shall
advance one-half (1/2) of any appraisal fees or American
Arbitration fees that are due in advance (which may be subject to
reimbursement, as provided below). If the foregoing appraisal
process is utilized, the party whose determination of fair value
(as set forth in the formal notice) less closely approximated the
fair value determined pursuant to the appraisal process, measured
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by dollar amounts and not by percentages, shall pay (and
reimburse the other party for advances of) all reasonable costs
of the appraisal process.
2.3 Shareholders' Voting Agreement; Board Appointments. To
induce the Purchaser to enter into this Agreement and purchase
the Shares as provided herein, and in partial consideration
thereof, at the Closing, the Company agrees to cause the
shareholders of the Company named on Schedule 2.3 of the
Disclosure Memorandum to execute and deliver to the Purchaser a
shareholders' voting agreement (the "Voting Agreement"), pursuant
to which said shareholders shall agree to vote their common
shares in the Company in a manner that ensures that the Purchaser
may nominate, elect and maintain a majority of the board of
directors of the Company. The Voting Agreement shall be in a
form and content reasonably acceptable to the Purchaser's legal
counsel and shall be attached to this Agreement as an exhibit
prior to Closing. This Voting Agreement shall be cancelled and
shall have no further effect if the provisions of Section 2.9 are
implemented.
2.4 Relocation of the Company's Office. To induce the Purchaser
to enter into this Agreement and purchase the Shares as provided
herein, and in partial consideration thereof, the Company agrees
to relocate its principal place of business and head office to
Sacramento, California upon thirty (30) days' written notice at
any time following the Closing.
2.5 Registration Rights Agreement. To induce the Purchaser to
enter into this Agreement and purchase the Shares as provided
herein, and in partial consideration thereof, prior to the
Closing, the Company agrees to execute and deliver to the
Purchaser a registration rights agreement ("Registration Rights
Agreement"), providing for the registration of the Purchaser's
common shares in the Company, in a form and content reasonably
acceptable to the Purchaser's legal counsel. The agreed upon
form of the Registration Rights Agreement shall be attached to
this Agreement as an exhibit prior to Closing.
2.6 Certain Securities Laws. Prior to and in anticipation of
Closing, the Company shall investigate, determine the
applicability of and if applicable shall comply with or make
preparations for compliance with relevant securities laws
including, but not limited to, those concerning change of control
transactions, change of majority of directors and current reports
(Form 8-K).
2.7 Access. The Company shall provide the Purchaser and its
authorized representatives full access during normal business
hours from and after the date hereof until the Closing to all of
the Company's assets, properties, contracts, commitments, books
and records for the purpose of making such investigation as the
Purchaser may desire, and shall furnish the Purchaser such
information concerning the Company's affairs as the Purchaser may
request. The Company shall cause the personnel of the Company to
assist the Purchaser in making such investigation. No
investigation made heretofore or hereafter by the Purchaser or
its representatives shall limit or affect the representations or
warranties of the Company hereunder, each of which shall survive
any such investigation.
2.8 Cooperation. The parties shall cooperate fully with each
other and with their respective legal counsel and accountants in
connection with any steps required to be taken as part of their
respective obligations under this Agreement, and both parties
shall use their best efforts to consummate the transactions
contemplated herein and to fulfill their obligations hereunder,
including, without limitation, causing to be fulfilled at the
earliest practical date the conditions precedent to the
obligations of the parties to consummate the transactions
contemplated hereby. Without the prior written consent of the
other party, neither party shall take any intentional action that
E-5
would cause a condition precedent to the obligations of the
parties not to be fulfilled. The Company shall cause the
proposed form of each Related Agreement (defined below) to be
delivered to Purchaser's legal counsel as soon as possible, but
in any event, at least ten (10) business days before the Closing.
However, the proposed form of Convertible Notes shall be
delivered by the Company no later than ten (10) days after the
date of this Agreement.
2.9 Purchaser Announcement of No Further Interest in Company
Going Concern. After Closing, if the Purchaser notifies the
Company that the Purchaser is not in favor of the Company
continuing to develop or exploit the technology of the Company,
then the Purchaser agrees to cause at least one of its designated
board members to resign from the Company's board and thereafter
the Purchaser agrees to vote for the director that the Company
may nominate as the replacement director and any successor
thereof.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
To induce the Purchaser to enter into this Agreement and to
purchase the Shares, the Company represents, warrants and
covenants to the Purchaser as follows:
3.1 Disclosure Memorandum. Attached hereto as Exhibit A is a
memorandum (the "Disclosure Memorandum") that the Company has
delivered to the Purchaser containing certain information
regarding the Company and the Shares as indicated at various
places in this Agreement. All information set forth in the
Disclosure Memorandum is true, correct, complete and set forth in
a manner that is not misleading as of the date of this Agreement.
All documents and other writings furnished to the Purchaser
pursuant to this Agreement, any Related Agreement or the
Disclosure Memorandum are true, correct and complete as of the
date furnished and any and all modifications or amendments of the
same have been delivered to the Purchaser. At all times prior to
and including the Closing Date, the Company shall promptly
provide the Purchaser with written notification of any event,
occurrence or other information of any kind whatsoever that
affects, or may affect, the continued truth, correctness or
completeness of any representation, warranty or covenant made in
this Agreement, any Related Agreement, the Disclosure Memorandum
or any other document or writing furnished to the Purchaser
pursuant to this Agreement. All such written notifications shall
specifically identify any and all of the representations,
warranties or covenants affected by the event, occurrence or
information that necessitated the giving of such notice. No such
notification or other disclosure shall be deemed to amend or
supplement the Disclosure Memorandum, this Agreement or any
Related Agreement unless the Purchaser specifically agrees in
writing.
3.2 Organization; Good Standing; and Compliance. As of the date
hereof, the Company is a corporation duly organized and validly
existing under the laws of the State of Oklahoma and is in good
standing under such laws. As of the Closing Date, the Company
shall be and is a corporation duly organized and validly existing
under the laws of the State of Nevada and is in good standing
under such laws. The Company's principal office and place of
business is at the location specified in Schedule 3.2 of the
Disclosure Memorandum. The Company has no interest, direct or
indirect, and has no commitment to purchase or otherwise acquire
any interest, direct or indirect, in any other corporation,
partnership, joint venture or other business enterprise. The
Company has all requisite corporate power and authority and is
entitled to own or lease its properties and to carry on its
business as and in all places where such business is now
conducted and such properties are owned or leased. The Company
has complied with all federal, state and local laws, rules,
E-6
regulations and ordinances with respect to its operations and the
conduct of its business. The Company is duly licensed, qualified
or domesticated as a foreign corporation in the jurisdictions
listed in Schedule 3.2 of the Disclosure Memorandum, which are
all jurisdictions where the character of the property owned by it
or the nature of the business transacted by it makes such
license, qualification or domestication necessary. Schedule 3.2
of the Disclosure Memorandum lists (a) all locations where the
Company owns property, has an office or place of business or
maintains or stores any equipment, (b) all names under which the
Company has operated during the past five (5) years, if different
from its present corporate name, and (c) all former subsidiaries,
if any, of the Company existing within a five (5)-year period
prior to the date hereof.
3.3 Capitalization.
(a) As of the date hereof, the Company has an authorized share
capital of __________(___) shares of common stock, par value $
per share, of which _________(____) shares are issued and
outstanding. As of the Closing Date, the Company shall have and
has an authorized share capital of __________(___) shares of
common stock, par value $__ per share, of which _________(____)
shares are issued and outstanding. There are no other classes or
series of capital stock of the Company of any kind outstanding or
issuable. All such shares are duly and validly issued, fully paid
and nonassessable and were authorized, offered, issued and sold
in accordance with all applicable federal and state securities
laws. None of the issued and outstanding shares were issued in
violation of the preemptive rights of any past or present
shareholders of the Company or any agreement to which the Company
is a party or by which it is bound. Each shareholder of the
Company who is an "affiliate" (as defined under United States
securities laws) is listed in Schedule 3.3(a) of the Disclosure
Memorandum along with the shareholder's respective shareholdings
in the Company.
(b) Except as disclosed on Schedule 3.3(b) of the Disclosure
Memorandum, the Company has no outstanding securities convertible
into capital stock nor any outstanding rights to subscribe for or
to purchase, or any warrants or options for the purchase of, or
any agreements or arrangements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims
or any character relating to, its capital stock or securities
convertible into its capital stock. There are no other options,
warrants, calls, rights, commitments or agreements of any
character to which the Company is a party or by which it is bound
obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend, or enter into any such
option, warrant, call, right, commitment or agreement. The
Company is not subject to any obligations (contingent or
otherwise) to repurchase or otherwise acquire or retire any of
its capital stock. The Company has no liability for dividends
declared or accrued, but unpaid, with respect to any of its
capital stock. All shares of the Company which have been
purchased or redeemed by the Company have been repurchased or
redeemed in accordance with all applicable federal, state and
local laws, rules, regulations, and ordinances, including,
without limitation, all federal and state securities laws. The
repurchase or redemption by the Company of its shares or the
Company's issuance of the Shares to the Purchaser has not and
will not with the giving of notice or the lapse of time, or both,
result in a default or acceleration of the maturity of, or
otherwise modify, any agreement, note, mortgage, bond, security
agreement, loan agreement or other contract or commitment of the
Company.
E-7
(c) The Company has all requisite power and authority to enter
into this Agreement and all other agreements required by the
terms hereof to be entered into by the Company (each a "Related
Agreement") and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement
and each Related Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the
Company and its shareholders. This Agreement and each Related
Agreement have been duly executed and delivered by the Company
and, assuming the due authorization, execution and delivery by
the Purchaser, constitute the valid and binding obligations of
the Company, enforceable in accordance with their terms, except
as such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to rules of
law governing specific performance, injunctive relief or other
equitable remedies.
3.4 No Conflicts. The execution and delivery of this Agreement
and each Related Agreement do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict
with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a
right of termination, cancellation, modification or acceleration
of any obligation or loss of any benefit under (a) any provisions
of the articles of incorporation or bylaws of the Company, (b)
any term or provision of any indenture, note, mortgage, bond,
security agreement, loan agreement, guaranty, pledge, or other
instrument, contract or agreement or commitment to which the
Company is a party or by which it is bound, (c) any writ, order,
judgment, decree, law, rule, regulation, or ordinance by which
the Company is bound, (d) any ruling or order of any
administrative or governmental body applicable to the Company, or
(e) any other commitment or restriction to which the Company is a
party or by which it or any of its assets or properties is
subject or bound; nor will such actions result in the creation of
any claim, lien, charge or encumbrance on any of the Company's
assets or properties. Except as disclosed on Schedule 3.4 of the
Disclosure Memorandum, there are no "control shares" or "business
combination" or similar laws or regulations applicable to the
Company or its shareholders that would affect the Purchaser's
ability to effectively vote the Shares after the Closing or enter
into business combinations with the Company after the Closing.
3.5 Corporate Records. The Company has delivered to the
Purchaser a true and correct copy of the Company's articles of
incorporation and bylaws, each as amended to date. A current
list of the Company's officers and directors is set forth in
Schedule 3.5 to the Disclosure Memorandum. The minutes of the
Company made available to the Purchaser are the only minutes of
the Company and contain an accurate summary of all meetings of
the Board of Directors (or committees thereof) of the Company and
its shareholders or actions by written consent since the time of
incorporation of the Company.
3.6 Consents. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with,
any court, administrative agency or commission or other federal,
state, county, local or other foreign governmental authority,
instrumentality, agency or commission or any third party,
including a party to any agreement with the Company (other than
the Purchaser), is required in connection with the execution and
delivery of this Agreement or any Related Agreement or the
consummation of the transactions contemplated hereby and thereby,
except for approval of the Company's shareholders to the extent
required by law.
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3.7 Company Financial Statements. Attached hereto as Exhibit B-
1 are copies of the Company's Balance Sheet as of __________ ___,
2000, and ___________ ___, 1999, and Statements of Income,
Retained Earnings and Cash Flows for the fiscal years then ended,
together with the report prepared by ______________, independent
certified public accounts. All of such financial statements
(including any related notes and schedules thereto) (the "Audited
Financial Statements") are true and correct and have been
prepared in accordance with United States generally accepted
accounting principles ("USGAAP") applied on a consistent basis
with prior years and present fairly the financial condition of
the Company as of the respective dates thereof and the results of
its operations and its cash flows for the periods then ended.
Attached hereto as Exhibit B-2 are copies of the Company's
unaudited Balance Sheet as of ___________ ___, 2001 (the
"Unaudited Balance Sheet"), and unaudited Statements of Income,
Retained Earnings and Cash Flows for the _____ month period then
ended (such unaudited Statements of Income, Retained Earnings and
Cash flows, together with the Unaudited Balance Sheet,
collectively the "Unaudited Financial Statements"). Except as
disclosed in Schedule 3.7 of the Disclosure Memorandum, the
Unaudited Financial Statements (including any related notes and
schedules thereto) are true and correct, have been prepared from
the books and records of the Company in accordance with USGAAP
applied on a consistent basis with prior years, and present
fairly the financial condition of the Company as of the date
thereof and the results of its operations for the _____ month
period then ended.
3.8 No Undisclosed Liabilities. The Company has no liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent,
matured, unmatured or other (whether or not required to be
reflected in the Company's financial statements in accordance
with USGAAP), except (i) those reflected on the Balance Sheet as
of _______ ____, 2000 referred to in Section 3.7 above (the
"Audited Balance Sheet"), (ii) liabilities incurred in the
ordinary course of business since __________ ___, 2001, the date
of the Unaudited Balance Sheet (the "Reference Date"), and (iii)
as specifically disclosed in Schedule 3.8 of the Disclosure
Memorandum.
3.9 Absence of Changes. Except as disclosed on Schedule 3.9 of
the Disclosure Memorandum, since the Reference Date there has not
been, occurred or arisen any:
(a) change in the business, transactions, assets, liabilities,
results of operations, financial condition or prospects of the
Company or in its relationships with customers, employees,
suppliers, licensees, lessors or others, other than changes in
the ordinary course of business consistent with past practices,
none of which have been or will be, individually or in the
aggregate, adverse to the business or condition (financial or
otherwise) of the Company;
(b) change in the Company's accounting methods or practices;
(c) declaration, setting aside or payment of any dividend or
other distribution on or in respect of the share capital of the
Company, nor any direct or indirect redemption, purchase or other
acquisition of any of the share capital or other securities of
the Company;
(d) change in the articles of incorporation or bylaws of the
Company;
(e) labor dispute, organizational effort by any union or unfair
labor practice charge involving the Company;
(f) issuance or sale by the Company of any of its authorized
share capital, bonds, notes, debentures or other corporate
securities, or any options, warrants or other rights with respect
thereto, nor any modification or amendment of the rights of the
holders of any outstanding share capital, bonds, notes,
E-9
debentures or other corporate securities of, the Company, or any
options, warrants or other rights with respect thereto;
(g) Liens (other than liens for current taxes which are not yet
due and payable) created on or in any asset of the Company or
assumed by the Company with respect to any asset;
(h) indebtedness or other liability or obligation (whether
absolute, accrued, contingent or otherwise) incurred by the
Company, except current liabilities incurred in connection with
the purchase of goods or services in the ordinary course of
business and consistent with its prior practice, none of which
individually or in the aggregate adversely affects the business
or condition (financial or otherwise) of the Company;
(i) discharge or satisfaction of any indebtedness, liability or
obligation (whether absolute, accrued, contingent or otherwise)
of the Company, other than current liabilities reflected in the
Unaudited Balance Sheet as of the Reference Date, and current
liabilities incurred since the Reference Date in the ordinary
course of business and consistent with its prior practice;
(j) cancellation, compromise, waiver or release of any debt to,
or claim or right of, the Company;
(k) sale, transfer, lease or other disposition of any asset or
assets of the Company, except sales of inventory in the ordinary
course of business;
(l) amendment, termination or waiver of, or any notice of any
amendment, termination or waiver of, any material right of the
Company under any contract, agreement, license or lease, or
governmental license, permit or permission;
(m) loans made to a Related Party or guaranteed for the benefit
of any Related Party;
(n) amendments or other corporate actions having the effect of
an amendment increasing past or future contributions of any kind
whatsoever to any Employee Benefit Plan of the Company;
(o) acquisition by the Company of any capital shares or other
securities of any corporation or any interest in any business
enterprise,
(p) revaluation by the Company of any of its assets;
(q) increase in any salary or other compensation payable to
salary or to become payable by the Company to any of its
officers, directors, employees or advisors, or the declaration,
payment or commitment or obligation of any kind for the payment,
by the Company, of a bonus or other additional salary or
compensation to any such person;
(r) notice of any claim of ownership by a third party of any of
the Company's Intellectual Property or notice of infringement by
the Company of any third party's Intellectual Property;
(s) selling or entering into any license agreement with respect
to the Company's Intellectual Property or acquiring or entering
into any license agreement with respect to a third party's
Intellectual Property;
(t) change in the pricing or royalties set or charged by the
Company or by any third party who has licensed Intellectual
Property to the Company;
(u) commencement or notice or threat of commencement of any
lawsuit or proceeding against, or investigation of, the Company
or its affairs; and
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(v) negotiation or agreement by the Company or any officer or
employee thereof to do or change any of the things described in
the preceding clauses (a) through (u).
3.10 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, settlement, judgment,
injunction, order or decree to which the Company is a party or
otherwise binding upon the Company which has or may have the
effect of prohibiting or impairing any business practice of the
Company, any acquisition of property (tangible or intangible) by
the Company or the conduct of business by the Company. The
Company has not entered into any agreement or settlement under
which the Company is restricted from selling, licensing or
otherwise distributing any of its technology or products to or
providing services to, customers or potential customers or any
class of customers, in any geographic area, during any period of
time or in any segment of the market.
3.11 Title to Properties; Absence of Liens; Condition of
Equipment.
(a) The Company does not own any real property, nor has it ever
owned any real property. Schedule 3.11(a) of the Disclosure
Memorandum sets forth a list of all real property currently
leased by the Company, the name of the lessor, the date of the
lease and each amendment thereto and the aggregate annual rental
or other fees payable under each such lease. All such leases are
in full force and effect, are valid and effective in accordance
with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which
with notice or lapse of time, or both, would constitute a
default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all
of its tangible properties and assets, real, personal and mixed,
used or held for use in its business, free and clear of any and
all Liens, except for liens for current taxes not yet due and
payable.
(c) Schedule 3.11(c) of the Disclosure Memorandum lists all
material items of equipment (the "Equipment") owned or leased by
the Company and such Equipment is, taken as a whole, (i) adequate
for the conduct of the business of the Company as currently
conducted and (ii) in good operating condition, regularly and
properly maintained, normal wear and tear excepted.
3.12 Intellectual Property.
(a) Schedule 3.12(a) of the Disclosure Memorandum lists all
Registered Intellectual Property (as defined below) owned by,
filed in the name of, or applied for, by the Company (the
"Company Registered Intellectual Property"), and lists any
proceedings or actions before any court or tribunal (including
the United States Patent and Trademark Office or equivalent
authority anywhere in the world) related to any Company
Registered Intellectual Property or Company Intellectual Property
(as defined below).
(b) Each item of Company Registered Intellectual Property is
valid and subsisting, and all necessary registration, maintenance
and renewal fees in connection therewith have been paid and all
necessary documents and certificates in connection therewith have
been filed with the relevant patent, copyright, trademark or
other authorities in the United States or foreign jurisdictions,
as the case may be, for the purposes of maintaining such
Registered Intellectual Property.
(c) In each case in which the Company has acquired Intellectual
Property (as defined below) from a third party, the Company has
obtained a valid and enforceable assignment sufficient to
E-11
transfer irrevocably to the Company all rights in and to such
Intellectual Property and the Company has duly recorded same with
the appropriate governmental entities.
(d) The Company has no knowledge of any facts or circumstances
that would render any Company Intellectual Property invalid or
unenforceable.
(e) The Company is the exclusive owner of, or has the exclusive
rights to, all Company Intellectual Property, free and clear of
any and all Liens.
(f) The contracts, licenses and agreements listed in Schedule
3.12(f) of the Disclosure Memorandum constitute all of the
contracts, licenses and agreements to which the Company is a
party with respect to any Intellectual Property.
(g) The operation of the business of the Company as it currently
is conducted does not infringe or misappropriate any Intellectual
Property of any third party, violate any right of any third
party, or constitute unfair competition or trade practices under
the laws of any jurisdiction, and the Company has not received
notice from any third party to such effect, and the Company does
not have knowledge of any basis therefor.
(h) To the Company's knowledge, no third party is infringing or
misappropriating any Company Intellectual Property.
(i) For purposes of this Agreement:
(1) "Intellectual Property" shall mean any or all of the
following and all rights in, to, arising out of, or associated
therewith: (a) all inventions, discoveries, improvements,
methods, designs, algorithms and processes and all United States
and foreign patents and applications therefor and all reissues,
divisions, re-examinations, renewals, extensions, provisionals,
continuations and continuations-in-part of any such patents; (b)
all trade secrets, technology and other rights in know-how and
confidential or proprietary information; (c) all works of
authorship, works made for hire, copyrights, copyright
registrations and applications therefor and all other rights
corresponding thereto throughout the world; (d) all computer
programs, executable code, source code, databases, data
compilations and technical data, (e) all industrial designs and
any registrations and applications therefor throughout the world;
(f) all rights in World Wide Web addresses and domain names and
applications and registrations therefor; (g) all trade names,
logos, common law trademarks and service marks, trademark and
service mark registrations and applications therefor and all
goodwill symbolized thereby throughout the world; and (h) any and
all similar, corresponding or equivalent rights to any of the
foregoing anywhere in the world.
(2) "Registered Intellectual Property" shall mean all
United States, international and foreign: (a) patents, including
applications therefor; (b) registered trademarks, service marks
and applications therefor, including intent-to-use applications;
(c) copyright registrations and applications to register
copyrights; and (d) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or
other document issued by, filed with, or recorded by, any state,
government or other public legal authority at any time.
(3) "Company Intellectual Property" shall mean any
and all Intellectual Property including the Company Registered
Intellectual Property that is owned by the Company.
3.13 Receivables. All notes receivable and accounts receivable
shown on the Audited Balance Sheet and all such receivables held
by the Company on the date hereof were and are valid and
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collectible obligations of the respective makers thereof, and
were not and are not subject to any offset or counterclaim.
3.14 Agreements, Contracts and Commitments.
(a) Except as disclosed in Schedule 3.14(a) of the Disclosure
Memorandum, the Company does not have, or is not bound by:
(i) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations,
(ii) any bonus, deferred compensation, pension, profit sharing
or retirement plans, or any other employee benefit plans or
arrangements,
(iii) any employment agreement, independent contractor
agreement or consulting agreement,
(iv) any collective bargaining agreement,
(v) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or
the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated
by this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value
individually in excess of $25,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000,
(x) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any
business enterprise outside the ordinary course of the Company's
business,
(xi) any Liens, indentures, loans or credit agreements or other
agreements or instruments relating to the borrowing of money or
extension of credit,
(xii) any purchase order or contract for the purchase of
materials involving $25,000 or more,
(xiii) any construction contract,
(xiv) any distribution, joint marketing or development
agreement, or
(xv) any other agreement, contract or commitment that involves
$25,000 or more or is not cancelable by the Company without
penalty within thirty (30) days.
(b) The Company has not breached, violated or defaulted under,
or received notice that it has breached, violated or defaulted
under, any of the terms or conditions of any agreement, contract,
license or commitment to which it is a party, by which it
benefits or by which it is bound, nor is the Company aware of any
event that would constitute such a breach, violation or default
with the lapse of time, giving of notice or both. Each such
agreement, contract, license or commitment is in full force and
effect and is not subject to any default thereunder by any party
obligated to the Company pursuant thereto.
3.15 Interested Party Transactions. Except as set forth in
Schedule 3.15 of the Disclosure Memorandum, the Company is not
directly or indirectly a party to any contract, agreement, or
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lease with, or any other commitment to a Related Party (as
defined below), and, without limiting the generality of the
foregoing, (A) no Related Party, directly or indirectly, owns or
controls any assets or properties which are or have been used in
the business or operations of the Company, and (B) no Related
Party, directly or indirectly, engages in or has any significant
interest in or connection with any business (X) which is or
which, within the last three (3) years, has been a competitor,
customer or supplier of the Company or has done business with the
Company, or (Y) which, as of the date hereof, researches,
develops, sells or distributes products or services similar or
related to the Company's research, development, products or
services. For purposes of this Agreement, "Related Party" shall
mean any and all of the following: (i) any person or entity
owning, or formerly owning, beneficially or of record, directly
or indirectly, any shares of the capital stock of the Company,
(ii) any person related by blood, adoption or marriage to any
such person, (iii) any director or officer of the Company or any
person related by blood, adoption or marriage to any such
director or officer, (iv) any corporation or other entity in
which any of the foregoing persons or entities has, directly or
indirectly, at least a five percent (5%) beneficial interest in
the share capital or other type of equity interest in such
corporation, or (v) any partnership in which any such person or
entity is a general partner.
3.16 Governmental Authorization. Schedule 3.16 of the Disclosure
Memorandum accurately lists each consent, license, permit, grant
or other authorization issued to the Company by a governmental
entity (i) pursuant to which the Company currently operates or
holds any interest in any of its properties or (ii) which is
required for the operation of its business or the holding of any
such interest (collectively "Company Authorizations"). The
Company Authorizations are in full force and effect and
constitute all Company Authorizations required to permit the
Company to operate or conduct its business or hold any interest
in its properties or assets.
3.17 Litigation. There is no action, suit or proceeding of any
nature pending, or to the knowledge of the Company threatened,
against the Company, its properties or any of its officers or
directors, nor is there any reasonable basis therefor. There is
no investigation pending or, to the knowledge of the Company
threatened, against the Company, its properties or any of its
officers or directors (nor, to the knowledge of the Company is
there any reasonable basis therefor) by or before any
governmental entity. No governmental entity has at any time
challenged or questioned the legal right of the Company to
conduct research, develop, manufacture, offer or sell any of its
products or services in the present manner or style thereof.
There are no unsatisfied judgments against the Company or any
consent decrees writs, restraining orders, or preliminary or
permanent injunctions to which the Company is subject.
3.18 Taxes. Except as disclosed in Schedule 3.18 of the
Disclosure Memorandum, all taxes (including, without limitation,
all income, property, sales, use, customs, franchise, value
added, ad valorem, withholding, employees' income withholding,
and social security taxes, and all other taxes imposed on the
Company or its income, properties, sales, franchises, operations
or Employee Benefit Plans or trusts), and all deposits in
connection therewith required by applicable law, imposed by any
federal, state, local or foreign jurisdiction, or by any other
governmental unit or taxing authority, and all interest and
penalties thereon (all of the foregoing hereafter collectively
referred to as "Taxes"), which are due and payable by the Company
for all periods through the date hereof have been paid in full,
and adequate reserves for all other Taxes, whether or not due and
payable, and whether or not disputed, have been set up on the
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books of the Company. From the date of this Agreement until the
Closing Date, the Company shall pay all Taxes as and when the
same become due and payable, and shall set up reserves on its
books amounts adequate to cover all liabilities for Taxes arising
out of the operation of the Company prior to the Closing Date.
There is not now any proposed assessment against the Company of
additional Taxes of any kind. The Company has timely filed all
federal, state, local and foreign tax returns and reports
(including, without limitation, returns for estimated tax), and
all returns and reports of all other governmental units or taxing
authorities having jurisdiction, with respect to all Taxes, all
such returns and reports show the correct and proper amount due,
and all Taxes shown on such returns or reports and all
assessments received by the Company have been paid to the extent
that such Taxes, or any estimates thereon, have become due. To
the Company's knowledge, there is no examination, audit,
investigation, litigation or administrative proceeding pending,
threatened or anticipated involving the Company's Taxes. There
are no waivers or agreements by the Company for the extension of
time for the assessment of any Taxes.
3.19 Employment and Labor Matters.
(a) Schedule 3.19(a) of the Disclosure Memorandum lists all
executive employees who on the date hereof perform services on a
regular basis in the business operations of or for the Company
and whose annualized rate of compensation exceeds [$25,000] per
year, including bonuses. No such executive employee has
terminated employment, nor, to the knowledge of the Company,
plans not to continue employment with the Company after the date
hereof or after the Closing Date. To the Company's knowledge, no
executive employee shown on such list has suffered any major
illness or hospitalization within the past three (3) years.
(b) Except as set forth in Schedule 3.19(b) of the Disclosure
Memorandum, (1) the Company is not a party to any collective
bargaining agreement or agreement of any kind with any union or
labor organization, (2) no union or other collective bargaining
unit has been certified or recognized by the Company as
representing any employee nor, to the knowledge of the Company is
a union or other collective bargaining unit seeking recognition
for such purpose, (3) there are no controversies pending, or to
the knowledge of the Company threatened, between the Company and
any labor union or collective bargaining unit representing, or
seeking to represent, any of its employees, and (4) there has
been no attempt by any union or other labor organization to
organize any of the Company's employees at any time in the past
five (5) years. The Company has complied with all obligations
under the National Labor Relations Act, as amended, Title VII of
the Civil Rights Act of 1964, as amended, the Age Discrimination
in Employment Act, as amended, and all other federal, state and
local labor or labor related laws applicable to persons employed
in connection with the Company's business, including, without
limitation, those laws, rules and regulations relating to wages,
hours, health and safety, payment of social security withholding
and other taxes, maintenance of workers' compensation insurance,
labor and employment relations and employment discrimination.
(c) Except as set forth in Schedule 3.19(c) of the Disclosure
Memorandum, the Company has complied with all federal, state and
local laws, rules, regulations and ordinances respecting health,
safety and working conditions of its employees, including,
without limitation, the Occupational Safety and Health Act, as
amended, and all similar federal, state and local laws, rules,
regulations and ordinances, and has provided the Purchaser with
copies of all reports filed and notices provided under any such
laws, rules, regulations and ordinances during the last five (5)
E-15
years. The Company's operations do not involve any unusual risk
to the health or safety of its employees (including, without
limitation, any risk associated with hazardous airborne
contaminants or hazardous chemicals or waste materials) and,
except as disclosed in Schedule 3.19(c) of the Disclosure
Memorandum, no employee of the Company has suffered any adverse
health consequence or personal injury as a result of his or her
working conditions or employment by the Company within the past
five (5) years.
3.20 Employee Benefit Matters.
(a) Except as set forth in Schedule 3.20(a) of the Disclosure
Memorandum, the Company does not provide, nor is it obligated to
provide, directly or indirectly, any benefits for employees,
including, but not by way of limitation, any pension, profit
sharing, deferred compensation, stock option, retirement, bonus,
hospitalization, insurance, vacation or other employee benefits
under any practice, agreement or understanding.
(b) Each employee benefit plan (as that term is defined in
Section 3(3) of the Employment Retirement Income Security Act of
1974 as amended ("ERISA") maintained by or on behalf of the
Company or any other party (including any terminated pension
plans) which covers or covered any employees or former employees
of the Company ("Employee Benefit Plans") is listed in Schedule
3.20(b) the Disclosure Memorandum. The Company has delivered to
the Purchaser true and correct copies of all such plans and any
related documents. With respect to each Employee Benefit Plan,
except as expressly referred to in Schedule 3.20(b) of the
Disclosure Memorandum: (1) no litigation, administrative or
other proceeding or claim is pending, threatened, or anticipated
involving such plan; (2) there are no outstanding requests for
information by participants or beneficiaries of such plan; (3)
such plan has been administered in compliance with, and has been
restated or amended so as to comply fully with, all applicable
requirements of ERISA and the Code and the final regulations
promulgated thereunder by the Department of Labor and the
Secretary of the Treasury, and all required filings have been
made and notices have been given; (4) no such plan, or any
trustee, administrator or fiduciary thereof, has at any time been
involved in any transaction with constitutes a "prohibited
transaction" within the meaning of Section 406 of ERISA or
Section 4975 of the Code; (5) no "reportable event" within the
meaning of Section 4043(b) of Title IV of ERISA has occurred with
respect to such plan; and (6) to the Company's knowledge no
breach of fiduciary duty has occurred with respect to any such
plan.
(c) The Company has timely made payment in full of all
contributions to all of its Employee Benefit Plans which the
Company was obligated to make prior to the date hereof; and there
are no contributions declared or payable by the Company to any
Employee Benefit Plan which, as of the date hereof, have not been
paid in full. Except as set forth in Schedule 3.20(c) the
Disclosure Memorandum, none of the Employee Benefit Plans which
constitute "employee welfare benefit plans" within the meaning of
Section 3(1) of ERISA provide benefits to employees who have
retired or otherwise terminated their employment with the
Company.
(d) The Company is not a party to or obligated in any way to
contribute to or otherwise participate in, any "multi-employer
plan" within the meaning of Section 3(37) of ERISA.
3.21 Hazardous Materials. Except as set forth on Schedule 3.21
of the Disclosure Memorandum:
(a) Any real property or personal property, plant, building,
facility, structure, underground storage tank or unit, equipment,
inventory or other asset, owned, leased or operated by the
E-16
Company (including, without limitation, any surface water thereon
and soil and groundwater thereunder) (the "Properties") does not
contain, in, on or under, including, without limitation, the soil
and groundwater thereunder, any Hazardous Materials (as defined
below) in violation of applicable Environmental Laws, as defined
below.
(b) The Company is in compliance with all applicable
Environmental Laws, and there is no known condition which could
substantially interfere with the continued operation of any of
the Properties by the Company in substantial compliance with
applicable Environmental Laws.
(c) Hazardous Materials have not been generated, treated,
stored, disposed of, at, on or under any of the Property, except
in compliance with all applicable Environmental Laws, or in a
manner that could give rise to liability under applicable
Environmental Laws nor have any Hazardous Materials been
transported or disposed of from any of the Properties by the
Company to any other location, except in compliance with
applicable Environmental Laws. There has been no release or
threat of release of Hazardous Materials into the environment at
or from any of the Properties, or arising from or relating to the
operations of the Company, in violation of applicable
Environmental Laws.
(d) The Company has not received from any governmental authority
or any other person any complaint, notice of violation, alleged
violation, investigation or advisory action or notice of
potential liability regarding matters of environmental protection
or permit compliance under applicable Environmental Laws with
regard to the Properties, nor does the Company have any knowledge
that any governmental authority is contemplating delivering to
the Company any such notice. There has been no pending or, to
the Company's knowledge, threatened complaint, notice of
violation, alleged violation, investigation or notice of
potential liability under Environmental Laws with regard to any
of the Properties.
(e) The Company is not a party to any governmental,
administrative actions or judicial proceedings pending under any
Environmental Law with respect to any of the Properties nor, to
the Company's knowledge, are there any consent decrees or other
decrees, consent orders, administrative orders or other orders,
or other administrative or judicial requirements outstanding
under any Environmental Law with respect to any of the
Properties.
(f) For purposes of this Section 3.21, "Environmental Laws"
shall mean any and all federal, state, local or municipal laws,
rules, orders, regulations, statutes, ordinances, codes, permit
conditions, decrees or requirements of any governmental authority
regulating, relating to or imposing liability or standards of
conduct concerning environmental protection matters in force and
effect as of the date of this Agreement, including, without
limitation, those relating to releases, discharges, emissions or
disposals to air, water, land or ground water, to the withdrawal
or use of ground water, to the use, handling or disposal of
polychlorinated biphenyals, asbestos or urea formaldehyde, to the
treatment, storage, disposal or management of hazardous
substances (including, without limitation, petroleum, crude oil
or any fraction thereof, or other hydrocarbons), pollutants or
contaminants, to exposure to toxic, hazardous or other
controlled, prohibited or regulated substances, including,
without limitation, any provisions under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended (42 U.S.C. 9601 et seq.) or the Resource
Conservation and Recovery Act of 1976, as amended (42 U.S.C.
6901, et seq.); and "Hazardous Materials" shall mean any
substance that is (i) designated, defined, classified or
regulated as a hazardous substance, hazardous material, hazardous
waste, pollutant or contaminant under any Environmental Law, as
E-17
currently in effect or as hereafter amended or enacted, (ii) a
petroleum hydrocarbon, including crude oil or any fraction
thereof and all petroleum products, (iii) PCBs, (iv) lead, (v)
asbestos, (vi) flammable explosives, (vii) infectious materials
or (viii) radioactive materials.
3.22 Brokers' and Finders' Fees; Third Party Expenses. The
Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokers' or finders' fees or
agents' commissions or any similar charges in connection with the
Agreement or any transaction contemplated hereby. Schedule 3.22
of the Disclosure Memorandum sets forth the Company's current
reasonable estimate of all third party expenses expected to be
incurred by the Company in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby.
3.23 Insurance. Schedule 3.23 of the Disclosure Memorandum lists
all insurance policies and fidelity bonds covering the assets,
business, equipment, properties, operations, employees, officers
and directors of the Company. There is no claim by the Company
pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company is
otherwise in compliance with the terms of such policies and bonds
(or other policies and bonds providing substantially similar
insurance coverage). The Company has no knowledge of any
threatened termination of, or premium increase with respect to,
any of such policies.
3.24 Compliance with Laws. The Company has complied with, is not
in violation of, and has not received any notices of violation
with respect to, any foreign, federal, state or local statute,
law or regulation.
3.25 Warranties; Indemnities. Except as set forth in Schedule
3.25 of the Disclosure Memorandum the Company has not provided
any warranties or indemnities relating to products or technology
sold or licensed or services rendered by the Company.
3.26 Filings with the SEC. The Company has made all filings with
the United States Securities Exchange Commission that it has been
required to make under the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended (collectively
the "Public Reports"). Each of the Public Reports has complied
with said Securities Act and the Securities Exchange Act in all
material respects. None of the Public Reports, as of their
respective dates, contained any untrue statement of a material
fact or omitted to state a material fact necessary in order to
make the statements made therein, in light of the circumstances
under which they were made, not misleading.
3.27 Full Disclosure. No representation, warranty or covenant of
the Company contained in this Agreement, any Related Agreement or
the Disclosure Memorandum or in any other written statement or
certificate delivered by the Company pursuant to this Agreement
or in connection with the transactions contemplated herein
contains or will contain any untrue statement of a material fact
or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading. There
is no fact known to the Company which adversely affects, or in
the future may adversely affect, the business, operations, cash
flows, affairs, prospects, properties or assets or the condition,
financial or otherwise, of the Company which has not been
disclosed in this Agreement, the Disclosure Memorandum or in the
documents, certificates and written statements furnished to the
Purchaser for use in connection with the transactions
contemplated hereby.
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4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
As an inducement to the Company to enter into this Agreement
and to sell the Shares to the Purchaser, the Purchaser
represents, warrants and covenants as follows:
4.1 Organization. The Purchaser is a Swiss holding company.
4.2 Authorization; No Inconsistent Agreements. The Purchaser
has requisite corporate power and authority to make, execute and
perform this Agreement, and the transactions contemplated hereby.
This Agreement and all transactions required hereunder to be
performed by the Purchaser have been duly authorized by all
necessary corporate action on the part of the Purchaser. This
Agreement has been duly executed and delivered on behalf of the
Purchaser by its duly authorized officers and, assuming the due
authorization, execution and delivery by the Company, constitute
the valid and binding obligations of the Purchaser, enforceable
in accordance with their terms, except as such enforceability may
be limited by principles of public policy and subject to the laws
of general application relating to bankruptcy, insolvency and the
relief of debtors and to rules of law governing specific
performance, injunctive relief or other equitable remedies.
4.3 No Conflicts. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both),
or give rise to a right of termination, cancellation,
modification or acceleration of any obligation or loss of any
benefit under (a) any provisions of the Purchaser's charter
documents, (b) any term or provision of any indenture, note,
mortgage, bond, security agreement, loan agreement, guaranty,
pledge, or other instrument, contract or agreement or commitment
to which the Purchaser is a party or by which the Purchaser is
bound, (c) any writ, order, judgment, decree, law, rule,
regulation, or ordinance by which the Purchaser is bound, (d) any
ruling or order of any administrative or governmental body
applicable to the Purchaser, or (e) any other commitment or
restriction to which the Purchaser is a party or by which it is
bound.
4.4 Full Disclosure. No representation, warranty or covenant
of the Purchaser contained in this Agreement, or in any other
written statement or certificate delivered by the Purchaser
pursuant to this Agreement or in connection with the transactions
contemplated herein, contains or will contain any untrue
statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein
or therein not misleading.
5. CONDUCT PENDING CLOSING.
5.1 Conduct of the Business of the Company. During the period
from the date of this Agreement and continuing until the earlier
of the termination of this Agreement or the Closing, the Company
agrees (except to the extent that the Purchaser shall otherwise
consent in writing), to carry on its business in the usual,
regular and ordinary course in substantially the same manner as
heretofore conducted, to pay debts and Taxes when due, to pay or
perform other obligations when due, and, to the extent consistent
with such business, use all reasonable efforts consistent with
past practice and policies to preserve intact the Company's
present business organization, keep available the services of
present officers and key employees and preserve relationships
with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of
preserving unimpaired the Company's goodwill and ongoing
businesses. The Company shall promptly notify the Purchaser of
E-19
any event or occurrence or emergency not in the ordinary course
of business of the Company and any material event involving the
Company. Notwithstanding the foregoing, the Company shall not,
without the prior written consent of the Purchaser:
(a) Commence any litigation;
(b) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of
any of its capital stock, or split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for
shares of capital stock of the Company, or repurchase, redeem or
otherwise acquire, directly or indirectly, any shares of its
capital stock (or options, warrants or other rights exercisable
therefor);
(c) Enter into any commitment or transaction not in the ordinary
course of business or any commitment or transaction of the type
described in Section 3.9 above;
(d) Enter into any commitment or transaction with any Related
Party;
(e) Transfer to any person or entity any rights to Company
Intellectual Property;
(f) Enter into or amend any agreements pursuant to which any
third party is granted development, research, marketing,
distribution or similar rights of any type or scope with respect
to any products of the Company or Company Intellectual Property;
(g) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the
agreements set forth, listed or described in the Disclosure
Memorandum;
(h) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities
convertible into, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible
securities;
(i) Cause or permit any amendments to its articles of
incorporation or bylaws;
(j) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by
any other manner, any business or any corporation, partnership,
association or other business organization or division thereof,
or otherwise acquire or agree to acquire any assets which are
material, individually or in the aggregate, to its business;
(k) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business
and consistent with past practices;
(l) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(m) Grant any loans to others or purchase debt securities of
others or amend the terms of any outstanding loan agreement,
except in the ordinary course of business and consistent with
past practices;
(n) Grant any severance or termination pay (i) to any director
or officer or (ii) to any other employee except payments made
pursuant to standard written agreements outstanding on the date
hereof;
(o) Adopt or amend any employee benefit plan, or enter into any
employment contract, pay or agree to pay any special bonus or
special remuneration to any director or employee, or increase the
salaries, bonuses or wage rates of its employees;
E-20
(p) Revalue any of its assets;
(q) Pay, discharge or satisfy, in an amount in excess of $10,000
(in any one case) or $25,000 (in the aggregate), any claim,
liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Audited
Financial Statements (or the notes thereto);
(r) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter
into any closing agreement, settle any claim or assessment in
respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in
respect of Taxes;
(s) Enter into any strategic alliance, joint research,
development or distribution arrangement or agreement;
(t) Hire any new employee, terminate the employment of any
existing employee, add any new consultant or contractor (or group
of such consultants or contractors) with annual compensation in
excess of $10,000, terminate the relationship with any existing
consultant or contractor, or fail to take any of the
aforementioned actions if requested by the Purchaser;
(u) Liquidate or voluntarily declare bankruptcy or seek the
appointment of a receiver, trustee or custodian; or
(v) Take, or agree in writing or otherwise to take, any of the
actions described in the preceding clauses (a) through (u) or any
action that would prevent or frustrate the Company's performance
of the Company's covenants under this Agreement.
5.2 No Solicitation. The Company shall not, and the Company
shall use its best efforts to cause its officers, directors,
agents, representatives or affiliates to not, directly or
indirectly, take any of the following actions with any party
other than the Purchaser and its designees: (a) solicit,
encourage, initiate, conduct discussions with or engage in
negotiations with any person or entity, relating to the possible
acquisition of the Company (whether by way of merger, purchase
of capital stock, purchase of assets or otherwise) or any
material portion of its or their capital stock or assets, (b)
provide information with respect to it to any person or entity,
other than the Purchaser, relating to the possible acquisition of
the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its
or their capital stock or assets, (c) enter into an agreement
with any person or entity, other than the Purchaser, providing
for the acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or
any material portion of its or their capital stock or assets or
(d) make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of the
Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its
or their capital stock or assets by any person or entity, other
than by the Purchaser. In addition to the foregoing, if the
Company receives any offer or proposal relating to any of the
above, the Company shall immediately notify the Purchaser
thereof, including information as to the identity of the offeror
or the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such
other information related thereto as the Purchaser may reasonably
request.
5.3 SEC and Shareholder Documents. The Company agrees to
provide the Purchaser with an advance copy of any document to be
submitted by the Company to the U. S. Securities Exchange
E-22
Commission ("SEC") or the shareholders of the Company. The
Company shall provide the Purchaser each copy at least ten (10)
business days before the day the Company submits the document to
the SEC or the shareholders, as the case may be.
6. CONDITIONS TO OBLIGATIONS OF PURCHASER.
All obligations of the Purchaser under this Agreement are
subject to the fulfillment and satisfaction of each and every of
the following conditions on or prior to the Closing, any or all
of which may be waived in whole or in part by the Purchaser:
6.1 Proceedings and Documents Satisfactory. All proceedings
taken in connection with the consummation of the transactions
contemplated herein and all documents and papers relating thereto
shall be reasonably satisfactory to the Purchaser and its legal
counsel, and the Purchaser and its counsel shall have timely
received copies of such documents and papers, all in form and
substance satisfactory to the Purchaser and its legal counsel, as
reasonably requested by the Purchaser or its legal counsel in
connection therewith.
6.2 Representations and Warranties. The representations and
warranties contained in Section 3 of this Agreement, any Related
Agreement, the Disclosure Memorandum and in any certificate,
instrument, schedule, agreement or other writing delivered by or
on behalf of the Company in connection with the transactions
contemplated by this Agreement shall be true and correct as of
the date when made and shall be deemed to be made again at and as
of the Closing Date and shall be true at and as of such time.
6.3 Compliance with Agreements and Conditions. The Company
shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied
with by the Company prior to or on the Closing Date.
6.4 Certain Agreements. The Purchaser's legal counsel shall
have accepted the form and content of the various agreements and
documents referenced elsewhere in this Agreement as being subject
to form and content reasonably acceptable to the Purchaser's
legal counsel (namely the Convertible Notes, Warrant, Voting
Agreement, and Registration Rights Agreement).
6.5 Certificate of the Company. The Company shall have
delivered to the Purchaser a certificate executed by the Company
dated the Closing Date, certifying in such detail as the
Purchaser may reasonably request as to the fulfillment and
satisfaction of the conditions specified in Sections 6.2 and 6.3
above.
6.6 Articles of Incorporation and Bylaws. The Company shall
have delivered to the Purchaser a copy of the Company's articles
of incorporation certified by the Secretary of State of the
Company's state of incorporation not more than five (5) days
prior to the Closing Date, and a copy of the Company's bylaws
certified by the Secretary of the Company on the Closing Date.
The articles of incorporation and bylaws shall be in the same
form previously provided by the Company to the Purchaser. The
Company shall have delivered to the Purchaser a certificate,
dated not more than five (5) days prior to the Closing Date, from
the Secretary of State of the state of the Company's
incorporation as to the good standing of the Company under the
laws of such state.
6.7 Redomicile of the Company. The Company shall have completed
a valid, duly approved redomicile from the State of Oklahoma to
the State of Nevada by way of corporate merger requiring a one
(1) for five (5) exchange of the shares of the Company's capital
E-22
stock outstanding immediately prior to the merger, and all
shareholder appraisal or dissenter's rights with respect thereto
have either been withdrawn or expired without any exercise or
notice of exercise thereof.
6.8 Opinion of Counsel. The Purchaser shall have received from
legal counsel for the Company, an opinion, dated as of the
Closing Date, substantially as to the matters set forth in
Exhibit C attached hereto. The Company shall cause the proposed
form of opinion to be delivered to Purchaser's legal counsel as
soon as possible, but in any event, at least ten (10) business
days before the Closing.
6.9 Government Consents. The Purchaser shall have received from
any and all persons, firms and other legal entities, or any
public or governmental authorities, bodies or agencies or
judicial authority having jurisdiction over the Purchaser or the
transactions contemplated by this Agreement, or any part hereof,
such consents, authorizations and approvals as are necessary for
the consummation thereof, and all notices or filings required to
be given to or made with government authorities shall have been
given or made and all applicable waiting periods shall have
expired.
6.10 Other Consents. The Company shall have delivered to the
Purchaser such other consents and approvals from the Company's
lessors, lenders and other persons, firms and other entities
having business relations with the Company as are necessary, in
the Purchaser's reasonable opinion, for the continuation in full
force and effect after the Closing (a) of the Company's leases,
loan arrangements, and other contracts and agreements and (b) of
the Company's business in the same manner as conducted prior to
the Closing.
6.11 Resolutions. The Company shall have delivered to the
Purchaser duly adopted resolutions of the board of directors of
the Company, certified by the Secretary of the Company, dated the
Closing Date, authorizing and approving the provisions of this
Agreement and each Related Agreement by the Company and all other
actions necessary to enable the Company to comply with the terms
thereof.
6.12 Director Resignations and Appointments. The three (3)
directors of the Company specified in Schedule 6.12 of the
Disclosure Memorandum shall have formally resigned, effective
upon Closing, and the Purchaser's nominees shall have been duly
elected (and approved by the shareholders of the Company at the
special meeting), effective as of the Closing, as directors of
the Company to fill the vacancies created by such resignations.
6.13 Shareholder Approval. The provisions of this Agreement and
each Related Agreement and the transactions contemplated hereby
and thereby shall have been duly approved by the shareholders of
the Company, as evidenced by certified minutes of a duly held
meeting of the shareholders at which a quorum was present.
6.14 SEC and Shareholder Documents. The Company shall have
addressed, to the Purchaser's reasonable satisfaction, any
objection that the Purchaser has expressed with respect to the
form or content of any documents provided by the Company in
accordance with the provisions of Section 5.3.
6.15 No Litigation. No action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (a)
prevent consummation of any of the transactions contemplated by
this Agreement or any Related Agreement, (b) cause any of the
transactions contemplated by this Agreement or any Related
Agreement to be rescinded following consummation, (c) affect
adversely the right of the Purchaser to own the Shares and to
E-23
control the Company and its board of directors, or (d) affect
adversely the right of the Company to own its assets and to
operate its businesses (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect).
6.16 Satisfaction with Due Diligence. The Purchaser shall be
satisfied with the results of its due diligence review conducted
in connection with this Agreement.
7. CONDITIONS TO OBLIGATIONS OF THE COMPANY.
All obligations of the Company under this Agreement are
subject to the fulfillment and satisfaction of each and every of
the following conditions on or prior to the Closing Date, any or
all of which may be waived in whole or in part by the Company:
7.1 Representations and Warranties. The representations and
warranties contained in Section 4 of this Agreement and in any
certificate, instrument, schedule, agreement or other writing
delivered by the Purchaser in connection with the transactions
contemplated by this Agreement shall be true and correct as of
the date when made and shall be deemed to be made again at and as
of the Closing Date and shall be true at and as of such time.
7.2 Compliance with Agreements and Conditions. The Purchaser
shall have performed and complied with all agreements, and
conditions required by this Agreement to be performed or complied
with by the Purchaser prior to or on the Closing Date.
7.3 Certificate of the Purchaser. The Purchaser shall have
delivered to the Company a certificate, dated the Closing Date,
certifying in such detail as the Company may reasonably request
to the fulfillment and satisfaction of the conditions specified
in Sections 7.1 and 7.2 above.
7.4 Resolutions. The Purchaser shall have delivered to the
Company duly adopted resolutions of the board of directors of the
Purchaser, certified by the Secretary of the Purchaser (or Swiss
holding company equivalent, if any), dated the Closing Date,
authorizing and approving the execution of this Agreement by the
Purchaser and all other actions necessary to enable the Purchaser
to comply with the terms of this Agreement.
8. INDEMNIFICATION.
8.1 Indemnification of the Purchaser. The Company shall
indemnify, defend and hold harmless the Purchaser, the
Purchaser's direct and indirect parent corporations and
affiliates and their respective officers and directors (each an
"Indemnitee"), from and against and in respect of any and all
loss, damage, claim, suit, charges, penalty, interest, fine,
liability, reduction or diminution in value, cost and expense,
including reasonable attorneys' fees and amounts paid in
settlement pursuant to Section 8.3(b) below (any and all of the
foregoing being hereinafter called "Indemnified Losses"),
suffered or incurred by any Indemnitee by reason of, or arising
out of:
(a) any misrepresentation, breach of warranty or breach or
nonfulfillment of any agreement of the Company contained in this
Agreement, any Related Agreement, or in any certificate,
schedule, instrument or document delivered to the Purchaser by or
on behalf of the Company pursuant to the provisions of this
Agreement, including, without limitation, the Disclosure
Memorandum;
(b) any and all liabilities and obligations of, or claims,
demands or actions against, the Company of any nature whatsoever,
whether known or unknown, accrued, absolute, contingent or
otherwise, to the extent not reflected or reserved against in
E-24
full in either the Audited Balance Sheet or the Unaudited Balance
Sheet, which are not disclosed in Schedule 3.8 of the Disclosure
Memorandum; and
(c) any and all liabilities and obligations of, or claims,
demands or actions against, the Company of any nature whatsoever,
whether known or unknown, accrued, absolute, contingent or
otherwise, arising out of the conduct of its business between the
Reference Date and the Closing Date other than in the ordinary
course of the Company's business, consistent with past practices,
which are not disclosed in Schedule 3.8 of the Disclosure
Memorandum.
8.2 Payment. The Company shall, subject to the provisions of
Section 8.3 below, reimburse the Indemnitee, by payment in cash,
within ten (10) days after written demand on the Company, for any
Indemnified Loss.
8.3 Defense of Claims.
(a) If any claim or action by a third party arises for which the
Company is obligated to indemnify an Indemnitee under the terms
of Section 8.1, then, if the Indemnitee desires indemnification
from the Company, the Indemnitee shall notify the Company within
a reasonable time after such claim or action arises and is known
to the Indemnitee, and shall, subject to the other provisions of
this Section 8.3, give the Company a reasonable opportunity:
(i) to conduct any proceedings or negotiations in connection
therewith as may be necessary or appropriate to defend the
Indemnitee;
(ii) to take all other required steps or proceedings to settle
or defend any such claim or action; and
(iii) to employ counsel to contest any such claim or action
in the name of the Indemnitee or otherwise.
(b) Any failure by the Indemnitee to so notify the Company shall
not relieve the Company from any liability that it may have to
the Indemnitee hereunder unless the failure to give such notice
materially and adversely prejudices the Company.
(c) The Company shall obtain the prior written approval of the
Indemnitee, which approval shall not be unreasonably withheld or
delayed, before entering into or making any settlement,
compromise, admission, or acknowledgment of the validity of such
third party claim or action or any liability in respect thereof
if, pursuant to or as a result of such settlement, compromise,
admission, or acknowledgment, injunctive or other equitable
relief would be imposed against the Indemnitee or if, in the
reasonable opinion of the Indemnitee, such settlement,
compromise, admission, or acknowledgment would have a material
adverse effect on the Indemnitee's business or reputation. The
Company shall not consent to the entry of any judgment or enter
into any settlement that does not include as an unconditional
term thereof the giving by each claimant or plaintiff to the
Indemnitee a release from all liability in respect of such claim
or action.
(d) The expenses of all proceedings, contests or lawsuits with
respect to such claims or actions shall be borne by the Company.
The Company shall assume the defense of such claim or action
through counsel reasonably satisfactory to the Indemnitee,
provided that the Indemnitee may participate in such defense at
its own expense.
(e) If the Company fails to assume the defense of, or if after
so assuming it shall fail to defend, any such claim or action,
then the Indemnitee may defend against any such claim or action
in such manner as the Indemnitee may deem appropriate (provided
that the Company may participate in such defense at its own
expense) and the Indemnitee may settle such claim or litigation
E-25
on such terms as the Indemnitee may deem appropriate, and the
Company shall promptly reimburse the Indemnitee for any
settlement amount and the amount of all expenses, legal and
otherwise, reasonably and necessarily incurred by the Indemnitee
in connection with the defense against and settlement of such
claim or action. If no settlement of such claim or litigation is
made, the Company shall satisfy any judgment rendered with
respect to such claim or in such action, before the Indemnitee is
required to do so, and pay all expenses, legal or otherwise,
reasonably and necessarily incurred by the Indemnitee in the
defense of such claim or litigation.
(f) If a judgment is rendered against an Indemnitee in any
action covered by the indemnification hereunder, or any lien in
respect of such judgment attaches to any of the assets of an
Indemnitee, the Company shall immediately upon such entry or
attachment pay such judgment in full or discharge such lien
unless, at the Indemnitee's expense and direction, an appeal is
taken under which the execution of the judgment or satisfaction
of the lien is stayed. If and when a final judgment is rendered
in any such action, the Company shall forthwith pay such judgment
or discharge such lien before the Indemnitee is compelled to do
so.
8.4 No Liability or Contribution by the Company. To the full
extent allowed by law, the Company shall have no liability
(indemnification or otherwise) to any officer or director of the
Company as a result of or in connection with any breach of
warranty, misrepresentation or nonfulfillment or breach of any
agreement of the Company in this Agreement, any Related Agreement
or in any certificate, schedule, instrument or document delivered
to the Purchaser pursuant to the provisions of this Agreement,
including, without limitation, the Disclosure Memorandum, and no
officer or director of the Company shall have any right of
contribution against the Company on account of any event arising
prior to or as of the Closing Date. The Company shall take all
steps necessary or appropriate to effectuate the provisions of
this Section 8.4, including but not limited to procuring valid
waivers of such rights, including indemnification rights, from
said officers and directors prior to Closing.
9. SURVIVAL.
The representations, warranties, covenants, agreements of
the parties and the indemnification of each Indemnitee contained
in this Agreement or in any writing delivered pursuant to the
provisions of this Agreement shall survive: (a) the Closing; (b)
any investigation heretofore or hereafter made by the Purchaser
or its representatives; and (c) the consummation of the
transactions contemplated by this Agreement or any Related
Agreement.
10. TERMINATION.
10.1 Termination. This Agreement may be terminated at any time
prior to or on the Closing Date by the Company or the Purchaser
upon written notice to the other party as follows, and, upon such
termination of this Agreement, no party hereto shall have any
liability to the other, except for the Company's obligations
under Sections 2.1 and 10.2:
(a) By the Purchaser, if a material adverse change in the
financial condition or business of the Company shall have
occurred, or any substantial part of the assets of the Company
are destroyed due to fire or other casualty.
(b) By the Purchaser, if the terms, covenants or conditions of
this Agreement to be complied with or performed by the Company at
or before the Closing shall not have been complied with or
E-26
performed and such noncompliance or nonperformance shall not have
been waived by the Purchaser.
(c) By the Purchaser, if there is any fact or condition with
respect to the business of the Company, the Company's assets or
contracts, or any obligation of the Company which materially and
adversely affects such business, assets, contracts or obligations
or the value or continuance of such business.
(d) By the Company, if the terms, covenants or conditions of
this Agreement to be complied with or performed by the Purchaser
at or, before the Closing Date shall not have been complied with
or performed and such noncompliance or nonperformance shall not
have been waived by the Company.
(e) By the Purchaser, if the consummation of the transactions
contemplated by this Agreement in accordance with the terms of
this Agreement would for any reason violate or not comply with
any applicable laws, ordinances, regulations or rules.
10.2 Option. The Company hereby grants to the Purchaser the
right, upon twenty-four (24) hours' written notice delivered to
the Company at any time until seventy-two (72) hours after
termination of this Agreement prior to the Closing having
occurred, to purchase and acquire from the Company up to the
number of shares of the Company's outstanding common stock such
that after and through the Purchaser's full exercise of said
option, the Purchaser shall have acquired nineteen and nine-
tenths percent (19.9%) of the outstanding common stock of the
Company, on a fully diluted basis, against delivery to the
Company of an amount equal to seventy-five percent (75%) of the
average of the quoted market price of the stock at the close of
the thirty (30) business days immediately preceding the exercise
date, times the number of such shares of stock with respect to
which such option is being exercised.
11. MISCELLANEOUS.
11.1 Notices.
(a) All notices, demands or other communications required or
permitted to be given or made hereunder shall be in writing and
delivered personally or sent by pre-paid, first class, certified
or registered air mail, return receipt requested, or by facsimile
transmission to the intended recipient thereof at its address or
facsimile number specified below. Any such notice, demand or
communication shall be deemed to have been duly given immediately
(if given or made personally or by confirmed facsimile) or three
(3) days after mailing (if given or made by properly addressed
and dispatched letter), and in proving same it shall be
sufficient to show that the envelope containing the same was duly
addressed, stamped and posted, or that receipt of a facsimile was
confirmed by the recipient. The addresses and facsimile numbers
of the parties for purposes of this Agreement are:
If to the Company: Hydro Environmental Resources, Inc.
-----------------------------
-----------------------------
-----------------------------
Facsimile No.
----------------
E-27
With a copy to: Daniel G. Chapman
Chapman & Flanagan, Ltd.
777 N. Rainbow Blvd., Suite 390
Las Vegas, Nevada 89107
Facsimile No: (702) 650-5667
If to the Purchaser:
-------------------------------
----------------------------------
----------------------------------
----------------------------------
Facsimile No.
--------------------
With a copy to: Michael K. Iwahiro
McDonough, Holland & Allen
555 Capitol Mall, 9th Floor
Sacramento, California 95814
Facsimile No. (916) 444-8334
(b) Either party may change the address or fax number to which
notices, requests, demands or other communications to the party
shall be delivered or mailed by giving notice thereof to the
other party in the manner provided herein.
11.2 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, and
all of which shall constitute one and the same instrument.
11.3 Entire Agreement. This Agreement, which includes and
incorporates by this reference the recitals and the provisions of
Exhibits A, B-1, B-2 and C attached hereto, constitutes the
entire agreement and understanding between the Company and the
Purchaser concerning the subject matter hereof, and cancels and
supersedes all prior and contemporaneous written and oral
understandings, agreements, proposals, promises, memorandums
(including, but not limited to, the Memorandum of Understanding
dated April 25, 2001), warranties and representations of the
parties respecting any and all subject matter contained herein.
This Agreement shall not be altered or amended except by an
instrument in writing signed by or on behalf of each of the
parties hereto.
11.4 Governing Law. The validity and effect of this Agreement
and the rights and liabilities of the parties under it shall be
governed by and construed and enforced in accordance with the
laws of the State of California, without regard to conflict
rules.
11.5 Jurisdiction and Venue. Jurisdiction and venue for
litigation of any claim arising out of or relating to this
Agreement or the parties' respective rights and liabilities
hereunder shall be only in a United States federal court or a
California state court having subject matter jurisdiction located
in Sacramento County, California. Each party hereby consents to
the personal jurisdiction of the foregoing courts and to venue in
either of the foregoing courts. Each party deliberately and
affirmatively waives it right to request the federal court
located in Sacramento County, California to transfer any
litigation to a federal court located elsewhere.
11.6 Successors and Assigns. Except as provided below, a party
may not transfer or assign any rights or delegate any duties
under this Agreement (whether by assignment, merger, operation of
E-28
law or otherwise), without the prior written consent of the other
party, which consent a party may provide or not provide at the
party's sole discretion. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, legal
representatives, successors and assigns. The Purchaser shall
have the right to assign this Agreement and to assign all of its
rights and delegate all of its duties under this Agreement to an
affiliate of the Purchaser (including a wholly owned United
States subsidiary corporation). This Agreement shall not confer
any rights or remedies upon any person or entity other than the
parties hereto and their respective successors and permitted
assigns.
11.7 Waiver. Any term or condition of this Agreement may be
waived at any time by the party which is entitled to the benefit
thereof, but only if such waiver is evidenced by a writing signed
by such party. No failure on the part of any party hereto to
exercise, and no delay in exercising any right, power or remedy
created hereunder, shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or remedy by
any such party preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. No waiver by
any party hereto to any breach of or default in any term or
condition of this Agreement shall constitute a waiver of or
assent to any succeeding breach of or default in the same or any
other term or condition hereof.
11.8 Headings; Construction. The headings as to contents of
particular paragraphs of this Agreement are inserted for
convenience and shall not be construed as a part of this
Agreement or as a limitation on the scope of any terms or
provisions of this Agreement. No rule of strict construction
shall be applied against either party when construing the
provisions of this Agreement. Any reference to any federal,
state, local or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder. The
word "including" shall mean including without limitation.
11.9 Number and Gender. Where the context requires, the use of
the singular form herein shall include the plural, the use of the
plural shall include the singular, and the use of any gender
shall include any and all genders.
11.10 Company's Representations and Warranties; Definition of
Knowledge. The Company's representations and warranties in this
Agreement, any Related Agreement, the Disclosure Memorandum or in
any certificate, instrument, schedule, agreement or other writing
delivered by or on behalf of the Company in connection with the
transactions contemplated by this Agreement shall be deemed to be
made by the Company by and through its representatives which
shall include, but not be limited to, each of the executive
officers and directors of the Company. The words "known," "to
the knowledge of," "to the best knowledge of" or words of similar
import employed in this Agreement with reference to any person or
entity shall be conclusively presumed to mean that the person or
entity has made reasonable and diligent efforts under the
circumstances to become knowledgeable and accordingly such person
or entity shall be imputed with such knowledge.
11.11 Agreement to Perform Necessary Acts. Each party to
this Agreement agrees to perform any further acts and execute and
deliver any additional documents that may be reasonably necessary
to carry out the provisions and intents of this Agreement.
11.12 Publicity. Neither party shall issue any press release
or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other
party; provided, however, that a party may make any public
disclosure it believes in good faith is required by applicable
law or any listing or trading agreement concerning its publicly-
E-29
traded securities (in which case the disclosing party will use
its best efforts to advise the other party prior to making the
disclosure).
11.13 Specific Performance. Each party acknowledges and
agrees that the other party would be damaged irreparably in the
event any of the provisions of this Agreement are not performed
in accordance with their specific terms or otherwise are
breached. Accordingly, each party agrees that the other party
shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof,
in addition to any other remedy to which they may be entitled, at
law or in equity.
[SIGNATURES TO THE STOCK PURCHASE AGREEMENT ON NEXT PAGE]
E-30
[SIGNATURES TO THE STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed by their duly authorized officers as of the
day and year first above written.
THE PURCHASER:
PowerTek Holdings LTD, a Swiss
holding company
*By: /s/ Lorenzo Zoccoletti
Name: Lorenzo Zoccoletti
Title: Chairman of the Board
THE COMPANY:
HYDRO ENVIRONMENTAL RESOURCES, INC.,
an Oklahoma corporation
*By: /s/ John L. Wheeler
Name: John L. Wheeler
Title: Chief Executive Officer
* Subject to the Purchaser's acceptance of the form and content
of Exhibits A, B-1 and B-2, which Company shall provide no later
than July 3, 2001.
E-31
PROXY CARD FOR HYDRO ENVIRONMENTAL RESOURCES, INC. (the "Corporation")
This proxy is solicited on behalf of the Board of Directors of the
Corporation for the Annual Meeting of Shareholders to be held on August 15,
2001. The Board of Directors recommends a vote "FOR" the following:
Withhold authority to vote
for any individual nominee
FOR election of WITHHOLD vote (write number(s) of
all nominees from all nominees nominee(s) below):
1. Election of Directors:
Nominees: [ ] [ ]
01 - Jack H. Wynn ---------
02 - Julio P. Focaracci
03 - Drew Sakson ---------
04 - Lane J. Austin
05 - David A. Youngblood ---------
2. Approval of the Reincorporation in Nevada.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the Stock Purchase Agreement with PowerTek.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of the selection of Cordovano and Harvey, P.C. as independent
accountants.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Votes MUST be indicated using black or blue ink. The undersigned hereby
appoints Jack H. Wynn, proxy, with full power of substitution, to vote all
shares of Common Stock of the undersigned in the Corporation at the Annual
Meeting of Shareholders to be held on August 15, 2001, and at any
adjournment thereof, upon all subjects that may properly come before the
meeting. IF SPECIFIC DIRECTIONS ARE NOT GIVEN WITH RESPECT TO ANY MATTERS
TO BE ACTED UPON AT THE ANNUAL MEETING AND THIS PROXY CARD IS SIGNED AND
RETURNED, THE PROXY WILL VOTE IN ACCORDANCE WITH THE ABOVE RECOMMENDATION
AND MAY EXERCISE DISCRETIONARY AUTHORITY WITH RESPECT TO ANY OTHER MATTER
THAT MAY PROPERLY COME BEFORE THE MEETING.
Please date and sign exactly as your name or names appear on this proxy
card. If the shares are held jointly, each shareholder should sign. If
signing as an executor, trustee, administrator, custodian, guardian,
corporate officer, or pursuant to a power of attorney, please so indicate
below.
Dated: By:
-------------- -----------------------------------------
Print Name:
--------------------------------
[ ] Check this box if you have either a change of address or comments, and
please note the same on this proxy card.
Mail this Proxy Card to: Hydro Environmental Resources, Inc.
Proxy Committee
The Nevada Agency and Trust Company
50 W. Liberty, Suite 880
Reno, NV 89501