SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
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GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant To Section 12(b) or (g) of the Securities Exchange Act of 1934
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Solar Energy Limited
(formerly Salvage World, Inc. )
(originally Taurus Enterprises, Inc.)
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Delaware 76-0418364
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
112 C Longview Drive, Los Alamos, New Mexico 87544
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 257-3602
The following Securities are to be registered pursuant to Section 12(g)/12(b) of
the Act:
Class-A Common Voting Equity Stock
11,903,911 Shares Issued and Outstanding
The EXHIBIT INDEX is located at page 12 of this Registration Statement
<PAGE>
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PART I
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Item 1. Description of Business.
(a) Organization and History. Solar Energy Limited (the "Issuer") was
first incorporated in Delaware as Taurus Enterprises, Inc. on January 5, 1994,
and re-incorporated in Nevada on August 20, 1996 as Salvage World, Inc. On
August 20, 1996. Taurus made its original issuance of 25,000,000 share to
founders in 1994, pursuant to ss.4(2) of the Securities Act of 1933. During
1996, Salvage placed an additional 451,250 shares, pursuant to Regulation D,
Rule 504, resulting in the a total of 25,451,250 shares then issued and
outstanding. On December 17, 1997, the Shareholders approved a proposal to
Reverse Split the Common Stock of the Corporation 20 to 1; with the provision
that no Shareholder owning 100 shares or more shall be reversed or reduced below
100 Shares. The 25,451,260 shares were reduced to 1,272,562, and the adjustment
for small shareholders was 5,949 shares, for a total post-reverse of 1,278,511.
Also on December 17, 1997, shareholders approved, and Management effected a Plan
of Reorganization and Merger of Salvage World, Inc. into Solar Energy Limited, a
private Delaware Corporation, the effect of which merger changed the name of
this Corporation, move its place of incorporation from Nevada to Delaware and
involved the acquisition of Hydro-Air Technologies, Inc. ("HAT") to become a
wholly-owned subsidiary of this Issuer, Solar Energy Limited.
Also on December 17, 1997, shareholders approved the placement of up to
10,000,000 additional shares of common stock, at $0.10, pursuant to Regulation
D, Rule 504 and/or 505, but limited to offers and sales to non-U.S. Residents. A
total of 9,800,000 shares were placed pursuant to Rule 504. A further total of
125,000 shares were placed pursuant to Rule 505. The Offering closed on or about
November 10, 1998. The Shareholders also approved a formula for the acquisition
of Hydro-Air Technologies, Inc. ("HAT"), for stock equal to 40% of the total
issued and outstanding of the company, on a fully diluted basis (following the
20 to 1 Reverse Split, and the proposed issuance of such of the additional
10,000,000 Regulation D shares as might have been placed). The issuance to HAT
is to proceed in phases. The first phase issuance of 170,400 was made about
April 15, 1998. The second phase issuance of 530,000 shares was made on October
23, 1998. The resulting total issued and outstanding 11,903,911 is further
illustrated in the following table:
<TABLE>
<CAPTION>
=========================================================================================================
Series # Tuaris Salvage Solar Energy
Issuances (20 to 1)
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<S> <C> <C> <C> <C>
1ss.4(2) 25,000,000 1,250,000
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2ss.504 451,260 22,562
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Subtotal 25,451,260 1,272,562
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Adjustment (1) 5,949
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Subtotal 5,949
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Interim Total 1,278,511 1,278,511
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3ss.504 9,800,000
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4ss.505 125,000
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5ss.4(2) 700,400
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Total Issued 11,903,911
=========================================================================================================
</TABLE>
<PAGE>
Hydro-Air Technologies, Inc. (the Issuer's wholly-owned subsidiary) is a
development stage company, founded by Dr. Melvin L. Prueitt, David Jones,
Stanley Prueitt and Leslie Speir, which company has developed certain
intellectual property rights with which they intend to generate commercially
viable electrical power using the energy of vaporization. The intellectual
property rights are called Hydro-Air Renewable Power System ("HARPS") and
include two U.S. Patents, one granted on September 3, 1996 (number 5,551,238)and
a second granted on July 28, 1998 (number 5784886). Management of the Issuer
regards this acquisition HAT as an investment by this Issuer in future growth of
demand for HARPS.
(b) Business of the Issuer. Solar Energy Limited is a public U.S. company
listed on the OTC Electronic Bulletin Board ("OTCBB") whose ticker symbol is
"XSEL". The Company's thrust is to explore and/or develop alternative energy
systems that are environmentally friendly in addition to being economically
viable and competitive. It is estimated that the world needs 50% more electrical
power in the next 25 years. It is calculated that, at the current use, there are
44 years of oil, 57 years of gas, 91 years of uranium and 564 years of coal
left. What is an alternative? Solar power in several forms. The sun discharges
on the earth enough energy each day to fill our global total energy requirements
for many years. We only need to tap a small portion of the sunlight. At the same
time the globe's second major problem, lack of water, could also be solved (it
is mainly a lack of inexpensive power to fuel desalination plants).
Projects
1. HARPS. As a first project, XSEL purchased 100% of a private company
located in Los Alamos, New Mexico. This operating company, Hydro-Air
Technologies, Inc. ("HAT") has as its main assets certain technology,
patents, and intellectual property rights to devices the concept produces
electricity using the energy of evaporation. One quart of water has about
one-twentieth the energy of a quart of gasoline. The process derived from
this technology, called Hydro Air Renewable Power Systems ("HARPS"), is an
efficient and environmentally friendly energy source. It uses only dry air
and water (either fresh, ocean, or waste water) to produce
electricity--while at the same time cleaning the air! Initial computer
driven studies indicate that electricity could be produced at one-third
the current cost of electricity generated by nuclear or fossil fuel
plants. A working prototype is being built in Los Alamos and is scheduled
to be ready in December 1998. The HARPS units can be small enough for a
house or large enough to service a state. In theory, on a few hundred
acres of land on the Baja, California coast, enough electricity could be
produced to service the needs of Canada, the U.S. and Mexico. HAT was
founded by and is headed by Dr. Melvin Prueitt, a world renowned research
scientist, author of three books and more than thirty publications. One of
his many achievements is that he was the first to determine the
temperature of a lightning bolt. He holds twelve patents and is listed in
Who's Who in America Index, Men of Achievement and Who's Who in the West.
Most of the team Dr. Prueitt assembled to assist in the project come from
the Los Alamos National Laboratory facilities, the world renowned research
center managed by the University of California for the Department of
Energy of the U.S. government.
2. ACES - HAT has recently acquired the rights of a second project called
Air Conditioner Energy System ("ACES"). This project is just underway and
is similar in theory to HARPS. The difference is that the ACES units are
primarily for single family residences. They are small, self-contained
roof mounted units that produce electricity with a unique bi-product -
cold air. That is, they provide electricity 24 hours a day whilst air
conditioning your house - for free! The theory also relies on using the
energy of vaporization but is simpler than the HARPS. Excess power can be
sold to the utility company. Again, a model/prototype is to be built with
the same team from HAT and is scheduled to be completed in 8 months.
3. Contract Pending - The Company has entered into a contract to produce a
prototype for another unique valuable energy system. Further information
respecting this program will be release when current confidentiality
agreement restrictions are satisfied or waived.
<PAGE>
4. Photovoltaics - Much work, time and research dollars are being spent
globally on this concept which is the direct production of electricity by
light passing through a photovoltaic medium. XSEL has already spent some
time and funds on this concept but the field is currently flooded with
hundreds of companies exploring this potential. For now XSEL is focusing
on investigating various new photovoltaic materials that are both
economical and have higher efficiencies than those now readily available.
5. Desalination Plants - The main problem of desalination plants is that
the energy required per ton of water produced is quite high. A project
that XSEL will be pursuing is to couple one of XSEL's HARPS units to an
efficient osmosis desalination plant.
Cash Flow. In all of XSEL's projects, the concept is to produce a working
model/prototype that can be tested as to efficiency, cost of product, etc. The
decision whether to produce the units directly (HARPS, ACES, etc.) or whether to
license other companies the right to manufacture and distribute the unit is yet
to be decided. More likely, it will be a combination of some company owned
plants combined with territorial licenses to other qualified manufacturers. The
market for HARPS and ACES units is enormous but it should be emphasized that the
HARPS and ACES concepts work best in global areas with low humidity and dry air.
Theoretically all of North America could be served as well as parts of China,
Australia, much of Africa, NW India, the Middle East and various other parts of
the world. The amount of units to be sold will be dependant on the ability of
the Company to raise sufficient working capital for its own manufacturing plants
and the ability of the Company to franchise or license other facilities
globally. It follows that the ability of the Company to raise funds will be
dependent on the performance of the prototypes currently in development and
production.
Item 2. Management's Discussion and Analysis or Plan of Operation.
This Issuer has had no revenues since inception. In December of 1997 the
"Issuer Company" merged with and became Solar Energy Limited and acquired the
"Operating Company" Hydro-Air Technologies, Inc. (the Issuer's wholly-owned
subsidiary). The Issuer's business consists entirely of the activities of HAT:
research and development of working prototypes of the projects identified in the
Description of Business hereto fore. HAT's development team has made substantial
progress in proving the viability of the scientific and chemical processes which
underlie the HYDRO AIR RENEWABLE POWER SYSTEMS (HARPS), an efficient and
environmentally friendly energy source. It uses only dry air and water (either
fresh, ocean, or waste water) to produce electricity--while at the same time
cleaning the air! Initial computer driven studies indicate that electricity
could be produced at one-third the current cost of electricity generated by
nuclear, or fossil fuel plants. Currently a working prototype is being built in
Los Alamos. Additional development is necessary to move from the prototype stage
(which demonstrates that the system works) to the production and packaging of a
commercial product for sale. Preliminary work is proceeding on other projects
mentioned heretofore.
The Issuer is sufficiently liquid and funded with sufficient capital
resources for the next twelve months. It has no plans for significant sales
during the next twelve months. Expansion of its present office and lab is under
consideration, and the operating subsidiary is likely to employ more laboratory
assistants in the near future to assist Dr. Prueitt and his consulting staff in
speeding up the development process, and purchases of additional laboratory
equipment is also likely. While no guarantee can be given as to when the
company's operations will achieve substantial profitability, a reasonable
estimate is believed to be one to two years of transition from its development
stage to a true operational stage with sales and distribution.
<PAGE>
Item 3. Description of Property.
The Company's principal offices are located at 112 C Longview Drive, Los
Alamos, New Mexico, 87544. The facilities consist of a leased plant and building
of about 3,400 square feet, including offices and laboratory facilities in which
prototype development is on-going. The lease payments are $2,300 per month, in
addition to normal utilities. These headquarters of the Operating Subsidiary are
located minutes away for the prestigious Los Alamos National Laboratory.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
To the best of Issuer's knowledge and belief the following disclosure
presents, as of the date of this Report, December 15, 1998, the total beneficial
security ownership of all Directors and Nominees, naming them, and by all
Officers and Directors as a group, without naming them, of Issuer, known to or
discoverable by Issuer, and the total security ownership of all persons,
entities and groups, known to or discoverable by Issuer, to be the beneficial
owner or owners of more than five percent of any voting class of Issuer's stock.
More than one person, entity or group could be beneficially interested in the
same securities, so that the total of all percentages may accordingly exceed one
hundred percent. Issuer has only one class of stock, issued and outstanding,
namely Common Voting Equity Shares.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
PLEASE SEE TABLE ON NEXT PAGE
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
Name and Address of Beneficial Owner Share Share
Ownership % Attribution %
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<S> <C> <C> <C> <C> <C>
Dr. Melvin L. Prueitt (1) 67,239 0.56 540,709 4.54
146A Estagate Drive
Los Alamos, New Mexico, 87544 Chairman/Director
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Joel S. Dumaresq 20,000 0.17
1177 West Hastings
Vancouver BC V6E 2K3 President/Director
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Norman Wareham Secretary-Treasurer/Director -0- 0.00
1177 West Hastings
Vancouver BC V6E 2K3
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David M. Jones (1) 33,619 0.28 540,709 4.54
146A Estagate Drive
Los Alamos, New Mexico, 87544 Director
- - --------------------------------------------------------------------------------------------------------------------------------
Leslie Speir (1) 33,619 0.28 540,709 4.54
1177 West Hastings
Vancouver BC V6E 2K3 Director Subsidiary
- - --------------------------------------------------------------------------------------------------------------------------------
Stanley Prueitt (1) 33,619 0.28 540,709 4.54
1177 West Hastings
Vancouver BC V6E 2K3 Director Subsidiary
================================================================================================================================
Officers and Directors as a Group 188,096 1.58
================================================================================================================================
- - --------------------------------------------------------------------------------------------------------------------------------
Hydro-Air Founders (1) 90,653 0.76 540,709 4.54
1177 West Hastings
Vancouver BC V6E 2K3
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Diane Poole (2) 100,000 0.84 940,000 7.90
1177 West Hastings
Vancouver BC V6E 2K3
- - --------------------------------------------------------------------------------------------------------------------------------
Baycove Investments, Ltd. (2) 490,000 4.12 940,000 7.90
1177 West Hastings
Vancouver BC V6E 2K3
- - --------------------------------------------------------------------------------------------------------------------------------
Baycove Capital Crop. (2) 350,000 2.94 940,000 7.90
1177 West Hastings
Vancouver BC V6E 2K3
================================================================================================================================
Total Shares Issued and Outstanding 11,903,963 100.00 11,903,963 100.00
================================================================================================================================
</TABLE>
(1) The Founders of HAT are the interested persons in the Hydro-Air Founders. In
addition to displaying the actual shares of each, the total of all is shown as
attributed to each.
(2) Rene Poole is a Director of the two Baycove entities. Diane Poole is Rene
Poole's daughter. These shareholders report that they are a single group of
related shareholders.
Changes in Control. There are no arrangements known to Registrant,
including any pledge by any persons, of securities of Registrant, which may at a
subsequent date result in a change of control of Registrant.
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The following information is provided concerning the Management of Issuer,
including all current directors and officers, and positions with the Company.
All directors were elected at the last meeting of shareholders on August 7,
1998, and will hold office until the next annual meeting of shareholders and
until their successors have been elected and qualified. The officers are elected
by the Board of Directors at the first meeting after each annual meeting of
shareholders and hold office until their successors are elected. The date of the
next annual meeting of the Company has not yet been set.
(1) Management. The management of the Company is presently provided on a
day-to-day basis by personnel of the Company. The overall management of the
Company is presently under the direction and control of its officers and
directors.
The Board of Directors of this Company, Solar Energy Limited, consists of,
Joel S. Dumaresq, Norman Wareham, Dr. Prueitt and David Jones.
The Board of Directors of the subsidiary, Hydro-Air Technologies, Inc.,
consists of Dr. Prueitt and David Jones, Leslie Speir, and Stanley Prueitt.
Dr. Melvin L. Prueitt, is the Chairman of the Board of Directors of the
Company and President of the Company's wholly-owned subsidiary, Hydro-Air
Technologies, Inc. Dr. Prueitt received his B.S. from the Brigham Young
University, his M.S. from the University of Arizona and his Ph.D. from the
University of New Mexico, all in physics. Following his graduation from the
University of Arizona, Dr. Prueitt joined the Los Alamos National Laboratory
where he remained until 1993. He has developed a method which combines dry air
and water under controlled conditions to release the energy of vaporization of
water. This method called HARPS (Hydro-Air Renewable Power System), uses the
energy developed thereby to drive a turbine and generator for the production of
electric power. HARPS produces no atmospheric pollutants, and, since it produces
large quantities of air, it can be used to clean particulates and some noxious
gases from polluted air by adding a wet scrubber to the exhaust air. Unlike
nuclear plants, it produces no radioactive materials that must be disposed of,
unlike coal-fired plants it requires no land-scarring strip mining, and unlike
oil-fired plants it does not contribute to the imbalance of foreign trade. Dr.
Prueitt, who holds 12 U.S. patents, was the first to determine the temperature
of lighting strikes. A prolific research scientist and writer, he has authored
three books and has been published in over 30 publications. He is listed in
Who's Who in the West, Who's Who in America Index, Men of Achievement,
Dictionary of International Biography and Contemporary Authors.
Joel S. Dumaresq, is the Company's President. He is also CFO of Nifco
Synergy, Inc. developing financial controls and systems for Expert Software
Developer with operations in Canada, the United States and Mexico, and was
instrumental in securing $27 million Class 12 Software financing for the
company. Mr. Dumaresq was President of Westair Aviation, Inc., responsible for
re-organizing and re-financing this air ambulance company. His experience with
corporate finance, institutional equity sales and investment brokerage spans the
past decade.
Norman Wareham is the Company's Secretary-Treasurer, and Chief Financial
Officer. He has a comprehensive background in implementing information systems
for public and private companies, with particular expertise in financial
management and tax planning. He was president of Global Financial Corporation in
the British West Indies, and has been a public accountant for 25 years, owning
two accounting firms. Mr. Wareham is currently on the board of directors and is
chief financial officer for several public companies, including the ZMAX
<PAGE>
Corporation, and Cybernet Internet Services International, Inc. He is also
president of Wareham Management Ltd., a private company engaged in management
consulting for public and private companies.
David Jones brings to the Company 17 years of business experience
resulting from starting and developing Jomar Systems, Inc., which specialized in
the design and manufacture of nuclear assay equipment, and 32 years of systems
development experience involving electronic circuit design, mechanical apparatus
design, application software and firmware design, manufacturing and integration.
In addition to publishing several articles on nuclear instrumentation and
methods, Mr. Jones holds a patent for "Method & Apparatus for Controlling
Multiple Motors". In 1992, David F. Jones was awarded the "Excellence in
Enterprise" award by the Los Alamos Economic Development Corporation, the Los
Alamos National Bank and the Los Alamos National Laboratory.
Leslie Speir brings to the Company solid technical experience in systems
design, and in heading up mechanical design teams. He is presently Senior
Designer for the Process Equipment Section, Merrick and Company, having
participated in the Cold Vacuum Drying Facility for the DOE Richland Operations
Office, and he designed equipment for the Pit-9 Waste Reclamation
Characterization Facility. He enriches the Company with specialized knowledge
and experience in construction, operation and maintenance of electro-mechanical
and hydraulic systems, refrigeration equipment, gas chromatographs, ultra high
vacuum systems, and mass pectrometer leak detectors, as well as engineering
stress and dynamic drive train and basic nuclear physics calculations and
radiation exposure computations, heat flow calculations and operation and
maintenance of nuclear reactors including pressurized water sodium cooled and
gas cooled variation. He is also trained and experienced in health physics
surveying techniques and radiological hazards control.
Stanley Prueitt brings the Company a range of business, management and
personnel skills along with solid experience in project controls and
coordination. His executive experience includes marketing, franchising, news
director, and business start-up, and the organization of public companies. He
speaks, reads and writes Scandinavian languages and is an experienced
motivational speaker and conductor of public seminars, a very active member of
the New Mexico Mounted Patrol.
Item 6. Executive Compensation.
(1) Executive Compensation. The Officers and Directors of the Issuer
Company serve without compensation at this time. No plan of compensation has
been adopted or is under consideration at this time. None of the Directors
currently receives, or has ever received, any salary from the Company in their
capacities as such, and none are expected to be compensated in their capacities
as such. No officers are expected to receive any compensation for their
services. No officers or directors are under an employment contract with the
Company. Each Officer presently devotes an insubstantial amount of time to the
affairs of the Company. The Company has no retirement, pension, profit sharing,
or insurance or medical reimbursement plans.
The Officers and Directors of the Operating subsidiary are compensated for
their time on an hourly wage basis. The only full-time person is Dr. Prueitt,
whose compensation is set at $35.00 per hour. Compensation is not specifically
for duties as Officers and Directors as such, but generally for participation in
all their activities of the Operating Subsidiary.
<PAGE>
Item 7. Certain Relationships and Related Transactions.
As previously mentioned, the founders of HAT are interested persons in the
Hydro-Air Founders, an entity created by the founders of HAT to determine the
ultimate and phased distribution of shares issued and to be issued to HAT for
its acquisition by this Issuer. Exhibit 6.3, the Founders Agreement, sets forth
the terms and basis for the calculations, and identifies the individuals
included in the class of Hydro-Air Founders.
<PAGE>
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PART II
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Item 1.
Market Price of and Dividends on Registrant's Common Equity
and Shareholder Matters.
(a) Market Information. The Common Stock of this Issuer is quoted Over the
Counter on the Bulletin Board ("OTCBB"). There was no substantial market
activity before December 1998. Based upon standard reporting sources, the
following information is provided:
<TABLE>
<CAPTION>
==========================================================================================================
PERIOD high bid low bid period high bid low bid
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4th 1997 15.50 13.50 2nd 1998 13.50 5.00
- - ----------------------------------------------------------------------------------------------------------
1st 1998 15.50 5.00 3rd 1998 11.00 4.00
==========================================================================================================
</TABLE>
The foregoing price information is based upon inter-dealer prices without
retail mark-up, markdown or commissions and may not reflect actual transactions.
(b) Holders. There are approximately 225 shareholders of this Issuer.
(c) Dividends. No cash dividends have been paid by the Company on its
Common Stock or other Stock and no such payment is anticipated in the
foreseeable future.
Item 2. Legal Proceedings.
There are no legal, administrative or enforcement proceedings pending,
anticipated or suspected, to which this Issuer is a party or which is expected
to impact upon the Issuer or its Financial Statements.
Item 3. Changes in and Disagreements with Accountants.
None.
Item 4. Recent Sales of Unregistered Securities.
Immediately before the Reorganization of August 20, 1996, Taurus
Enterprises, Inc. had 25,000,000 shares issued and outstanding in a single class
of common equity voting stock, in two administrative Series: (1) Series 1
consisting of 25,000,000 issued to organizers on January 5, 1994; and (2) Series
2 consisting of 285,000 shares,issued during 1996 to investors pursuant to Rule
504. Pursuant to the Reorganization of that date, Salvage World, Inc. issued
25,285,000 shares to the shareholders of Taurus Enterprises, Inc. for all assets
and capital stock of Taurus. Pursuant to the ARTICLES AND PLAN OF MERGER of
August 1996 that the effect of this transaction was a change of situs from
Delaware to Nevada. Designation of Series was for administrative and descriptive
purposes only, there being only one class of common equity voting stock, and all
shares thereof enjoying identical rights.
<PAGE>
On or about December 17, 1997, pursuant to shareholder approval, the
Issuer effected "a proposal to Reverse Split the Common Stock of the Corporation
20 to 1; with the provision that no Shareholder owning 100 shares or more shall
be reversed or reduced below 100 Shares". The result of this action was (1) that
the (Series 1) 25,000,000 shares were revered to 1,250,000 shares; and (2) that
the (Series 2) 451,260 shares were reduced to 22,562 shares. On or about the
same time, December 17, 1997, the Issuer, also pursuant to shareholder approval,
authorized two further issuances of common stock: (3)(4) a further 10,000,000
(post reverse) shares were offered, some pursuant to Rule 504 and some pursuant
to Rule 505, and designated Series 3 and 4, respectively; and (5) shares were
designated Series 5, for the acquisition of Hydro-Air Technology, Inc., pursuant
to ss.4(2) of the Securities Act of 1933.
<TABLE>
<CAPTION>
==========================================================================================================================
DATES Shares Description
==========================================================================================================================
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
12/31/94 1,250,000 Inception: Cash and Services
==========================================================================================================================
1,250,000 Total Issued during 1994-1995
==========================================================================================================================
- - --------------------------------------------------------------------------------------------------------------------------
8/14/96 13,000 for cash at $0.10 for a total of $26,000.00
- - --------------------------------------------------------------------------------------------------------------------------
8/14/96 8,312 for cash at $0.01 for a total of $251.00
- - --------------------------------------------------------------------------------------------------------------------------
10/29/96 1,250 for cash at $.00458 for a total of $762.00
- - --------------------------------------------------------------------------------------------------------------------------
12/31/96 5,949 (carried at par=$0.0001) for rounding adjustment in favor of
existing shareholders, owning 100 shares or less
==========================================================================================================================
28,511 Total Issued during 1996 (Rule 504)
==========================================================================================================================
- - --------------------------------------------------------------------------------------------------------------------------
1/98 170,400 Issued Phase One for Hydro-Air Technologies acquisition
(ss.4[2])(Rule 145)
- - --------------------------------------------------------------------------------------------------------------------------
1/98 3,250,000 for cash at $0.10 for a total of $325,000.00
(Rule 504)
- - --------------------------------------------------------------------------------------------------------------------------
1/98 125,000 for cash at $1.00 to investors pursuant to Rule 505, for a total of
$125,000.00 (Rule 505)
- - --------------------------------------------------------------------------------------------------------------------------
7/98-9/98 1,650,000 for cash at $0.10 to investors pursuant to Rule 504, for a total of
$105,000.00 (Rule 504)
- - --------------------------------------------------------------------------------------------------------------------------
10/98 530,000 Issued Phase Two for Hydro-Air Technologies acquisition
(ss.4[2])(Rule 145)
- - --------------------------------------------------------------------------------------------------------------------------
10/98 2,900,000 for cash at $0.10 for a total of $290,000.00 to investors (Rule 504)
- - --------------------------------------------------------------------------------------------------------------------------
11/98 2,000,000 for cash at $0.01 for a total of $20,000.00 ( Rule 504)
==========================================================================================================================
10,625,400 Total Issued during 1998
==========================================================================================================
11,903,911 TOTAL ISSUED AND OUTSTANDING through December 15, 1998
==========================================================================================================
</TABLE>
The final Phase Three Issuance for Hydro-Air Technologies acquisition
(ss.4[2])(Rule 145) of approximately 7,345,400 shares is anticipated at close of
1998.
<PAGE>
Item 5. Indemnification of Officers and Directors.
The Certificate of Incorporation of this Issuer provides for the following
indemnity of Directors: that they "shall not be liable to either the corporation
or its stockholders for monetary damages for breach of fiduciary duty unless the
breach involves: (1) a directors duty of loyalty to the corporation or its
stockholders; (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) liability for unlawful
payments of dividends or unlawful stock purchases or redemption by the
corporation; or (4) a transaction from which the director derived an improper
personal benefit."
<PAGE>
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PART F/S
- - --------------------------------------------------------------------------------
(a) Selected Financial Data
================================================================================
6/30/98 12/31/97 12/31/96
================================================================================
================================================================================
$367,775 $500 $4,500
Total Assets
- - --------------------------------------------------------------------------------
309 -0- -0-
Revenues
- - --------------------------------------------------------------------------------
481,818 4,000 24,013
Operating Expenses
- - --------------------------------------------------------------------------------
Net Earnings or (Loss) (481,509) (4,000) (24,013)
- - --------------------------------------------------------------------------------
Per Share Earnings
or (Loss) (.187) (.003) (.019)
- - --------------------------------------------------------------------------------
Weighted Average
Common Shares 2,537,911 1,250,000 1,254,352
Outstanding
================================================================================
(2) Audited Financial Statements are provided as
Exhibit F1 hereto: Audited Financial Statements: Solar Energy Limited:
Consolidated: June 30, 998, December 31, 1997 and 1996
Exhibit F2 hereto: Audited Financial Statements: Hydro-Air Technologies, Inc.:
Subsidiary: November 15, 1998, December 31, 1997 and 1996
<PAGE>
- - --------------------------------------------------------------------------------
PART III
- - --------------------------------------------------------------------------------
Item 1. Index to Exhibits.
Exhibit Index
Each Exhibit is filed under an Exhibit Cover-page, and indexed by the
Exhibit Number, Description, and sequential page number of this Registration
Statement. Exhibit Table References Numbers refer to the number assigned each
category of documents by Part III of Form 1-A.
<TABLE>
<CAPTION>
==========================================================================================================================
Exhibit Table Category / Description of Exhibit Page
Table Number
#
- - --------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C>
F-1 Audited Financial Statements: Solar Energy Limited: Consolidated:
June 30, 998, December 31, 1997 and 1996
- - --------------------------------------------------------------------------------------------------------------------------
F-2 Audited Financial Statements: Hydro-Air Technologies, Inc.: Subsidiary:
June 30, 998, December 31, 1997 and 1996
- - --------------------------------------------------------------------------------------------------------------------------
[2] Articles/Certificates of Incorporation, and By-Laws
- - --------------------------------------------------------------------------------------------------------------------------
2.1 Certificate of Incorporation: Solar Energy Ltd.
- - --------------------------------------------------------------------------------------------------------------------------
2.2 By-Laws of Solar Energy Ltd.
- - --------------------------------------------------------------------------------------------------------------------------
2.3 Articles of Incorporation: Hydro-Air Technologies, Inc.
- - --------------------------------------------------------------------------------------------------------------------------
2.4 By-Laws: Hydro-Air Technologies, Inc.
- - --------------------------------------------------------------------------------------------------------------------------
[3] INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
- - --------------------------------------------------------------------------------------------------------------------------
3 Specimen Certificate: Class A Common Voting Equity Stock
- - --------------------------------------------------------------------------------------------------------------------------
[5] VOTING TRUST
- - --------------------------------------------------------------------------------------------------------------------------
5 Voting Trust Agreement
- - --------------------------------------------------------------------------------------------------------------------------
[6] Material Contracts/Acquisition
- - --------------------------------------------------------------------------------------------------------------------------
6.1 First Amendment to Offer to Purchase and Plan of Internal Funding and Share Release
and Plan of Reorganization and Acquisition
- - --------------------------------------------------------------------------------------------------------------------------
6.2 Stock Restriction Agreement
- - --------------------------------------------------------------------------------------------------------------------------
6.3 Founders Agreement
==========================================================================================================================
</TABLE>
<PAGE>
Signatures
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: December 15, 1998
- - ------------------------------- -----------------------------------
Dr. Melvin L. Prueitt Joel S. Dumaresq
Chairman/Director President/Director
- - ------------------------------- -----------------------------------
Norman Wareham David M. Jones
Secretary/Treasurer/Director Director
<PAGE>
- - --------------------------------------------------------------------------------
Exhibit F-1
Audited Financial Statements:
Solar Energy Limited: Consolidated:
June 30, 998, December 31, 1997 and 1996
- - --------------------------------------------------------------------------------
<PAGE>
Solar Energy Limited
(formerly Salvage World, Inc.)
(a Development Stage Company)
Consolidated Financial Statements
June 30, 1998, December 31, 1997 and 1996
<PAGE>
C O N T E N T S
Accountants' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . .5
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . 7
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . 8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Solar Energy Limited
We have audited the accompanying consolidated balance sheets of Solar Energy
Limited (a Development Stage Company) as of June 30, 1998, December 31, 1997 and
1996 and the related consolidated statements of operations, stockholders' equity
and cash flows for the six months ended June 30, 1998 and the years ended
December 31, 1997, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Solar Energy Limited
(a Development Stage Company) as of June 30, 1998, December 31, 1997 and 1996
and the results of its operations and cash flows for the six months ended June
30, 1998 and the years ended December 31, 1997, 1996 and 1995 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring operating losses and is
dependent upon financing to continue operations. These factors raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in the Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Salt Lake City, Utah
<PAGE>
September 10, 1998
Solar Energy Limited
(formerly Salvage World, Inc.)
(a Development Stage Company)
Consolidated Balance Sheets
Assets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 1996
<S> <C> <C> <C>
Current assets
Cash $ 266,595 $ - $ 3,500
Tax refunds receivable 5,555 - -
--------------- -------------- ----------------
Total Current Assets 272,150 - -
--------------- --------------- ----------------
Property & Equipment (Note 5) 9,351 - -
--------------- --------------- ----------------
Other Assets
Organization costs (Note 1) 1,857 500 1,000
Patent Costs (Note 6) 9,406 - -
Goodwill (Note 7) 75,011 - -
--------------- --------------- ----------------
Total Other Assets 86,274 500 1,000
--------------- --------------- ----------------
Total Assets $ 367,775 $ 500 $ 4,500
=============== =============== ================
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C>
Current Liabilities
Accounts payable 283,168 - -
Loan payable-related party (Note 8) 100,000 - -
Accrued interest 15,616 - -
--------------- --------------- ----------------
Total Current Liabilities 398,784 - -
--------------- --------------- ----------------
Stockholders' Equity
Common Stock, authorized
50,000,000 shares of $.0001 par value,
issued and outstanding 4,823,911 and
1,278,511 shares respectively 482 128 128
Additional Paid in Capital 479,031 29,385 29,385
Deficit Accumulated During the
Development Stage (510,522) (29,013) (25,013)
--------------- --------------- ----------------
Total Stockholders' Equity (31,009) 500 4,500
--------------- --------------- ----------------
Total Liabilities and Stockholders' Equity $ 367,775 $ 500 $ 4,500
=============== =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
Solar Energy Limited
(formerly Salvage World, Inc.)
(a Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the
Six Months Cumulative
Ended For the years ended December 31, Total
June 30, ------------------------------------------- Since
1998 1997 1996 1995 Inception
------------ ------------ ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues: $ - $ - $ - $ - $ -
Expenses:
Amortization 9,942 500 500 500 11,942
Bank Charges 284 - - - 284
Bad Debt 225,000 - - - 225,000
Consulting 11,675 - 2,218 - 13,893
Filing fees - - 235 - 235
Financial services - 3,500 8,540 - 12,040
Interest Expense 15,616 - - - 15,616
Legal 30,879 - 12,500 - 43,379
Notary - - 20 - 20
Research & Development 133,856 - - - 133,856
Travel 54,566 - - - 54,566
------------ ------------ ------------- -------------- -----------
Total Expenses 481,818 4,000 24,013 500 510,831
------------ ------------ ------------- -------------- -----------
Other Income (Expenses)
Interest Income 309 - - - 309
------------ ------------ ------------- -------------- -----------
Net (Loss) $ (481,509) $ (4,000) $ (24,013) $ (500) $ (510,522)
============ ============ ============= ============== ===========
Net Loss Per Share $ (.187) $ (.003) $ (.019) $ (.000) $ (.303)
============ ============ ============= ============== ===========
Weighted average shares outstanding 2,573,911 1,250,000 1,254,352 1,250,000 1,683,925
============ ============ ============= ============== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
Solar Energy Limited
(formerly Salvage World, Inc.)
(a Development Stage Company)
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock paid-in Development
Shares Amount capital Stage
----------- ----------- ----------- -----------
Balance at beginning of development
<S> <C> <C> <C> <C>
stage - January 5, 1994 $ -- $ -- $ -- $ --
Stock issued for organization cost 1,250,000 125 2,375 (500)
Net loss December 31, 1994
----------- ----------- ----------- -----------
Balance, December 31, 1994 1,250,000 125 2,375 (500)
Net loss December 31, 1995 (500)
----------- ----------- ----------- -----------
Balance, December 31, 1995 1,250,000 125 2,375 (1,000)
Shares issued for cash at $.10 13,000 1 25,999 --
Shares issued for cash at $.00458 8,312 1 761 --
Shares issued for cash at $.01 1,250 -- 251 --
Stock split rounding adjustment 5,949 1 (1) --
Net loss December 31, 1996 -- -- -- (24,013)
----------- ----------- ----------- -----------
Balance, December 31, 1996 1,278,511 128 29,385 (25,013)
Net loss December 31, 1997 -- -- -- (4,000)
----------- ----------- ----------- -----------
Balance, December 31, 1997 1,278,511 128 29,385 (29,013)
Shares issued for acquisition of
Hydro-Air Technologies, Inc. 170,400 17 (17) --
Shares issued for cash at $.10 per share 3,250,000 325 324,675 --
Shares issued for cash at $1.0 per share 125,000 12 124,988 --
Net loss for the six months ended
June 30, 1998 -- -- -- (481,509)
----------- ----------- ----------- -----------
Balance, June 30, 1998 4,823,911 $ 482 $ 479,031 $ (510,522)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
Solar Energy Limited
(formerly Salvage World, Inc.)
(a Development Stage Company)
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
January 5,
1994 (inception
For the of the
Six Months development
Ended For the years ended December 31, stage) to
June 30, --------------------------------------- June 30,
1998 1997 1996 1995 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash Flows form Operating
Activities
Net loss $(481,509) $ (4,000) $ (24,013) $ (500) $(510,522)
Adjustments to reconcile
net loss to net cash
provided by operations
(net of acquisition):
Amortization/Depreciation 9,942 500 500 500 11,942
Increase/Decrease in:
Accounts receivable (5,555) -- -- -- (5,555)
Accounts payable 274,747 -- -- -- 274,747
Accrued expenses 15,616 -- -- -- 15,616
--------- --------- --------- --------- ---------
Net Cash Flows used in
Operating Activities (186,759) (3,500) (23,513) -- (213,772)
--------- --------- --------- --------- ---------
Cash Flows from Investment
Activities:
Cash acquired from subsidiary 204,956 -- -- -- 204,956
Cash paid for Patent Costs (1,602) -- -- -- (1,602)
--------- --------- --------- --------- ---------
Net Cash Used in Investing
Activities 203,354 -- -- -- 203,354
--------- --------- --------- --------- ---------
Cash Flows from Financing
Activities:
Issued common stock for cash 450,000 -- 27,013 -- 477,013
Cash paid on advances by
shareholders (200,000) -- -- -- (200,000)
--------- --------- --------- --------- ---------
Net Cash provided by Financing
Activities 250,000 -- 27,013 -- 277,013
--------- --------- --------- --------- ---------
Net increase (decrease) in cash 266,595 (3)500 3,500 -- 266,595
Cash, beginning of year -- 3,500 -- -- --
--------- --------- --------- --------- ---------
Cash, end of year $ 266,595 $ -- $ 3,500 $ -- $ 266,595
========= ========= ========= ========= =========
</TABLE>
Supplemental Cash Flow Information
Cash Paid for:
Interest $ -- $ -- $ -- $ -- $ --
Taxes $ -- $ -- $ -- $ -- $ --
The accompanying notes are an integral part of these financial statements
7
<PAGE>
Solar Energy Limited
(formerly Salvage World, Inc.)
(a Development Stage Company)
Notes to The Consolidated Financial Statements
June 30, 1998, December 31, 1997 and 1996
NOTE 1 - Summary of Significant Accounting Policies
a. Organization
Solar Energy Limited ("the Company") was incorporated as Taurus
Enterprises, Inc. under the laws the State of Delaware on January 5,
1994. The Company was organized primarily for the purpose of operating
a used automobile brokerage firm. The Company did not become
operational and abandoned its attempts to establish the brokerage
operation.
In August of 1996 its shareholders decided to reactivate the
Company, merge the Company with Salvage World, Inc., a private company,
change the name to Salvage World, Inc. and reincorporate in the state
of Nevada.
On December 17, 1997 the Company merged with Solar Energy Limited
(Solar) a Delaware corporation organized on July 24, 1997 and changed
the name to Solar Energy Limited. The surviving corporation is the
Delaware corporation and the authorized shares were changed to
50,000,000 par value $.0001. Solar's headquarters are located in Los
Alamos, New Mexico.
Effective January 1, 1998 the Company issued the initial 170,400
stock for the acquisition of 100% of Hydro-Air Technologies, Inc.
(Hydro) a New Mexico corporation organized June 18, 1997. Hydro owns
various rights to patented intellectual property called Hydro-Air
Renewable Power System ("HARPS"), and has developed a prototype system
to generate electricity from the evaporation of water. Hydro's
headquarters are located in Los Alamos, New Mexico.
The Company is in the development stage according to Financial
Accounting Standards Board Statement No. 7 and is currently focusing
its attention on raising capital in order to pursue its goals.
b. Accounting Method
The Company recognizes income and expenses on the accrual basis of
accounting.
c. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based on
the weighted average number of shares outstanding at the date of the
financial statements.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with
maturities of three months or less to be cash equivalents.
The accompanying notes are an integral part of these financial statements
8
<PAGE>
Solar Energy Limited
(formerly Salvage World, Inc.)
(a Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1998, December 31, 1997 and 1996
NOTE 1 - Summary of Significant Accounting Policies (Continued)
e. Provision for Income Taxes
No provision for income taxes has been recorded due to net
operating loss carryforwards totaling approximately $500,000 that will
be offset against future taxable income. These NOL carryforwards begin
to expire in the year 2009. No tax benefit has been reported in the
financial statements because the Company believes there is a 50% or
greater chance the carryforward will expire unused.
Deferred tax assets and the valuation account is as follows at
June 30, 1998 and December 31, 1997 and 1996.
June 30, December 31,
1998 1997 1996
------------ ------------- -------------
Deferred tax asset:
NOL carrryforward $ 170,000 $ 8,504 $ 8,504
Valuation allowance (170,000) (8,504) (8,504)
------------ ------------- -------------
Total $ - $ - $ -
============ ============= =============
f. Organization Costs
The Company incurred $2,500 of organization costs in 1994.
These costs, which were paid by shareholders of the Company, were
exchanged for 1,250,000 shares of common stock. Organization costs are
being amortized on a straight line method over a 60 month period. These
costs will be recovered only if, the Company is able to generate a
positive cash flow from operations. Hydro incurred costs of $3,116 for
their organization.
g. Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. In these financial statements, assets involve
extensive reliance on management's estimates. Actual results could
differ from those estimates.
h. Principles of Consolidation
The Consolidated Financial Statements include the accounts of
Solar Energy Limited and its wholly owned subsidiary Hydro-Air
Technologies, Inc. All intercompany accounts and transactions have been
eliminated in the consolidation.
NOTE 2 - Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has had
recurring operating losses for the past several years and is dependent
upon financing to continue operations. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. It is management's plan to raise sufficient funds to
develop the next phase of the HARPS Technology and then begin to
manufacture and market the HARPS Power system.
The accompanying notes are an integral part of these financial statements
9
<PAGE>
Solar Energy Limited
(formerly Salvage World, Inc.)
(a Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1998, December 31, 1997 and 1996
NOTE 3 - Development Stage Company
The Company is a development stage company as defined in Financial
Accounting Standards Board Statement No. 7. It is concentrating
substantially all of its efforts in raising capital and developing its
business operations in order to generate significant revenues.
NOTE 4 - Stockholders' Equity Transactions
Pursuant to the plan or reorganization and merger agreement dated
August 20, 1996, the Company merged Taurus Enterprises, Inc. (a public
company) with Salvage World, Inc. (a private company). The shareholders
of Taurus returned their stock and received stock in the new combined
entity named Salvage World, Inc. The Company changed the par value of
its common stock from $.0001 to $.001.
Pursuant to the merger agreement dated December 17, 1997, the
Company merged with Solar Energy Limited and the shareholders of
Salvage received shares in the new combined Solar entity. The Company
then changed the par back to $.0001 and the new authorized capital
became 50,000,000. The Board then authorized a 1 for 20 reverse stock
split. These financial statements have been retroactively restated to
reflect the split.
The Company issued the initial 170,400 shares of stock to acquire
100% of the stock of Hydro-Air Technologies. The acquisition agreement
between the Company and Hydro-Air Technologies provides an initial
issuance of stock at the beginning of phase one, and additional
issuances throughout the development process to arrive at no less than
4,000,000 shares or 40% of the outstanding stock. Because Hydro had a
negative equity position goodwill was recorded and no value was
assigned to the stock issued.
The Company issued 3,250,000 shares of common stock in an exempt
504 offering at $.10 and raised $325,000 through June 30, 1998.
The Company also issued 125,000 shares of common stock for
$125,000 in a 505 exempt offering.
NOTE 5 - Property & Equipment
Property and equipment consists of the following at June 30, 1998
and December 31, 1997:
June 30, December 31,
1998 1997
------------- --------------
Office Equipment & Furniture $ 9,145 $ -
Tools 1,539 -
------------- --------------
10,684 -
Accumulated Depreciation (1,333) -
------------- --------------
Net Property & Equipment $ 9,351 $ -
============= ==============
Depreciation expense for the six months ended June 30, 1998 and
December 31, 1997 is $1,007 and $0, respectively.
The accompanying notes are an integral part of these financial statements
10
<PAGE>
Solar Energy Limited
(formerly Salvage World, Inc.)
(a Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1998, December 31, 1997 and 1996
NOTE 6 - Patent Costs
The Company has incurred legal costs in connection with the Patent
process which the Company has rights to, and has therefore capitalized
those costs and is amortizing them over a five year period.
NOTE 7 - Goodwill
The Company recorded Goodwill in connection with the acquisition
of Hydro, due to the negative equity position of Hydro. A total of
$83,346 was recorded upon acquisition and is being amortized over a 5
year period. The realization of this asset is contingent upon Hydro's
ability to generate revenues from the HARPS process.
NOTE 8 - Loans Payable - Related Party
FCIC a shareholder of the Company advanced $300,000 to the Company
for phase one expense requirements. $200,000 has been paid back,
leaving a $100,000 balance due at June 30, 1998. The advance is short
term with an interest rate of 8%.
NOTE 9 - Commitments
The founder of the HARPS technology has granted Hydro an exclusive
license to develop, manufacture and market the same. For the license
Hydro is committed to a 1% royalty on gross sales of the units and 1/2%
royalty on the sale of the electrical power generated by any power
plants owned by Hydro.
The Company is committed to a two year operating lease for office
space in Los Almos, New Mexico. Future minimum lease payments are as
follows at June 30, 1998.
1999 $ 27,600
2000 27,600
------------------
Total $ 55,200
==================
The accompanying notes are an integral part of these financial statements
11
<PAGE>
- - --------------------------------------------------------------------------------
Exhibit F-2
Audited Financial Statements:
Hydro-Air Technologies, Inc.: Subsidiary:
June 30, 998, December 31, 1997 and 1996
- - --------------------------------------------------------------------------------
<PAGE>
Hydro-Air Technologies, Inc.
(a Development Stage Company)
Financial Statements
June 30, 1998 and December 31, 1997
<PAGE>
C O N T E N T S
Accountants' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Statements of Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . 6
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Hydro-Air Technologies, Inc.
We have audited the accompanying balance sheets of Hydro-Air Technologies, Inc.
(a Development Stage Company) as of June 30, 1998 and December 31, 1997 and the
related statements of operations, stockholders' equity and cash flows for the
six months ended June 30, 1998 and the year ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hydro-Air Technologies, Inc. (a
Development Stage Company) as of June 30, 1998 and December 31, 1997 and the
results of its operations and cash flows for the six months ended June 30, 1998
and the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring operating losses and is
dependent upon financing to continue operations. These factors raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in the Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Salt Lake City, Utah
<PAGE>
August 19, 1998
Hydro-Air Technologies, Inc.
(a Development Stage Company)
Balance Sheets
Assets
June 30, December 31,
--------------- ----------------
1998 1997
--------------- ----------------
Current assets
Cash $ 229,600 $ 204,956
Tax refunds receivable 5,555 37
--------------- ----------------
Total Current Assets 235,155 204,993
--------------- ----------------
Property & Equipment (Note 5) 9,351 10,358
--------------- ----------------
Other Assets
Organization costs (Note 1) 1,608 1,357
Patent Costs (Note 6) 9,406 9,412
--------------- ----------------
Total Other Assets 11,014 10,769
--------------- ----------------
Total Assets $ 255,520 $ 226,120
=============== ================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 4,078 9,466
--------------- ----------------
Total Current Liabilities 4,078 9,466
--------------- ----------------
Stockholders' Equity
Common Stock, authorized
250,000 shares of no par value,
issued and outstanding 125,000 shares 510,110 510,110
Stock Subscriptions Receivable (30,000) (200,000)
Deficit Accumulated During the
Development Stage (228,668) (93,456)
--------------- ----------------
Total Stockholders' Equity 251,442 216,654
--------------- ----------------
Total Liabilities and Stockholders' Equity $ 255,520 $ 226,120
=============== ================
The accompanying notes are an integral part of these financial statements
4
<PAGE>
Hydro-Air Technologies, Inc.
(a Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
For the
Six Months For the Cumulative
Ended Year ended Total
June 30, December 31, Since
1998 1997 Inception
------------- -------------- -----------
<S> <C> <C> <C>
Revenues: $ - $ - $ -
Expenses:
Amortization 1,357 1,197 2,554
Research & Development 133,855 92,259 226,114
------------- -------------- -----------
Total Expenses 135,212 93,456 228,668
------------- -------------- -----------
Net (Loss) $ (135,212) $ (93,456) $ (228,668)
============= ============== ===========
Net Loss Per Share $ (1.08) $ (.75) $ (1.83)
============= ============== ===========
Weighted average shares outstanding 125,000 124,500 124,750
============= ============== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
Hydro-Air Technologies, Inc.
(a Development Stage Company)
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
--------- --------- ---------
<S> <C> <C> <C>
Balance at inception - June 18, 1997 $ -- $ -- $ --
Stock issued for services 99,000 110 --
Stock issued for cash and subscriptions 25,000 500,000 --
Shares issued for services 1,000 10,000 --
Net loss December 31, 1997 (93,456)
--------- --------- ---------
Balance, December 31, 1997 125,000 510,110 (93,456)
Net loss for the six months ended
June 30, 1998 -- -- (135,212)
--------- --------- ---------
Balance, June 30, 1998 125,000 $ 510,110 $(228,668)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
Hydro-Air Technologies, Inc.
(a Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
For the
Six Months For the June 18, 1997
Ended Year ended (inception) to
June 30, December 31, June 30,
1998 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows form Operating
Activities
Net loss $(135,212) $ (93,456) $(228,668)
Adjustments to reconcile
net loss to net cash
provided by operations
stock issued for services -- 10,110 10,110
Amortization/Depreciation 2,364 1,523 3,887
Increase/Decrease in:
Accounts receivable (5,518) (3) (5,556)
Accounts payable (5,388) 9,466 4,078
--------- --------- ---------
Net Cash Flows used in
Operating Activities (143,754) (72,395) (216,149)
--------- --------- ---------
Cash Flows from Investment
Activities:
Cash paid for organizational costs -- (3,115) (3,115)
Cash paid for Patent Costs (1,602) (8,850) (10,452)
Cash paid for property & equipment -- (10,684) (10,684
- - --------------------------------------- --------- --------- ---------
Net Cash Used in Investing
Activities (1,602) (22,649) (24,251)
--------- --------- ---------
Cash Flows from Financing
Activities:
Issued common stock for cash 170,000 300,000 470,000
--------- --------- ---------
Net Cash provided by Financing
Activities 170,000 300,000 470,000
--------- --------- ---------
Net increase (decrease) in cash 24,644 204,956 229,600
Cash, beginning of year 204,956 -- --
--------- --------- ---------
Cash, end of year $ 229,600 $ 204,956 $ 229,600
========= ========= =========
Supplemental Cash Flow Information
Cash Paid for:
Interest $ -- $ -- $ --
Taxes $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements
7
<PAGE>
Hydro-Air Technologies, Inc.
(a Development Stage Company)
Notes to The Financial Statements
June 30, 1998 and December 31, 1997
NOTE 1 - Summary of Significant Accounting Policies
a. Organization
Hydro-Air Technologies, Inc. ("the Company") was incorporated
under the laws the State of New Mexico on June 18, 1997. The Company
owns various rights to patented intellectual property called Hydro-Air
Renewable Power System ("HARPS"), and has developed a prototype system
to generate electricity from the evaporation of water. The Company's
headquarters are located in Los Alamos, New Mexico.
Effective January 1, 1998 the Company became a wholly owned
subsidiary of Solar Energy Limited, a Delaware corporation, through a
share for share exchange.
The Company is in the development stage according to Financial
Accounting Standards Board Statement No. 7 and is currently focusing
its attention on the continued development of the HARPS system.
b. Accounting Method
The Company recognizes income and expenses on the accrual basis of
accounting.
c. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based on
the weighted average number of shares outstanding at the date of the
financial statements.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with
maturities of three months or less to be cash equivalents.
e. Provision for Income Taxes
No provision for income taxes has been recorded due to net
operating loss carryforwards totaling approximately $225,000 that will
be offset against future taxable income. These NOL carryforwards begin
to expire in the year 2013. No tax benefit has been reported in the
financial statements because the Company believes there is a 50% or
greater chance the carryforward will expire unused.
Deferred tax assets and the valuation account is as follows at
June 30, 1998 and December 31, 1997:
June 30, December 31,
1998 1997
------------- --------------
Deferred tax asset:
NOL carrryforward $76,500 $ 31,700
Valuation allowance (7),500 (31)700
------------- --------------
Total $ - $ -
============= ==============
The accompanying notes are an integral part of these financial statements
8
<PAGE>
Hydro-Air Technologies, Inc.
(a Development Stage Company)
Notes to the Financial Statements
June 30, 1998, December 31, 1997 and 1996
NOTE 1 - Summary of Significant Accounting Policies (Continued)
f. Organization Costs
The Company incurred $3,115 of organization costs in 1997.
These costs are being amortized on a straight line method over a 60
month period and will be recovered only if, the Company is able to
generate a positive cash flow from operations.
g. Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. In these financial statements, assets involve
extensive reliance on management's estimates. Actual results could
differ from those estimates.
NOTE 2 - Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has had
recurring operating losses for the past several years and is dependent
upon financing to continue operations. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. It is management's plan to raise sufficient funds to
develop the next phase of the HARPS Technology and then begin to
manufacture and market the HARPS Power system.
NOTE 3 - Development Stage Company
The Company is a development stage company as defined in Financial
Accounting Standards Board Statement No. 7. It is concentrating
substantially all of its efforts in raising capital and developing its
business operations in order to generate significant revenues.
NOTE 4 - Stockholders' Equity Transactions
The Company issued 99,000 shares of stock to the organizers of the
Company valued at $110. Then in July 1997 the Company issued 25,000
shares for cash and subscriptions totaling $500,000. Cash of $300,000
was received by December 31, 1997 and a total of $470,000 by June 30,
1998.
In December 1997, the Company issued 1,000 shares for services
valued at $10,000.
The Company's shareholders received the initial 170,400 shares of
Solar Energy Limited for the surrender of their stock. The acquisition
agreement between the Company and Solar Energy Limited provides an
initial issuance of stock at the beginning of phase one, and additional
issuances throughout the development process to arrive at no less than
4,000,000 shares or 40% of the outstanding stock of Solar.
The accompanying notes are an integral part of these financial statements
9
<PAGE>
Hydro-Air Technologies, Inc.
(a Development Stage Company)
Notes to the Financial Statements
June 30, 1998, December 31, 1997 and 1996
NOTE 5 - Property & Equipment
Property and equipment consists of the following at June 30, 1998
and December 31, 1997:
June 30, December 31,
1998 1997
-------- --------
Office Equipment & Furniture $ 9,145 $ 9,145
Tools 1,539 1,539
-------- --------
10,684 10,684
Accumulated Depreciation (1,333) (326)
-------- --------
Net Property & Equipment $ 9,351 $ 10,358
======== ========
Depreciation expense for the six months ended June 30, 1998 and
December 31, 1997 is $1,007 and $326, respectively.
NOTE 6 - Patent Costs
The Company has incurred legal costs in connection with the Patent
process which the Company has rights to, and has therefore capitalized
those costs and is amortizing them over a five year period.
NOTE 7 - Commitments
The founder of the HARPS technology has granted the Company an
exclusive license to develop, manufacture and market the same. For the
license the Company is committed to a 1% royalty on gross sales of the
units and 1/2% royalty on the sale of the electrical power generated by
any power plants owned by the Company.
The Company is committed to a two year operating lease for office
space in Los Almos, New Mexico. Future minimum lease payments are as
follows at June 30, 1998.
1999 $ 27,600
2000 27,600
---------------------
Total $ 55,200
=====================
The accompanying notes are an integral part of these financial statements
10
- - --------------------------------------------------------------------------------
Exhibit 2.1
Certificate of Incorporation: Solar Energy Ltd.
- - --------------------------------------------------------------------------------
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/24/1997
971246614 - 2776436
CERTIFICATE OF INCORPORATION
OF
Solar Energy Limited
FIRST: The name of this corporation is Solar Energy Limited
SECOND: Its registered office in the State of Delaware is to be located
at 1313 N. Market Street, Wilmington DE 19801-1151, County of New Castle. The
registered agent in charge thereof is The Company Corporation, address "same as
above".
THIRD: The nature of the business and, the objects and purposes
proposed to be transacted, promoted and carried on, are to do any or all the
things herein mentioned as fully and to tyhe same extent as natural persons
might or could do, and in any part of the world, viz: The purpose of the
corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
FOURTH: The amount of the total authorized capital stock of this
corporation is divided into 50,000,000 shares of stock at .0001 par value.
FIFTH: The name and mailing address of the incorporator is as follows:
Regina Cephas, 1313 N. Market St., Wilmington DE 19801-1151
SIXTH: The Directors shall have power to make and to alter or amend the By-Laws;
to fix the amount to be reserved as working capital, and to authorize and cause
to be executed, mortgages and liens without limit as to the amount, upon the
property and franchise of the Corporation.
With the consent in writing, and pursuant to a vote of the holders of a
majority of the capital stock issued and outstanding, the directors shall have
the authority to dispose, in any manner, of the whole property of this
corporation.
The By-Laws shall determine whether and to what extent the accounts and
books of this corporation, or any of them shall be open to the inspection of the
stockholder; and no stockholder shall have any right of inspecting any account,
or book or document of this Corporation, except as conferred by the law of the
By-Laws, or by resolution of stockholders.
The stockholders and directors shall have power to hold their meetings
and keep the books, documents and papers of the Corporation outside of the State
of Delaware, at such places as may be from time to time designated by the
By-Laws or by resolution of the stockholders or directors, except as otherwise
required by the laws of Delaware
SEVENTH: Directors of the corporation shall not be liable to either the
corporation or its stockholders for monetary damages for a breach of fiduciary
duties unless the breach involves: (1) a directors duty of loyalty to the
corporation or its stockholders; (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (3)
liability for unlawful payments of dividends or unlawful stock purchase or
redemption by the corporation: or (4) a transaction from which the director
derived an improper personal benefit.
I, THE UNDERSIGNED, for the purpose of forming a Corporation under the laws of
the State of Delaware, do make, file and record this Certificate and do certify
that the facts herein are true; and I have accordingly hereunto set my hand.
DATED: July 24, 1997 /s/ Regina Cephas
- - -------------------- -----------------
Regina Cephas
- - --------------------------------------------------------------------------------
Exhibit 2.2
By-Laws of Solar Energy Ltd.
- - --------------------------------------------------------------------------------
<PAGE>
BY-LAWS
OF
SOLAR ENERGY, INC.
ARTICLE I - OFFICES
-------------------
1. REGISTERED OFFICE AND AGENT
The registered office of the corporation shall be maintained at
112C Longview Drive
Los Alamos, NM 87544
The registered office or the registered agent, or both, may be
changed by resolution of the board of directors, upon filing the statement
required by law.
2. PRINCIPAL OFFICE
The principal office of the corporation shall be at
112C Longview Drive
Los Alamos, NM 87544
provided that the board of directors shall have power to change the location of
the principal office in its discretion.
3. OTHER OFFICES
The corporation may also maintain other offices at such places
within or without the State of Delaware as the board of directors may from time
to time appoint or as the business of the corporation may require.
ARTICLE II - SHAREHOLDERS
-------------------------
1. PLACE OF MEETING
All meetings of shareholders, both regular and special, shall be
held either at the principal office of the corporation in Delaware or at such
other places, either within or without the state, as shall be designated in the
notice of the meeting.
2. ANNUAL MEETING
The annual meeting of shareholders for the election of directors
and for the transaction of all other business which may come before the meeting
shall be held on the 15th day of April in each year (if not a legal holiday and,
if a legal holiday, then on the next business day following) at the hour
specified in the notice of meeting.
If the election of directors shall not be held on the day above
designated for the annual meeting, the board of directors shall cause the
election to be held as soon thereafter as conveniently may be at a special
meeting of the shareholders called for the purpose of holding such election.
The annual meeting of shareholders may beheld for any other
purpose in addition to the election of directors which may be specified in a
notice of such meeting. The meeting may be called by resolution of the board of
directors or by a writing filed with the secretary signed either by a majority
of the directors or by shareholders owning a majority in amount of the entire
capital stock of the corporation issued and outstanding and entitled to vote at
any such meeting.
<PAGE>
3. NOTICE OF SHAREHOLDERS' MEETING
A written or printed 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) more than fifty
(50) days before the date of the meeting, either personally or by mail, by or at
the direction of the president, secretary or the officer or person calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
share transfer books of the corporation, with postage thereon prepaid.
4. VOTING OF SHARES
Each outstanding share with voting privileges, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders, except to the extent that the voting rights of the
shares of any class or classes are limited or denied by the Articles of
Incorporation or by law.
Treasury shares, shares of its own stock owned by another
corporation the majority of the voting stock of which is owned or controlled by
this corporation, and shares of its own stock held by this corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
A shareholder may vote either in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney-in-fact. No proxy
shall be valid after eleven (11) months from the date of its execution unless
otherwise provided in the proxy. Each proxy shall be revocable unless expressly
provided therein to be irrevocable, and in no event shall it remain irrevocable
for a period of more than eleven (11) months.
At each election for directors every shareholder entitled to
vote at such election shall have the right to vote, in person or by proxy, the
number of shares owned by him for as many persons as there are directors to be
elected and for whose election he has a right to vote, or unless prohibited by
the articles of incorporation, to cumulate his votes by giving one candidate as
many votes as the number of such directors multiplied by the number of his
shares shall equal, or by distributing such votes on the same principal among
any number of such candidates. Any shareholder who intends to cumulate his votes
as herein authorized shall give written notice of such intention to the
secretary of the corporation on or before the day preceding the election at
which such shareholder intends to cumulate his votes.
5. CLOSING TRANSFER BOOKS AND FIXING RECORD DATE
For the purpose of determining shareholders entitled to notice
of or to vote at any meeting of shareholders or any adjournment thereof, or
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other proper purpose, the board of directors may provide
that the share transfer books shall be closed for a stated period not exceeding
fifty (50) days. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting. In lieu of closing the stock transfer books, the by-laws
or in the absence of an applicable by-law the board of directors, may fix in
advance a date as the record date for any such determination of shareholders,
not later than fifty (50) days and, in case of a meeting of shareholders, not
earlier than ten (10) days prior to the date on which the particular action,
requiring such determination of shareholders is to be taken. If the share
transfer books are not closed and no record date is fixed for the determination
2
<PAGE>
of shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the board
of directors declaring such dividend is adopted, as the case may be, shall be
the record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof, except where the determination has been made through the closing of
share transfer books and the stated period of closing has expired.
6. QUORUM OF SHAREHOLDERS
Unless otherwise provided in the articles of incorporation, the
holders of a majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of shareholders, but in no
event shall a quorum consist of the holders of less than one-third (1/3) of the
shares entitled to vote and thus represented at such meeting. The vote of the
holders of a majority of the shares entitled to vote and thus represented at a
meeting at which a quorum is present shall be the act of the shareholders'
meeting, unless the vote of a greater number is required by law, the articles of
incorporation of the by-laws.
7. VOTING LISTS
The officer or agent having charge of the share transfer books
for the shares of the corporation shall make, at least ten (10) days before each
meeting of shareholders, a complete list of the shareholders entitled to vote at
such meeting or any adjournment thereof, arranged in alphabetical order, with
the address of and the number of shares held by each, which list, for a period
of ten (10) days prior to such meeting, shall be kept on file at the registered
office of the corporation and shall be subject to inspection by any shareholder
at any time during usual business hours. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any shareholder during the whole time of the meeting. The original
share transfer books shall be prima-facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote any
meeting of shareholders.
8. ACTION BY CONSENT OF SHAREHOLDERS
In lieu of a formal meeting, action may be taken by unanimous
consent of the shareholders.
ARTICLE III - DIRECTORS
-----------------------
1. BOARD OF DIRECTORS
The business and affairs of the corporation shall be managed by
a board of directors. Directors need not be residents of the State of Delaware
nor be shareholders in the corporation.
2. NUMBER AND ELECTION OF DIRECTORS
The number of directors shall be 3 provided that the number may
be increased or decreased from time to time by an amendment to these by-laws,
but no decrease shall have the effect of shortening the term of any incumbent
director. At each annual election the shareholders shall elect directors to hold
office until the next succeeding annual meeting.
3
<PAGE>
3. VACANCIES
Any vacancy occurring in the board of directors may be filled by
the affirmative vote of the remaining directors, though less than a quorum of
the board. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office. Any directorship to be filled by
reason of an increase in the number of directors shall be filled by election at
an annual meeting or at a special meeting of shareholders called for that
purpose.
4. QUORUM OF DIRECTORS
A majority of the board of directors shall constitute a quorum
for the transaction of business. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors.
5. ANNUAL MEETING OF DIRECTORS
Within thirty days after each annual meeting of shareholders the
board of directors elected at such meeting shall hold an annual meeting at which
they shall elect officers and transact such other business as shall come before
the meeting.
6. REGULAR MEETING OF DIRECTORS
A regular meeting of the board of directors may be held at such
time as shall be determined from time to time by resolution of the board of
directors.
7. SPECIAL MEETINGS OF DIRECTORS
The secretary shall call a special meeting of the board of
directors whenever requested to do so by the president or by two directors. Such
special meeting shall be held at the time specified in the notice of meeting.
8. PLACE OF DIRECTORS' MEETINGS
All meetings of the board of directors (annual, regular or
special) shall be held either at the principal office of the corporation or at
such other place, either within or without the State of Delaware, as shall be
specified in the notice of meeting.
9. NOTICE OF DIRECTORS' MEETINGS
All meetings of the board of directors (annual, regular or
special) shall be held upon five (5) days' written notice stating the date,
place and hour of meeting delivered to each director either personally or by
mail or at the direction of the president or the secretary or the officer or
person calling the meeting.
In any case where all of the directors execute a waiver of
notice of the time and place of meeting, no notice thereof shall be required,
and any such meeting (whether annual, regular or special) shall be held at the
time and at the place (either within or without the State of Delaware) specified
in the waiver of notice. Neither the business to be transacted at, nor the
purpose of, any annual, regular or special meeting of the board of directors
need be specified in the notice or waiver of notice of such meeting.
4
<PAGE>
10. COMPENSATION
Directors, as such, shall not receive any stated salary for
their services, but by resolution of the board of directors a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each annual,
regular or special meeting of the board, provided, that nothing herein contained
shall be construed to preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
11. ACTION BY CONSENT OF DIRECTORS
In lieu of a formal meeting, action may be taken by unanimous
written consent of the directors.
ARTICLE IV - OFFICERS
---------------------
1. OFFICERS ELECTION
The officers of the corporation shall consist of a president,
one or more vice-presidents, a secretary, and a treasurer. All such officers
shall be elected at the annual meeting of the board of directors provided for in
Article III, Section 5. If any office is not filled at such annual meeting, it
may be filled at any subsequent regular or special meeting of the board. The
board of directors at such annual meeting, or at any subsequent regular or
special meeting may also elect or appoint such other officers and assistant
officers and agents as may be deemed necessary. Any two or more offices may be
held by the same person, except the offices of president and secretary.
All officers and assistant officers shall be elected to serve
until the next meeting of directors (following the next annual meeting of
shareholders) or until their successors are elected; provided, that any officer
or assistant officer elected or appointed by the board of directors may be
removed with or without cause at any regular or special meeting of the board
whenever in the judgment of the board of directors the best interests of the
corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Any agent appointed
shall serve for such term, not longer than the next annual meeting of the board
of directors, as shall be specified, subject to like right of removal by the
board of directors.
2. VACANCIES
If any office becomes vacant for any reason, the vacancy may be
filled by the board of directors.
3. POWER OF OFFICERS
Each officer shall have, subject to these by-laws, in addition
to the duties and powers specifically set forth herein, such powers and duties
as are commonly incident to this office and such duties and powers as the board
of directors shall from time to time designate. All officers shall perform their
duties subject to the directions and under the supervision of the board of
directors. The president may secure the fidelity of any and all officers by bond
or otherwise.
4. PRESIDENT
The president shall be the chief executive officer of the
corporation. He shall preside at all meetings of the directors and shareholders.
He shall see that all orders and resolutions of the board are carried out,
subject however, to the right of the directors to delegate specific powers,
except such as may be by statute exclusively conferred on the president, to any
other officers of the corporation.
5
<PAGE>
He or any vice-president shall execute bonds, mortgages and
other instruments requiring a seal, in the name of the corporation, and, when
authorized by the board, he or any vice-president may affix the seal to any
instrument requiring the same, and the seal when so affixed shall be attested by
the signature of either the secretary or an assistant secretary. He or any
vice-president shall sign certificates of stock.
The President shall be ex-officio a member of all standing
committees.
He shall submit a report of the operations of the corporation
for the year to the directors at their meeting next preceding the annual meeting
of the shareholders and to the shareholders at their annual meeting.
5. VICE-PRESIDENTS
The vice-president shall, in the absence or disability of the
president, perform the duties and exercise the powers of the president, and they
shall perform such other duties as the board of directors shall prescribe.
6. THE SECRETARY AND ASSISTANT SECRETARIES
The secretary shall attend all meetings of the board and all
meetings of the shareholders and shall record all votes and the minutes of all
proceedings and shall perform like duties for the standing committees when
required. He shall give or cause to be given notice of all meetings of the
shareholders and all meetings of the board of directors and shall perform such
other duties as may be prescribed by the board. He shall keep in safe custody
the seal of the corporation, and when authorized by the board, affix the same to
any instrument requiring it, and when so affixed, it shall be attested by his
signature or by the signature of an assistant secretary.
The assistant secretary shall, in the absence or disability of
the secretary, perform the duties and exercise the powers of the secretary, and
they shall perform such other duties as the board of directors shall prescribe.
In the absence of the secretary or an assistant secretary, the
minutes of all meetings of the board and shareholders shall be recorded by such
person as shall be designated by the president or by the board of directors.
7. THE TREASURER AND ASSISTANT TREASURERS
The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
The treasurer shall disburse the funds of the corporation as may
be ordered by the board of directors, taking proper vouchers for such
disbursements. He shall keep and maintain the corporation's books of account and
shall render to the president and directors an account of all of his
transactions as treasurer and of the financial condition of the corporation and
exhibit his books, records and accounts to the president or directors at any
time. He shall disburse funds for capital expenditures as authorized by the
board of directors and in accordance with the orders of the president, and
present to the president for his attention any requests for disbursing funds if
in the judgment of the treasurer any such request is not property authorized. He
shall perform such other duties as may be directed by the board of directors or
by the president.
If required by the board of directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
6
<PAGE>
satisfactory to the board for the faithful performance of the duties of his
office and for the restoration to the corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his control
belonging to the corporation.
The assistant treasurers in the order of their seniority shall,
in the absence or disability of the treasurer, perform the duties and exercise
the powers of the treasurer, and they shall perform such other duties as the
board of directors shall prescribe.
ARTICLE V - CERTIFICATES OF STOCK: TRANSFER. ETC.
-------------------------------------------------
1. CERTIFICATES OF STOCK
The certificates for shares of stock of the corporation shall be
numbered and shall be entered in the corporation as they are issued. They shall
exhibit the holder's name and number of shares and shall be signed by the
president or a vice-president and the secretary or an assistant secretary and
shall be sealed with the seal of the corporation or a facsimile thereof. If the
corporation has a transfer agent or a registrar, other than the corporation
itself or an employee of the corporation, the signatures of any such officer may
be facsimile. In case any officer or officers who shall have signed or whose
facsimile signature or signatures shall have been used on any such certificate
or certificates shall cease to be such officer or officers of the corporation,
whether because of death, resignation or otherwise, before said certificate may
nevertheless be issued by the corporation with the same effect as though the
person or persons who signed such certificates or whose facsimile signature or
signatures shall have been used thereon had been such officer or officers at the
date of its issuance. Certificates shall be in such form as shall in conformity
to law be prescribed from time to time by the board of directors.
The corporation may appoint from time to time transfer agents
and registrars, who shall perform their duties under the supervision of the
secretary.
2. TRANSFERS OF SHARES
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction upon its books.
3. REGISTERED SHAREHOLDERS
The corporation shall be entitled to treat the holder of record
of any share or shares of stock as the holder in fact thereof and, accordingly
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not is shall have express
or other notice thereof, except as otherwise provided by law.
4. ISSUANCE OF ADDITIONAL SHARES
The corporation shall be enabled to issue additional common
shares or to create additional classes of stock, however any such issuance shall
require approval by three quarters (75%) of the then outstanding shares.
5. LOST CERTIFICATE
The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost. when authorizing such issue of a new certificate or
7
<PAGE>
certificates, the board of directors in its discretion and as a condition
precedent to the issuance thereof, may require the owner of such lost or
destroyed certificate or certificates or his legal representatives to advertise
the same in such manner as it shall require or to give the corporation a bond
with surety and in form satisfactory to the corporation (which bond shall also
name the corporation's transfer agents and registrars, if any, as obligees) in
such sum as it may direct as indemnity against any claim that may be made
against the corporation or other obligees with respect to the certificate
alleged to have been lost or destroyed, or to advertise and also give such bond.
ARTICLE VI - DIVIDEND
---------------------
1. DECLARATION
The board of directors may declare at any annual, regular or
special meeting of the board and the corporation may pay, dividends on the
outstanding shares in cash, property or in the shares of the corporation to the
extent permitted by, and subject to the provisions of, the laws of the State of
Delaware.
2. RESERVES
Before payment of any dividend there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time in their absolute discretion think proper as a
reserve fund to meet contingencies or for equalizing dividends or for repairing
or maintaining any property of the corporation or for such other purpose as the
directors shall think conducive to the interest of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
ARTICLE VII - MISCELLANEOUS
---------------------------
1. INFORMAL ACTION
Any action required to be taken or which may be taken at a
meeting of the shareholders, directors or members of the executive committee,
may be taken without a meeting if a consent in writing setting forth the action
so taken shall be signed by all of the shareholders, directors, or members of
the executive committee, as the case may be, entitled to vote with respect to
the subject matter thereof, and such consent shall have the same force and
effect as a unanimous vote of the shareholders, directors, or members of the
executive committee, as the case may be, at a meeting of said body.
2. SEAL
The corporate seal shall be circular in form and shall contain
the name of the corporation, the year of its incorporation and the name
"DELAWARE". The seal may be used by causing it or a facsimile to be impressed or
affixed or in any other manner reproduced. The corporate seal may be altered by
order of the board of directors at any time.
3. CHECKS
All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
8
<PAGE>
4. FISCAL YEAR
The fiscal year of the corporation shall be determined by
resolution of the Board of Directors.
5. DIRECTORS' ANNUAL STATEMENT
The board of directors shall present at each annual meeting of
shareholders a full and clear statement of the business and condition of the
corporation.
6. CLOSE CORPORATIONS: MANAGEMENT BY SHAREHOLDERS
If the articles of incorporation of the corporation and each
certificate representing its issued and outstanding shares states that the
business and affairs of the corporation shall be managed by the shareholders of
the corporation rather than by a board of directors, then, whenever the context
so requires by the shareholders of the corporation shall be deemed the directors
of the corporation for purposes of applying any provision of these bylaws.
7. AMENDMENTS
These by-laws may be altered, amended or repealed in whole or in
part by the affirmative vote of the holders of a majority of the shares
outstanding and entitled to vote, but such power may be delegated by the
shareholders to the board of directors.
The above By-Laws approved and adopted by the Board of Directors
on December 15, 1998.
___________________________
Joel S. Dumaresq, President
9
- - --------------------------------------------------------------------------------
Exhibit 2.3
Articles of Incorporation: Hydro-Air Technologies, Inc.
- - --------------------------------------------------------------------------------
<PAGE>
ARTICLES OF INCORPORATION
-------------------------
The undersigned acting as an Incorporator of a corporation
under the Now Mexico Business Corporation Act adopts the following Articles of
Incorporation for the corporation:
ARTICLE 1.
----------
Its corporate name will be Solar Acquisition Corporation.
ARTICLE 11.
-----------
It is organized to merge into Hydro-Air Technologies, Inc.
and for every other purpose permitted by the Business Corporation Act.
ARTICLE 111.
------------
It will have authority to issue one class of 125,000 shares
of no par value common.
ARTICLE IV.
-----------
Its initial registered office address will be Suite 1000,
6565 Americas Parkway, N.E., Albuquerque, Now Mexico, and its Initial registered
agent at that address will be Graham Browne. JAN 2 19W
<PAGE>
ARTICLE V.
----------
The name and address of each Director who will constitute its
initial Board of Directors is:
Joel M. Dumaresq
28202 Cabot Road, Suite 300
Laguna Niguel, California 92677
Norman Wareham
28202 Cabot Road, Suite 300
Laguna Niguel, California 92677
DATED:January 19, 1998
----------------
/s/ Graham Browne
---------------------------
Graham Browne
Suite 1000
6585 Americas Parkway, N.E.
Albuquerque, Now Mexico
- - --------------------------------------------------------------------------------
Exhibit 2.4
By-Laws: Hydro-Air Technologies, Inc.
- - --------------------------------------------------------------------------------
<PAGE>
BYLAWS
OF
SOLAR ACQUISITION CORPORATION
-----------------------------
I.
SHAREHOLDERS
------------
A. Meetings: The Annual Meeting of Shareholders will be held
on the first Tuesday in November at 10:00 a.m. at the place fixed by the Board.
Special Meetings of Shareholders may be called by the President, the Board, or
the holders of one-tenth of the shares entitled to vote at the meeting, and
will be held at the time and place fixed by the person calling the Special
Meeting. If the place of meeting is not fixed, the meeting will be held at the
registered office of the Corporation.
B. Notice: Written Notice stating the time, place, and, if a
Special Meeting, the purpose, will be delivered not less than ten nor more than
fifty days before the meeting date either personally or by mail at the
direction of the President, the Secretary, or the persons calling the meeting,
to each Shareholder of record entitled to vote at the meeting. If mailed, a
Notice is deemed delivered when deposited postage prepaid in the United States
mail addressed to the Shareholder at the address shown by the Corporation
transfer books.
C. Quorum - Voting: A majority of the shares entitled to vote
represented in person or by proxy will constitute a quorum at a meeting of
1
<PAGE>
Shareholders. A quorum once attained continues until adjournment despite
voluntary withdrawal of enough shares to leave less than a quorum. If a quorum
is present, the affirmative vote of the majority of the shares represented at
the meeting and entitled to vote on the subject matter will be the act of the
Shareholders unless the vote of a greater number or class voting is required by
the Business Corporation Act.
II.
DIRECTORS
---------
A. Number, Tenure, Qualification, Election: The Board will
consist of one or more Directors who will be elected annually by the
Shareholders at their Annual Meeting to serve until their successors have been
elected and qualified. A Director need not be a Shareholder or a New Mexico
resident. A Director may be removed with or without cause by the Shareholders,
or may resign. Vacancies may be filled by a majority of the remaining Directors
though less than a quorum. Newly created directorships may be filled by the
Directors for a term of office continuing only until the next election of
Directors by the Shareholders.
B. Meetings: An Annual Meeting of the Board will be held
without notice immediately following the Shareholders' Annual Meeting. Special
Meetings of the Board may be called by any Director or Officer, and will be
held at the time and place fixed by the person calling the Special Meeting.
Written Notice stating the time, place and purpose of the Special Meeting will
be delivered either personally, by mail, or by telegram at the direction of the
person calling the meeting, to each Director at least 24 hours before the
2
<PAGE>
Special Meeting time. If mailed or telegraphed, a Notice is deemed delivered
when deposited, postage or charges prepaid, with the transmitting agency,
addressed to the Director.
C. Quorum - Action: A majority of the number of Directors
then in office will constitute a quorum at Board Meetings. A quorum once
attained continues until adjournment despite voluntary withdrawal of enough
Directors to leave less than a quorum. The act of a majority of Directors
present at a meeting at which a quorum is present will be the act of the Board.
The Directors will manage the business and affairs of the Corporation, and may
act only as a Board with each Director having one vote. The Board of Directors,
by resolution adopted by a majority of the full Board, may designate from among
its members one or more committees each of which shall have and may exercise
all the authority of the Board to the extent provided by law.
III.
OFFICERS
--------
A. Number, Tenure, Qualification and Election: The officers
of the Corporation will be a President, Vice President, Secretary and
Treasurer, and such other officers as the Board may decide, who will be elected
annually by the Board at its Annual Meeting to serve until their successors are
elected and qualified. Officers need not be Shareholders, or Directors, or New
Mexico residents. An officer may be removed with or without cause by the Board,
or may resign. Vacancies and newly created offices will be filled by the Board.
One person may hold more than one office. Officers will perform the duties, and
3
<PAGE>
will have the 3 power and authority, assigned by the Board, incident to the
office, and provided in these Bylaws.
B. President and Vice President: The President, or the Vice
President during the absence, disability, or failure to act of the President,
will be the chief executive officer of the Corporation, will preside at all
Corporation meetings, and when authorized will execute and deliver documents in
the name of the Corporation.
C. Secretary and Assistants: The Secretary, or any Assistant
Secretary during the absence, disability, or failure to act, of the Secretary,
will keep and have custody of, the record of Shareholders, the stock transfer
books, and the minutes of the proceedings of the Shareholders and Directors,
will give all Notices required, and when authorized will execute, attest, seal,
and deliver documents of the Corporation.
D. Treasurer and Assistants: The Treasurer, or any Assistant
Treasurer during the absence, disability, or failure to act, of the Treasurer,
will be custodian of the property of, and will be responsible for keeping
correct and complete books and records of account for, the Corporation.
IV.
ACTION WITHOUT A MEETING
------------------------
Any action required or permitted to be taken at a meeting of
Shareholders or Directors may be taken without a meeting if a consent in
writing setting forth the action so taken is signed by all of the Shareholders
4
<PAGE>
entitled to 4 vote with respect to the subject matter thereof, or by all the
Directors, as the case may be.
V.
WAIVER OF NOTICE
----------------
Whenever any notice is required to be given to any
Shareholder or Director, a waiver thereof in writing signed by the person
entitled to the notice is equivalent to the giving of the notice. The
attendance of a Shareholder in person or by proxy, or of a Director, at a
meeting constitutes a waiver of notice of the meeting except when attendance is
for the sole purpose of objecting because the meeting is not lawfully called or
convened.
VI.
SEAL
----
The Board may adopt a corporate seal which the Corporation
may use by impressing or affixing it or a facsimile thereof, but the failure to
have or affix a corporate seal does not affect the validity of any instrument
or any action taken in reliance thereon or in pursuance thereof.
VII.
SHARE CERTIFICATES AND TRANSFER
-------------------------------
The Board will adopt a form of certificate to represent the
shares of the Corporation. Each Shareholder is entitled to a certificate,
signed by the President or Vice President, and the Secretary or an Assistant
Secretary, and representing the number of full and fractional fully paid shares
owned by the Shareholder. Share transfer and issuance will be done by the
5
<PAGE>
Secretary, or the 5 designee thereof, in the manner provided by the Business
Corporation Act and Uniform Commercial Code of New Mexico. The name and address
of the Shareholder to whom the certificate is issued, the number and class of
shares represented, and the date of original issue or from whom transferred
shall be entered on the record of Shareholders of the Corporation. The person
or entity in whose name shares stand on the record of Shareholders of the
Corporation will be the Shareholder and will be deemed by the Corporation to be
the owner of the shares for all purposes whether or not the Corporation has
other knowledge. Shares will be transferred only on the stock transfer books of
the Corporation.
VIII.
MONETARY MATTERS
----------------
A. Funds and Borrowing: The depository for corporate funds,
the persons entitled to draw against these funds, the persons entitled to
borrow on behalf of the Corporation, and the manner of accomplishing these
matters will be determined by the Board.
B. Compensation: The compensation for Directors and Officers
will be established by the Board. Compensation of employees will be established
by the President subject to review by the Board.
C. Fiscal Year: The fiscal year of the Corporation will be
established by the Board.
6
- - --------------------------------------------------------------------------------
Exhibit 3
Specimen Certificate: Class A Common Voting Equity Stock
- - --------------------------------------------------------------------------------
<PAGE>
Number Solar Energy, Limited Shares
* * INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE * *
COMMON VOTING STOCK CUSIP NO 83415A 10 2 COMMON VOTING STOCK
AUTHORIZED: 50,000,000 SHARES PAR VALUE: $0.0001 FULLY PAID AND NON-ASSESSABLE
THIS CERTIFIES THAT
IS THE REGISTERED HOLDER OF
SHARES OF THE COMMON STOCK of Solar Energy, Limited a Delaware Corporation,
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed. Witness the
facsimile Seal of the Corporation and the facsimile Signatures of its duly
authorized officers.
Dated:
Initialed by Transfer Agent
By Authorized Initial
MADISON STOCK TRANSFER, INC.
P.O. BOX 145
BROOKLYN NY 11229
Joel S. Dumaresq ======================= Norman Wareham
President Solar Energy, Secretary
Limited
Corporate Seal
Delaware
=======================
- - --------------------------------------------------------------------------------
Exhibit 5
Voting Trust Agreement
- - --------------------------------------------------------------------------------
<PAGE>
VOTING TRUST AGREEMENT
----------------------
David F. Jones, Melvin L. Prueitt, Stanley Prueitt, and Leslie
Speir (individually "Shareholder" and collectively, "Shareholders"), and Melvin
L. Prueitt ("Voting Trustee") agree:
1. Recitals. Each Shareholder owns stock in Hydro- Air
Technologies, Inc., a New Mexico corporation ("Corporation"). Corporation is
issuing shares of Corporation to Voting Trustee ("Shares") so that the Shares
may be issued to the Shareholders or others as provided in Founders Agreement
dated the same date as this Voting Trust Agreement among the Shareholders and
the Corporation ("Founders Agreement") and to maintain the availability of the
Shares in the event the Corporation is acquired as set out in the Founders
Agreement. The Shareholders execute this Voting Trust Agreement ("Agreement") to
implement the Founders Agreement.
2. Book Entry. Upon receipt by Voting Trustee of the Shares, the
Voting Trustee will establish and maintain book entry records of the beneficial
ownership of the Shares in the Voting Trust established by this Agreement
("Voting Trust").
3. Removal of Shares From Voting Trust. Shares may be removed
from this Voting Trust when they are to be issued as Founder Shares or
Discretionary Shares pursuant to the Founders Agreement ("New Shares").
4. Exchange of Shares. In the event of the acquisition of the
Company by The Acquisition Company, the Voting Trustee will exchange the Shares
of the Corporation which are subject to this Voting Trust to The Acquisition
Company in exchange for equivalent Shares in The Acquisition Company Shares. The
Acquisition Company Shares will then be "Shares" subject to this Voting Trust
and the Founders Agreement.
5. Voting. At all meetings of shareholders of Corporation, and in
all proceedings affecting Corporation, the Voting Trustee will vote the Shares
registered in the Voting Trust name in such manner as the Shareholders direct.
The Voting Trustee will not be liable for the consequence of any vote cast or
action taken in good faith.
6. Dividends. Shareholders will be entitled to receive from the
Voting Trustee payments equal to any cash dividends received by the Voting
Trustee on the Shares. If any dividends are declared in additional shares of the
Corporation, the Voting Trustee will retain such additional shares, which will
be deemed to have been deposited under the terms of this Agreement.
<PAGE>
7. Termination. This Agreement will terminate upon the date all
of the Shares have been issued as Founder Shares or Discretionary Shares under
the Founders Agreement or may be terminated in writing prior to that date by the
Trustee. Upon termination, the Voting Trustee will deliver any Shares which were
not issued as Founder Shares or Discretionary Shares to the Shareholders as
provided in the Founders Agreement.
8. Transfer of Stock to Successor Voting Trustee. Los Alamos
National Bank is designated as successor Voting Trustee. If the Voting Trustee
becomes incapacitated or dies, the conservator or personal representative of the
Voting Trustee will take all necessary action to deliver all Shares owned by the
Voting Trust to the successor Voting Trustee to be held by the successor as if
the successor was the original Voting Trustee subject to the terms of this
Agreement.
9. Binding Effect. This Agreement will inure to the benefit of,
and be binding upon: (i) every person or entity who is the record, legal or
beneficial owner of Shares, whether by issue or transfer, including without
limitation any spouse, representative, transferee, owner, nominee, grantee,
successor and assign of the Shareholders, and (ii) the Voting Trustee, any
successor Voting Trustee and their successors, personal representatives, and
transferees, is governed by and construed in accordance with the laws of New
Mexico, is specifically enforceable and may be modified only in writing.
DATED: ______, 19__.
SHAREHOLDERS: ______________________________
DAVID F. JONES
______________________________
MELVIN L. PRUEITT
______________________________
STANLEY PRUEITT
______________________________
LESLIE SPEIR
VOTING TRUSTEE: ______________________________
MELVIN L. PRUEITT
- - --------------------------------------------------------------------------------
Exhibit 6.1
First Amendment to Offer to Purchase and Plan of Internal Funding and
Share Release and Plan of Reorganization and Acquisition
- - --------------------------------------------------------------------------------
<PAGE>
FIRST AMENDMENT TO OFFER TO PURCHASE
AND
PLAN OF INTERNAL FUNDING AND SHARE RELEASE
AND
PLAN OF REORGANIZATION AND ACQUISITION
--------------------------------------
This First Amendment to Offer to Purchase and Plan of Internal Funding and Share
Release and Plan of Reorganization and Acquisition ("Reorganization Agreement")
is made and entered into by and between Solar Energy Limited, a Delaware
corporation ("Solar"), Hydro-Air Technologies, Inc, a New Mexico corporation
("HAT"), and Melvin L. Prueitt, David F. Jones, Stanley D. Prueitt, Baycove
Investments, Inc. ("FCIC"), Leslie Speir, Dana Hansen, Linda Hansen, Ara Lee
Stevens and Hydro-Air Founders LLC (collectively "HAT Shareholders"). This
Reorganization Agreement will also be executed by Solar Acquisition Corporation
("New Corporation"), a New Mexico corporation and a subsidiary of Solar once it
comes into existence.
I. RECITALS.
This Reorganization Agreement amends and supplements the Offer to Purchase
("Offer") entered into by First Capital Invest Corp., HAT and Melvin L. Prueitt,
David F. Jones, Stanley D. Prueitt, and Leslie Speir (collectively "Founders")
on July 5, 1997. Under the terms of the Offer, First Capital Invest Corp. agreed
to provide a public company ("Pubco") which would be the vehicle used to acquire
all of the assets, businesses and capital stock of HAT. Solar is the public
company that FCIC has now made available for purposes of consummating the
transactions contemplated by this Reorganization Agreement. The HAT Shareholders
want Solar, a public company, to acquire HAT in order to attract the capital
necessary for the development of HAT's HARPS technology. The boards of directors
of Solar and HAT have approved the acquisition of HAT by Solar through the
creation of New Corporation by Solar and the merger of New Corporation into HAT
("Merger"). For federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368 of the Code.
II. DEFINITIONS.
A. "Closing Date" shall mean the date on which the parties hereto shall
close the transactions contemplated herein.
B. "Code" shall mean the Internal Revenue Code of 1986, as amended.
C. "Commission" shall mean the Securities and Exchange Commission.
D. "Effective Date" shall mean the date this Reorganization Agreement is
executed.
E. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
F. "Previously Disclosed" shall mean disclosed in writing prior to the
execution of the Offer.
G. "Rights" shall mean warrants, options, rights, convertible securities
and other arrangements or commitments which obligate an entity to issue or
dispose of any of its capital stock.
H. "SEC Documents" shall mean all reports and registration statements
filed, or required to be filed, by a party hereto pursuant to the Securities
Laws.
<PAGE>
I. "Securities Act" shall mean the Securities Act of 1933, as amended.
J. "Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended; and the rules and
regulations of the Commission promulgated thereunder.
K. Other terms as defined in this Reorganization Agreement.
III. PLAN OF REORGANIZATION.
A. New Corporation.
----------------
1. Organization. Solar will cause New Corporation to be organized
under New Mexico law, authorized to issue 125,000 shares of no par value common,
and to carry on all business activities. Once formed New Corporation will adopt
and become bound by the terms of this Reorganization Agreement.
2. Funding. After organization of New Corporation, Solar will
transfer to New Corporation, $125.00 in exchange for 125,000 shares of New
Corporation stock ("New Corporation Stock").
B. Merger of New Corporation and HAT.
----------------------------------
1. Merger. New Corporation will merge into HAT pursuant to the
terms of a Plan of Merger ("Plan of Merger") substantially in the form of
attached Exhibit A. The Plan of Merger, the Offer and this Reorganization
Agreement are the plan of reorganization required by the Code.
2. Surviving Corporation. Both Solar and HAT shall survive the
reorganization herein contemplated and shall continue to be governed by the laws
of their respective states of incorporation. New Corporation will be merged out
of existence.
3. Surviving Articles of Incorporation. The Articles of
Incorporation of Solar and HAT shall remain in full force and effect, unchanged.
4. Surviving By-Laws. The By-Laws of HAT and Solar shall remain
in full force and effect, unchanged.
C. Issuance and Release of Solar stock. Solar and the HAT Shareholders
desire to create an orderly process for the issuance and progressive release of
common stock to or for the benefit of the HAT Shareholders.
1. HAT Shareholders. The HAT Shareholders will receive subject to
this Reorganization Agreement, shares of Solar equal to 40% of the resulting
total issued and outstanding stock of Solar, on a fully-diluted basis, following
certain designated capital formation stages. However, the total number of Solar
shares which will be issued to the HAT Shareholders to meet this obligation is
undeterminable at this time.
2. Initial Issuance. Upon consummation of the Merger, Solar shall
issue to the HAT Shareholders 20% of 40% of the outstanding Solar shares.
3. Phased Release of Shares. The remaining 80% of 40% will be
issued to the HAT Shareholders in phases based on the following formula: one
<PAGE>
share of Solar stock for each $2.00 of earnings generated by HAT, as determined
by Generally Accepted Accounting Principles (GAAP) as provided in the offer.
4. New Investment Shares. The shares to be issued to or for the
benefit of the HAT Shareholders will be new investment shares of Solar, a new
and different security, to be held for investment and not for immediate resale,
in accordance with Rule 145 (Securities Act Regulations ss.230.145.) The
principal import of which Rule is that such new securities are and shall be
deemed to be Restricted Securities as defined in Rule 144(a).
5. Further Issuances. With respect to further issuances by Solar
to investors, Solar shall issue to the HAT Shareholders additional shares, equal
to 40% of such issuances actually issued to investors, such that the HAT
Shareholders will, if all phased shares are issued, receive and own 40% of
Solar. The additional issuances will be made to the HAT Shareholders in the same
percentages as provided in paragraphs 2 and 3. The parties anticipate that the
following placements will be made:
a. 10,000,000 at $0.10 (Series 3) shares to be offered
and issued pursuant to Rule 504;
b. 2,000,000 at $0.50 (Series 4) shares to be offered and
pursuant to Rule 505 or 506 of Regulation D; and, finally
c. Solar will employ its best efforts to place an
additional 1,000,000 shares at not less than $2.00 per share.
5. Additional Compensation. The HAT Shareholders, other than
FCIC, will receive in proportion to their ownership of HAT shares at Closing
$500,000 when the prototype is deemed commercially viable by HAT under the
Offer.
IV. FUNDING OF HAT IN AMPLIFICATION OF THE OFFER:
A. Capital Formation and Earnings. HAT's technology will require funding,
in stages, from development to marketability, and will not immediately generate
earnings. However, if HAT's technology is successful earnings will be generated,
and will contribute to, and eventually obviate the need for additional capital
investment to expand capacity to meet demand.
B. Phases of Committed Funding.
----------------------------
1. Phase One. Phase One Internal Funding by Solar for HAT shall
be $500,000.00, of which $300,000.00 has been advanced previously and which
advance is acknowledged hereby. Phase One shall extend for a period of thirteen
months during which it shall be determined whether or not the technology works
and is marketable. If it shall be so determined, and only if it shall be so
determined, the Internal Funding shall proceed to Phase Two.
2. Phase Two. Phase Two Internal Funding by Solar for HAT shall
be $5,000,000.00.
3. Phase Three. Phase Three Internal Funding shall be generated,
if at all, by earnings generated by HAT, and assumes that the profit center of
HAT shall have achieved substantial profitability.
<PAGE>
4. No guaranty of success. No matter how promising and exciting
the technology and concepts of HAT are to the parties, there can be no guaranty
of success. Public tastes, market conditions, competition, war, natural disaster
or any number of unforeseeable events could disappoint expectations and cause
the parties to re-evaluate their positions.
5. Assumption. Solar hereby expressly agrees to assume all the
responsibilities and obligations of Pubco under the Offer, as well as Solar's
responsibilities and obligations under this Reorganization Agreement. In
addition, Baycove, Inc. expressly agrees to assume all of the responsibilities
and obligations of First Capital Invest Corp. under the Offer, as well as
Baycove's responsibilities and obligations under this Reorganization Agreement.
V. MANAGEMENT OF HAT AND SOLAR.
1. Separate Board of Directors. Solar and HAT shall maintain
separate Boards of Directors. The Board of Directors of Solar shall, during the
term of this agreement, consist of not less than six Directors, not less than
two of which shall be designated by the Board of Directors of HAT; or a greater
number of Directors divisible by three of which the Board of Directors of HAT
may designate one third of the total. The Board of Directors of Solar shall be
entitled to non-voting representation on the Board of Directors of HAT. Provided
that management complies with appropriate professional standards of conduct,
each Board shall separately manage its respective area of responsibility. The
existing Directors of Solar shall appoint additional Directors in conformity
with this provision, with all deliberate speed.
2. Officers. The Board of Directors of Solar and HAT shall elect
and appoint new officers as follows: Melvin L. Prueitt shall be the Chairman of
the Board of Solar. Melvin L. Prueitt shall be President and Chairman of the
Board of HAT. The HAT Board may designate such officers of HAT as it may see
fit, subject only to the duty of Solar to insure acceptable standards of
professional conduct and responsibility. The Board of Directors of Solar shall
exercise its sound discretion to recruit and/or elect the Chief Financial
Officer of Solar.
VI. CLOSING.
Closing of the transactions contemplated by this Reorganization Agreement will
be held contemporaneously at the various offices of HAT and Solar, on the first
business day following satisfaction of the conditions precedent set forth
herein. In connection with such Closing, HAT and New Corporation shall execute
articles of merger and shall cause such articles to be delivered to and filed
with the New Mexico State Corporation Commission. The Merger shall be effective
at the time and on the date specified in such articles of merger.
VII. REPRESENTATIONS AND WARRANTIES OF SOLAR.
Solar hereby represents and warrants to HAT, New Corporation and the HAT
Shareholders as follows:
A. Capital Structure of Solar. The authorized capital stock of Solar
consists of 50,000,000 shares of common voting stock, $.0001 par value ("Solar
Common Stock"), of which 1,278,000 shares are issued and outstanding and no
shares are held in treasury. All outstanding shares of Solar Common Stock have
been duly issued and are validly outstanding, fully paid and nonassessable.
<PAGE>
There are no Rights authorized, issued or outstanding with respect to the
capital stock of Solar. None of the shares of Solar's capital stock has been
issued in violation of the preemptive rights of any person.
B. Organization, Standing and Authority of Solar. Solar is a duly
organized corporation, validly existing and in good standing under the laws of
the State of Delaware with full corporate power and authority to carry on its
business as now conducted and is duly qualified to do business in the states of
the United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such qualification and where
failure to so qualify would have a material adverse effect on the financial
condition, results of operations, business or prospects of Solar on a
consolidated basis.
C. Authorized and Effective Agreement.
-----------------------------------
1. Solar has all requisite corporate power and authority to enter
into and perform all of its obligations under this Reorganization Agreement. The
execution and delivery of this Reorganization Agreement, and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
Solar.
2. This Reorganization Agreement constitutes a legal, valid and
binding obligations of Solar, enforceable against it in accordance with its
terms, subject as to enforceability, to bankruptcy, insolvency and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles. Solar has filed all SEC Documents required by the Securities
Laws and such SEC Documents complied in all material respects with the
Securities Laws.
3. Neither the execution and delivery of this Reorganization
Agreement in the case of Solar, nor consummation of the transactions
contemplated hereby or thereby, nor compliance by Solar with any of the
provisions hereof or thereof shall (i) conflict with or result in a breach of
any provision of the articles, charter, code of regulations or by-laws of Solar
or any Solar Subsidiary, (ii) constitute or result in a breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any lien, charge or encumbrance upon any property or asset of
Solar or any Solar Subsidiary pursuant to, any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation, or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to Solar
or any Solar Subsidiary.
VIII. REPRESENTATIONS AND WARRANTIES OF NEW CORPORATION.
New Corporation hereby represents and warrants to HAT and Solar as follows:
A. Capital Structure of New Corporation. The authorized capital stock of
New Corporation consists of 125,000 shares of common stock, no par value ("New
Corporation Common Stock"), of which 125,000 shares are issued and outstanding
and no shares are held in treasury. All outstanding shares of New Corporation
Common Stock have been duly issued and are validly outstanding, fully paid and
nonassessable. There are no Rights authorized, issued or outstanding with
respect to the capital stock of New Corporation except as Previously Disclosed.
None of the shares of New Corporation's capital stock has been issued in
violation of the preemptive rights of any person.
<PAGE>
B. Organization, Standing and Authority of New Corporation. New
Corporation is a duly organized corporation, validly existing and in good
standing under the laws of the State of New Mexico with full corporate power and
authority to carry on its business.
C. No New Corporation Subsidiaries. New Corporation does not own, directly
or indirectly, any outstanding capital stock or other voting securities of any
corporation or other organization except for Solar.
D. Authorized and Effective Agreement.
1. New Corporation has all requisite corporate power and
authority to enter into and perform all of its obligations under this
Reorganization Agreement. The execution and delivery of this Reorganization
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of New Corporation.
2. This Reorganization Agreement constitutes a legal, valid and
binding obligations of New Corporation, enforceable against it in accordance
with its terms, subject as to enforceability, to bankruptcy, insolvency and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
3. Neither the execution and delivery of this Reorganization
Agreement, in the case of New Corporation, nor consummation of the transactions
contemplated hereby or thereby, nor compliance by New Corporation with any of
the provisions hereof or thereof shall (i) conflict with or result in a breach
of any provision of the articles, charter, code of regulations or by-laws of New
Corporation, (ii) constitute or result in a breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or asset of New
Corporation pursuant to, any note, bond, mortgage, indenture, license, agreement
or other instrument or obligation, or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to New Corporation or any New
Corporation Subsidiary.
IX. REPRESENTATIONS AND WARRANTIES OF HAT.
HAT hereby represents and warrants to New Corporation and Solar as follows:
A. Capital Structure of HAT. The capital of HAT consists of 250,000
authorized shares of no par value common voting stock, of which 125,000 shares
are issued and outstanding. All outstanding shares of capital stock have been
duly issued and are validly outstanding, fully paid and nonassessable. The
shares of Common Stock to be issued in connection with the Merger have been duly
authorized and, when issued in accordance with the terms of this Reorganization
Agreement and will be validly issued, fully paid and nonassessable.
B. Organization, Standing and Authority of HAT. HAT is a duly organized
corporation, validly existing and in good standing under the laws of the State
of New Mexico, with full corporate power and authority to carry on its business.
C. Authorized and Effective Agreement.
-----------------------------------
1. HAT has all requisite corporate power and authority to enter
into and perform all of its obligations under this Reorganization Agreement.
Except as Previously
<PAGE>
Disclosed, the execution and delivery of this Reorganization Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of HAT.
2. Except as Previously Disclosed, this Reorganization Agreement
constitutes a legal, valid and binding obligations of HAT, enforceable in
accordance with its respective terms subject, as to enforceability, to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
3. Neither the execution and delivery of this Reorganization
Agreement nor consummation of the transactions contemplated hereby or thereby,
nor compliance by HAT with any of the provisions hereof or thereof shall (i)
conflict with or result in a breach of any provision of the articles or by-laws
of HAT, (ii) constitute or result in a breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or asset of HAT
pursuant to, any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to HAT.
X. COVENANTS.
A. Best Efforts. HAT and New Corporation shall each use its best efforts
in good faith to take or cause to be taken all action necessary or desirable on
its part so as to permit consummation of the Merger at the earliest possible
date.
B. Supplementation. The contents of the Offer are incorporated by
reference in this Reorganization Agreement.
XI. CONDITIONS PRECEDENT
A. Conditions Precedent of Solar, HAT and New Corporation. The respective
obligations of the parties to effect the Merger shall be subject to satisfaction
or waiver of the following conditions at or prior to the Closing Date:
1. All corporate action necessary to authorize the execution,
delivery and performance of this Reorganization Agreement and consummation of
the transactions contemplated hereby and thereby shall have been duly and
validly taken.
2. The parties hereto shall have received all regulatory
approvals required or mutually deemed necessary in connection with the
transactions contemplated by this Reorganization Agreement, all notice periods
and waiting periods required after the granting of any such approvals shall have
passed and all conditions contained in any such approval required to have been
satisfied prior to consummation of such transactions shall have been satisfied.
B. Conditions Precedent of Solar and New Corporation. The obligations of
Solar and New Corporation to effect the Merger shall be subject to satisfaction
of the following additional conditions:
1. The representations and warranties of HAT shall be true and
correct in all material respects as of the date of this Reorganization Agreement
and as of the Closing Date as though made on and as of the Closing Date (or on
the date when made in the case of any representation and warranty which
specifically relates to an earlier date), except as otherwise
<PAGE>
contemplated by this Reorganization Agreement or consented to in writing by New
Corporation and Solar.
2. HAT shall have in all material respects performed all
obligations and complied with all covenants required by this Reorganization
Agreement.
C. Conditions Precedent of HAT. The obligations of HAT to effect the
Merger shall be subject to satisfaction of the following additional conditions:
1. The representations and warranties of Solar and New
Corporation shall be true and correct in all material respects as of the date of
this Reorganization Agreement and as of the Closing Date as though made on and
as of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Reorganization Agreement or consented
to in writing by HAT.
2. Solar, New Corporation and their subsidiaries shall have in
all material respects performed all obligations and complied with all covenants
required by this Reorganization Agreement and the Agreement of Merger.
XII. TERMINATION, WAIVER AND AMENDMENT.
A. Termination. This Reorganization Agreement and the Agreement of Merger
may be terminated:
1. At any time on or prior to the Effective Date, by the mutual
consent in writing of the parties hereto.
2. At any time on or prior to the Closing Date, by HAT in
writing, if Solar, New Corporation or any Solar or New Corporation Subsidiary
has, or by Solar or New Corporation in writing, if HAT has, in any material
respect, breached (i) any covenant or agreement contained herein or in the
Agreement of Merger or (ii) any representation or warranty contained herein, and
in either case if such breach has not been cured by the earlier of 30 days after
the date on which written notice of such breach is given to the party committing
such breach or the Closing Date.
3. On the Closing Date, by any party hereto in writing, if any of
the conditions precedent set forth above with respect to such party have not
been satisfied or fulfilled.
B. Effect of Termination. In the event this Reorganization Agreement and
the Agreement of Merger are terminated, this Agreement and the Agreement of
Merger shall become void and have no effect, except that (i) the provisions
relating to confidentiality and expenses shall survive any such termination and
(ii) a termination shall not relieve the breaching party from liability for an
uncured willful breach of such covenant or agreement giving rise to such
termination.
C. Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants in this Reorganization Agreement and
the Agreement of Merger or in any instrument delivered pursuant hereto or
thereto shall expire on, and be terminated and extinguished at, the Effective
Date other than covenants that by their terms are to survive or be performed
after the Effective Date, provided that no such representations, warranties or
covenants shall be deemed to be terminated or extinguished so as to deprive HAT,
Solar or New Corporation (or any director, officer or controlling person
thereof) of any defense in law or equity which otherwise would be available
against the claims of any person, including, without limitation, any shareholder
<PAGE>
or former shareholder of either HAT, Solar or New Corporation, the aforesaid
representations, warranties and covenants being material inducements to the
consummation by HAT and New Corporation of the transactions contemplated herein.
D. Amendment or Supplement. This Reorganization Agreement may be amended
or supplemented at any time by mutual agreement of the parties hereto.
XIII. MISCELLANEOUS.
A. Expenses. Each party hereto shall bear and pay all costs and expenses
incurred by it in connection with the transactions contemplated in this
Reorganization Agreement, including fees and expenses of its own financial
consultants, accountants and counsel.
B. Entire Agreement. This Reorganization Agreement and the Agreement of
Merger contain the entire agreement between the parties with respect to the
transactions contemplated hereunder and thereunder and supersede all prior
arrangements or understandings with respect thereto, written or oral, other than
documents referred to herein or therein. The terms and conditions of this
Reorganization Agreement and the Agreement of Merger shall inure to the benefit
of and be binding upon the parties hereto and thereto and their respective
successors. Nothing in this Reorganization Agreement or the Agreement of Merger,
expressed or implied, is intended to confer upon any party, other than the
parties hereto and thereto, and their respective successors, any rights,
remedies, obligations or liabilities.
C. No Assignment. No party hereto may assign any of its rights or
obligations under this Reorganization Agreement to any other person.
D. Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by facsimile transmission or overnight express or by registered or
certified mail, postage prepaid, addressed to the parties.
E. Captions. The captions contained in this Reorganization Agreement are
for reference purposes only and are not part of this Reorganization Agreement.
F. Counterparts. This Reorganization Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
G. Governing Law. This Reorganization Agreement shall be governed by and
construed in accordance with the laws of the State of New Mexico applicable to
agreements made and entirely to be performed within such jurisdiction, except to
the extent federal law may be applicable.
H. Arbitration. The Parties to this agreement have no wish to engage in
costly or lengthy litigation with each other. Accordingly, any and all disputes
which the parties cannot resolve by agreement or mediation, shall be submitted
to binding arbitration under the rules and auspices of the American Arbitration
Association, as a further incentive to avoid disputes, each party shall bear its
own costs, with respect thereto, and with respect to any proceedings in any
court brought to enforce or overturn any arbitration award. This provision is
expressly intended to discourage litigation and to encourage orderly, timely and
economical resolution of any disputes which may occur.
I. Severability. If any provision of this Letter Agreement or the
application thereof to any person or situation shall be held invalid or
<PAGE>
unenforceable, the remainder of the Agreement and the application of such
provision to other persons or situations shall not be effected thereby but shall
continue valid and enforceable to the fullest extent permitted by law.
J. Waiver. No waiver by any party of any occurrence or provision hereof
shall be deemed a waiver of any other occurrence or provision.
This Reorganization Agreement is executed on behalf of each party by its duly
authorized representatives, and attested to, pursuant to the laws of its
respective place of incorporation and in accordance with its constituent
documents.
HYDRO-AIR TECHNOLOGIES, INC. SOLAR ENERGY LIMITED
a New Mexico corporation a Delaware corporation
- - ----------------------------- --------------------------------
Melvin L. Prueitt, President Joel M. Dumaresq, President
HYDRO-AIR FOUNDERS, LLC BAYCOVE INVESTMENTS, INC.
a New Mexico limited liability co a Delaware corporation
- - ----------------------------- --------------------------------
Melvin L. Prueitt, Manager Nelson Skalbania
- - ----------------------------- --------------------------------
Melvin L. Prueitt David F. Jones
- - ----------------------------- --------------------------------
Leslie Speir Stanley D. Prueitt
- - ----------------------------- --------------------------------
Dana Hansen Linda Hansen
- - -----------------------------
Ara Lee Stevens
- - --------------------------------------------------------------------------------
Exhibit 6.2
Stock Restriction Agreement
- - --------------------------------------------------------------------------------
<PAGE>
STOCK RESTRICTION AGREEMENT
---------------------------
David Jones, Melvin L. Prueitt, Stanley Prueitt and Leslie Speir
(individually, a "Named Shareholder" and collectively, "Named Shareholders") and
Hydro-Air Technologies, Inc. ("Corporation") agree:
1. Recitals: Named Shareholders are the record owners of shares
of stock of Corporation. Other persons or entities, such as the spouses or heirs
of Named Shareholders, may now or later have legal or beneficial interests in
such stock. The Corporation and Named Shareholders want to provide for certain
restrictions on such stock, whether owned by Named Shareholders or other
Shareholders of Corporation. This Stock Restriction Agreement ("Agreement") is
intended to provide the Corporation and Named Shareholders with certain rights
to require the sale of stock if a restriction is violated or if a Shareholder's
legal or employment status changes.
2. Definitions: In addition to the other definitions in this
Agreement, the following capitalized terms are defined as follows:
A. "Stock" means all shares of the Corporation (or any
other successor entity to the extent it represents the financial interest
originally derived from the HARPS Technology) now owned or later acquired by a
Named Shareholder or a Spouse of the Named Shareholder.
B. "Shareholder" means any record, legal or beneficial
owner of Stock, whether or not a signatory to this Agreement. If this Agreement
renders void an attempted transfer or encumbrance to a person or entity, that
person or entity is not a "Shareholder" for purposes of this Agreement.
C. "Spouse" means the person married to a Shareholder on
the date of giving Notice or the occurrence of an Event, whichever happens
first.
D. "Divorce" means any settlement between a Named
Shareholder and Spouse of their property interest, by agreement or operation of
law, as provided in a legal separation or a dissolution of marriage.
E. "Bankruptcy" or "Bankrupt" means the filing of a
petition commencing a case under the Bankruptcy Code covering a Shareholder.
F. "Death" or "Deceased" means death as determined under
the New Mexico Probate Code, and includes a presumed death as determined under
the New Mexico Probate Code.
G. "Incapacity" or "Incapacitated" means the inability of
a Shareholder, in the opinion of a doctor chosen by the Corporation, to engage
in any substantial, gainful activity for Corporation by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long, continued and indefinite duration.
I. "Notice" means the notice given to Corporation in
connection with its right to require the sale of Stock as provided in this
Agreement.
J. "Obligation" means the obligations of a buyer to a
seller of Stock when a buyer buys Stock as provided in this Agreement.
K. "Permitted Encumbrance" means a security interest
securing an Obligation arising as provided in this Agreement.
<PAGE>
L. "Permitted Transfer" means (i) a transfer of record,
legal or beneficial ownership of Stock to a Named Shareholder by the Spouse of
Named Shareholder, and (ii) a transfer after compliance with this Agreement.
M. "Representative" means the personal representative,
trustee, heir, devisee, surviving joint tenant, or conservator of a Shareholder.
3. Restrictions: The following are restrictions that apply
to Stock:
A. No Shareholder may transfer Stock during the life of
the Shareholder except in a Permitted Transfer (the "Transfer Restriction").
B. No Stock may be encumbered except by a Permitted
Encumbrance (the "Encumbrance Restriction").
C. All Stock is subject to this Agreement.
D. A Named Shareholder will have sole authority to vote,
manage, control, dispose of, or encumber any Stock owned by the Named
Shareholder and the Spouse of the Named Shareholder.
4. Events: The following are events upon the occurrence of which
the right to require the sale of Stock as provided in this Agreement may be
exercised (individually "Event" and collectively "Events"):
A. The transfer of Stock in violation of the Transfer
Restriction.
B. The encumbrance of Stock in violation of the
Encumbrance Restriction, if the encumbrance is not removed within fifteen days
after the encumbrance attaches.
C. The Death, Bankruptcy or Incapacity of a Shareholder.
D. A Divorce as a result of which any record, legal or
beneficial ownership of Stock is retained or acquired by the Spouse of Named
Shareholder, if that Spouse is not also a Named Shareholder.
5. Notice: Upon the occurrence of an Event:
A. If the Event is (i) the Death, Bankruptcy or
Incapacity of the Spouse of a Named Shareholder, or (ii) a Divorce pursuant to
which the Spouse of a Named Shareholder retains or acquires Stock, that Named
Shareholder will have the sole right for sixty days after that Event to elect to
acquire the Stock of the Spouse as if the Spouse, or the Representative of the
Spouse, gave Notice on the date of the Event. If the Named Shareholder does not
so acquire the Stock of the Spouse, the Spouse or the Representative of the
Spouse will give Notice within sixty-five days after that Event covering all
Stock owned by the Spouse.
B. If the Event is any other Event, the Shareholder, or
the Representative of the Shareholder if the Shareholder is Deceased, Bankrupt
or Incapacitated, will give Notice within thirty days after the Event, covering
all Stock owned by the Shareholder and any Spouse of the Shareholder.
C. Notice will be given by personal service or by prepaid
registered or certified mail, return receipt requested, to Corporation at its
registered office and to each other Named Shareholder at the addresses shown on
the Shareholder records of Corporation. If Corporation or another Named
Shareholder knows of the occurrence of an Event that requires a Notice to be
given and that the person responsible for doing so has not given the appropriate
Notice, Corporation or the other Named Shareholder may give the Notice on behalf
of the person responsible. The Notice is given when served or mailed, will
recite the Event for which Notice is being given, will state the mailing address
<PAGE>
of the person giving the Notice, will recite all the terms of any proposed
transfer, and will constitute an irrevocable offer to sell all Stock covered by
the Notice.
6. Right to Buy: Corporation and the other Named Shareholders
will have, as the result of an Event, the right to buy Stock as follows:
A. Corporation will have thirty days from the date Notice
is given within which to elect to buy any or all of the offered Stock. The
offeror will not participate in any capacity in Corporation's decision whether
or not to elect to buy the offered Stock.
B. If Corporation does not elect within the thirty-day
period to buy all the offered Stock, then the Named Shareholders, other than the
offeror, will have an additional twenty days within which to elect to buy any
unbought offered Stock in the proportion of their then shareholdings in
Corporation.
C. If any Named Shareholder does not elect within the
twenty-day period to buy that Named Shareholder's portion of the unbought
offered Stock, then the remaining Named Shareholders, not including the offeror,
will have an additional ten days within which to elect to buy such portion in
the proportion of their then shareholdings in Corporation; if only one such
Named Shareholder wants to buy all or part of the unbought offered Stock, that
Named Shareholder may do so.
D. If Corporation or the Named Shareholders do not elect
within the sixty-day period to buy all the offered Stock, the unbought offered
Stock may either (i) be transferred in accordance with all the terms of any
proposed inter vivos transfer as recited in the Notice, if done within sixty
days after the expiration of the sixty-day period, (ii) be transferred by a
deceased Shareholder's estate to the distributee thereof, (iii) pass by
operation of law, or (iv) be retained, whether or not encumbered, as the case
may be; however, in any event, the unbought offered Stock will continue to be
subject to this Agreement.
E. An election to buy offered Stock may be made only by
giving written notification of that election to the offeror, by personal service
or by prepaid registered or certified mail, return receipt requested; the
election to buy is effective when the written notification is served or mailed.
The proportion of shareholdings of the purchasing Shareholder will be of the
class or series of Stock being offered, and each purchasing Shareholder's
shareholdings will include those of the purchasing Shareholder's Spouse unless
the Spouse is a purchasing Shareholder.
7. Purchase Price and Closing: The purchase price for any Stock
bought as provided in this Agreement by Corporation or a Shareholder as
appropriate will be the Value of the Stock as of either the day preceding the
date of the Event, or the date of giving Notice, whichever is earlier. The
initial Value for each share of Stock is $1.00 Hereafter, annually, at the time
of the Annual Meeting of Shareholders, and the Annual Meeting of Directors of
the Corporation, Corporation and any Named Shareholders will fix the Value for
each share of Stock, and as evidence of having fixed the Value, will execute a
Certificate of Value. If on the date a determination of Value is required
because of the happening of any of the contingencies giving rise to the purchase
and sale of Stock, Corporation and any Named Shareholders have failed to fix the
Value for a period of more than one year, then the latest fixed Value will be
increased or decreased by the proportionate increase or decrease in the book
value of the Stock since the last Value was fixed, and the latest fixed Value as
<PAGE>
adjusted will be the Value. If since the latest Value
was fixed, Corporation paid a Stock dividend on, split or combined its
outstanding Stock, then the latest fixed Value will be adjusted appropriately.
The independent public accountant then servicing the Corporation books will
determine book value in accordance with the method of accounting then being used
by Corporation in preparing its federal income tax return, and that
determination will be conclusive; in making the determination, goodwill, leases,
contract rights, and the like, will be valued in the aggregate at $1.00 unless a
different figure has been consistently shown on the Corporation books. Closing
will be at 10:00 a.m. at Corporation's registered office on the 20th banking day
after the end of the last period during which an election to buy unbought
offered Stock may be made.
8. Payment of Purchase Price: At closing the seller of the Stock
will deliver certificates representing the Stock, properly endorsed for
registration of transfer, and the buyer will, at the option of the buyer, either
pay in cash the entire purchase price of the Stock sold to the buyer or pay a
down payment of 25% of the purchase price in cash and the balance in ten equal
semiannual installments beginning one hundred eighty days after closing. This
unpaid balance is the Obligation. The Obligation will be evidenced by a
negotiable promissory note which is accelerable upon default, prepayable without
penalty, and will provide for interest from closing on the unpaid balance
payable semiannually at 10% a year. While an Obligation is unpaid, Corporation
will give the seller reasonable access to the books, financial statements and
records of the Corporation. Corporation is the irrevocable attorney-in-fact for
the seller of Stock to execute any documents appropriate to evidence the
transaction.
9. Security: The seller of the Stock will have a security
interest in Stock sold to a buyer other than Corporation until the obligation of
the buyer is paid. After registration of transfer of the Stock sold to a buyer
other than Corporation, the certificates representing that Stock will be
delivered, endorsed in blank, to a mutually acceptable escrow agent who will
hold the Stock to perfect the security interest of the seller.
10. Subchapter S Election: If Corporation is or becomes an
"electing small business corporation" as provided in Subchapter S of the
Internal Revenue Code, each Shareholder will consent to the elective status
until Corporation and the owners of the majority of the outstanding shares of
Corporation agree to the contrary. No Shareholder may transfer any Stock in any
way that will cause Corporation to lose its status as an "electing small
business corporation." Before any valid transfer of any Stock as provided in
this Agreement, any undistributed Subchapter S earnings will be distributed to
all Shareholders according to their pretransfer pro rata share.
11. Legend: All certificates representing Stock will be marked
"Transfer and encumbrance of the securities represented by this Certificate are
restricted by an Agreement on file at the Corporation office." The restrictions
imposed by this Agreement are those of Corporation as issuer as well as those of
the Shareholders. Transfer or encumbrance of Stock without compliance with this
Agreement is void. Corporation will not register a transfer of Stock without
proof of compliance with this Agreement. This Agreement is a stop transfer
order.
12. Binding Effect: Every person or entity who is the record,
legal or beneficial owner of Stock, whether by issue or transfer, including
without limitation any Spouse, Representative, transferees, donees, nominees,
grantees, successors and assigns of a Shareholder will be bound by and entitled
<PAGE>
to the benefits of the terms of this Agreement. This Agreement supersedes any
other stock restriction agreement among the parties, is specifically
enforceable, constitutes the entire agreement of Corporation and Named
Shareholders with respect to its subject matter, is governed by and construed in
accordance with the laws of New Mexico and may be modified only in writing.
DATED:_______________, 19__.
NAMED SHAREHOLDERS: CORPORATION:
- - ------------------- ------------
Hydro-Air Technologies, Inc.
___________________
David Jones
By____________________
___________________
Melvin L. Prueitt
___________________
Stanley Prueitt
___________________
Leslie Speir
- - --------------------------------------------------------------------------------
Exhibit 6.3
Founders Agreement
- - --------------------------------------------------------------------------------
<PAGE>
FOUNDERS AGREEMENT
------------------
David F. Jones, Melvin L. Prueitt, Stanley Prueitt, and Leslie Speir
(individually referred to by name or as a "Shareholder," and collectively
referred to as "Shareholders") and Hydro-Air Technologies, Inc., a New Mexico
corporation (Corporation") agree:
. Recital: The Shareholders have incorporated the Corporation to operate a
business which will develop an invention which will produce electrical energy
from chemical processes ("HARPS Technology"). The Corporation has signed an
agreement with First Capital Invest Corp. ("First Capital") by which First
Capital may invest in the Corporation to exploit the HARPS Technology ("Offer To
Purchase"). The Offer To Purchase also provides for possible acquisition of the
Shareholder's interest in the Corporation by a separate company the
("Acquisition Company") in exchange for shares of the Acquisition Company. The
Shareholders have agreed to a plan of organization, management and funding for
the Corporation and for ownership of their interest in the Corporation or in the
Acquisition Company which they hereby reduce to writing.
. Definitions: The following words have the following meanings when used in this
Agreement:
. Company: "Company" means either (i) Corporation or (ii) the Acquisition
Company or any other successor entity to the extent it represents the
financial interest originally derived from the HARPS Technology.
. Company Shares: "Company Shares" means the units of ownership of the
Company.
. Founder: "Founder" means individually and "Founders" means collectively
David F. Jones, Melvin L. Prueitt, Stanley Prueitt and Leslie Speir and
any other person designated as a Founder by the unanimous consent of the
then Founders. The Founders are all Shareholders.
. Founder Shares: "Founder Shares" means Company Shares issued or awarded
to Founders as Founder Shares.
. Discretionary Shares: "Discretionary Shares" means Company Shares issued
or awarded as Discretionary Shares to non-Founders by the Founders.
. Investor: "Investor" means anyone (including a Founder) who makes a
monetary investment in the Corporation.
. Investor Shares: "Investor Shares" means Company Shares issued to
Investors as Investor Shares.
. W: "W" means the fraction of full-time work. W is calculated by taking
the total number of authorized hours, as determined by the Board, that are
worked for the Company during the year and dividing by 2,000 (40 hours per
week times 50 weeks, allowing 2 weeks for vacation). The W calculation is
based on the number of authorized hours worked whether or not a salary was
paid for the time worked. W can not exceed 1.0, even if the individual
works more than 2,000 hours in a given year. The year, for the purpose of
calculating hours worked begins July 8, 1997, since that is the date
notification was given of the first financial investment.
. Phase 1: "Phase 1." means the engineering research and development that
determines the feasibility and practicality of producing HARPS power
plants. This is expected to include the design and fabrication of a
prototype HARPS unit and testing it.
. Phase 2: "Phase 2" means the design and fabrication of commercially
viable HARPS units. Commercially viable will be determined by the sale and
support of HARPS units.
. Proportionately Shared: "Proportionately Shared" means the sharing of
awarded Founders Shares among the Founders proportional to the Founder's
individual contribution to a milestone as determined by the Founders. For
the purpose of the division of an award, each Founder will rank the
<PAGE>
contribution of each of the other Founders. Subsequent to this ranking,
all rankings will be linearly combined to determine the portion awarded to
each Founder.
III. Stock Issuance: It is intended that 100,000 Company Shares be distributed
in a manner that will reward individuals that achieve defined objectives that
are beneficial to the Corporation. The following delineates the method by which
Company Shares have or will be issued:
A. The Corporation has initially issued and delivered 2,500 Founder Shares
to each Founder.
B. Dana and Linda Hansen will jointly be issued 2,500 Discretionary
Shares, as compensation for exerting considerable effort over an extended
period of time in an attempt to provide investors for the Corporation.
C. Founders who actively and whole-heartedly (as determined by the
Founders) working for the success of the Company for the first four years:
3,000 Founder Shares per year multiplied by W.
D. The Founder who provides the initial contact(s) that lead to Phase 1
Investment of up to $500,000: 600 Founder Shares per each $100,000 of
investment. (The Founder who provides the initial contact, may share this
award with other Founders or individuals who aid in the procurement of the
investment, in any way he sees fit.) This investment is a singular
opportunity and is closed after the above stated amount of money is
received by the Company from a Board approved investor, unless
specifically opened again by the Board. Investments may be received in
stages if all is not needed at once, as determined by the Board. If a
Founder receives an investment sales commission from the investor, he
shall not receive an award of Founder Shares for bringing in the
investment. If the Founder wishes to invest in the Corporation, he
receives both the Founder Shares and the Investor Shares.
E. The Founder who provides the initial contact(s) that lead to Phase 2
Investments of up to $5,000,000: 600 Founder Shares per each $1,000,000 of
investment. (The Founder who provides the initial contact, may share this
award with other Founders or individuals who helped, in any way he sees
fit.) This investment is a singular opportunity and is closed after the
above stated amount of money is received by the Company from a Board
approved investor, unless specifically opened again by the Board.
Investments may be received in stages if all is not needed at once, as
determined by the Board. The amount of shares awarded to the Founder(s)
will be based on the amount of money actually invested, not the amount
committed by the investor. If a Founder receives an investment sales
commission from the investor, he shall not receive an award of Founder
Shares for bringing in the investment. If the Founder wishes to invest in
the Corporation, he receives both the Founder Shares and the Investor
Shares.
F. Founders who write proposals that result in government grants that are
subsequently awarded and accepted by the Board: 1,000 Founder Shares per
each $100,000. If more than one Founder participates in the submittal of
the successful proposal(s), the Founder Shares awarded will be
Proportionately Shared. This item also applies to procuring grants from
companies or other organizations. Total awards for all grants is limited
to 5,000 Founder Shares unless specifically extended by the Board. The
Board will examine all grants carefully before acceptance to assure that
no serious restrictions or other negative impacts on the Company are
involved in the grant.
G. For Melvin L. Prueitt exclusively licensing the HARPS invention to the
Corporation: 8,000 Founder Shares; 2,000 upon signing a license agreement
and 2,000 at the end of each of the following three (3) years from the
date of initial signing.
H. For Founders contribution to the design and construction of the first
successful brine concentrator (prototype): 3,500 Founder Shares. This
award is intended to be Proportionately Shared among the Founders.
<PAGE>
I. For Founders contribution to the design and fabrication of the first
successful power unit (heater, boiler, turbine, and condenser)
(prototype): 3,500 Founder Shares. This award is intended to be
Proportionately Shared among the Founders.
J. For Founders contribution to the design and fabrication of the first
commercial HARPS unit: 4,000 Founder Shares. This award is intended to be
Proportionately Shared among the Founders.
K. For Founders contribution to activities in support of the Phase 1
(prototype HARPS production) design and fabrication effort including
company management, project management, procurement,
bookkeeping/accounting, legal, and human resources activities: 2,000
Founder Shares. This award is intended to be Proportionately Shared among
the Founders.
L. For Founders contribution to activities in support of the Phase 2
(commercial HARPS production) design and fabrication effort including
company management, project management, procurement,
bookkeeping/accounting, legal, and human resources activities: 2,000
Founder Shares. This award is intended to be Proportionately Shared among
the Founders.
M. For Founders contribution to marketing the first commercial HARPS unit
in the United States: 3,000 Founder Shares. This award is intended to be
Proportionately Shared among the Founders.
N. For Founders contribution to marketing the first commercial HARPS unit
in a country other than the United States: 2,000 Founder Shares. This
award is intended to be Proportionately Shared among the Founders.
O. For introduction, by a Founder, of a new product that is accepted by
the Board and is subsequently manufactured and marketed by the Company:
3,000 Founder Shares. This award may, at the discretion of the Founders,
be Proportionately Shared among the Founders.
P. For introduction, by a Founder, of a patentable invention that
contributes to the success of the HARPS technology and that is accepted by
the Board. (This award may be applicable even if the Board chooses not to
apply for a patent for the invention, at the discretion of the Founders.):
Up to 2,000 Founder Shares. This award may, at the discretion of the
Founders, be Proportionately Shared among the Founders. For the purpose of
determining the number of shares to be awarded, each Founder will rank the
number of shares appropriate for the value of the invention to the
Company. Subsequent to this ranking, all rankings will be linearly
combined to determine the number of shares awarded.
Q. Before any investments or grants are received, Founders may pay for
Board approved business and research expenses (but not salaries or patent
application costs for the first U.S. patent on HARPS technology) on a
voluntary basis. Expenses which are incurred before any investments are
received by the Corporation, such as incorporation expenses, legal fees,
the purchase of equipment, rental of space, and other operating expenses
shall be shared by the Founders on a voluntary basis. Each Founder shall
be awarded 1 Founder Share for each $5 of money supplied for Board
approved expenses. A Founder may supply more than his share of expenses
only if other Founders do not supply their share, and then only in equal
shares with the remaining Founders. These expenses may be reimbursed to
the Founders after investments or grants have been received, if the
Founder so wishes, but the corresponding Founder Shares must be
relinquished to the Company. (Some grants to not allow reimbursement of
previous expenses.)
R. At the end of four years, if there are any remaining undistributed
Founder Shares or Discretionary Shares, they shall be distributed among
the Founders in amounts proportional to the number of Shares that each
Founder possesses at that time, and/or, at the discretion of the Founders,
<PAGE>
to other deserving individuals. If the Corporation is purchased by another
company, the remaining shares may be divided at that time, at the
discretion of the Founders. S. Phase 1 investments of $500,000 shall
entitle the investors to 20% of the Corporation. (100% of the Founder
Shares and Discretionary Shares will total 80% of the Corporation.) If the
Corporation is not purchased by The Acquisition Company prior to Phase 2,
investments of $5,000,000 shall entitle the investors to an additional 20%
of the Corporation. (100% of the Founder Shares and Discretionary Shares
will total 60% of the Corporation.) Smaller investments would entitle the
investors to a proportionately smaller fraction of the Corporation.
IV. Record of Services Provided: Each Founder is expected to keep a daily log of
hours spent on the project. The log shall include a note on the type of activity
and the results obtained. A copy of the log shall be sent to the Corporation
monthly, unless specific exemption is issued by the Board. It is expected that
only authorized hours that produce results beneficial to the Corporation will be
reported for this purpose. If the Board comes to the conclusion that a
particular Founder's efforts are not producing sufficiently beneficial results
for the Corporation, the Board may ask the individual to curtail that activity.
The Founder may continue with the activity unless the Board determines that it
negatively effects the Corporation in any way including, but not limited to,
utilization of resources or impairment of other authorized activities. No shares
will be awarded for such unauthorized activities.
V. Compensation: Compensation for hours worked by Founders will be as follows:
A. Before any investments are received by the Corporation, the Founders
shall work without any hourly compensation.
B. After some or all of the Phase 1 investment has been made, the Founders
shall work at $35 per hour. If funding is not sufficient, the Board shall
determine what work is most important to be accomplished and halt payment
for all other activities. Founders may bring to the attention of the Board
tasks that should be considered as necessary for Corporation operation and
success.
C. After the acquisition of sufficient funding through investments,
grants, or sales, salaries may be raised at the discretion of the Board,
which shall determine salaries based on the perceived value of the
individuals to the Company.
D. Melvin Prueitt will receive a 1% royalty on gross sales of HARPS power
plants and 0.5% on electric power sold from Company owned power plants.
VI. Management: At all times the Shareholders will vote their Company Shares so
that, unless there is unanimous agreement of the Shareholders to the contrary:
A. The Articles of Incorporation and Bylaws of the Corporation will not be
amended.
B. No Company Shares will be issued by the Corporation except as provided
in this Agreement.
C. Each Founder may designate one person as a Director and these Directors
will be elected for a period of four years or as long as he remains an
active employee of the Company, which ever time period is shorter. The
Corporation will take the action agreed upon by the majority of the
Directors. Each Director will have an equal vote on any Board action.
David F. Jones, Melvin L. Prueitt, Stanley Prueitt, and Leslie Speir are
the initial designated Directors of the Corporation and have been so
elected.
D. The Shareholders have caused the Directors to elect, consistent with
their obligations under law, the following persons to the following
Corporation offices, so long as these persons are ready, willing and able
to serve in the designated positions:
Name Office
---- ------
Melvin L. Prueitt President and Chairman of the Board
David F. Jones Vice President of Operations
Stanley Prueitt Vice President of Business and Marketing
Leslie Speir Vice President of Engineering
<PAGE>
E. The books of the Corporation will be maintained in accordance with the
method required for federal income tax return reporting applied on a basis
consistent with prior periods and will be subjected to audit at
Corporation's expense upon demand by any Shareholder. Each Shareholder
will have access at any reasonable time to Corporation's books and
records.
F. The employment agreements between the Corporation and each of the
Founders will not be changed without unanimous approval by the Board.
G. If the Directors are deadlocked and cannot reach a decision, Melvin L.
Prueitt will nominate and the Shareholders will elect another Director to
break the deadlock.
H. The Corporation will not, except in the ordinary course of business,
(i) borrow money, (ii) transfer all or substantially all of its assets, or
(iii) loan money or assets.
VII. Restrictions: The Corporation and Shareholders will execute a Stock
Restriction Agreement in the form attached as Exhibit 1. The restrictions
imposed by this Stock Restriction Agreement are those of the Corporation as well
as those of the Shareholders. All certificates representing Company Shares will
be marked "Voting, transfer and encumbrance of the securities represented by
this certificate are restricted by the terms of agreements on file at the
Corporation office."
VIII. Voting Trust: The Shareholders and Melvin L. Prueitt,
as Voting Trustee will execute a Voting Trust Agreement in the form agreed to by
them creating a Voting Trust ("Voting Trust"). Corporation will issue and
deposit in the Voting Trust the shares not previously issued which are to be
awarded as Founders Shares or Discretionary Shares. The Voting Trustee will hold
the shares deposited in the Voting Trust ("Voting Trust Shares") and issue such
shares as Founder Shares or Discretionary Shares, and if The Acquisition Company
is to acquire the shares of the Corporation, exchange Corporation shares for The
Acquisition Company shares and hold the Acquisition Company Shares for issuance
as Founder Shares or Discretionary Shares.
IX. Acquisition: If the Corporation is acquired by The Acquisition Company or
any other entity, the non-cash consideration paid for the acquisition of other
than Investor Shares will be allocated among the holders of Founder Shares,
Discretionary Shares, and Voting Trust Shares in proportion to their then
holdings of Founder Shares, Discretionary Shares, and Voting Trust Shares. The
Voting Trust Shares will be issued in accordance with the provisions of the
Voting Trust herein. The cash consideration paid for the acquisition will be
allocated among the owners of the Founders Shares in proportion to their
ownership of Founders Shares.
X. Documentation: This is a binding document setting out the parties intent. The
contribution of capital, issuance or award of Company Shares and other actions
may have occurred before all document giving effect to this Agreement have been
signed. The parties will use their best efforts in good faith to agree on the
matters dealt with herein where future determination is required and will sign
any document and take any action required to accomplish this intent.
XI. Binding Effect: Every person or entity who is the record, legal or
beneficial owner of Company Shares, whether by issue or transfer, including
without limitation the spouse, heirs, surviving joint tenants, executors,
administrators, trustee, personal representatives, transferees, donees,
nominees, grantees, successors, and assigns will be bound by and entitled to the
benefits of the terms of this Agreement. This agreement is specifically
enforceable, constitutes the entire agreement of the parties with respect to its
subject matter, is governed by and construed in accordance with the laws of New
Mexico and may be modified only in writing by the unanimous agreement of all
parties hereto. A Shareholder will have sole authority to vote, manage, control,
dispose of or encumber any Company Shares owned by the Shareholder and any
spouse of the Shareholder.
DATED: __________, 1997.
<PAGE>
SHAREHOLDERS:
------------------------------
DAVID F. JONES
------------------------------
MELVIN L. PRUEITT
------------------------------
STANLEY PRUEITT
------------------------------
LESLIE SPEIR
CORPORATION: HYDRO-AIR TECHNOLOGIES, INC.,
a New Mexico corporation
By____________________________
Melvin L. Prueitt,
President
