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As filed with the Securities and Exchange Commission on June 24, 1999
Registration No. _______________
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
AMERICAN ENVIRONMENTAL CORPORATION
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(Name of Small Business Issuer in its Charter)
Nevada 88-0344622
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
705-B Yucca Street, Boulder City, Nevada 89005
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (702) 294-3870
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001 per share
----------------------------------------
(Title of Class)
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AMERICAN ENVIRONMENTAL CORPORATION
FORM 10-SB
TABLE OF CONTENTS
PART 1 Page
Item 1. Description of Business ..................................... 3
Item 2. Management's Discussion and Analysis or Plan of Operation ... 8
Item 3. Description of Property...................................... 13
Item 4. Security Ownership of Certain Beneficial Owners
and Management.............................................. 14
Item 5. Directors, Executive Officers, Promoters
and Control Persons......................................... 15
Item 6. Executive Compensation....................................... 17
Item 7. Certain Relationships and Related Transactions............... 18
Item 8. Description of Securities.................................... 19
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters................. 20
Item 2. Legal Proceedings............................................ 20
Item 3. Changes in and Disagreements with Accountants................ 21
Item 4. Recent Sales of Unregistered Securities...................... 21
Item 5. Indemnification of Directors and Officers.................... 22
PART F/S
Financial Statements......................................... 23
PART III
Item 1. Index to Exhibits............................................ 51
Signatures................................................... 51
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Corporate History
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American Environmental Corporation (hereinafter the "Company" or
"Registrant") was formed in July 1995 under the laws of the state of Nevada to
manufacture and market industrial pollution control equipment aimed at
reducing airborne pollutants emitted from industrial flues. The Company has
licensed from certain of its existing and former principal shareholders
certain proprietary technologies relating to the removal of toxic flue gases.
The Company markets these technologies through its wholly owned subsidiary,
Fabric Filters Air Systems, Inc. ("Fabric Filters"), a pollution systems
engineering firm located in Portland, Oregon. Currently, all of the Company's
operating activities are conducted through Fabric Filters.
In December 1997, the Company acquired all of the outstanding stock of
Fabric Filters in a transaction intended to qualify as a tax-free exchange
pursuant to section 368(a) of the Internal Revenue code of 1986, as amended.
Incorporated November 15, 1985, Fabric Filters engineers, designs, and
contracts the construction of air pollution control systems.
Since 1985, Fabric Filters has been active in several areas of air
pollution control, including engineering and installing systems utilizing dust
collectors, process collectors from mills, dryers and kilns, packed tower and
venturi scrubbers, fiber-bed filters for sib macron vapors, air to air heat
exchangers, mobile collectors for the highway construction industry, and
injection reactors for incineration. Fabric Filters' installation expertise
and experience has proved to be especially significant for sales of the
Company's air pollution reduction technology.
Mineral Sale and Purchase Contract
- ----------------------------------
In June 1998, the Company and NatureNu Corporation, a Nevada corporation
("NatureNu") entered into negotiations for a Mineral Sale and Purchase
Contract (the "Purchase Contract"), wherein the Company received the right to
extract up to 5,500 tons of surface minerals (hereinafter "Seasoil") from
certain placer mining claims located in Esmeralda County, Nevada. The Company
anticipated using the Seasoil in connection with a seed pellet planting system
to be marketed to mining companies, among others, as part of a revegetation or
reclamation and restoration program.
The actual seed pellet combination was developed by NatureNu using a
combination of the Seasoil, green waste, a moisture retaining clay, seed and
additional nutrients. NatureNu, however, did not have the resources to
implement a successful marketing program, and the Company hoped to be able to
complement its sales of pollution control systems by expanding its product
base additional types of environmental reclamation.
The Purchase Contract allows the Company a 24 month period beginning
August 21, 1998 in which to extract the Seasoil at the Company's expense. The
actual extraction can be performed by NatureNu at NatureNu's actual cost plus
twenty percent (20%), or by another contractor approved by NatureNu.
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As consideration for the extraction rights granted to the Company, the
Company paid $100,000 cash, and a $40,000 consulting fee NatureNu's President,
Steve Vonderheide, for services in connection with the marketing and sales of
the Seasoil. Additionally, the Company agreed to issue 320,332 shares of the
Company's Common Stock in satisfaction of certain indebtedness and financial
obligations of NatureNu.
The Purchase Contract provided for a valuation purchase price of $150 per
ton for the Seasoil, which price incorporated the shares of the Company's
Common Stock issued and the consulting fee. With the addition of legal and
other expenses relating to the above transactions, the total cost to the
Company of acquiring the rights to extract the Seasoil was approximately
$855,154. The net effect of the entire transaction to the Company has been
the acquisition of the rights to extract 5,500 tons of Seasoil for
approximately $855,154 in cash and securities.
At the time of entering into the Purchase Contract, the Company
anticipated negotiating sales agreements for the Seasoil well within the
allowed time frame for the extraction. At this time, however, the Company has
not been able to find any buyers for the Seasoil and is not optimistic about
its future marketing possibilities. Because of the slow development of its
anticipated market, the Company has elected to write down a substantial
portion of the costs of entering into the Purchase Contract by recording an
impairment loss, as explained more fully in Management's Discussion and
Analysis and the financial statements attached to this registration.
Air Pollution Control Systems in General
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The effectiveness and usefulness of any air pollution control system
depends on the system's ability to remove the gases before they are emitted
into the atmosphere. Prior to the development of the Company's technologies,
the most effective way of removing particulates and gases produced by
industrial concerns was a wet scrubber system, a system which use an aqueous
solution to mix the pollutant gases. Although these wet scrubber systems are
effective and widely accepted, wet scrubber systems are very costly to
install, maintain and operate due to the reliance on the injection of an
aqueous solution that has to be treated after it mixes with the gases. The
Company believes that air pollution control systems utilizing the Company's
technologies will prove to be as effective as the wet scrubber systems and
less expensive to install, maintain and operate.
Most air pollution control systems use similar technology for the removal
of the particulate matters in a pollution stream. Existing air pollution
control systems are distinguished by their varying ability to remove gases
such as sulfur oxide, nitrogen oxides, and volatile organic oxides from the
pollution stream.
The Company's Technologies
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The Company is a party to an exclusive technology license agreement with
Richard A. Steinke and Robert W. Hood, to manufacture pollution systems
covered by U.S. Patent Application "Improved Apparatus and Method for the
Remediation of Particulate Material and Toxic Pollutants Transported in Flue
Gas" -- Docket No. 7455 (the "Improved Apparatus"). Messrs. Steinke and Hood
are the inventors of the Improved Apparatus. The Improved Apparatus
technology allows for maximum flow condition and is adjusted automatically
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through a programmable logic controller with system sensors to maintain the
optimum stoichiometric ratio of sorbent to contaminates to achieve maximum
results. The flue gas enters the duct work where a dry sorbent injector blows
the sorbent into a turbulent gas stream. Depending on the moisture content of
the gas stream, additional moisture may be added to the stream, but only to
the point of activating the sorbent. The collector finishes the job by
coating the filter and allowing residence time for conversion of the gas into
a solid. The system's computer hardware and related software takes readings
for temperature, moisture and the gas flow, and determines the amount of
sorbent to add into the system.
In addition, the Company is a party to an exclusive license agreement
with Richard A. Steinke and Dennis S. Chrobak, to manufacture pollution
systems covered by U.S. Patent No. 5,795,549 [August 18, 1998] (the
"Apparatus"). Messrs. Steinke and Chrobak are the inventors of the Apparatus.
The Apparatus technology can be utilized for remediation of particulate matter
and gaseous pollutants. The flue gases, having a pre-determined moisture
content, are mixed with sorbent material and forced through an induct venturi
equipped with a mixing impeller. Downstream, the reaction products are
removed from the gas stream and collected for use as construction material.
The vented gas stream is monitored for specific pollutants and the amount of
sorbent material introduced into the system can be automated in response to
the readings obtained. Additionally, the gas stream can pass through a bag
house or cyclone wherein the bags are impregnated with materials specific to
the pollutants carried in the stream.
The Company's technologies incorporate much of the current structural
technology in that they incorporate duct work, bags, and scrubbers. The
technologies differ in that they removes the pollutant gases such as sulfur
oxides, nitrogen oxides, and volatile organic oxides by combining a sorbent (a
chemical which is known to bind with certain other chemicals) with the gases,
thus creating a solid which can then be removed using current scrubbing and
bagging technologies.
The Company's technologies have been developed based on the belief that a
large market exists for a system that is as effective as the wet pollution
control systems but without the associated cost. This belief led the
developers of the technologies to attempt to devise systems that could operate
without having to use an aqueous solution which itself would require treatment
to remove the contaminates.
Both the Improved Apparatus and the Apparatus technologies have been
designed to be able to use existing duct work, bagging and scrubbers and will
only require the modification of a minimum amount of duct work to install the
Company's system of injecting a sorbent into the pollutant stream. Given the
Company's limited financial resources and the nature of the work associated
with installing, the Company subcontracts most, if not all of the
manufacturing and installation process.
Marketing
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The Company currently does not have the resources to market its
technologies worldwide. Therefore, the Company has concentrated its marketing
efforts in countries that management believes offer the best opportunities for
establishing a presence in the air pollution control industry, primarily the
United States and China.
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In the United States, the Company markets to companies with existing
systems in place that desire to reduce their pollution control costs. These
companies can retrofit their current systems and receive future cost savings
as they would no longer have to treat contaminated water or dispose of
byproduct.
In China, the Company has targeted plants under new construction, because
the Chinese government appears to be starting to enforce the need for better
pollution control devices. The low cost of installing systems utilizing the
Company's technologies should make the Company's technologies very attractive
in China. The Company has utilized the efforts of Ping Zhang, an officer and
director of the Company to represent the Company in China. Mr. Zhang is the
principal of MW McWong International, Inc. ("McWong"), a pollution systems
marketing firm located in Shanghai, China. In April 1996, the Company entered
into an representation agreement with McWong appointing McWong as its
exclusive sales representative in China to perform marketing activities,
including developing Chinese product literature, arranging seminars and
conferences in China, and developing marketing and pricing strategies for the
Company's air pollution control systems in China. Although the Company
expects favorable acceptance of its technologies in the Chinese market, no
sales have yet materialized.
Additional Marketing Methods
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Should the Company desire, the Company may sublicense its technologies to
third parties who will market, manufacture, install and maintain the air
pollution control systems. However, the Company does not have any
sublicensing arrangements in place, nor has it attempted to negotiate any
sublicenses as of this date. The Company anticipates that if such sublicenses
are negotiated, system installations will be performed by the third party
licensees or subcontractors of the licensees.
Competition
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The Company will be in competition with companies such as Wheelabrator,
Pure Air, General Electric, Westinghouse, and Mitsubishi Corporation that
manufacture pollution control systems. All of these companies have been in
the pollution control industry for several years, have established customers,
and have financial resources substantially greater than those of the Company.
Although the Company is new to the pollution control system industry, the
Company believes that it will be able to compete against the established
companies in the pollution control industry because its technologies allow for
installation without down time at the facility and can be installed at what
management believes is a cost lower than competing systems.
Availability of Materials and Suppliers
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In addition to engineering and constructing air pollution control systems
that use the Company's technologies, Fabric Filters engineers systems
utilizing other control systems currently being used in the industry. Because
of the Company's current limited financial and manpower resources, the Company
typically subcontracts the manufacturing of systems. Installation of the
systems is supervised by Fabric Filters. The Company utilizes multiple
subcontractors and suppliers to purchase the materials necessary for
construction of its air pollution control systems. The Company believes that
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it will be able subcontract and obtain adequate quantities of supplies and
components without significant problems or delays.
Dependence on Customers
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Fabric Filters does not have and has not had in the past several years
any single customer that accounted for gross sales of more than 15%. The
Registrant does not anticipate any single customer accounted for an
appreciably larger percentage of gross sales in the next 12 months.
Patents
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The Company is licensee to the following technologies for which a patent
application is pending or a patent has been issued by the U.S. Office of
Patents and Trademarks.
1. U.S. Patent Application "Improved Apparatus and Method for the
Remediation of Particulate Material and Toxic Pollutants Transported
in Flue Gas" -- Docket No. 7455
2. U.S. Patent No. 5,795,549 [August 18, 1998] "Method and Apparatus for
Remediation of Toxic Flue Gases"
Although a patent has a statutory presumption of validity in the U.S.,
the issuance of a patent is not conclusive as to its validity, nor as to the
enforcement scope of the claims contained therein. The Company intends to,
but has not as of the date of this report, applied for patent protection in
other countries. The Company intends to vigorously police its patents
underlying its licensed technology and there can be no assurance that such
patents will not be infringed upon or modified by others. The Company has not
retained intellectual property counsel to render an opinion regarding the
Improved Apparatus or the Apparatus as to whether the Company is infringing on
the intellectual property rights of others. However, Messrs. Steinke, Chrobak
and Hood utilized intellectual property counsel in preparing and filing the
patent applications and in that regard, the Company believes its licensed
technologies are not the intellectual property rights of others or are already
in the public domain.
Research and Development
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During its fiscal years ended June 30, 1998 and 1997, the Company did not
spend any significant amounts on research and development activities wherein
the cost of such activities would have been borne directly by its customers.
Further, during its fiscal year ended June 30, 1999, the Company does not
expect to make any significant expenditures for research and development
activities to the extent that the cost of such expenditures would be borne by
its customers.
Government Regulation
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In the United States, the Clean Air Act ("CAA") is the principal federal
law addressing air pollution issues. Each state also has its own
environmental standards which must be met. The states statutes are often
based on what level of pollutants may be emitted into the environment under
the CAA. Since its passage in 1963, the CAA has served as the basis for
federal regulation and the primary driving force for the state regulations
directed toward controlling air pollution. The CAA has gone through five
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amendment cycles, the latest in 1990. Each cycle has resulted in expanding
jurisdiction and more stringent and detailed regulations. The current CAA
covers five major topical areas: attainment of national ambient air quality
standards, regulation of mobile sources, control of hazardous air pollutant
emissions, reduction of acid rain, and prevention of global warming/ozone
depletion. Other countries have similar statutes governing the amount of
pollutants which can be emitted.
Based on the CAA, regulations on the state and federal level have been
designed to require that entities that produce pollutants reduce or eliminate
the amount of pollutants released into the environment. Because of these
statutes and regulations, a large industry has been created to produce
pollution control devices. These devices have been extremely costly and the
costs have been increasing as the regulations tighten the amount of pollutants
which may be released. It is the Company's belief that, as government
regulations relating to air pollution control increase or become more
restrictive, such increases or restrictions would generally have a positive
effect on the Company's air pollution control and related business activities.
When required by local regulatory authorities, the Company may need to
obtain applicable construction permits with respect to the installation of air
pollution control systems.
Employees
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The Company has 3 full time and no part time employees at its executive
office in Boulder City, Nevada.
Fabric Filters currently has 5 full time and no part time employees. All
employees are employees at will.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Regarding Forward-looking Statements
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This report may contain "forward-looking" statements. The Company is
including this cautionary statement for the express purpose of availing itself
of the protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all such forward-looking
statements. Examples of forward-looking statements include, but are not
limited to: (a) projections of revenues, capital expenditures, growth,
prospects, dividends, capital structure and other financial matters; (b)
statements of plans and objectives of the Company or its management or Board
of Directors; (c) statements of future economic performance; (d) statements of
assumptions underlying other statements and statements about the Company and
its business relating to the future; and (e) any statements using the words
"anticipate," "expect," "may," "project," "intend" or similar expressions.
Year 2000 Disclosure
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The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company has not completed its
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assessment, but currently believes that costs of addressing this issue will
not have a material adverse impact on the Company's financial position.
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.
Fabric Filters, the Company's operating subsidiary, has completely
upgraded its computer systems as of February 1999. In addition, Fabric
Filters has a maintenance agreement with Computer Products, a Portland, Oregon
firm, under which agreement all of Fabric Filters' software is being
maintained with the manufacturer's suggested updates and patches as such
updates and patches become available, after appropriate testing. The Company
believes that at this time it has no other operations or current equipment
which might be affected by the Y2K computer glitch, but intends to continue
Fabric Filters' current testing and maintenance programs through June 2000.
The Company has made inquiries to its outside suppliers to ascertain if
such suppliers are Y2K compliant. At this time, management is satisfied that
such suppliers have made or are making appropriate examinations and necessary
upgrades to insure Y2K readiness. However, the Company does not depend
exclusively on any one supplier, and, therefore, does not anticipate any
significant interruption in materials and supplies in the event that any
particular supplier experiences Y2K problems. Although the Company does not
anticipate any material adverse effects, it cannot guarantee that no
disruption in products or services will occur if multiple suppliers experience
Y2K problems.
The Fabric Filters computer upgrades and the maintenance agreement have
been accomplished in the ordinary course of business. The Company has not
experienced and does not anticipate any extraordinary expenses related to Y2K.
The Company will continue to monitor its internal systems and keep in close
touch with its outside suppliers to insure that its operations are not
materially affected by Y2K.
Currently, the Company does not have any contingency plans in place to
deal with unanticipated Y2K disruptions if they occur. Such unanticipated
disruptions could have an adverse effect on the Company's operations.
Results of Operations
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General
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The Company's revenues are generated primarily by its business operations
in Fabric Filters. For comparative purposes, the Company's unaudited
statements of operations and cash flows for the nine-month period ended March
31, 1998, have been presented in the financial information included in this
report, to show the financial results that may have occurred if the Company's
acquisition of Fabric Filters had occurred as of July 1, 1997, the beginning
of the Company's fiscal year ended June 30, 1998.
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The nine-months ended March 31, 1999 compared with nine-months ended
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March 31, 1998
--------------
Total revenues for the nine month period ended March 31, 1999 was
$1,550,577 compared to $3,071,465 for the same period in 1998. Costs of sales
for the nine month period ended March 31, 1999 were $974,205, or 62.8% of
sales as compared to $2,583,014, or 84.1% of sales for the same period in
1998. The decrease in the cost of sales as a percent of sales for 1999
compared to 1998 is attributable to engaging in higher margin projects during
the period. The decrease in the Company's sales during the nine month period
in 1999 compared to 1998 can be attributed to the fact the Company pursued
less projects with lower margins. Other than lack of working capital, the
Company knows of no predictable events or uncertainties that may be reasonably
expected to have a material impact on the net sales revenues or income from
operations.
Corporate Expense. For the nine month period ended March 31, 1999, total
operating expenses were $535,657, consisting of general and administrative
expenses of $519,526 and depreciation and amortization of $15,131, resulting
in a profit from operations of $41,715. Total operating expenses for the same
period ended March 31, 1998 were $1,364,838, consisting of general and
administrative expenses of $1,348,856 and depreciation and amortization of
$15,982, resulting in a loss from operations of $(876,387).
Interest Expense. Interest expense for the nine month period ended March
31, 1999 was $33,849 compared to $11,798 for the same period in 1998. The
increase in interest expense for the period in 1999 is directly attributed to
an increase in corporate borrowing during the period.
Bad Debt Expense. Bad debt expense for the nine month period ended March
31, 1999 was $18,255, a reduction from $23,614 expensed as bad debt during the
same period ended March 31, 1998. However, bad debt expense as a percent of
sales during the comparative periods increased to 1.2% for 1999 as opposed to
.8% for 1998.
The Company experienced a net loss of $(6,432) for the nine month period
ended March 31, 1999 compared to a loss of $(903,376) for the same period in
1998. The basic loss per share for the nine-month period ending March 31, 1999
was $(0.003) and $(0.466) for the same period ended March 31, 1998, based on
the weighted average number of shares outstanding of 2,259,268 and 1,938,936,
respectively.
Liquidity and Capital Resources
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During the nine month period ended March 31, 1999, the Company sold
100,000 shares of its common stock for $100,000 cash at a price of $1.00 per
share. The proceeds from the sale of the shares has been utilized by the
Company to fund ongoing business operations.
At March 31, 1999, the Company had current assets of $381,134 and current
liabilities of $1,007,082, for a working capital deficit of $(625,948). At
March 31, 1999, the Company had cash and cash equivalents of $35,492 and net
accounts receivable of $339,848. Net cash used in operations from the nine
months ended March 31, 1999 was $115,399 compared to $291,152 for the same
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period in 1998. Cash used in operations for the nine month period ending March
31, 1999 was funded primarily by receivables and cash received from the sale
of common stock.
At March 31, 1999, the Company had net property and equipment of $58,763
after deduction of $170,498 in accumulated depreciation. The Company's
property and equipment consists mainly of computer equipment($131,177),
furniture and fixtures ($46,474), and engineering, office, and demonstration
equipment ($36,701). At March 31, 1999, the Company has an accumulated deficit
during the development stage of $(2,869,190), has a working capital deficit
and limited internal financial resources. The report of the Company's auditor
for its fiscal year ended June 30, 1998, contains a going concern modification
as to the ability of the Company to continue. During the nine month period
ending March 31, 1999, the Company has implemented measures to reduce cash
outflows and increase working capital through the issuance of additional
shares of common stock for cash.
The Company is aware of its ongoing cash requirements and has implemented
a cash flow plan, including continued reduction in its general and
administrative expenses. Additionally, the Company has developed an overall
strategy and certain financing options to meet its ongoing needs through June
30, 1999. Due to the need for working capital for Fabric Filters the Company
intends to seek additional debt and/or equity financing from existing
shareholders and other investment capital resources. The Company has no
commitments for any additional debt or equity financing at this time and no
assurance can be given that the Company will be able to obtain any such
commitments. Because of the Company's limited financial resources, the
Company does not anticipate expending any substantial sums for new research
and development during the fiscal year ending June 30, 1999.
Year ended June 30, 1998 compared to year ended June 30, 1997
---------------------------------------------------------------------
Total revenues for the year ended June 30, 1998 was $1,133,376 compared
to $15,950 for the same period in 1997. Prior to its acquisition of Fabric
Filters in January 1998, the Company had limited operations and no revenue
from sales. Direct costs for the year ended June 30, 1998 were $1,004,326, or
88.6% of sales, for a gross profit of $129,050.
Corporate Expense. For fiscal 1998, total operating expenses were
$1,155,131, consisting of general and administrative expenses of $1,140,789
and depreciation and amortization expenses of $14,342, resulting in a loss
from operations of $1,026,081. Total expenses for fiscal 1997 were $175,505,
consisting of general and administrative expenses of $173,799 and depreciation
and amortization expenses of $1,706, resulting in a loss from operations of
$175,505.
Interest Income. The Company had interest income from accounts
receivables of $4,052 during fiscal 1998 as opposed to $15,950 of interest
income during fiscal 1997. Interest income derived in fiscal 1997 was
attributable to outstanding subscription receivables for the Company's common
stock during the period.
Interest Expense. Interest expense for fiscal 1998 was $34,281 as
compared to none in fiscal 1997. The increase is attributed to increased
corporate borrowing by the Company during the period.
<PAGE> 12
Other Expense. Other expense for fiscal 1998 was a net $1,595,280, of
which, substantially all was represented by loss on the Company's acquisition
of Fabric Filters. The Company issued 250,000 shares of its common stock
valued at $2.00 per share for a total valuation of $500,000. The acquisition
was accounted for as a purchase. Initially goodwill of $856,350 was recorded
which consisted of the excess of the purchase price over the fair value of the
net tangible assets of Fabric Filters. A goodwill impairment loss was been
recorded at June 30, 1998, since the Company has been unable to determine the
present value of the future cash flows of Fabric Filter. Additionally, the
Company has recorded an impairment loss of $678,208 at June 30, 1998,
associated with the acquisition of certain mineral deposits that the Company
hopes to use to develop various agricultural products.
The Company experienced a net loss of $(2,621,361) for the year ended
June 30, 1998 compared with a net loss of $(159,555) for the same period in
1997. The basic loss per share for fiscal 1998 was $(1.16) as compared to
$(0.11) for fiscal 1997, based on the weighted average number of shares
outstanding of 2,259,268 and 1,600,200 for the respective periods.
Liquidity and Capital Resources
- -------------------------------
In addition to the acquisition of Fabric Filters and the mineral
deposits, during the fiscal year ended June 30, 1998, the Company issued
615,000 shares to certain of its officers, directors, and employees as
compensation for services rendered to the Company in lieu of cash at a value
of $1.00 per share for a total value of $615,000.
The Company issued common stock for services in lieu of cash during the
period to help preserve limited working capital. The Company had a working
capital deficit of $(732,419) at June 30, 1998. The Company had cash of
$28,027 and net accounts receivable of $244,419 at June 30, 1998. Cash used
in operations for the year ended June 30, 1998 was $424,234 and $178,429 for
the prior year 1997. Cash used in operations for the year ended June 30, 1998
was funded primarily by the issuance of common stock.
Because the Company has an accumulated deficit of $(2,862,758), has a
working capital deficit and limited internal financial resources, the report
of the Company's auditor contains a going concern modification as to the
ability of the Company to continue. During fiscal 1998, the Company began to
effect measures to reduce cash outflows and increase working capital thru the
increasing issuance of additional shares of common stock for services. The
Company is aware of its ongoing cash requirements and has implemented a cash
flow plan, including continued reduction in its general and administrative
expenses. Additionally, the Company has developed an overall strategy and
certain financing options to meet its ongoing need through June 30, 1999.
Impact of Inflation
- -------------------
The Company does not anticipate that inflation will have a material
impact on its current or proposed operations.
Seasonality
- -----------
The Registrant's market for its pollution control systems is
sufficiently diversified across climatic zones that sales and installations
are not materially impacted by seasonal variations.
<PAGE> 13
ITEM 3. DESCRIPTION OF PROPERTY
Executive offices
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The Company maintains offices in Boulder City, Nevada, at 705-B Yucca
Street. The Company leases its office space from an unrelated third party for
approximately $950 per month. The term of the lease is 12 months, of which
the Company has approximately 7 months remaining. The Company believes its
current office arrangements will be sufficient to accommodate the Company's
growth for the next two years.
Fabric Filters leases space in Clackamas, Oregon, at 15635 SE 114th
Avenue, Suites 101-104. The current lease is for 12 months ending June 30,
1999, for $3273 per month. Fabric Filters has signed an Amendment to the
Lease, extending the lease period for an additional 12 months and reducing its
total square footage from approximately 3,000 square feet to approximately
2,500 square feet. The lease payment for the 12 months July 1, 1999 to June
30, 2000 will be $2163 per month.
<PAGE>
<PAGE> 14
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 1999 the name and address
and the number of shares of the Company's Common Stock, par value $0.001 per
share, held of record or beneficially by each person who held of record, or
was known by the Company to own beneficially, more than 5% of the 2,885,532
shares of Common Stock issued and outstanding, and the name and shareholdings
of each director and of all officers and directors as a group.
Principal Shareholders:
(1)
Name and Address Number of Shares Nature of Ownership % of Class
- ---------------- ---------------- ------------------- ----------
Faith Mountain Inc. 200,000 Direct 6.93
12939 SE 246th Street
Kent, WA 98031
Roger Fleming 212,000 Direct 7.35
3865 Silverwood Drive
Stow, OH 44224
Robert W. Hood 178,195 Direct 6.18
15635 SE 114th Street, #102
Portland, OR 97208
Michael Steinke 200,000 Direct 6.93
10011 North 66th Drive
Glendale, AZ 85302
Richard Steinke 400,100 Indirect(2) 13.87
705-B Yucca Street
Boulder City, NV 89005
Officers and Directors:
Name and Position Number of Shares Nature of Ownership % of Class
- ----------------- ---------------- ------------------- ----------
Richard Steinke, President,
C.E.O. and Director ----- See Table Above -----
Ping Zhang, Director 40,000 Direct 1.39
Richard Stone, Director 50,000 Direct 1.73
Hugh Sims-Hilditch, Director 50,000 Indirect(3) 1.73
David K. Griffiths, Secretary/ 17,500 Direct .63
Treasurer
Robert W. Hood, President,
Fabric Filters ----- See Table Above -----
All Officers and Directors
as a Group (6 persons) 107,500 Direct 3.73
588,195 Indirect 20.38
------- -----
695,695 24.11
======= =====
[Footnotes continue on next page]
<PAGE> 15
(1) All shares owned directly are owned beneficially and of record and such
shareholder has sole voting, investment, and dispositive power, unless
otherwise noted.
(2) Represents shares owned beneficially and of record by Gemini Funding
Services Profit Sharing Account (200,050) and S103 Irrevocable Trust
(200,050), of which Richard Steinke is the principal beneficiary and trustee,
respectively.
(3) Represents shares owned beneficially and of record by Coronel Investments
Limited, of which Hugh Sims-Hilditch is the principal owner.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names of the Registrant's executive officers and directors and the
positions held by each of them are set forth below:
Name Age Position Held Position Since
- ---- --- -------- -------------------
Richard A. Steinke 57 President, CEO and Director July 1995
Ping Zhang 34 Director for China operations December 1996
Richard Stone 46 Director for US operations February 1997
Hugh Sims-Hilditch 60 Director for European operations February 1997
David K. Griffiths 62 Secretary and Treasurer February 1997
Robert W. Hood 59 President, Fabric Filters Air
Systems, Inc. November 1985
The term of office of each director is one year and until his or her
successor is elected at the Registrant's annual shareholders' meeting and is
qualified, subject to removal by the shareholders. The term of office for
each officer is for one year and until a successor is elected at the annual
meeting of the board of directors and is qualified, subject to removal by the
board of directors.
Biographical Information
- ------------------------
Set forth below is certain biographical information with respect to each
of the Registrant's officers and directors.
Richard A. Steinke currently serves as Chairman and C. E. O. and is the
founder of the Company. From January 1995 to March 1999, Mr. Steinke was the
CEO of American Tire Corporation [OTCBB: ATYR], a manufacturer of polyurethane
"flat-free" bicycle and lawn and garden tires. Mr. Steinke was been Chairman
of the Board of American Tire Corporation since its inception in January 1995.
From January 1992 to December 1994, Mr. Steinke served as Chairman and C. E.
O. of Alanco Environmental Resources Inc. [NASDAQ: ALAN], a manufacturer of
environmental/pollution control equipment, Salt Lake City, Utah. Mr. Steinke
received a B. A. in Political Science and Economics from the University of
Arizona, Tucson, Arizona in 1967.
Ping Zhang has since 1995 been employed by McWong International, Inc., an
international trading and environmental consulting company, Sacramento,
California, and Shanghai, China, as the director of environmental and energy
division. Mr. Zhang has participated in environmental and trade missions to
China sponsored by various Chinese and state of California governmental
agencies. Mr. Zhang has actively promoted US-China business and trade
<PAGE> 16
relationships and serves as the President of the US-China Business and Trade
Coalition, a California registered non-profit organization. Mr. Zhang holds
degrees in Manufacturing and Industry Technology from Arizona State University
and Mechanical Engineering from Shangi Jiatong University, China. From 1993
to 1995, Mr. Zhang was responsible for China operations, including market
research, strategy formulation, and business development for Alanco
Environmental Resources, Inc., a manufacturer of environmental/pollution
control equipment. He presently resides on Shanghai, China
Richard Stone is a Senior Consultant at ABB CE Services, Technical Services
Group. His duties include trouble shooting, repair and maintenance of coal
pulverizers and coal combustion systems for coal fired boilers,
liaison work with engineering groups for parts modifications and new product
design and sales assistance of coal pulverizer parts. He holds patent number
5,265,774 on a Coal Feeder With Quick Release Clean Out Door. He is a member
of the American Society of Mechanical Engineers and an Associate member of
Boiler & Pressure Vessel Division. He is also on the National Board of
Pressure Vessel Inspectors and a member of the Fire Tube Boiler Task Force.
He has a B.S. degree in Mechanical Engineering from Fairleigh Dickinson
University in 1975.
Hugh Sims-Hilditch has been in excess of the past five years the managing
director Coronel Investments, Ltd., a Jersey corporation ("Coronel"), located
in the United Kingdom. Coronel currently is the manager of Urathon Limited, a
marketing subsidiary of American Tire Corporation, Ravenna, Ohio (OTCBB:
ATYR). After a career in the British Army, Hugh founded a company providing
specialized-engineered parts and technology to the Middle East, Africa, India,
Pakistan and the Far East. After selling this business in 1963 he founded a
company making electrical appliances worldwide with a UK workforce of 1500.
Customers included Westinghouse, Sunbeam, Hoover, Hamilton Beach and Philips.
David K. Griffiths currently serves as Secretary/Treasurer and principal
accounting officer. Since 1960 Mr. Griffiths has been self-employed as an
accountant/consultant for various companies in the legal and medical
professions and construction, agricultural and general business sectors. Mr.
Griffiths brings the Company 36 years experience in accounting, personnel
management and consulting in mergers, acquisitions and accounting systems. Mr.
Griffiths received a B.S. in Accounting from Arizona State University, Tempe,
Arizona in 1959.
Robert W. Hood serves as President of Fabric Filters Air Systems, Inc., the
Company's wholly owned subsidiary. Mr. Hood served in production, maintenance
planning, purchases and quality control for 8 years for Kaiser Aluminum,
Spokane, WA. Mr. Hood served as Sales Manager and Branch Manager in Portland
for Burhans Sharpe, Portland, Oregon for 5 year. Mr. Hood served as Primary
Salesman, President for CP Inc./AKA Fabric Filters Northwest from 1978 to
1998. Mr. Hood graduated from Eastern Washington University in 1965 with a
bachelor degree in Economics. In 1966 and 1967 he did additional graduate
studies.
<PAGE>
<PAGE> 17
ITEM 6. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Registrant's last three completed
fiscal years to the Registrant's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation in
excess of $100,000 during such period (as determined at December 31, 1998 the
end of the Registrant's last completed fiscal year):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Steinke 1998 $ -0- -0- -0- -0- -0- -0- -0-
President 1997 $ -0- -0- -0- -0- -0- -0- -0-
1996 $ -0- -0- -0- -0- -0- -0- -0-
Robert Hood 1998 $ 86,248 -0- -0- -0- -0- -0- -0-
President, Fabric 1997 $ 65,400 -0- -0- -0- -0- -0- -0-
Filters 1996 $ 54,400 -0- -0- -0- -0- -0- -0-
</TABLE>
Board Compensation
As of March 31, 1999, the Company's directors receive no compensation for
attendance at board meetings. However, board members are reimbursed for all
reasonable out-of-pocket expenses incurred by them in connection with their
attendance at the board meetings.
Options/SAR Grants in Last Fiscal Year
No individual grants of stock options (whether or not in tandem with
SARs), or freestanding SARs were made during the last completed fiscal year to
any of the named executive officers.
Bonuses and Deferred Compensation
There are no other compensation plans or arrangements, including payments
to be received from the Company, with respect to any person named as a
director, executive officer, promoter or control person above which would in
any way result in payments to any such person because of his resignation,
retirement, or other termination of such person's employment with the Company
or its subsidiaries, or any change in control of the Company, or a change in
the person's responsibilities.
Compensation Pursuant to Plans
None.
Pension Table
Not Applicable.
<PAGE> 18
Other Compensation
Richard Steinke has been accruing salary payments of $10,000 per month
since July 1, 1998, for a total outstanding to date of $92,904.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
- ---------------------------------------
The information set forth below is provided by the Company based on what
the Company believes may be material to the shareholders in light of all the
circumstances of the particular case. The significance of the transactions
disclosed may be evaluated by each shareholder after taking into account the
relationship of the parties to the transactions and the amounts involved in
the transactions.
Technology License Agreement
- ----------------------------
On August 19, 1997, the Company entered into a Technology License
Agreement with Richard A. Steinke and Dennis S. Chrobak. The Technology
License Agreement grants the Company an exclusive license to use, sell,
license, or otherwise exploit pollution systems covered by U.S. Patent No.
5,795,549 [August 18, 1998] (the "Apparatus") worldwide in exchange for a
royalty. During the term of this Agreement, the Company shall pay a Royalty
(the "Royalty") of (a) one and one-half percent (1.5%) of the gross sales
price of any equipment manufactured directly or indirectly by the Company and
sold for use with or as a part of the Technology; and (b) one-half percent
(.5%) of the gross sales price on any replacement equipment manufactured
directly or indirectly by the Company. All royalties payable under the
Technology License Agreement will be paid to Mr. Chrobak. Mr. Steinke will
not receive a royalty under the agreement so long as he is affiliated with the
Company. However, due to the relationship of Mr. Steinke and Mr. Chrobak with
the Company at the time the Technology License Agreement was made, the DSS
License Agreement cannot be considered to have been negotiated at arm's
length.
Exclusive License Agreement
- ---------------------------
On May 5, 1999, the Company entered into an Exclusive License Agreement
with Richard A. Steinke and Robert W. Hood, to manufacture pollution systems
covered by U.S. Patent Application "Improved Apparatus and Method for the
Remediation of Particulate Material and Toxic Pollutants Transported in Flue
Gas" -- Docket No. 7455 (the "Improved Apparatus"). Messrs. Steinke and Hood
are the inventors of the Improved Apparatus. The agreement grants the Company
an exclusive license to use, sell, license, or otherwise exploit the
technology worldwide in exchange for a royalty. The royalty consists of three
per cent (3.0%) of the net selling price for all wholesale or retail sales of
"units" of Messrs. Steinke's and Hood's inventions, that include the
improvements engineered thereto, and products as are later developed as a
result of the inventors' efforts, and as are sold by the Company or any
sublicensee, in the United States and throughout the world. The agreement is
subject to minimum sales provisions of 30 units in the first year, increasing
to 120 units by year five and for the remainder of the term. Due to the
relationship of Mr. Steinke and Mr. Hood with the Company at the time the
agreement was made, the Exclusive License Agreement cannot be considered to
have been negotiated at arm's length.
<PAGE> 19
Representation Agreement
- ------------------------
On April 21, 1996, the Company entered into a Representation Agreement
with M.W. McWong International, Inc.("McWong"), appointing McWong as its
exclusive representative for the sale of AEC Pollution Control Systems and
related spare parts and supplies/consumables in China. Ping Zhang, a director
of the Company, is the principal of McWong, a pollution systems marketing firm
located in Shanghai, China. The agreement calls for the payment of a
commission on sales based on an agreed-upon fixed price for the Company's
products to McWong, with an equal division of profits, if any, beyond the
commission. The term of the agreement is ongoing, terminable by either party
on 120 day notice. Because of the relationship of Mr. Zhang with the Company
at the time the agreement was made, the Representation Agreement cannot be
considered to have been negotiated at arms length.
Loans from officers and shareholders
- ------------------------------------
At March 31, 1999, the Company had a loan outstanding to an officer of
the Company, in the amount of $116,324, represented by a Note payable with
interest at 8.5% per annum, principal plus accrued interest due June 30,1999
unsecured.
At March 31, 1999, the Company has a loan outstanding to a shareholder of
the Company, in the amount of $20,000, represented by a Note payable,
non-interest bearing, due on demand, unsecured.
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
- ------------
The Company's Articles of Incorporation authorize 24,000,000 shares of
Common Stock, $0.001 par value per share. At March 31, 1999, the Company had
issued and outstanding 2,885,532 shares of Common Stock. The shares of Common
Stock have no preemptive or other subscription rights, have no conversion
rights, and are not subject to redemption. No personal liability attaches to
the ownership of the Common Stock and the holders of Common Stock are not
entitled to cumulative voting rights.
Preferred Stock
- ---------------
The Company's Articles of Incorporation authorize 1,000,000 shares of
Preferred Stock, $0.001 par value per share (the "Preferred Stock"). The
authority to issue the Preferred Stock is vested in the Board of Directors,
which has authority to fix and determine the powers, qualifications,
limitations, restrictions, designations, rights, preferences, or other
variations of each class or series within each class which the Company is
authorized to issue. The above described authority of the Board of Directors
to fix and determine may be exercised by corporate resolution from time to
time as the Board of Directors sees fit. No shares of Preferred Stock have
been issued to date.
<PAGE>
<PAGE> 20
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
The Company began trading in September 1997. At May 31, 1999, the
Company's common stock was quoted on the NASD's OTC Bulletin Board under the
symbol "AEVC". The table below sets forth, for the respective periods
indicated, the prices of the Company's common stock in the over-the-counter
market as reported by the NASD's OTC Bulletin Board. The bid prices represent
inter-dealer quotations, without adjustments for retail markups, markdowns or
commissions and may not necessarily represent actual transactions.
Fiscal Year Ended June 30, 1998 High Bid Low Bid
- ------------------------------- -------- --------
First Quarter $2.13 $1.00
Second Quarter $2.50 $1.50
Third Quarter $2.50 $1.25
Fourth Quarter $2.38 $1.13
Fiscal Year Ended June 30, 1999 High Bid Low Bid
- ------------------------------- -------- --------
First Quarter $1.40 $0.63
Second Quarter $1.40 $0.63
Third Quarter $1.50 $0.63
Fourth Quarter $0.88 $0.56
As of May 31, 1999 there were approximately 100 shareholders of record of
the Company's common stock and the reported bid or asked prices for the
Company's common stock was $0.70 and $0.70 respectively.
As of March 31, 1999, the Company had issued and outstanding 2,885,532
shares of common stock.
Dividend Policy
- ---------------
The Company has not declared or paid cash dividends or made distributions
in the past, and the Company does not anticipate that it will pay cash
dividends or make distributions in the foreseeable future. The Company
currently intends to retain and reinvest future earnings, if any, to finance
its operations.
Transfer Agent
- --------------
The transfer agent for the Company's common stock is Interwest Transfer
Co., Inc., P. O. Box 17136, Salt Lake City, UT 84117.
ITEM 2. LEGAL PROCEEDINGS
The Company and Fabric Filters are named defendants in a lawsuit titled
"The Lynch Company, Inc. v. Fabric Filters Air Systems, Inc. and American
Environmental Corporation, CV98-07-223", filed in Clackamas County Circuit
Court, State of Oregon, in August 1998. The Plaintiff is seeking $98,805,
with interest, for goods and materials fabricated, sold and delivered to
Fabric Filters for baghouses and supports in connection with the
<PAGE> 21
Hollinger/Port of Longview project. The amount in question represents the
invoiced amounts not paid by Fabric Filters in connection with that project.
In January 1999, the Company paid the Plaintiff $50,000 towards the amount in
question and still owes the Plaintiff approximately $56,000, including
interest.
Fabric Filters is named as a defendant and is subject to a Writ of
Garnishment filed April 13, 1999, in connection with a unsatisfied judgment
entered April 21, 1998, by Austin-Mac, Inc., a co-defendant in an action filed
by Yanke Machine Shop in the Superior Court of Washington for Cowlitz County,
Case Number 992004109. The total amount outstanding at April 21, 1999,
including interest and attorney fees was $108,619.41. An Amended Judgment
filed May 19, 1999 added $319.78 in legal fees incurred by Austin-Mac, Inc. to
the previous total in connection with a judgment against Hollinger
Construction, Inc., a garnishee defendant, for $26,358.74. This amount, when
received by Austin-Mac, Inc. from Hollinger Construction, Inc., should reduce
Fabric Filters' outstanding balance to approximately $82,580.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Registrant has not changed nor had any disagreements with its
independent certified accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In January 1999, the Company sold 100,000 shares of its common stock at a
purchase price of $1.00 per share for aggregate offering proceeds of $100,000.
The offering was made under the securities laws of the state of New York and
is believed by the Company to be exempt from registration under federal law
pursuant to Section 3(b) of the Securities Act of 1933, as amended (the
"Act"), and Rule 504 of Regulation D, promulgated under the Act. The shares
of common stock were offered by the Company's officers and directors
exclusively to residents of the state of New York. No commissions were paid
in connection with the offer and sale of the shares. All purchasers were
provided with an offering prospectus containing the type of information
regarding the Company specified under Rule 502(b)(2) of Regulation D.
In June 1998, the Company and NatureNu entered into negotiations for a
Purchase Contract wherein the Company received the right to extract up to
5,500 tons of surface minerals from certain placer mining claims located in
Esmeralda County, Nevada. As part of the consideration for the extraction
rights the Company issued 320,332 shares of the Company's restricted common
stock valued at $2.12 per share in satisfaction of certain indebtedness and
financial obligations of NatureNu. The securities issued in the foregoing
transaction were issued in reliance on the exemption from registration and
prospectus delivery requirements of the Act set forth in Section 3(b) and/or
Section 4(2) of the Securities Act and the regulations promulgated thereunder.
In January 1998, the Company issued 250,000 shares of its common stock to
the shareholders of Fabric Filters in connection with the acquisition of
Fabric Filters. The shares issued to the shareholders of Fabric Filters were
not registered under the Act and are "restricted securities" as that term is
defined in the Act. The shares were issued in reliance on the exemption from
such registration requirements provided by Section 4(2) of the Act. Each
shareholder of Fabric Filters provided the Company with such information
necessary to establish that such shareholders were financially sophisticated
so as to be deemed "accredited investors" as that term is defined under
Section 2(a)(15)of the Act.
<PAGE> 22
In November 1997, the Company issued 615,000 shares of its common stock
to certain of its officers, directors, employees, existing shareholders, and
creditors as compensation for consulting, design, legal and/or contracted
labor services such persons had provided the Company during the previous
year. The issuance of the shares was valued at $1.00 per share for a total
value of $615,000.
In March 1997, the Company issued 5,000 shares of its common stock to an
officer, director, and employee of the Company as compensation for bookkeeping
services the individual had provided to the Company prior to the issuance.
The issuance of the shares was valued at $1.00 per share for a total value of
$5,000.
In March 1997, the Company sold 272,500 shares of its restricted common
stock at a purchase price of $1.00 per share to certain of its existing
shareholders in a private placement for aggregate offering proceeds of
$272,500.
The securities issued in the foregoing transactions were issued in
reliance on the exemption from registration and prospectus delivery
requirements of the Act set forth in Section 3(b) and/or Section 4(2) of the
Securities Act and the regulations promulgated thereunder.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada Revised Statutes confers on a director or
officer an absolute right to indemnification for expenses, including
attorneys' fees, actually and reasonably incurred by him to the extent he is
successful on the merits or otherwise in defense of any action, suit, or
proceeding. This section also entitles a director or officer to partial
indemnification against expenses to the extent that he has been successful in
defending any claim, issue, or matter asserted in such proceeding. The Nevada
indemnification section further permits the corporation to indemnify officers
and directors in circumstances where indemnification is not mandated by the
statute and certain statutory standards are satisfied. The Nevada statute
expressly makes indemnification contingent upon a determination that
indemnification is proper in the circumstances. Such determination must be
made by the board of directors, the shareholders, or independent legal
counsel. Nevada law also permits a corporation, in its articles of
incorporation, bylaws, or an agreement, to pay attorneys' fees and other
litigation expenses on behalf of a corporate official in advance of the final
disposition of the action upon receipt of an undertaking by or on behalf of
the corporate official to repay such expenses to the corporation if it is
ultimately determined that he is not entitled to be indemnified by the
corporation. The corporation may also purchase and maintain insurance to
provide indemnification. The Nevada statute also provides that
indemnification authorized by the statute is not exclusive of, but is in
addition to, indemnification rights granted under a corporation's articles of
incorporation, an agreement, or pursuant to a vote of shareholders or
disinterested directors.
The foregoing discussion of indemnification merely summarizes certain
aspects of indemnification provisions and is limited by reference to Section
78.751 of the Nevada Revised Statues.
The Company's articles of incorporation and bylaws do not contain
specific provisions relating to indemnification of directors, officers,
employees, and/or agents of the Company. However, it is anticipated that the
Company will indemnify its officers and directors to the full extent permitted
<PAGE> 23
by the above referenced statute. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers, and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person in connection
with the securities being registered), the small business issuer will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by the Company is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated balance sheets of American Environmental
Corporation and Subsidiaries as of June 30, 1998 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
the years ended June 30, 1998 and 1997, have been examined to the extent
indicated in their reports by Jones, Jensen & Company, independent certified
accountants, and have been prepared in accordance with generally accepted
accounting principles and pursuant to Regulation S-B as promulgated by the
Securities and Exchange Commission and are included herein.
The unaudited consolidated balance sheet of the Company as of March 31,
1999, the related unaudited consolidated statements of operations and cash
flows for the nine month periods ended March 31,1999 and 1998; and the
unaudited consolidated statement of stockholders' equity for the period from
June 30, 1996 through March 31, 1999 are attached here to and incorporated
herein by this reference. The unaudited financial statements have been
prepared in accordance with provisions relating to interim financial
statements under Regulation S-B and, therefore, do not include all information
and footnotes necessary for a complete presentation of the financial position,
results of operations, stockholders' equity and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, all
adjustments considered necessary for a fair presentation of the results of
operations and financial position have been included and all such adjustments
are of a normal recurring nature.
<PAGE>
<PAGE> 24
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet
ASSETS
Unaudited
March 31,
1999
-----------
CURRENT ASSETS
Cash $ 35,492
Accounts receivable, net (Note 1) 339,848
Accounts receivable, related party (Note 5) 3,825
Prepaid expenses 1,969
-----------
Total Current Assets 381,134
PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2) 58,763
-----------
OTHER ASSETS
Cash surrender value of life insurance 26,142
Mineral deposits (Notes 1 and 10) 177,788
Patents (Note 3) 26,226
Deposits 1,225
-----------
Total Other Assets 231,381
-----------
TOTAL ASSETS $ 671,278
===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 25
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Unaudited
March 31,
1999
-----------
CURRENT LIABILITIES
Accounts payable $ 370,624
Accounts payable, related party (Note 5) 107,384
Accrued expenses 25,751
Billings in excess of costs (Notes 1 and 9) 102,838
Notes payable, related party (Note 8) 136,324
Notes payable, current portion (Note 6) 264,161
-----------
Total Current Liabilities 1,007,082
-----------
LONG-TERM DEBT (Note 6) 65,305
-----------
Total Liabilities 1,072,387
-----------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 1,000,000 shares authorized of
$0.001 par value, -0- shares issued and outstanding
Common stock: 24,000,000 shares authorized of
$0.001 par value, 2,885,532 shares issued and outstanding 2,886
Additional paid-in capital 2,465,195
Accumulated deficit (2,869,190)
-----------
Total Stockholders' Equity (Deficit) (401,109)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 671,278
===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 26
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
Unaudited
For the Nine Months Ended
March 31
1998 1999
----------- -----------
REVENUES
Net sales $ 3,071,465 $ 1,550,577
Cost of goods sold 2,583,014 974,205
----------- -----------
Gross Profit 488,451 576,372
----------- -----------
EXPENSES
General and administrative 1,348,856 519,525
Depreciation and amortization 15,982 15,131
----------- -----------
Total Expenses 1,364,838 535,656
----------- -----------
Profit From Operations (876,387) 41,715
----------- -----------
OTHER INCOME (EXPENSE)
Rental income - 3,825
Interest income 3,374 132
Miscellaneous income 2,068 -
Interest expense (11,798) (33,849)
Gain on asset disposition 2,981 -
Bad debt expense (23,614) (18,255)
----------- -----------
Total Other Income (Expense) (26,989) (48,147)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (903,376) (6,432)
----------- -----------
Provision for income taxes - -
----------- -----------
NET LOSS $ (903,376) $ (6,432)
=========== ===========
BASIC LOSS PER SHARE $ (0.466) $ (.003)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 1,938,936 2,259,268
=========== ===========
FULLY DILUTED LOSS PER SHARE $ (0.466) $ (0.003)
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,938,936 2,259,268
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 27
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 1,322,700 $ 1,323 $ 322,177 $ (178,500) $ (81,842)
Issuance of common stock for cash at
$1.00 per share 272,500 272 272,228 - -
Issuance of common stock for services
rendered at $1.00 per share 5,000 5 4,995 - -
Stock offering costs - - (26,128) - -
Net loss for the year ended
June 30, 1997 - - - - (159,555)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997 1,600,200 1,600 573,272 (178,500) (241,397)
Issuance of common stock to acquire
Fabric Filters Air Systems, Inc. at
$2.00 per share 250,000 250 499,750 - -
Issuance of common stock for services
rendered at $1.00 per share 615,000 615 614,385 - -
Issuance of common stock to acquire
mineral deposits at $2.12 per share 320,332 321 677,888 - -
Subscription receivable collected - - - 178,500 -
Net loss for the year ended
June 30, 1998 - - - - (2,621,361)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1998 2,785,532 2,786 2,365,285 - (2,862,758)
Issuance of common stock for cash
at $1.00 per share (Unaudited) 100,000 100 99,900 - -
Net loss for the nine months ended
March 31, 1999 (Unaudited) - - - - (6,432)
------------ ------------ ------------ ------------ ------------
Balance March 31, 1999 (Unaudited) 2,885,532 $ 2,886 $ 2,465,185 $ - $ (2,869,190)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 28
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Unaudited
For the nine months
Ended March 31,
1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES ------------ ------------
Net loss $ (903,376) $ (6,432)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 15,982 15,131
Stock issued for services 615,000 -
Bad debt expense 23,614 18,255
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 436,334 (95,429)
(Increase) decrease in accounts receivable -
related party (64,910) 1,275
(Increase) decrease in inventory 22,888 -
(Increase) decrease in prepaid expenses
and deposits 15,497 118
Increase (decrease) in accounts payable (92,824) (101,864)
Increase (decrease) in accounts payable -
related party (7,500) 81,700
Increase (decrease) in billings in excess
of costs (329,113) 9,133
Increase (decrease) in line of credit (5,741) -
Increase (decrease) in accrued expenses (17,003) (37,286)
------------- ------------
Net Cash Used by Operating Activities (291,152) (115,399)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received in purchase of subsidiary 97,262 -
Purchase of fixed assets (37,943) (10,422)
Purchase of mineral deposits (100,000) (1,738)
Patent costs (18,680) 316
------------- ------------
Net Cash Used by Investing Activities (59,361) (11,844)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from notes payable 20,000 24,000
Cash received from notes payable - related party 88,904 15,349
Collection of subscription receivable 178,500 -
Payments on notes payable (6,032) (4,641)
Payments on notes payable - related party (12,007) -
Issuance of common stock for cash - 100,000
------------- ------------
Net Cash Provided by Financing Activities $ 269,365 $ 134,708
------------- ------------
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 29
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
Unaudited
For the nine months
Ended March 31,
1998 1999
------------- ------------
NET INCREASE (DECREASE) IN CASH $ (81,148) $ 7,465
CASH AT BEGINNING OF PERIOD 92,608 28,027
------------- ------------
CASH AT END OF PERIOD $ 11,460 $ 35,492
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 3,374 $ -
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Stock issued for services $ 615,000 $ -
Stock issued for acquisition of subsidiary $ 500,000 $ -
Stock issued for mineral deposits $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 30
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
American Environmental Corporation (the "Company") was organized under the
laws of the State of Nevada on July 28, 1995 to take advantage of existing
proprietary and non-proprietary technology available for removal of sulphur
dioxide. The Company had limited operations since its organization and was
classified as a "development stage" company until the acquisition of Fabric
Filters Air Systems, Inc. (FFI) on January 2, 1998.
FFI was incorporated in January 1978 under the laws of the State of Oregon.
FFI was organized to operate as a manufacturer of pollution control equipment.
FFI is currently in the business of the design and installation of "bag
houses" (air filter systems).
The Company acquired FFI on January 2, 1998 by issuing 250,000 shares of its
common stock valued at $500,000 in exchange for all the issued and outstanding
common stock of FFI. The acquisition was accounted for as a purchase.
Initially, goodwill of $856,350 was recorded which consisted of the excess of
the purchase price over the fair value of the net tangible assets of FFI. An
impairment loss of $856,350 was recorded, however, for the year ended June
30, 1998, since the Company was unable to determine the present value of the
future cash flows of the purchased subsidiary. Activity from the date of
acquisition to June 30, 1998 was included in the consolidated statement of
operations for the year ended June 30, 1998.
For comparative purposes, the Company's unaudited statements of operations and
cash flows for the nine month period ending March 31, 1998 have been presented
to show the financial results that may have occurred had FFI been acquired as
of July 1, 1997.
b. Accounting Methods
The Company's consolidated financial statements are prepared using the accrual
method of accounting. The Company has elected a June 30 year end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less at the time of acquisition.
d. Basic Loss Per Share
The computations of basic loss per share of common stock are based on the
weighted average number of common shares outstanding during the period of the
consolidated financial statements.
e. Property and Equipment
Property and equipment are recorded at cost. Major additions and improvements
are capitalized. The cost and related accumulated depreciation of equipment
retired or sold are removed from the accounts and any differences between the
undepreciated amounts and the proceeds from the sale are recorded as gain or
loss on sale of equipment. Depreciation is computed using the straight-line
method over a period of five to ten years.
<PAGE> 31
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts of
$54,000.
g. Provision for Taxes
At March 31, 1999, the Company has net operating loss carryforwards of
approximately $2,800,000 that may be offset against future taxable income
through 2013. No tax benefit has been reported in the consolidated financial
statements because the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.
h. Principles of Consolidation
The consolidated financial statements include those of American Environmental
Corporation and its wholly-owned subsidiary, Fabric Filters Air Systems, Inc.
All material intercompany accounts and transactions have been eliminated.
i. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
j. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
k. Change in Accounting Principle
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share" during the year ended June 30, 1998. In accordance with
SFAS No. 128, diluted earnings per share must be calculated when an entity has
convertible securities, warrants, options, and other securities that represent
potential common shares. The purpose of calculating diluted earnings (loss)
per share is to show (on a pro forma basis) per share earnings or losses
assuming the exercise or conversion of all securities that are exercisable or
convertible into common stock and that would either dilute or not affect basic
EPS. SFAS No. 128 is effective for fiscal years ending after December 15,
1997. As permitted by SFAS No. 128, the Company has retroactively applied the
provisions of this new standard by showing the fully diluted loss per common
share for all years presented.
<PAGE>
<PAGE> 32
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
l. Concentrations of Risk
Credit losses, if any, have been provided for in the consolidated financial
statements and are based on managements expectations. The Company's accounts
receivable are subject to potential concentrations of credit risk. The Company
does not believe that it is subject to any unusual, or significant risks in
the normal course of its business.
m. Mineral Deposits
Costs of acquiring the mineral deposits have been capitalized. Costs to
maintain the mineral deposits and leases are expensed as incurred. As the
mineral deposits are extracted and sold, the related capitalized costs will be
amortized, using the units of production method or the basis of periodic
estimates of the mineral deposits. Mineral deposits are assessed at least
annually to determine if they have been impaired or should be abandoned based
on other economic factors. The assessment is based on the Company's evaluation
of the deposits future expectation of profitability. Should the deposits be
impaired or abandoned, its capitalized costs will be charged to operations.
n. Accounting Basis for Recording Income
The Company records profits or losses on its installation contracts on the
completed contract method of accounting. Under this method, billings and costs
are accumulated during the period of installation, but no profits are recorded
before the completion of the work. Provisions for estimated losses on
uncompleted contracts are made at the time such losses are determined.
Operating expenses, including indirect costs and administrative expenses, are
charged as incurred to periodic income and not allocated to contract costs.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31,
1999
------------
Computer equipment $ 131,177
Furniture and fixtures 46,474
Vehicles 11,409
Leasehold improvements 3,500
Engineering equipment 17,610
Office equipment 8,821
Demonstration equipment 10,270
------------
Subtotal 229,261
Accumulated depreciation (170,498)
------------
Net property and equipment $ 58,763
============
Depreciation expense for the nine months ended March 31, 1999 was $15,131.
<PAGE>
<PAGE> 33
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 3 - PATENTS
The patent costs that have been capitalized relate to legal fees incurred to
develop and secure the Company's patents. The patents are recorded at cost and
are being amortized using the straight-line method over a period of seven
years once the patents have been issued.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
At March 31, 1999, the Company has two separate operating leases for office
space that expire June 1999. The combined monthly rental payment is $2,900.
Minimum future lease payments on the leases as of March 31, 1999 are as
follows:
Year Ended
June 30, Amount
------------- -------------
1999 $ 8,700
2000 -
2001 -
2002 -
2003 -
2004 and thereafter -
-------------
Total $ 8,700
=============
NOTE 5 - RELATED PARTY TRANSACTIONS
As of March 31, 1999, the Company owed $107,384 to certain of its officers and
shareholders. The amounts are unsecured and are payable on demand.
As of March 31, 1999, the Company was owed $3,825 from a related party. The
amount is unsecured and non-interest bearing.
<PAGE> 34
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 6 - NOTES PAYABLE
Notes payable consists of the following:
March 31,
1999
----------
Note payable to a corporation, principal (effective rate
of 73% per annum) due August 12,1998, secured by 200,000
shares of common stock. At the option of the lender, the
debt is convertible into common stock at a rate of one
share for every $0.50 of principal. $ 250,000
Loan payable to Great-West Insurance Company, interest at
8.0% due from July 1, 1998 until paid. Cash value in insurance
policy is held as collateral 24,000
Note payable to a bank, interest at 10.5% per annum, principal
and interest payments of $1,745 due monthly, secured by
assets of the Company, matures in August 2002. 55,466
----------
Total Notes Payable 329,466
Less: Current Portion (264,161)
----------
Long-Term Notes Payable $ 65,305
==========
The aggregate principal maturities of notes payable are as follows:
Year Ended
June 30, Amount
---------- ----------
1999 $ 273,776
2000 15,722
2001 17,455
2002 19,378
2003 3,135
2004 and thereafter -
----------
Total $ 329,466
==========
<PAGE> 35
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 7 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company does not have an established source of revenues
sufficient to cover its operating costs and to allow it to continue as a going
concern. It is the intent of the Company to generate revenue through the sales
of its air pollution systems to remove toxic flue gases. In the opinion of
management, sales of the Company's products will be sufficient to fund the
Company's operating expenses and capital requirements for at least the next
twelve months. However, the outcome of these events is currently uncertain.
NOTE 8 - NOTES PAYABLE - RELATED PARTY
Notes payable - related parties consists of the following:
March 31,
1999
------------
Notes payable to an officer of the Company, interest at 8.5%
per annum, principal plus accrued interest due June 30,1999
unsecured. $ 116,324
Note payable to a shareholder, non-interest bearing,
due on demand, unsecured. 20,000
------------
Total Notes Payable - Related 136,324
Less: Current Portion (136,324)
------------
Long-Term Notes Payable - Related Party $ -
============
The aggregate principle maturities of notes payable - related party are as
follows:
Year Ended
June 30, Amount
------------ ------------
1999 $ 136,324
2000 -
2001 -
2002 -
2003 -
2004 and thereafter -
------------
Total $ 136,324
============
<PAGE>
<PAGE> 36
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 9 - CONTRACTS IN PROCESS
Contracts in process consists of the following:
March 31,
1999
----------
Billings on uncompleted contracts $ 400,721
Less: costs on uncompleted contracts (297,883)
----------
Billings in excess of costs on uncompleted contracts $ 102,838
==========
NOTE 10 - MINERAL DEPOSITS
In June 1998, the Company purchased mineral deposits (seasoil) for $140,000
cash and issued 320,332 shares of common stock valued at $2.12 per share. The
Company expended an additional $36,050 related to acquiring the asset which
has been included in the total capitalized costs. These mineral deposits are
to be used to develop various cosmetic and agricultural products. An
impairment loss of $678,208 was recorded in the consolidated statement of
operations for the year ended June 30, 1998.
<PAGE>
<PAGE> 37
Jones, Jensen & Company, LLC
Certified Public Accountants and Consultants
50 South Main Street, Suite 1450
Salt Lake City, Utah 84144
Telephone (801) 328-4408
Facsimile (801) 328-4461
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Environmental Corporation and Subsidiary
Boulder City, Nevada
We have audited the accompanying consolidated balance sheet of American
Environmental Corporation and Subsidiary as of June 30, 1998, and the related
consolidated statements of operations, stockholders' equity (deficit), and
cash flows for the years ended June 30, 1998 and 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of American Environmental Corporation and Subsidiary as of June 30, 1998, and
the consolidated results of their operations and their cash flows and for the
years ended June 30, 1998 and 1997, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 7 to the
consolidated financial statements, the Company has incurred significant losses
which have resulted in an accumulated deficit and a deficit in stockholders'
equity, raising substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 7. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
April 8, 1999
<PAGE>
<PAGE> 38
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet
ASSETS
June 30,
1998
----------
CURRENT ASSETS
Cash $ 28,027
Accounts receivable, net (Note 1) 244,419
Accounts receivable, related party (Note 5) 5,100
Prepaid expenses 2,087
----------
Total Current Assets (Net) (Notes 1 and 2) 279,633
----------
PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2) 63,473
----------
OTHER ASSETS
Cash surrender value of life insurance 26,142
Mineral deposits (Notes 1 and 10) 176,050
Patents (Note 3) 26,542
Deposits 1,225
----------
Total Other Assets 229,959
----------
TOTAL ASSETS $ 573,065
==========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 39
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30,
1998
----------
CURRENT LIABILITIES
Accounts payable $ 472,488
Accounts payable, related party (Note 5) 25,684
Accrued expenses 63,037
Billings in excess of costs (Notes 1 and 10) 93,705
Notes payable, related party (Note 9) 120,975
Notes payable, current portion (Note 6) 236,163
----------
Total Current Liabilities 1,012,052
----------
LONG-TERM DEBT (Note 6) 55,690
----------
Total Liabilities 1,067,742
----------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 1,000,000 shares authorized of
$0.001 par value, -0- shares issued and outstanding -
Common stock; 24,000,000 shares authorized of
$0.001 par value, 2,785,532 shares issued and outstanding 2,786
Additional paid-in capital 2,365,295
Accumulated deficit (2,862,758)
----------
Total Stockholders' Equity (Deficit) (494,677)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 573,065
==========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 40
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended
June 30,
1998 1997
----------- -----------
REVENUES
Net Sales $ 1,133,376 $ -
Cost of goods sold 1,004,326 -
----------- -----------
Gross Profit 129,050 -
----------- -----------
EXPENSES
General and administrative 1,140,789 173,799
Depreciation and amortization 14,342 1,706
----------- -----------
Total Expenses 1,155,131 175,505
----------- -----------
Loss From Operations (1,026,081) (175,505)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 4,052 15,950
Interest expense (34,281) -
Bad debt expense (30,493) -
Goodwill impairment loss (Note 1) (856,350) -
Impairment loss (Note 11) (678,208) -
----------- -----------
Total Other Income (Expense) (1,595,280) 15,950
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,621,361) (159,555)
----------- -----------
Provision for income taxes - -
----------- -----------
NET LOSS $(2,621,361) (159,555)
=========== ===========
BASIC LOSS PER SHARE $ (1.16) $ (0.11)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,259,268 1,600,200
=========== ===========
FULLY DILUTED LOSS PER SHARE $ (1.16) $ (0.11)
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,259,268 1,600,200
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 41
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 1,322,700 $ 1,323 $ 322,177 $ (178,500) $ (81,842)
Issuance of common stock for cash at
$1.00 per share 272,500 272 272,228 - -
Issuance of common stock for services
rendered at $1.00 per share 5,000 5 4,995 - -
Stock offering costs - - (26,128) - -
Net loss for the year ended
June 30, 1997 - - - - (159,555)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997 1,600,200 1,600 573,272 (178,500) (241,397)
Issuance of common stock to acquire
Fabric Filters Air Systems, Inc. at
$2.00 per share 250,000 250 499,750 - -
Issuance of common stock for services
rendered at $1.00 per share 615,000 615 614,385 - -
Issuance of common stock to acquire
mineral deposits at $2.12 per share 320,332 321 677,888 - -
Subscription receivable collected
(Note 8) - - - 178,500 -
Net loss for the year ended
June 30, 1998 - - - - (2,621,361)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1998 2,785,532 $ 2,786 $ 2,365,295 $ - $ (2,862,758)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 42
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES ------------- --------------
Net loss $ (2,621,361) $ (159,555)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 14,342 1,706
Stock issued for services 615,000 5,000
Bad debt expense 30,493 -
Impairment loss 678,208 -
Goodwill impairment loss 856,350 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 266,363 -
(Increase) decrease in accounts receivable -
related party (5,100) -
(Increase) decrease in inventory 22,013 -
(Increase) decrease in interest receivable 15,493 (14,280)
(Increase) decrease in prepaid expenses
and deposits 22,060 570
Increase (decrease) in accounts payable (116,403) (11,870)
Increase (decrease) in accounts payable -
related party 18,184 -
Increase (decrease) in billings in excess
of costs (234,374) -
Increase (decrease) in accrued expenses 14,498 -
------------- --------------
Net Cash Used by Operating Activities (424,234) (178,429)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received in purchase of subsidiary 97,262 -
Purchase of fixed assets (37,943) (18,571)
Purchase of mineral deposits (176,050) -
Patent costs (13,297) (13,245)
------------- --------------
Net Cash Used by Investing Activities (130,028) (31,816)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable - related party (20,000) -
Collection of subscriptions receivable 178,500 -
Cash received from notes payable 222,000 -
Cash received from notes payable -
related party 112,904 -
Payments on notes payable (17,132) -
Payments on shareholder advances - (23,000)
Issuance of common stock for cash - 272,500
------------- --------------
Net Cash Provided by Financing Activities $ 476,272 $ 249,500
------------- --------------
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 43
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
June 30,
1998 1997
------------- --------------
NET INCREASE (DECREASE) IN CASH $ (77,990) $ 39,255
CASH AT BEGINNING OF YEAR 106,017 66,762
------------- --------------
CASH AT END OF YEAR $ 28,027 $ 106,017
============= ==============
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 3,593 $ -
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Stock issued for services $ 615,000 $ 5,000
Stock issued for acquisition of subsidiary $ 500,000 $ -
Stock issued for mineral deposits $ 678,209 $ -
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 44
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998
NOTES 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
American Environmental Corporation (the "Company") was organized under the
laws of the State of Nevada on July 28, 1995 to take advantage of existing
proprietary and non-proprietary technology available for removal of sulphur
dioxide. The Company has had limited operations since its organization and was
classified as a "development stage" company until the acquisition of Fabric
Filters Air Systems, Inc. (FFI) on January 2, 1998.
FFI was incorporated in January 1978 under the laws of the State of Oregon.
FFI was organized to operate as a manufacturer of pollution control equipment.
FFI is currently in the business of the design and installation of "bag
houses" (air filter systems).
The Company acquired FFI on January 2, 1998 by issuing 250,000 shares of its
common stock valued at $500,000 in exchange for all the issued and outstanding
common stock of FFI. The acquisition was accounted for as a purchase.
Initially, goodwill of $856,350 was recorded which consisted of the excess of
the purchase price over the fair value of the net tangible assets of FFI. An
impairment loss of $856,350 has been recorded, however, for the year ended
June 30, 1998, since the Company was unable to determine the present value of
the future cash flows of the purchased subsidiary. Activity from the date of
acquisition to June 30, 1998 has been included in the consolidated statement
of operations for the year ended June 30, 1998.
b. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has selected a June 30 year end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less at the time of acquisition.
d. Basic Loss Per Share
The computations of basic loss per share of common stock are based on the
weighted average number of common shares outstanding during the period of the
consolidated financial statements.
e. Property and Equipment
Property and equipment are recorded at cost. Major additions and improvements
are capitalized. The cost and related accumulated depreciation of equipment
retired or sold are removed from the accounts and any differences between the
undepreciated amounts and proceeds from the sale are recorded as gain or loss
on sale of equipment. Depreciation is computed using the straight-line method
over a period of five to ten years.
f. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts of
$54,000.
<PAGE> 45
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998
NOTES 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Provision for Taxes
At June 30, 1998, the Company has net operating loss carryforwards of
approximately $2,800,000 that may be offset against future taxable income
through 2013. No tax benefit has been reported in the consolidated financial
statements because the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.
h. Principles of Consolidation
The consolidated financial statements include those American Environmental
Corporation and its wholly-owned subsidiary, Fabric Filters Air Systems, Inc.
All material intercompany accounts and transactions have been eliminated.
i. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
j. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
k. Change in Accounting Principle
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share" during the year ended June 30, 1998. In accordance with
SFAS No. 128, diluted earnings per share must be calculated when an entity has
convertible securities, warrants, options, and other securities that represent
potential common shares. The purpose of calculating diluted earnings (loss)
per share is to show (on a pro forma basis) per share earnings or losses
assuming the exercise or conversion of all securities that are exercisable or
convertible into common stock and that would either dilute or not affect basic
EPS. SFAS No. 128 is effective for fiscal years ending after December 15,
1997. As permitted by SFAS No. 128, the Company has retroactively applied the
provisions of this new standard by showing the fully diluted loss per common
share for all years presented.
l. Concentrations of Risk
Credit losses if any have been provided for in the consolidated financial
statements and are based on managements expectations. The Company's accounts
receivable are subject to potential concentrations of credit risk. The Company
does not believe that it is subject to any unusual, or significant risks in
the normal course of business.
<PAGE> 46
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
m. Mineral Deposits
Costs of acquiring the mineral deposits have been capitalized. Costs to
maintain the mineral deposits and leases are expensed as incurred. As the
mineral deposits are extracted and sold, the related capitalized costs will be
amortized, using the units of production method or the basis of periodic
estimates of the mineral deposits. Mineral deposits are assessed at least
annually to determine if they have been impaired or should be abandoned based
on other economic factors. The assessment is based on the Company's evaluation
of the deposits future expectation of profitability. Should the deposits be
impaired or abandoned, its capitalized costs will be charged to operations.
n. Accounting Basis for Recording Income
The Company records profits or losses on its installation contracts on the
completed-contract method of accounting. Under this method, billings and costs
are accumulated during the period of installation, but no profits are recorded
before the completion of the work. Provisions for estimated losses on
uncompleted contracts are made at the time such losses are determined.
Operating expenses, including indirect costs and administrative expenses, are
charged as incurred to periodic income and not allocated to contract costs.
NOTES 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
June 30,
1998
------------
Computer equipment $ 120,755
Furniture and fixtures 46,474
Vehicles 11,409
Leasehold improvements 3,500
Engineering equipment 17,610
Office equipment 8,821
Demonstration equipment 10,270
------------
Subtotal 218,839
Accumulated depreciation (155,366)
------------
Net property and equipment $ 63,473
============
Depreciation expense for the years ended June 30, 1998 and 1997 was $14,342
and $1,527, respectively.
NOTE 3 - PATENTS
The patent costs that have been capitalized relate to legal fees incurred to
develop and secure the Company's patents. The patents are recorded at cost
and will be amortized using the straight-line method over a period of seven
years once the patents have been issued.
<PAGE> 47
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998
NOTE 4 - COMMITMENTS AND CONTINGENCIES
At June 30, 1998, the Company has two separate operating leases for office
space that expire June 1999. The combined monthly rental payment is $2,900.
Minimum future lease payments on the leases as of June 30, 1998 are as
follows:
Year Ended
June 30, Amount
------------- -------------
1999 $ 34,800
2000 -
2001 -
2002 -
2003 -
2004 and thereafter -
Total $ 34,800
=============
NOTE 5 - RELATED PARTY TRANSACTIONS
As of June 30, 1998, the Company owed $25,684 to certain of its officers and
shareholders. The amounts are unsecured and are payable on demand.
As of June 30, 1998, the Company was owed $5,100 from a related party. The
amount is unsecured and non-interest bearing.
<PAGE>
<PAGE> 48
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1998
NOTE 6 - NOTES PAYABLE
Notes payable consists of the following:
June 30,
1998
------------
Note payable to a corporation, principal plus interest of
$28,000 (effective rate of 73% per annum) due August 12,
1998, secured by 200,000 shares of common stock. At
the option of the lender, the debt is convertible into common
stock at a rate of one share for every $0.50 of principal. $ 222,000
Note payable to a bank, interest at 10.5% per annum, principal
and interest payments of $1,745 due monthly, secured by
assets of the Company, matures in August 2002. 69,853
------------
Total Notes Payable 291,853
Less: Current Portion (236,163)
------------
Long-Term Notes Payable $ 55,690
============
The aggregate principal maturities of notes payable are as follows:
Year Ended
June 30, Amount
---------- ----------
1999 $ 236,163
2000 15,722
2001 17,455
2002 19,378
2003 3,135
2004 and thereafter -
----------
Total $ 291,853
==========
<PAGE>
<PAGE> 49
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1998
NOTE 7 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company does not have an established source of
revenues sufficient to cover its operating costs and to allow it to continue
as a going concern. It is the intent of the Company to generate revenue
through the sales of its air pollution systems to remove toxic flue gases. In
the opinion of management, sales of the Company's products will be sufficient
to fund the Company's operating expenses and capital requirements for at least
the next twelve months. However, the outcome of these events is currently
uncertain.
NOTE 8 - STOCK SUBSCRIPTION RECEIVABLE
During the year ended June 30, 1996, 178,500 shares of common stock were
issued in return for notes receivable in the amount of $178,500. The notes
matured and were collected on May 30, 1998.
NOTE 9 - NOTES PAYABLE - RELATED PARTY
Notes payable - related parties consists of the following:
June 30,
1998
-------------
Notes payable to an officer of the Company, interest at 8.5%
per annum, principal plus accrued interest due December 31,
1998, unsecured. $ 92,904
Note payable to a shareholder, non-interest bearing,
due on demand, unsecured. 20,000
Note payable to a shareholder, non-interest bearing,
due on demand, unsecured. 8,071
-------------
Total Notes Payable - Related Party 120,975
Less: Current Portion (120,975)
-------------
Long-Term Notes Payable - Related Party $ -
=============
The aggregate principle maturities of notes payable - related party are as
follows:
Year Ended
June 30, Amount
------------ ------------
1999 $ 120,975
2000 -
2001 -
2002 -
2003 -
2004 and thereafter -
------------
Total $ 120,975
============
<PAGE> 50
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1998
NOTE 10 - CONTRACTS IN PROCESS
Contracts in process consists of the following:
June 30,
1998
------------
Billings on uncompleted contracts $ 287,889
Less: costs on uncompleted contracts (194,184)
------------
Billings in excess of costs on uncompleted contracts $ 93,705
============
NOTE 11 - MINERAL DEPOSITS
In June 1998, the Company purchased mineral deposits (seasoil) for $140,000
cash and issued 320,332 shares of common stock valued at $2.12 per share. The
Company expended an additional $36,050 related to acquiring the asset which
has been included in the total capitalized costs. These mineral deposits are
to be used to develop various cosmetic and agricultural products. An
impairment loss of $678,208 has been recorded in the accompanying consolidated
statement of operations for the year ended June 30, 1998.
<PAGE>
<PAGE> 51
PART III
ITEM 1. INDEX TO EXHIBITS
Copies of the following documents are included as exhibits to this Form
10SB pursuant to Item 601 of Regulation SB.
SEC
Exhibit Reference
No. No. Title of Document
- ------- --------- -----------------
1 3(i) Articles of Incorporation of the Registrant and related
Amendments
2 3(ii) Bylaws of the Registrant
3 4.01 Specimen Stock Certificate
4 10.01 Technology License Agreement
5 10.02 Exclusive License Agreement
6 10.03 Representation Agreement with M.W. McWong International,
Inc.
7 10.04 Mineral Sale and Purchase Contract
8 21 Subsidiaries of the Registrant
9 27 Financial Data Schedule
ITEM 2. 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.
AMERICAN ENVIRONMENTAL CORPORATION
DATED: June 24, 1999 /S/ Richard A. Steinke, President
and Chief Executive Officer
<PAGE> 1 [FILED
Exhibit No. 1 IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
ARTICLES OF INCORPORATION OF STATE OF NEVADA
AMERICAN ENVIRONMENTAL CORPORATION JUL 28 1995
No. 12729-95
ARTICLE I. NAME: Dean Heller
Secretary of State]
The name of the Corporation shall be:
AMERICAN ENVIRONMENTAL CORPORATION
ARTICLE II. RESIDENT AGENT
The resident agent of the Corporation shall be located in the State of
Nevada, County of Clark, City of Las Vegas at the following address:
ACORN CORPORATE SERVICES, INC.
2001 E. FLAMINGO RD, SUITE 100-G, LAS VEGAS, NV 89119
ARTICLE III. NATURE OF BUSINESS
The nature of the business shall be to engage in any lawful activities
under the laws of the State of Nevada.
ARTICLE IV. DURATION:
The duration of the Corporation's life shall be perpetual.
ARTICLE V. STOCK:
The total authorized capital stock of the corporation shall be Twenty-
Four Million (24,000,000) shares of Common stock with $0.001 par value, and
One Million (1,000,000) shares of Preferred stock with $0.001 par value.
ARTICLE VI. BOARD OF DIRECTORS:
The Governing Board of the Corporation shall be denominated the "Board of
Directors" therefore, and shall initially be composed of the following
individuals, each whom shall be denominated a "Director" of the Corporation,
with the mailing address listed herein:
Dick Steinke, 446 W Lake St., Ravenna, OH 44266
ARTICLE VII. POWERS OF GOVERNING BOARD:
The Governing Board of the Corporation is specifically granted by these
Articles of Incorporation all powers permitted to be vested in the Governing
Board of the Corporation by the provisions of Nevada Revised Statutes 78.195,
including, but not limited to, the powers to fix and determine and
designations, rights (with respect to voting redemption, sale, or otherwise),
or other variations of each class or series within each class or series within
each class of stock issued by the corporation; to issue rights, options, or
warrants to purchase shares of any class or series within any class of the
<PAGE> 2
capital stock of the Corporation at any time under any terms and conditions
deemed proper by said Governing Board: the fixed dividends and to determine
their proper distribution (and order of distribution) among the holders of the
various classes of capital stock of the Corporation; to require the redemption
of fractional shares of stock of any class or series and to issue payment in
cash for such fractional shares of stock of any class, or to permit a holder
of a fractional share to retain such interest; to permit conversion of any
class or series of stock into stock of any other class or series, with any
consideration deemed to be appropriate or with no consideration at all; to
make any share belonging to a Special or Preferred class or series of stock
subject to redemption at such times and prices, or issued in such series with
such designation, preferences, and relative, participating, optionals, or
other special rights, or qualifications, limitations, or restrictions thereof,
as shall be determined by the Governing Board; to change the par value of the
shares of any class or series, so long as the change is accompanied by the
filing of appropriate amendments with Nevada and Clark County authorities; to
change the form of Common stock voting for the Governing Board from non-
cumulative, which shall be the form of voting at the outset, to cumulative; to
exchange shares of any class or series of voting at the outset, to cumulative;
to exchange shares of any class or series at anytime for shares, assets, or
business of any other Corporation, or for the assets or business of any
private company however organized; to authorize and issue dividends at any
time in any form, including, but not limited to, warrants, options, or rights
to purchase shares of any class or series of stock as authorized by the
Governing Board, cash, shares of any class or series, or ownership (however
denominated); in any Company or Corporation "spun-off" by this Corporation
without regard to its business purpose; to authorize acquisition of or merger
with any business or Company, however organized, on any terms determined to be
prudent by the Governing Board; or, within the limitations of State and
Federal law, to permit or restrict the free-tradeability of the shares of any
class or series of shares at the time of the issuance thereof.
ARTICLE VII. NON-ASSESSABILITY FOR CORPORATION DEBTS:
After the amount of the subscription, price, the purchase price, or the
par value of the stock of any class or series is paid into the Corporation,
owners or holders of shares of any stock in the Corporation may never be
assessed to pay the debts of the Corporation.
ARTICLE IX. INCORPORATOR:
The name and address of the Incorporator of this Corporation is as
follows:
J. Scott Scheuerman, 24837 104th Ave. SE, Suite 201, Kent, WA 98031
ARTICLES X. CORPORATE POWERS:
The Corporation wishes to assert all possible powers exercisable by it as
a Corporation or as an individual under the laws of the State of Nevada,
including, but not limited to, any powers to create, define, limit, or
regulate in any permitted area; any powers to own, trademark, patent, or
govern its own business products or affairs; any powers to act in any business
name under which it may legally operate; and any powers to accrue,
automatically such additional or new powers as may be prescribed by any
Federal or State Statute which may be enacted now or in the future.
<PAGE> 3
ARTICLE XI. LIABILITY OR DIRECTORS:
As fully as possible under the laws of the State of Nevada as they now
exist and as they may from time to time be revised, the Corporation intends
that its Officers be protected from legal action by stockholders or to other
persons (natural or otherwise) on account of service as Officers of the
Corporation. An Officer shall not be liable for damages for actions of the
Corporation to stockholders or to any other person (natural or otherwise)
unless such Officer engaged in personal fraud affecting such action or actions
of the Corporation.
IN WITNESS WHEREOF, the incorporator hereof does set his/her hand this 27 day
of July, 1995.
/s/J. Scott Scheuerman
STATE OF WASHINGTON }
}
COUNTY OF KING }
On this 27 day of July, 1995, before me, the undersigned Notary Public, J.
Scott Scheuerman personally appeared to me known to be the individual
described in and who executed the foregoing instrument, and acknowledged that
he executed the same as his free act and deed.
/s/sic., NOTARY PUBLIC
<PAGE> 1
Exhibit No. 2 BYLAWS
OF
AMERICAN ENVIRONMENTAL CORPORATION
ARTICLE I
OFFICES
Section 1.01 Registered Office. The registered office shall be in
Carson City, State of Nevada.
Section 1.02 Location of Offices. The corporation may maintain such
offices within or without the state of Nevada as the board of directors may
from time to time designate or require.
Section 1.03 Principal Office. The address of the principal office of
the corporation shall be at the address of the Registered office of the
corporation as so designated in the office of the Lieutenant
Governor/Secretary of State of the state of incorporation, or at such other
address as the board of directors shall from time to time determine.
ARTICLE II
SHAREHOLDERS
Section 2.01 Annual Meeting. The annual meeting of the stockholders
shall be held on the second Tuesday of the third month following the
anniversary of incorporation or at such other time designated by the board of
director and as is provided for in the notice of the meeting; provided, that
whenever such date falls on a legal holiday, the meeting shall be held on the
next succeeding business day, beginning with the year following the filing of
the articles of incorporation, for the purpose of electing directors and for
the transaction of such other business as may come before the meeting. If the
election of directors shall not be held on the day designated herein for the
annual meeting of the stockholders, or at any adjournment thereof, the board
of directors shall cause the election to be held at a special meeting of the
stockholders as soon thereafter as may be convenient.
Section 2.02 Special Meetings. Special meetings of the stockholders may
be called at any time by the chairman of the board, the president, or by the
board of directors, or in their absence or disability, by any vice president,
and shall be immediately called by the president or, in his absence or
disability, by a vice president or by the secretary on the written request of
the holders of not less than one-tenth of all the shares entitled to vote at
the meeting, such written request to state the purpose or purposes of the
meeting and to be delivered to the president, each vice-president, or
secretary. In case of failure to call such meeting within 20 days after such
request, such shareholder or shareholders may call the same.
Section 2.03 Place of Meetings. The board of directors may designate
any place, either within or without the state of incorporation, as the place
of meeting for any annual meeting or for any special meeting called by the
board of directors. A waiver of notice signed by all stockholders entitled to
vote at a meeting may designate any place, either within or without the state
of incorporation, as the place for the holding of such meeting. If no
designation is made, or if a special meeting be otherwise called, the place of
meeting shall be at the principal office of the corporation.
Section 2.04 Notice of Meetings. The secretary or assistant secretary,
if any, shall cause notice of the time, place, and purpose or purposes of all
<PAGE> 2
meetings of the shareholders (whether annual or special), to be mailed at
least ten days, but not more than 50 days, prior to the meeting, to each
shareholder of record entitled to vote.
Section 2.05 Waiver of Notice. Any stockholder may waive notice of any
meeting of shareholders (however called or noticed, whether or not called or
noticed and whether before, during, or after the meeting), by signing a
written waiver of notice or a consent to the holding of such meeting, or an
approval of the minutes thereof. Attendance at a meeting, in person or by
proxy, shall constitute waiver of all defects of call or notice regardless of
whether waiver, consent, or approval is signed or any objections are made.
All such waivers, consents, or approvals shall be made a part of the minutes
of the meeting.
Section 2.06 Fixing Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any annual meeting of
shareholders or any adjournment thereof, or shareholder 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 of the corporation may
provide that the share transfer books shall be closed, for the purpose of
determining shareholders entitled to notice of or to vote at such meeting, but
not for a period exceeding fifty (50) days. If the share transfer books are
closed for the purpose of determining shareholders entitled to notice of or to
vote at such meeting, such books shall be closed for at least ten (10) days
immediately preceding such meeting.
In lieu of closing the share transfer books, the board of directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than fifty (50) and, in
case of a meeting of shareholders, not less 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 of shareholders entitled to
notice of or to vote at a meeting or 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. Failure to comply with
this section shall not affect the validity of any action taken at a meeting of
shareholders.
Section 2.07 Voting Lists. The officer or agent of the corporation
having charge of the share transfer books for 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 during the
whole time of the meeting. The original share transfer book shall be prima
facia evidence as to the shareholders who are entitled to examine such list or
transfer books, or to vote at any meeting of shareholders.
Section 2.08 Quorum. One-half of the total voting power of the
outstanding shares of the corporation entitled to vote, represent in person or
by proxy, shall constitute a quorum at a meeting of the shareholders. If a
<PAGE> 3
quorum is present, the affirmative vote of the majority of the voting power
represented by shares at the meeting and entitled to vote on the subject shall
constitute action by the shareholders, unless the vote of a greater number or
voting by classes is required by the laws of the state of incorporation of the
corporation or the articles of incorporation. If less than one-half of the
outstanding voting power is represented at a meeting, a majority of the voting
power represented by shares so present may adjourn the meeting from time to
time without further notice. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally noticed.
Section 2.09 Voting of Shares. Each outstanding share of the
corporation entitled to vote shall be entitled to one vote on each matter
submitted to vote at a meeting of shareholders, except to the extent that the
voting rights of the shares of any class or series of stock are determined and
specified as greater or lesser than one vote per share in the manner provided
by the articles of incorporation.
Section 2.10 Proxies. At each meeting of the shareholders, each
shareholder entitled to vote shall be entitled to vote in person or by proxy;
provided, however, that the right to vote by proxy shall exist only in case
the instrument authorizing such proxy to act shall have been executed in
writing by the registered holder or holders of such shares, as the case may
be, as shown on the share transfer of the corporation or by his attorney
thereunto duly authorized in writing. Such instrument authorizing a proxy to
act shall be delivered at the beginning of such meeting to the secretary of
the corporation or to such other officer or person who may, in the absence of
the secretary, be acting as secretary of the meeting. In the event that any
such instrument shall designate two or more persons to act as proxies, a
majority of such persons present at the meeting, or if only one be present,
that one shall (unless the instrument shall otherwise provide) have all of the
powers conferred by the instrument on all persons so designated. Persons
holding stock in a fiduciary capacity shall be entitled to vote the shares so
held and the persons whose shares are pledged shall be entitled to vote,
unless in the transfer by the pledge or on the books of the corporation he
shall have expressly empowered the pledgee to vote thereon, in which case the
pledgee, or his proxy, may represent such shares and vote thereon.
Section 2.11 Written Consent to Action by Stockholders. Any action
required to be taken at a meeting of the shareholders, or any other action
which may be taken at a meeting of the shareholders, 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 entitled to vote with respect to the subject
matter thereof.
ARTICLE III
DIRECTORS
Section 3.01 General Powers. The property, affairs, and business of the
corporation shall be managed by its board of directors. The board of
directors may exercise all the powers of the corporation whether derived from
law or the articles of incorporation, except such powers as are by statute, by
the articles of incorporation or by these Bylaws, vested solely in the
shareholders of the corporation.
Section 3.02 Number, Term, and Qualifications. The board of directors
shall consist of two to nine persons. Increases or decreases to said number
may be made, within the numbers authorized by the articles of incorporation,
<PAGE> 4
as the board of directors shall from time to time determine by amendment to
these Bylaws. An increase or a decrease in the number of the board of
directors may also be had upon amendment to these Bylaws by a majority vote of
all of the shareholders, and the number of directors to be so increased or
decreased shall be fixed upon a majority vote of all of the shareholders of
the corporation. Each director shall hold office until the next annual
meeting of shareholders of the corporation and until his successor shall have
been elected and shall have qualified. Directors need not be residents of the
state of incorporation or shareholders of the corporation.
Section 3.03 Classification of Directors. In lieu of electing the
entire number of directors annually, the board of directors may provide that
the directors be divided into either two or three classes, each class to be as
nearly equal in number as possible, the term of office of the directors of the
first class to expire at the first annual meeting of shareholders after their
election, that of the second class to expire at the second annual meeting
after their election, and that of the third class, if any, to expire at the
third annual meeting after their election. At each annual meeting after such
classification the number of directors equal to the number of the class whose
term expires at the time of such meeting shall be elected to hold office until
the second succeeding annual meeting, if there be two classes, or until the
third succeeding annual meeting if there be three classes.
Section 3.04 Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately
following, and at the same place as, the annual meeting of shareholders. The
board of directors may provide by resolution the time and place, either within
or without the state of incorporation, for the holding of additional regular
meetings without other notice than such resolution.
Section 3.05 Special Meetings. Special meetings of the board of
directors may be called by or at the request of the president, vice president,
or any to directors. The person or persons authorized to call special
meetings of the board of directors may fix any place, either within or without
the state of incorporation, as the place for holding any special meeting of
the board of directors called by them.
Section 3.06 Meetings by Telephone Conference Call. Members of the
board of directors may participate in a meeting of the board of directors or a
committee of the board of directors by means of conference telephone or
similar communication equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to
this section shall constitute presence in person at such meeting.
Section 3.07 Notice. Notice of any special meeting shall be given at
least ten (10) days prior thereto by written notice delivered personally or
mailed to each director at his regular business address or residence, or by
telegram. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail so addressed, with postage thereon
prepaid. If notice be given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegraph company. Any
director may waive notice of any meeting. Attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting solely for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
<PAGE> 5
Section 3.08 Quorum. A majority of the number of directors shall
constitute a quorum for the transaction of business at any meeting of the
board of directors, but if less than a majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice.
Section 3.09 Manner of Acting. The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the
board of directors, and the individual directors shall have no power as such.
Section 3.10 Vacancies and Newly created Directorship. If any vacancies
shall occur in the board of directors by reason of death, resignation or
otherwise, or if the number of directors shall be increased, the directors
then in office shall continue to act and such vacancies or newly created
directorships shall be filled by a vote of the directors then in office,
though less than a quorum, in any way approved by the meeting. Any
directorship to be filled by reason of removal of one or more directors by the
shareholders may be filled by election by the shareholders at the meeting at
which the director or directors are removed.
Section 3.11 Compensation. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors, and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 3.12 Presumption of Assent. A director of the corporation who
is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting,
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof, or shall
forward such dissent by registered or certified mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 3.13 Resignations. A director may resign at any time by
delivering a written resignation to either the president, a vice president,
the secretary, or assistant secretary, if any. The resignation shall become
effective on its acceptance by the board of directors; provided, that if the
board has not acted thereon within ten days from the date presented, the
resignation shall be deemed accepted.
Section 3.14 Written Consent to Action by Directors. Any action
required to be taken at a meeting of the directors of the corporation or any
other action which may be taken at a meeting of the directors or of a
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 directors, or all of
the members of the committee, as the case may be. Such consent shall have the
same legal effect as a unanimous vote of all the directors or members of the
committee.
Section 3.15 Removal. At a meeting expressly called for that purpose,
one or more directors may be removed by a vote of a majority of the shares of
outstanding stock of the corporation entitled to vote at an election of
directors.
<PAGE> 6
ARTICLE IV
OFFICERS
Section 4.01 Number. The officers of the corporation shall be a
president, one or more vice-presidents, as shall be determined by resolution
of the board of directors, a secretary, a treasurer, and such other officers
as may be appointed by the board of directors. The board of directors may
elect, but shall not be required to elect, a chairman of the board and the
board of directors may appoint a general manager.
Section 4.02 Election, Term of Office, and Qualifications. The officers
shall be chosen by the board of directors annually at its annual meeting. In
the event of failure to choose officers at an annual meeting of the board of
directors, officers may be chosen at any regular or special meeting of the
board of directors. Each such officer (whether chosen at an annual meeting of
the board of directors to fill a vacancy or otherwise) shall hold his office
until the next ensuing annual meeting of the board of directors and until his
successor shall have been chosen and qualified, or until his death, or until
his resignation or removal in the manner provided in these Bylaws. Any one
person may hold any two or more of such offices, except that the president
shall not also be the secretary. No person holding two or more offices shall
act in or execute any instrument in the capacity of more than one office. The
chairman of the board, if any, shall be and remain director of the corporation
during the term of his office. No other officer need be a director.
Section 4.03 Subordinate Officers, Etc. The board of directors from
time to time may appoint such other officers or agents as it may deem
advisable, each of whom shall have such title, hold office for such period,
have such authority, and perform such duties as the board of directors from
time to time may determine. The board of directors from time to time may
delegate to any officer or agent the power to appoint any such subordinate
officer or agents and to prescribe their respective titles, terms of office,
authorities, and duties. Subordinate officers need not be shareholders or
directors.
Section 4.04 Resignations. Any officer may resign at any time by
delivering a written resignation to the board of directors, the president, or
the secretary. Unless otherwise specified therein, such resignation shall
take effect on delivery.
Section 4.05 Removal. Any officer may be removed from office at any
special meeting of the board of directors called for that purpose or at a
regular meeting, by vote of a majority of the directors, with or without
cause. Any officer or agent appointed in accordance with the provisions of
section 4.03 hereof may also be removed, either with or without cause, by any
officer on whom such power of removal shall have been conferred by the board
of directors.
Section 4.06 Vacancies and Newly Created Offices. If any vacancy shall
occur in any office by reason of death, resignation, removal,
disqualification, or any other cause, or if a new office shall be created,
then such vacancies or new created offices may be filled by the board of
directors at any regular or special meeting.
Section 4.07 The Chairman of the Board. The chairman of the board, if
there be such an officer, shall have the following powers and duties.
(a) He shall preside at all shareholders' meetings;
<PAGE> 7
(b) He shall preside at all meetings of the board of directors; and
(c) He shall be a member of the executive committee, if any.
Section 4.08 The President. The president shall have the following
powers and duties:
(a) If no general manager has been appointed, he shall be the chief
executive officer of the corporation, and, subject to the direction of the
board of directors, shall have general charge of the business, affairs, and
property of the corporation and general supervision over its officers,
employees, and agents;
(b) If no chairman of the board has been chosen, or is such officer
is absent or disabled, he shall preside at meetings of the stockholders and
board of directors;
(c) He shall be a member of the executive committee, if any;
(d) He shall be empowered to sign certificates representing shares
of the corporation, the issuance of which shall have been authorized by the
board of directors; and
(e) He shall have all power and shall perform all duties normally
incident to the office of a president of a corporation, and shall exercise
such other powers and perform such other duties as from time to time may be
assigned to him by the board of directors.
Section 4.09 The Vice Presidents. The board of directors may, from time
to time, designate and elect one or more vice presidents, one of whom may be
designated to serve as executive vice president. Each vice president shall
have such powers and perform such duties as from time to time may be assigned
to him by the board of directors or the president. At the request or in the
absence or disability of the president, the executive vice president or, in
the absence or disability of the executive vice president, the vice president
designated by the board of directors or (in the absence of such designation by
the board of directors) by the president, the senior vice president, may
perform all the duties of the president, and when so acting, shall have all
the powers of, and be subject to all the restrictions upon, the president.
Section 4.10 The Secretary. The secretary shall have the following
powers and duties:
(a) He shall keep or cause to be kept a record of all of the
proceedings of the meetings of the shareholders and of the board or directors
in books provided for that purpose;
(b) He shall cause all notices to be duly given in accordance with
the provisions of these Bylaws and as required by statute;
(c) He shall be the custodian of the records and of the seal of the
corporation, and shall cause such seal (or a facsimile thereof) to be affixed
to all certificates representing shares of the corporation prior to the
issuance thereof and to all instruments, the execution of which on behalf of
the corporation under its seal shall have been duly authorized in accordance
with these Bylaws, and when so affixed, he may attest the same;
(d) He shall assume that the books, reports, statements,
certificates, and other documents and records required by statute are properly
kept and filed;
<PAGE> 8
(e) He shall have charge of the share books of the corporation and
cause the share transfer books to be kept in such manner as to show at any
time the amount of the shares of the corporation of each class issued and
outstanding, the manner in which and the time when such stock was paid for,
the names alphabetically arranged and the addresses of the holders of record
thereof, the number of shares held by each holder and time when each became
such holder or record; and he shall exhibit at all reasonable times to any
director, upon application, the original or duplicate share register. He
shall cause the share book referred to in section 6.04 hereof to be kept and
exhibited at the principal office of the corporation, or at such other place
as the board of directors shall determine, in the manner and for the purposes
provided in such section;
(f) He shall be empowered to sign certificates representing shares
of the corporation, the issuance of which shall have been authorized by the
board of directors; and
(g) He shall perform in general all duties incident to the office
of secretary and such other duties as are given to him by these Bylaws or as
from time to time may be assigned to him by the board of directors or the
president.
Section 4.11 The Treasurer. The treasurer shall have the following
powers and duties:
(a) He shall have charge and supervision over and be responsible
for the monies, securities, receipts, and disbursements of the corporation;
(b) He shall cause the monies and other valuable effects of the
corporation to be deposited in the name and to the credit of the corporation
in such banks or trust companies or with such banks or other depositories as
shall be selected in accordance with section 5.03 hereof;
(c) He shall cause the monies of the corporation to be disbursed by
checks or drafts (signed as provided in section 5.04 hereof) drawn on the
authorized depositories of the corporation, and cause to be taken and
preserved property vouchers for all monies disbursed;
(d) He shall render to the board of directors or the president,
whenever requested, a statement of the financial condition of the corporation
and of all of this transactions as treasurer, and render a full financial
report at the annual meeting of the stockholders, if called upon to do so;
(e) He shall cause to be kept correct books of account of all the
business and transactions of the corporation and exhibit such books to any
director on request during business hours;
(f) He shall be empowered from time to time to require from all
officers or agents of the corporation reports or statements given such
information as he may desire with respect to any and all financial
transactions of the corporation; and
(g) He shall perform in general all duties incident to the office
of treasurer and such other duties as are given to him by these Bylaws or as
from time to time may be assigned to him by the board of directors or the
president.
Section 4.12 General Manager. The board of directors may employ and
appoint a general manager who may, or may not, be one of the officers or
directors of the corporation. The general manager, if any shall have the
following powers and duties:
<PAGE> 9
(a) He shall be the chief executive officer of the corporation and,
subject to the directions of the board of directors, shall have general charge
of the business affairs and property of the corporation and general
supervision over its officers, employees, and agents:
(b) He shall be charged with the exclusive management of the
business of the corporation and of all of its dealings, but at all times
subject to the control of the board of directors;
(c) Subject to the approval of the board of directors or the
executive committee, if any, he shall employ all employees of the corporation,
or delegate such employment to subordinate officers, and shall have authority
to discharge any person so employed; and
(d) He shall make a report to the president and directors as often
as required, setting forth the results of the operations under his charge,
together with suggestions looking toward improvement and betterment of the
condition of the corporation, and shall perform such other duties as the board
of directors may require.
Section 4.13 Salaries. The salaries and other compensation of the
officers of the corporation shall be fixed from time to time by the board of
directors, except that the board of directors may delegate to any person or
group of persons the power to fix the salaries or other compensation of any
subordinate officers or agents appointed in accordance with the provisions of
section 4.03 hereof. No officer shall be prevented from receiving any such
salary or compensation by reason of the fact that he is also a director of the
corporation.
Section 4.14 Surety Bonds. In case the board of directors shall so
require, any officer or agent of the corporation shall execute to the
corporation a bond in such sums and with such surety or sureties as the board
of directors may direct, conditioned upon the faithful performance of his
duties to the corporation, including responsibility for negligence and for the
accounting of all property, monies, or securities of the corporation which may
come into his hands.
ARTICLE V
EXECUTION OF INSTRUMENTS, BORROWING OF MONEY,
AND DEPOSIT OF CORPORATE FUNDS
Section 5.01 Execution of Instruments. Subject to any limitation
contained in the articles of incorporation or these Bylaws, the president or
any vice president or the general manager, if any, may, in the name and on
behalf of the corporation, execute and deliver any contract or other
instrument authorized in writing by the board of directors. The board of
directors may, subject to any limitation contained in the articles of
incorporation or in these Bylaws, authorize in writing any officer or agent to
execute and delivery any contract or other instrument in the name and on
behalf of the corporation; any such authorization may be general or confined
to specific instances.
Section 5.02 Loans. No loans or advances shall be contracted on behalf
of the corporation, no negotiable paper or other evidence of its obligation
under any loan or advance shall be issued in its name, and no property of the
corporation shall be mortgaged, pledged, hypothecated, transferred, or
conveyed as security for the payment of any loan, advance, indebtedness, or
liability of the corporation, unless and except as authorized by the board of
directors. Any such authorization may be general or confined to specific
instances.
<PAGE> 10
Section 5.03 Deposits. All monies of the corporation not otherwise
employed shall be deposited from time to time to its credit in such banks and
or trust companies or with such bankers or other depositories as the board of
directors may select, or as from time to time may be selected by any officer
or agent authorized to do so by the board of directors.
Section 5.04 Checks, Drafts, Etc. All notes, drafts, acceptances,
checks, endorsements, and, subject to the provisions of these Bylaws,
evidences of indebtedness of the corporation, shall be signed by such officer
or officers or such agent or agents of the corporation and in such manner as
the board of directors from time to time may determine. Endorsements for
deposit to the credit of the corporation in any of its duly authorized
depositories shall be in such manner as the board of directors from time to
time may determine.
Section 5.05 Bonds and Debentures. Every bond or debenture issued by
the corporation shall be evidenced by an appropriate instrument which shall be
signed by the president or a vice president and by the secretary and sealed
with the seal of the corporation. The seal may be a facsimile, engraved or
printed. Where such bond or debenture is authenticated with the manual
signature of an authorized officer of the corporation or other trustee
designated by the indenture of trust or other agreement under which such
security is issued, the signature of any of the corporation's officers named
thereon may be a facsimile. In case any officer who signed, or whose
facsimile signature has been used on any such bond or debenture, should cease
to be an officer of the corporation for any reason before the same has been
delivered by the corporation, such bond or debenture may nevertheless be
adopted by the corporation and issued and delivered as through the person who
signed it or whose facsimile signature has been used thereon had not ceased to
be such officer.
Section 5.06 Sale, Transfer, Etc. of Securities. Sales, transfers,
endorsements, and assignments of stocks, bonds, and other securities owned by
or standing in the name of the corporation, and the execution and delivery on
behalf of the corporation of any and all instruments in writing incident to
any such sale, transfer, endorsement, or assignment, shall be effected by the
president, or by any vice president, together with the secretary, or by any
officer or agent thereunto authorized by the board of directors.
Section 5.07 Proxies. Proxies to vote with respect to shares of other
corporations owned by or standing in the name of the corporation shall be
executed and delivered on behalf of the corporation by the president or any
vice president and the secretary or assistant secretary of the corporation, or
by any officer or agent thereunder authorized by the board of directors.
ARTICLE VI
CAPITAL SHARES
Section 6.01 Share Certificates. Every holder of shares in the
corporation shall be entitled to have a certificate, signed by the president
or any vice president and the secretary or assistant secretary, and sealed
with the seal (which may be a facsimile, engraved or printed) of the
corporation, certifying the number and kind, class or series of shares owned
by him in the corporation provided, however, that where such a certificate is
countersigned by (a) a transfer agent or an assistant transfer agent, or (b)
registered by a registrar, the signature of any such president, vice
president, secretary, or assistant secretary may be a facsimile. In case any
officer who shall have signed, or whose facsimile signature or signatures
shall have been used on any such certificate, shall cease to be such officer
<PAGE> 11
of the corporation, for any reason, before the delivery of such certificate by
the corporation, such certificate may nevertheless be adopted by the
corporation and be issued and delivered as though the person who signed it, or
whose facsimile signature or signatures shall have been used thereon, has not
ceased to be such officer. Certificates representing shares of the
corporation shall be in such form as provided by the statutes of the state of
incorporation. There shall be entered on the share books of the corporation
at the time of issuance of each share, the number of the certificate issued,
the name and address of the person owning the shares represented thereby, the
number and kind, class or series of such shares, and the date of issuance
thereof. Every certificate exchanged or returned to the corporation shall be
marked "Canceled" with the date of cancellation.
Section 6.02 Transfer of Shares. Transfers of shares of the
corporation shall be made on the books of the corporation by the holder of
record thereof, or by his attorney thereunto duly authorized by a power of
attorney duly executed in writing and filed with the Secretary of the
corporation or any of its transfer agents, and on surrender of the certificate
or certificates, properly endorsed or accompanied by proper instruments of
transfer, representing such shares. Except as provided by law, the
corporation and transfer agents and registrars, if any, shall be entitled to
treat the holder of record of any stock as the absolute owner thereof for all
purposes, and accordingly shall not be bound to recognize any legal,
equitable, or other claim to or interest in such shares on the part of any
other person whether or not it or they shall have express or other notice
thereof.
Section 6.03 Regulations. Subject to the provisions of this section VI
and of the articles of incorporation, the board of directors may make such
rules and regulations as they may deem expedient concerning the issuance,
transfer, redemption, and registration of certificates for shares of the
corporation.
Section 6.04 Maintenance of Stock Ledger at Principal Place of Business.
A share book (or books where more than one kind, class, or series of stock is
outstanding) shall be kept at the principal place of business of the
corporation, or at such other place as the board of directors shall determine,
containing the names, alphabetically arranged, of original shareholders of the
corporation, their addresses, their interest, the amount paid on their shares,
and all transfers thereof and the number and class of shares held by each.
Such share books shall at all reasonable hours be subject to inspection by
persons entitled by law to inspect the same.
Section 6.05 Transfer Agents and Registrars. The board of directors may
appoint one or more transfer agents and one or more registrars with respect to
the certificates representing shares of the corporation, and may require all
such certificates to bear the signature of either or both. The board of
directors may from time to time define the respective duties of such transfer
agents and registrars. No certificate for shares shall be valid until
countersigned by a transfer agent, if at the date appearing thereon the
corporation had a transfer agent for such shares, and until registered by a
registrar, if at such date the corporation had a registrar for such shares.
Section 6.06 Closing of Transfer Books and Fixing of Record Date.
(a) The board of directors shall have power to close the share
books of the corporation for a period of not to exceed 50 days preceding the
<PAGE> 12
date of any meeting of shareholders, or the date for payment of any dividend,
or the date for the allotment of rights, or capital shares shall go into
effect, or a date in connection with obtaining the consent of shareholders for
any purpose.
(b) In lieu of closing the share transfer books as aforesaid, the
board of directors may fix in advance a date, not exceeding 50 days preceding
the date of any meeting of shareholders, or the date for the payment of any
dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of capital shares shall go into effect, or a date in
connection with obtaining any such consent, as a record date for the
determination of the shareholders entitled to a notice of, and to vote at, any
such meeting and any adjournment thereof, or entitled to receive payment of
any such dividend, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
or to give such consent.
(c) If the share transfer books shall be closed or a record date
set for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for, or such
record date shall be, at least ten (10) days immediately preceding such
meeting.
Section 6.07 Lost or Destroyed Certificates. The corporation may issue
a new certificate for shares of the corporation in place of any certificate
theretofore issued by it, alleged to have been lost or destroyed, and the
board of directors may, in its discretion, require the owner of the lost or
destroyed certificate or his legal representatives, to give the corporation a
bond in such form and amount as the board of directors may direct, and with
such surety or sureties as may be satisfactory to the board, to indemnify the
corporation and its transfer agents and registrars, if any, against any claims
that may be made against it or any such transfer agent or registrar on account
of the issuance of such new certificate. A new certificate may be issued
without requiring any bond when, in the judgment of the board of directors, it
is proper to do so.
Section 6.08 No Limitation on Voting Rights; Limitation on Dissenter's
Rights. To the extent permissible under the applicable law of any jurisdiction
to which the corporation may become subject by reason of the conduct of
business, the ownership of assets, the residence of shareholders, the location
of offices or facilities, or any other item, the corporation elects not to be
governed by the provisions of any statute that (i) limits, restricts,
modified, suspends, terminates, or otherwise affects the rights of any
shareholder to cast one vote for each share of common stock registered in the
name of such shareholder on the books of the corporation, without regard to
whether such shares were acquired directly from the corporation or from any
other person and without regard to whether such shareholder has the power to
exercise or direct the exercise of voting power over any specific fraction of
the shares of common stock of the corporation issued and outstanding or (ii)
grants to any shareholder the right to have his stock redeemed or purchased by
the corporation or any other shareholder on the acquisition by any person or
group of persons of shares of the corporation. In particular, to the extent
permitted under the laws of the state of incorporation, the corporation elects
not to be governed by any such provision, including the provisions of the
Nevada Control Share Acquisition Act, section 78.378 et seq., of the General
Corporation Law of the State of Nevada, as amended, or any statute of similar
effect or tenor.
<PAGE> 13
ARTICLE VII
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 7.01 How Constituted. The board of directors may designate an
executive committee and such other committees as the board of directors may
deem appropriate, each of which committees shall consist of two or more
directors. Members of the executive committee and of any such other
committees shall be designated annually at the annual meeting of the board of
directors; provided, however, that at any time the board of directors may
abolish or reconstitute the executive committee or any other committee. Each
member of the executive committee and of any other committee shall hold office
until his successor shall have been designated or until his resignation or
removal in the manner provided in these Bylaws.
Section 7.02 Powers. During the intervals between meetings of the board
of directors, the executive committee shall have and may exercise all powers
of the board of directors in the management of the business and affairs of the
corporation, except for the power to fill vacancies in the board of directors
or to amend these Bylaws, and except for such powers as by law may not be
delegated by the board of directors to an executive committee.
Section 7.03 Proceedings. The executive committee, and such other
committees as may be designated hereunder by the board of directors, may fix
its own presiding and recording officer or officers, and may meet at such
place or places, at such time or times and on such notice (or without notice)
as it shall determine from time to time. It will keep a record of its
proceedings and shall report such proceedings to the board of directors at the
meeting of the board of directors next following.
Section 7.04 Quorum and Manner of Acting. At all meeting of the
executive committee, and of such other committees as may be designated
hereunder by the board of directors, the presence of members constituting a
majority of the total authorized membership of the committee shall be
necessary and sufficient to constitute a quorum for the transaction of
business, and the act of a majority of the members present at any meeting at
which a quorum is present shall be the act of such committee. The members of
the executive committee, and of such other committees as may be designated
hereunder by the board of directors, shall act only as a committee and the
individual members thereof shall have no powers as such.
Section 7.05 Resignations. Any member of the executive committee, and
of such other committees as may be designated hereunder by the board of
directors, may resign at any time by delivering a written resignation to
either the president, the secretary, or assistant secretary, or to the
presiding officer of the committee of which he is a member, if any shall have
been appointed and shall be in office. Unless otherwise specified herein,
such resignation shall take effect on delivery.
Section 7.06 Removal. The board of directors may at any time remove any
member of the executive committee or of any other committee designated by it
hereunder either for or without cause.
Section 7.07 Vacancies. If any vacancies shall occur in the executive
committee or of any other committee designated by the board of directors
hereunder, by reason of disqualification, death, resignation, removal, or
otherwise, the remaining members shall, until the filling of such vacancy,
constitute the then total authorized membership of the committee and, provided
that two or more members are remaining, continue to act. Such vacancy may be
filled at any meeting of the board of directors.
<PAGE> 14
Section 7.08 Compensation. The board of directors may allow a fixed sum
and expenses of attendance to any member of the executive committee, or of any
other committee designated by it hereunder, who is not an active salaried
employee of the corporation for attendance at each meeting of said committee.
ARTICLE VIII
INDEMNIFICATION, INSURANCE, AND
OFFICER AND DIRECTOR CONTRACTS
Section 8.01 Indemnification: Third Party Actions. The corporation
shall have the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against expenses
(including attorneys' fees) judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with any such action,
suit or proceeding, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit, or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
Section 8.02 Indemnification: Corporate Actions. The corporation shall
have the power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action or suit by
or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue, or matter as to which such a person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation, unless and only to the extent that the court in
which the action or suit was brought shall determine on application that,
despite the adjudication of liability but in view of all circumstances of the
case, the person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
Section 8.03 Determination. To the extent that a director, officer,
employee, or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred to in section
8.01 and 8.02 hereof, or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith. Any other indemnification
under section 8.01 and 8.02 hereof, shall be made by the corporation upon a
determination that indemnification of the officer, director, employee, or
agent is proper in the circumstances because he has met the applicable
<PAGE> 15
standard of conduct set forth in sections 8.01 and 8.02 hereof. Such
determination shall be made either (i) by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit, or proceeding; or (ii) by independent legal counsel on a written
opinion; or (iii) by the shareholders by a majority vote of a quorum of
shareholders at any meeting duly called for such purpose.
Section 8.04 General Indemnification. The indemnification provided by
this section shall not be deemed exclusive of any other indemnification
granted under any provision of any statute, in the corporation's articles of
incorporation, these Bylaws, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee, or agent, and
shall inure to the benefit of the heirs and legal representatives of such a
person.
Section 8.05 Advances. Expenses incurred in defending a civil or
criminal action, suit, or proceeding as contemplated in this section may be
paid by the corporation in advance of the final disposition of such action,
suit, or proceeding upon a majority vote of a quorum of the board of directors
and upon receipt of an undertaking by or on behalf of the director, officers,
employee, or agent to repay such amount or amounts unless if it is ultimately
determined that he is to indemnified by the corporation as authorized by this
section.
Section 8.06 Scope of Indemnification. The indemnification authorized
by this section shall apply to all present and future directors, officers,
employees, and agents of the corporation and shall continue as to such persons
who ceases to be directors, officers, employees, or agents of the corporation,
and shall inure to the benefit of the heirs, executors, and administrators of
all such persons and shall be in addition to all other indemnification
permitted by law.
Section 8.07. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, employee, or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against any such liability and under the laws of the state of
incorporation, as the same may hereafter be amended or modified.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors.
ARTICLE X
DIVIDENDS
The board of directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and on the terms
and conditions provided by the articles of incorporation and these Bylaws.
ARTICLE XI
AMENDMENTS
<PAGE> 16
All Bylaws of the corporation, whether adopted by the board of directors
or the shareholders, shall be subject to amendment, alteration, or repeal, and
new Bylaws may be made, except that:
(a) No Bylaws adopted or amended by the shareholders shall be
altered or repealed by the board of directors.
(b) No Bylaws shall be adopted by the board of directors which
shall require more than a majority of the voting shares for a quorum at a
meeting of shareholders, or more than a majority of the votes cast to
constitute action by the shareholders, except where higher percentages are
required by law; provided, however that (i) if any Bylaw regulating an
impending election of directors is adopted or amended or repealed by the board
of directors, there shall be set forth in the notice of the next meeting of
shareholders for the election of directors, the Bylaws so adopted or amended
or repealed, together with a concise statement of the changes made; and (ii)
no amendment, alteration or repeal of this section XI shall be made except by
the shareholders.
<PAGE>
<PAGE> 17
CERTIFICATE OF SECRETARY
The undersigned does hereby certify that he is the secretary of AMERICAN
ENVIRONMENTAL CORPORATION, a corporation duly organized and existing under and
by virtue of the laws of the state of Nevada; that the above and foregoing
Bylaws of said corporation were duly and regularly adopted as such by the
board of directors of the corporation at a meeting of the board of directors,
which was duly and regularly held on the 10th day of August, 1995, and that
the above and foregoing Bylaws are now in full force and effect.
DATED THIS 10th day of August 1995.
/s/Dennis S. Chrobak, Secretary
Exhibit No. 3 - SPECIMEN STOCK CERTIFICATE
CUSIP NO. 025669 10 2
NUMBER SHARES
XXXX XX,XXX
American Environmental Corporation
AUTHORIZED COMMON STOCK 24,000,000 SHARES
PAR VALUE: $.001
THIS CERTIFIES THAT ----------SPECIMEN--------------
IS THE RECORD HOLDER OF --------------------VOID--------------------
-Shares of AMERICAN ENVIRONMENTAL CORPORATION Common Stock-
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signature
of its duly authorized officers.
Dated: ____________
/s/-----VOID------------- [Corporate Seal] /s/------VOID---------------
Secretary President
<PAGE> 1
Exhibit No. 4 TECHNOLOGY LICENSE AGREEMENT
THIS TECHNOLOGY LICENSE AGREEMENT (this "Agreement") is entered into the
19th day of August, 1997, between DENNIS S. CHROBAK, an individual, and
RICHARD A. STEINKE, an individual (hereinafter "Licensors") and AMERICAN
ENVIRONMENTAL CORPORATION, a Nevada corporation (hereinafter "Licensee").
It is expressly and mutually warranted and agreed that Dennis S. Chrobak
(hereinafter "Chrobak") and Richard A. Steinke (hereinafter "Steinke"),
individually and/or collectively are the inventors of an air pollution
technology (the "Technology" as defined in section 2(f) below), and are third-
party beneficiaries to this Agreement in its totality and to all material
provisions hereof with full legal rights to protect and enforce any expressed
or implied rights or interests herein.
It is expressly mutually warranted and agreed that this Agreement
supercedes that prior Technology License Agreement entered into the 20th day
of May, 1996 between AMERICAN MOBILITY LIMITED PARTNERSHIP, a Nevada limited
partnership, of which Chrobak and Steinke were third-party beneficiaries.
Recitals
A. Chrobak and Steinke have invented an air pollution control system
designed to provide, simple, low cost, and efficient remediation of toxic flue
gases.
B. Chrobak and Steinke have made application for letters patent with the
United States Patents and Trademark Office regarding the Technology.
C. Chrobak and Steinke represent and warrant that they own all right,
title, and interest in the Technology, and all patent to be issued concerned
therewith.
AGREEMENT
NOW, THEREFORE, based on the foregoing premises and for and in
consideration of the covenants and agreements hereinafter set forth and the
mutual benefits to the parties to be derived therefrom, it is hereby agreed as
follows:
1. Incorporation of Premises. The foregoing premises are incorporated
herein by this reference.
2. Certain Definitions. The following defined terms have the stated
meaning as used herein:
(a) Confidential Information. "Confidential Information" as used
herein shall mean information in the possession of a party which is held and
treated by such party as proprietary or trade secret information and not
disclosed to the trade or public by such party. Confidential Information
shall not include information (i) which is known to the receiving party at the
time of disclosure by the disclosing party, (ii) which after disclosure by the
disclosing party to the receiving party is received by the receiving party
from another who, with respect to the disclosing party, has the right to
disclose such information, or (iii) which is available to the public or
subsequently becomes available to the public through no breach of obligations
of confidence and trust by the receiving party to the disclosing party.
(b) Improvements. The term "Improvements" means any material,
<PAGE> 2
composition, process, data, or information which is developed from, utilizing,
or based upon the Technology, which modifies, enhances, or improves any
Product(s) or Process(es), as hereinafter defined, which is part of the
Technology.
(c) Patent Rights. The term "Patent Rights" shall mean all United
States patents and foreign patents and applications for patent, including
continuing and divisional and other patent applications derived therefrom, in
this or any country in the world which have been filed or granted or which
may be filed or granted which describe and claim or are based upon all or part
of the Technology, including such Improvements as become subject to this
Agreement, including, but not limited to, any and all patents granted on or
respecting the application for United States Letters Patent Serial No(s).
08/758,211 and 08/650,015, each titled "Method and Apparatus for Remediation
of Toxic Flue Gases" filed with the United States Office of Patents and
Trademarks, respecting an invention by Richard A. Steinke and Dennis S.
Chrobak for the Technology (the "Patent Application").
(d) Process(es). The term "Process(es)" shall mean any
formulation(s), composition(s), or combination(s) of compositions based upon
or manufactured or used in accordance with the Technology.
(f) Technology. The term "Technology" shall mean all scientific
and technical data and all information and know-how related to the inventions
and developments relating to a method and apparatus for remediation of toxic
flue gases including, but not limited to, all information and know-how
relating to the Patent Application, whether or not any such inventions or
developments are patentable, including, but not limited to, the formulas,
methods, processes, procedures, experimental data, disclosures, reports,
findings, ideas, and trade secrets. Technology includes all Improvements,
Patent Rights, Products, Processes, and Confidential Information as described
herein.
3. License. Licensors hereby grants, and Licensee hereby accepts, an
exclusive license to use, sell, license, or otherwise exploit the Technology,
and any and all Improvements, Processes, Products, and Confidential
Information related thereto, in the World-wide territory and on the conditions
herein set forth, subject to the obligation of Licensee to pay a Royalty as
provided below, including specifically, but without limitation, the right to
sublicense others under the rights granted hereunder, to likewise sue, sell,
sublicense, or otherwise exploit the Technology and any and all Improvements,
Processes, Products, and Confidential Information related thereto and to
disclose Confidential Information to sublicensees to the extent sublicenses
requires to effectively enjoy the rights of such sublicenses.
4. Territory of Licensee. As used herein, the term "World-wide
Territory" of the Licensee shall refer to all territories, countries,
principalities, and kingdoms collectively referred to as the "Earth."
5. Marketing by Licensee. Licensee shall devote its time and best
efforts to market, promote, and exploit the Technology in a effort to foster
its commercialization and use.
6. Term. Unless earlier terminated by the mutual agreement of the
parties or pursuant to another provision of this Agreement, this Agreement
shall continue in full force and effect and shall have a term expiring on the
last date of expiration of any patent included in the Patent Rights. If,
however, the License fails market, promote, and otherwise exploit the
<PAGE> 3
Technology so that Chrobak has not received any royalty payment as provided
under paragraph 9 of this Agreement within 24 months of the date hereof, this
Agreement shall automatically terminate, without further notice from Licensors
to the Licensee.
7. Additional Technology. It is anticipated that Licensors may from
time to time develop additional technology. In the event Licensor desire to
market, distribute, or otherwise exploit any additional technology relating to
the remediation of toxic flue gases that is not included within the above
defined Technology (the "Additional Technology") in the World-wide Territory
of Licensee, Licensors shall provide Licensee with a written notice (the
"Initial Notice") setting forth full details concerning the Additional
Technology, and Licensee shall have the exclusive right and option to have the
Additional Technology made subject to this Agreement at any time during a
period of 90 days following the date such Initial Notice is given. Licensee
can exercise such option by delivery of a notice of its intent to do so within
the option period. If Licensee does not exercise its option within the
prescribed period, Licensor shall be entitled to enter into any agreement
respecting the Additional Technology within the World-wide Territory of
Licensee with any other entity. If Licensee is granted rights to Additional
Technology, such rights shall be subject to all the terms and provisions of
this Agreement and the Additional Technology shall be treated as Technology
under this Agreement.
8. Testing. Either party may from time to time undertake testing and
development in the World-wide Territory of the Technology or Additional
Technology, and either party undertaking such testing shall make the results
of such testing and development fully available to the other.
9. Royalty. During the term of this Agreement, Licensee shall pay to
Chrobak a Royalty (the "Royalty") of (a) one and one-half percent (1.5%) of
the gross sales price of any equipment manufactured directly or indirectly by
the Licensee and sold for use with or as a part of the Technology; and (b)
one-half percent (.5%) of the gross sales price on any replacement equipment
manufactured directly or indirectly by the Licensee. Such Royalty shall be
due and payable 45 days after the close of each calendar quarter. Licensee
shall provide to Chrobak a written statement of production, presented in
sufficient detail to permit verification of the Royalty due. Such written
statement shall be certified as accurate by an officer or authorized agent of
Licensee. Licensee shall maintain accurate books and records for the same
which shall be made available to Chrobak, on reasonable notice, for inspection
and audit by Chrobak or its representative. In the event that Chrobak cause
such books and records to be audited and such audit establishes that Licensee
did not pay Chrobak the full amount of Royalty actually due Chrobak, Licensee
shall pay Chrobak the additional amount owned within 30 days after demand. In
addition, if such audit establishes that Licensee has underpaid Chrobak for
Royalty owed by 5% or more, Licensee shall reimburse Chrobak for the full cost
of such audit. The amount of Royalty not paid Chrobak when due shall bear
interest at an annual rate of interest equal to two percentage points above
the prime rate quoted for international money center banks in the Wall Street
Journal on the day the payment was due. Steinke shall not receive a Royalty
under this Agreement.
10. Documentation and Technical Assistance. Licensor shall at its own
cost provide Licensee with available written technical information and know-
how in its possession, and shall stand ready, at the request and expense of
Licensee, to disclose know-how and technology known to Licensor respecting the
<PAGE> 4
Technology and, at the request and expense of Licensee, and within reasonable
time and resource constraints, provide technical and scientific aid and
assistance to assist Licensee in the development of the Licensed Technology.
Licensor's charges to Licensee for such technical assistance shall not exceed
Licensors' cost of providing the same.
11. Documentation and Confirmation of Rights. Licensor shall, upon
request of and at the expense of Licensee, execute such documents and take
such actions as are necessary and proper to evidence the rights granted
hereunder to Licensee.
12. Authority and Reservation of Rights to Licensor
(a) Authority. Licensor represents and warrants to Licensee that
it owns the Technology free and clear of any and all liens, claims,
encumbrances, royalty interests, or other charges; that it has full legal
power to grant the rights to Licensee as set forth in this Agreement; that it
has not made and covenants that it will not make any commitment to others
inconsistent with such grant; that it is not aware of any third party
(including without limitation any university, research foundation, or
institute) who holds from or under Licensors directly or indirectly any rights
to or under the Technology which would preclude Licensor from granting to
Licensee all rights purportedly granted to Licensee hereunder.
(b) Reservation of Rights. Licensors reserve the right to use the
Technology in the course of its research, but shall not have the right to
exploit the same commercially or to license others to make, use, or sell the
same with the World-wide Territory of Licensee. Further provided that in the
event the territorial exclusivity or period of exclusivity of the license
granted hereunder is limited by applicable laws and regulations concerning
government rights pertaining to the subject matter hereof, or by the action,
laws, or regulations of any government, the license granted hereunder shall
not terminate, but shall remain exclusive to the extent permitted by such
government action and shall become nonexclusive to the extent necessary to
conform to applicable laws and regulations.
13. Patent Applications and Prosecution. Licensors shall, at its own
cost and expense, apply for and prosecute applications for United States and
foreign patents as the Licensee may from time in writing designate to
Licensors. Licensors shall control and direct the filing and prosecution of
such applications for patent and maintenance of such patents through a
registered patent lawyer of Licensors' choosing who shall (unless Licensors
and Licensee agree otherwise) be instructed to obtain the maximum available
valid patent protection. Licensors shall seek prompt examination of all such
applications for patent in all countries in which application for patent is
made, keep Licensee, or such patent attorney as Licensee may designate,
informed as to all activities respecting such applications for patents and
regularly provide copies of all documents and correspondence respecting such
applications for patent to Licensee, or its designee, and give full weight and
due consideration to information and requests from Licensee respecting such
patents and applications. Licensee shall have the right to authorize the
abandonment of such patents or applications, provided, however, that Licensor
shall have the right, but no obligation, to assume prosecution and/or
maintenance of the same. Licensors may, but shall not be required to, file,
prosecute, or maintain applications of patent and patents in countries in
which Licensee does not elect for filing. Licensors does not represent or
warrant (i) that any patent applications will issue into a patent, (ii) that
should a patent issue and be licensed hereunder that such patent will be
valid, or (iii) that the sale of the Technology will not infringe the patent
rights of third parties.
<PAGE> 5
14. Disclosure of Improvements. Licensors shall keep Licensee fully
informed as to Improvements made by Licensors and shall promptly comply with
the obligations of section 10 in providing technical assistance respecting the
same.
15. Litigation.
(a) Licensee shall have the first right to sue any infringer of any
patent licensed hereunder, at its own expense in the name of Licensors, if
necessary, and Licensors agrees to join in such suit at Licensee's expense and
to execute any necessary papers for such suit. If Licensee fails within a
reasonable time to sue such infringer, Licensors shall have the right to file
and maintain, at its own expense, such suits for infringement; however,
nothing in this Agreement shall obligate Licensors to assume any
responsibility or liability respecting any action or possible action for
infringement.
(b) Any sum recovered in such suit or in settlement thereof shall
be used first to reimburse Licensee and Licensors, pro rata, for all direct
out-of-pocket costs and expenses of every kind and character, including
attorneys' fees, expert witness fees, court costs, and the like incurred in
the prosecution of any suit. For this purpose, cost and expenses paid from
Royalty withheld by Licensee pursuant to this section of this Agreement shall
be considered to have been incurred by Licensors pursuant to this paragraph of
this Agreement. If, after such reimbursement, any funds shall remain from
such recovery, such funds shall, at the option of Licensee, be divided with
Licensors, pro tanto in lieu of Royalty on infringing sales at one-half the
rates specified in section 9 of this Agreement.
(c) During any time Licensee is engaged in an infringement action
involving an allegation that any patents licensed hereunder are infringed,
Licensee shall be entitled to withhold up to one-half of all Royalty otherwise
payable to Licensors under section 9 of this Agreement as may be necessary to
offset expenses of such action. Upon termination of the litigation, any
balance of the withheld one-half remaining after payment of Licensee's
expenses shall be paid promptly to Licensors.
16. Defense of Licensed Rights. Licensors shall not be obligated to
defend or save harmless Licensee against any suit, damage, claim, or demand
based on actual or alleged infringement of any patent or trademark or any
unfair trade practice resulting from the use or exercise of the rights or
license granted hereunder; but shall cooperate fully with Licensee, at
Licensee's cost and expense, in the defense of any such suit, claim, or demand
and shall provide expert testimony at reasonable times and for reasonable
periods without cost, except that Licensee shall pay travel, lodging, and
related expenses actually incurred in providing such testimony.
17. Default. Upon the occurrence and during the continuance of any one
or more of the events hereinafter enumerated, Licensors may forthwith or at
any time thereafter during the continuance of any such event, by notice in
writing to Licensee, terminate this Agreement, such events being as follows:
(a) Default in the payment of any Royalty or other amount due
hereunder when the same shall become due and payable, unless cured within 30
days after the notice thereof by Chrobak to Licensee;
(b) Default in the due observance or performance of any other
covenant or obligation contained in this Agreement, unless observed or
<PAGE> 6
performed within 30 days after notice thereof by Licensors to Licensee;
provided, that if compliance is not reasonably practicable within 30 days,
default shall occur upon failure within said 30 days to take steps that will
produce compliance as soon as is reasonably practicable;
(c) Licensee shall file a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization, or shall file an answer admitting
the jurisdiction of the court and any material allegations of any involuntary
petition filed pursuant to any act of Congress relating to bankruptcy or to
any act purporting to be amendatory thereof, or shall be adjudicated bankrupt,
or shall make an assignment for the benefit of creditors, or shall apply for
or consent to the appointment of any receiver or trustee for Licensee, or of
all or any substantial portion of its property; or Licensee shall make an
assignment to an agent authorized to liquidate any substantial part of its
assets; or
(d) An order shall be entered pursuant to any act of Congress
relating to bankruptcy or to any act purporting to be amendatory thereof
approving an involuntary petition seeking reorganization of Licensee, or an
order of any court shall be entered appointing any receiver or trustee of or
for Licensee, or any receiver or trustee of all or any substantial portion of
the property of Licensee, or a writ or warrant of attachment or any similar
process shall be issued by any court against all or any substantial portion of
the property of Licensee, and such order approving a petition seeking
reorganization or appointing a receiver or trustee is not vacated or stayed,
or such writ, warrant of attachment, or similar process is not released or
bonded within 60 days after its first entry or levy.
18. Effect of Termination. In the event of termination of the license
rights granted hereunder for any reason(s) whatsoever, all options granted
Licensee hereunder shall also automatically terminate; and:
(a) All obligations of confidentiality shall remain in full force
and effect for the full term of this Agreement;
(b) Licensee shall return, deliver, and assign to Licensor all
written records containing know-how, notebooks, reports, data, applications
for approval, approvals and all writings, including magnetically recorded
writings or legible and readable copies thereof which relate to or describe
the manufacture, use, sale, or characteristics of the Technology which are in
its possession, custody, or control;
(c) Licensee shall not grant any third-party any right to the
Technology after termination of the license hereunder;
(d) All sublicenses granted hereunder shall inure to the benefit of
Licensors and Licensors shall become the licensors with respect to the same.
Such sublicenses shall continue according to the terms thereof and Chrobak
shall be entitled to all consideration and Royalty from the sublicensee
therein. Licensee shall make such assignment of such sublicenses and execute
all documents necessary and proper to substitute Licensor as the licensor
therein.
19. Patent Marking. Licensee agrees that it shall provide the necessary
legal patent marking required for the country for which the Technology covered
by Patent Rights are made or sold, provided that Licensors shall have advised
Licensee regarding the same.
<PAGE> 7
20. Confidentiality. Each party agrees that any Confidential
Information disclosed to it by the other in writing and marked confidential
(or in the case of any oral disclosure, subsequently confirmed in writing and
marked confidential) shall be held in confidence for five years after
disclosure, notwithstanding any prior termination of this Agreement, and shall
not use the same other than as to the extent permitted under this Agreement.
21. Non-warranted Matters. Nothing contained in this Agreement shall be
construed as a warranty or representation by Licensors (i) as to the validity
or scope of Licensors' Patent Rights, (ii) as to whether any manufacture, use,
or sale hereunder will be free from infringement of any patents owned or
controlled by any third party, or (iii) as to efficiency or efficacy of the
Technology.
22. Notices. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if in
writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by overnight express delivery; if
sent by registered mail or certified mail, return receipt requested and
postage prepaid; or if sent by overnight express delivery:
If to Licensors, to: Dennis S. Chrobak
2914 Silver Lake Blvd.
Silver Lake, OH 44224
Fax: (216) 929-5305
Richard A. Steinke
804 San Remo Way
Boulder City, NV 89005
Fax: (702) 293-2033
If to Licensee, to: American Environmental Corporation
1643-B Nevada Highway
Boulder City, NV 89005
Fax: (702) 294-3873
or such other addresses and facsimile numbers as shall be furnished in writing
by any party in the manner for giving notices hereunder, and such notice,
demand, request, or other communication shall be deemed to have been given as
of the date so delivered or sent by facsimile transmission, three days after
the date so mailed, or one day after the date so sent by overnight delivery.
23. Attorneys' Fees. In the event that any party institutes any action
or suit to enforce this Agreement or secure relief from any default hereunder
or breach hereof, the breaching party or parties shall reimburse the
nonbreaching party or parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
24. Specific Performance. The parties acknowledge that the rights in
this Agreement are extraordinary and unique, and that remedies at law may be
inadequate to compensate the parties for the breach or threatened breach of
the terms and conditions of this Agreement. The parties consent to the
granting of equitable relief, including specific performance or injunction,
whether temporary, preliminary, or final, in favor of the other party without
proof of actual damages.
25. Third-Party Beneficiaries. Licensor and Licensee are intended
beneficiaries of this Agreement and the consummation of the transactions in
accordance with this Agreement.
<PAGE> 8
26. Entire Agreement. This Agreement and the exhibits hereto represent
the entire agreement between the parties relating to the subject matter
hereof. All negotiations and all other previous agreements between the
parties, whether written or oral, have been merged into this Agreement, and
this Agreement and the documents delivered in connection with the consummation
hereof fully and completely express the agreement of the parties relating to
the subject matter hereof. There are no other courses of dealing,
understandings, agreements, representations, or warranties, written or oral,
except as set forth herein.
27. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which take
together shall be but a single instrument.
28. No Assignment. This Agreement cannot be assigned in whole or in
part by one of the parties without the prior written consent of all parties to
this Agreement.
29. Amendment or Waiver. Every right and remedy provided herein shall
be cumulative with every other right and remedy, whether conferred herein, at
law, or in equity, and such remedies may be enforced concurrently, and no
waiver by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. This Agreement may be amended by a writing
signed by all parties hereto, with respect to any of the terms contained
herein, and any term or condition of this Agreement may be waived or the time
for performance thereof may be extended by a writing signed by all parties to
be charged therewith.
Dated as of the year and date first above written.
LICENSORS:
/s/Dennis S. Chrobak
/s/Richard A. Steinke
AMERICAN ENVIRONMENTAL CORPORATION,
a Nevada corporation
By:/s/Richard A. Steinke, Its Duly
Authorized Officer
<PAGE> 1
Exhibit No. 5
EXCLUSIVE LICENSE AGREEMENT TO MANUFACTURE, USE AND SELL
"IMPROVED APPARATUS AND METHOD FOR THE REMEDIATION OF PARTICULATE MATERIAL AND
TOXIC POLLUTANTS TRANSPORTED IN FLUE GAS" DOCKET NO.7455
This Exclusive License Agreement is made and effective this 5th day of May,
1999, by and between RICHARD A. STEINKE, of 1580 Bermuda Dunes Drive, Boulder
City, Nevada 89005, and ROBERT W. HOOD, of11155 Southeast Street Lucy Lane,
Clackamass, Oregon 97015 hereinafter referred to as "LICENSORS," and American
Environmental Corporation, a Nevada Corporation of the State of Nevada, having a
principal place of business at 705 Yucca Street, Boulder City, Nevada 89005,
hereinafter referred to as "LICENSEE."
WHEREAS, LICENSORS are an inventor and part owner, respectively, of a
certain Intellectual Property entitled "Improved Apparatus and Method for the
Remediation of Particulate Material and Toxic Pollutants Transported in Flue
Gas" Docket No.7455, that is currently pending and to the extent they are
owners of the entire right, title and interest in and to said inventions
currently embodied in United States Patent application.
WHEREAS, LICENSEE desires to manufacture and sell both "Improved Apparatus
and Method for the Remediation of Particulate Material and Toxic Pollutants
Transported in Flue Gas" Docket No. 7455 of the inventions;
WHEREAS, LICENSORS are willing to exclusively license the rights to
manufacture pollution systems covered by the Intellectual Property Rights set
out above to LICENSEE the right, title and interest in and to their inventions,
patents, patent application, reissues, continuation or continuations in part
thereof, and additional patent applications therein in the United States and
throughout the world for the life of any patent issued thereon or a period of
five (5) years, whichever is longer, and will cooperate with LICENSEE in filing
additional patent applications, as LICENSEE may desire and pay for, covering
improvements to LICENSORS' inventions.
NOW, THEREFORE, based upon the mutual covenants and promises set forth
herein, the parties hereto agree as follows:
DEFINITIONS
1. PATENT RIGHTS means the above set out in U. S. Patent Application "Improved
Apparatus and Method for the Remediation of Particulate Material and Toxic
Pollutants Transported in Flue Gas" Docket No. 7455 as are or later filed
relating to this application of the LICENSORS' inventions in the United States,
and any and all foreign countries, if any.
2. EFFECTIVE DATE date shall mean the date first set forth in the preamble to
this Agreement.
3. NET SELLING PRICE shall mean the price received on a sale to an unrelated
third party of each unit of a "Improved Apparatus and Method for the Remediation
of Particulate Material and Toxic Pollutants Transported in Flue Gas" docket
No. 7455 less any trade discounts as are usually allowed and actually given,
cost of returns and taxes, if any.
4. UNIT OR UNITS shall mean a complete set of manufactured pollution equipment
manufactured by or covered under the licensed subject matter.
<PAGE> 2
5. SOLD shall mean when a unit of the invention hereinafter referred to as
"unit" is manufactured, shipped or first used commercially and has been paid
for.
6. INVENTOR. A reference to inventors refers to LICENSORS, Richard A. Steinke
and Robert W. Hood.
7. LICENSED SUBJECT MATTER means the LICENSORS' inventions and improvements
thereto as embodied in the subject U.S. Patent application "Improved Apparatus
and Method for the Remediation of Particulate Material and Toxic Pollutants
Transported in Flue Gas" Docket No. 7455.
WITNESSETH
1. LICENSE GRANT. LICENSORS hereby sell, grant, transfer and convey to
LICENSEE an exclusive license to make, use and sell units of the pollution
systems covered by licensed subject matter in the United States and throughout
the world, including trade secrets, know how, and the like. This license grant
is limited to the manufacture, use and sale of pollution systems and does not
cover other products or items as can be manufactured, used or sold covered by
the licensed subject matter, and is for the United States and throughout the
world, and includes the right to sublicense others under the terms and
conditions of this Agreement, providing that such sublicensees agree to be bound
by all of the terms and conditions of this Agreement.
2. ROYALTIES AND CONSIDERATION. LICENSEE, for and in consideration of the
granting of this Exclusive License Agreement, agrees to pay to LICENSORS, for
the term of this Agreement, a royalty of three per cent (3.0%) of the net
selling price for all wholesale or retail sales of "units" of LICENSORS'
inventions, that include the improvements engineered thereto, and products as
are later developed as a result of LICENSORS' efforts, and as are sold by
LICENSEE or any sublicensee, in the United States and throughout the world.
Royalty payments to be paid quarterly, on or before the fifteenth (15) day
following the end of each calendar quarter. If such royalties are not paid by
the thirtieth (30) day from the last day of the previous calendar quarter, the
LICENSORS may terminate this Agreement as provided for in paragraph 8 below.
3. MINIMUM PRODUCTION. LICENSEE agrees that from the date of this Agreement it
will, after a first year from the date of this Agreement for a second year,
produce and market "units" of the invention each year for the term of this
Agreement, and pay royalties thereon, as set out in paragraphs. Should this
production schedule of sales of "units," coming under the subject U.S. Patents,
not be produced in the second year or subsequent years, LICENSEE may keep this
license current by paying to LICENSORS, as royalties for that year, an amount
equal to the royalties as would be paid on the number of "units," set out below,
based upon the then net selling price of the "units," with a minimum production
of "units" being for a:
First year: no minimums;
Second year: LICENSEE shall have manufactured and sold at least 30 "units' by
the end of the second year;
Third year: shall have manufactured and sold at least an additional 60 "units"
during a third year;
Fourth year: shall have manufactured and sold at least an additional 90 "units"
during a fourth year and
<PAGE> 3
Fifth year and for the remainder of this Agreement: shall have manufactured and
sold at least an additional 120 "units" during each year thereafter for the term
of this Agreement.
4. TIME IS OF THE ESSENCE. LICENSEE agrees that time is of the essence in
commercially exploiting the technology licensed hereunder and accordingly agrees
to use their best efforts to develop for manufacture market ready products
embodying the rights licensed herein.
5. MINIMUM PAYMENTS. The above minimum royalty payment amounts are due and
payable on the fifteenth (15th) day of the month following the end of each
calendar year during the term of this Agreement. The greater of actual
royalties due or the minimum payment shall be paid. If any payment is not made
by the thirtieth (30th) day of the month following the end of each calendar
year, the LICENSOR may terminate this Agreement as provided for in paragraph 8
below. Accordingly, if sales have been made during a calendar year and the
actual royalties due and paid on such sales is less than the required yearly
minimum, an appropriate amount must be added thereto to reach this minimum
amount to maintain this Exclusive License Agreement. Where royalties paid in
the previous four (4) quarters are greater that the minimum, no additional
amount is due.
6. IMPROVEMENTS. Subject to the terms and conditions of this Agreement, and
for so long as LICENSEE has fully performed all of its obligations and the
covenants set out hereunder, LICENSORS agree that they will promptly make
available to LICENSEE all improvements, developments, discoveries and inventions
as LICENSORS shall acquire during the term of this Agreement and relating to the
licensed invention, and provided LICENSEE has paid for the development of such
improvements, then these improvements shall be included as part of the licensed
subject matter without additional payment. Should such improvement result in
the issue of an additional patent or patents, as set out in paragraph 11 below,
the term of this Agreement shall be extended to the end of the life of such
additional patent or patents, unless sooner terminated hereunder.
7. TERM. The term of the license herein granted shall commence on the effective
date of this Agreement and continue for the life of the last to expire issued
United States Patent concerning the licensed subject matter including
improvements as set out in paragraph 6 above as LICENSORS shall acquire, or for
the period of five (5) years from the effective date of this Agreement,
whichever is longer. As to foreign countries, this license shall continue for
such country where a patent has been granted for the life of the last to expire
patent issued in such country.
8. TERMINATION. This Agreement can be terminated by LICENSEE at any time after
the effective date hereof by LICENSEE notifying LICENSORS of such termination in
writing directed by registered mail to LICENSORS at the addresses set out herein
or other addresses supplied by LICENSORS to LICENSEE. Such termination shall be
effective thirty (30) days from the date received by LICENSORS.
LICENSORS, at their discretion, may terminate this Agreement should LICENSEE
fail to pay any required royalty when due as provided in paragraph 2 above, or
timely meet or pay any required minimum production set out in paragraph 3 above,
or minimum payments as provided for in paragraph 5 herein above. Termination
shall be effective after notice is sent by LICENSORS to LICENSEE by registered
mail addressed to LICENSEE's address set out herein below or to an address as
later supplied by LICENSEE to LICENSORS, LICENSEE to have thirty (30) days after
receipt of notice of termination to correct the cited default by bringing all
required payments current together with interest at a rate of twelve (12)
<PAGE> 4
percent per annum from the date(s) that such payments were due on. If default
is not corrected within the thirty (3 0) day period, this license shall be null
and void without a requirement for further action by LICENSORS. At the
occurrence of a default by LICENSEE of the terms and conditions of this
Agreement other than the above set out failure to make minimum payments or pay
royalties, LICENSORS may, in their sole discretion, give notice of their
intention to terminate this Agreement if such default is not timely corrected.
which notice shall be sent by registered mail to LICENSEE's address set out
herein below or other address, as LICENSEE shall supply to LICENSORS. Such
notice shall recite the claimed default with reference to this Agreement. Upon
receipt of such notice, LICENSEE shall take prompt steps to correct the default
and shall timely inform LICENSORS of the steps taken. Should LICENSEE fail to
take appropriate measures to correct such default, LICENSORS, after thirty (30)
days, may notify LICENSEE of the termination of this Agreement, which notice
shall be sent by registered mail as set out above. LICENSEE shall then have an
additional thirty (30) day period to correct said default to LICENSORS'
satisfaction, or shall during this time period have taken steps to correct said
default to LICENSORS' satisfaction. At the end of this second thirty (30) day
period from receipt of the notice of termination, if LICENSEE has not corrected
the default or taken steps to correct said default to LICENSORS' satisfaction,
this Agreement is automatically terminated without a requirement for further
action by LICENSORS. Should LICENSEE correct the said default within the second
thirty (30) day period to LICENSORS' satisfaction, or have taken steps that are
satisfactory to LICENSORS that will correct such default, then the notice of
default and/or notice of termination will be considered withdrawn.
9. LICENSEE's Obligations Upon Termination. LICENSEE agrees that, upon
termination, for any reason, all rights as they may have acquired under this
Agreement shall and do immediately cease. Accordingly, LICENSEE, upon
termination, will immediately cease any and all production and sale of "units"
of the inventions and components thereof and will turn over to LICENSORS or to
their agent, at LICENSORS' request, all technical data, materials, blueprints,
plans, and like written materials, including computer programs, as may be in
their possession relating to the licensed subject matter. LICENSEE shall
further turn over to LICENSORS or to their agent, at LICENSORS' request, all
molds, dyes, jigs, tooling, and the like, as were used in or relate to the
manufacture of "units" of the inventions. LICENSEE, upon termination, will
immediately cease and desist from further manufacture and sale of "units" of the
inventions, their components and the like. Upon termination LICENSEE shall
promptly notify LICENSORS of the number of "units" on hand of the inventions
that have been produced and the number and state of completion of "units" of the
inventions that are under construction. As to the "units' of the invention,
LICENSEE shall have the right to promptly complete said "units" of the invention
as are classifiable as forty percent or more completed at the date of their
receipt of the notice of termination and LICENSEE shall, for a reasonable period
of time, not to exceed one hundred eighty (180) days, have the right to sell
these "units" previously made at a fair market price in the normal course of
business, said sales to be governed by LICENSEE's pricing schedule in place at
the time of termination. "Units" that have not been sold within that one
hundred eighty (180) day period, will be offered for purchase to LICENSORS at
the LICENSEE's cost of manufacture. Should LICENSORS determine not to purchase
said "units," then LICENSEE shall have an additional one hundred eighty (180)
day period to sell said "units" at whatever price they can negotiate, except
that LICENSORS shall have a right of first refusal to buy all or part of said
"units" at the offered price. Such right to purchase must be accepted by
LICENSORS within ten (10) days of their receipt of a written notice from
LICENSEE. After the expiration of said ten (10) day period, provided LICENSORS
have not accepted the offer, LICENSEE may dispose of said "unit" or "units" to
such other offeror.
<PAGE> 5
As to LICENSEE's inventory of parts and supplies and "units" that are less than
forty (40) percent completed, LICENSEE and LICENSORS shall negotiate in good
faith for LICENSORS to purchase these materials. Except that LICENSORS shall
not purchase these materials for less than ten (10) percent of LICENSEE's cost.
Upon termination, any leases, contracts, and agreements as LICENSEE may have
entered into or negotiated as relating to the manufacture and sale of "units" of
the inventions, may be assumed by LICENSORS, at LICENSORS' sole discretion. In
such assumption, LICENSORS are hereby granted the right and authority to
negotiate directly with parties LICENSEE has contracted with an effort to
negotiate more favorable terms. However, should terms less than what LICENSEE
is obligated for be negotiated, such assumption terms must then be approved by
LICENSEE. It is understood, however, that LICENSORS are not obligated to
undertake or assume any liability of LICENSEE under any contracts as LICENSEE
has entered into and that LICENSORS will only become liable for such agreements
as they expressly, in writing, assume.
Termination of this Agreement shall not relieve LICENSEE of any burden or
obligation of payment for past royalties or past minimum payments to LICENSORS
and for payment of royalties on "units" of the inventions as have been
manufactured or whereon manufacture is completed and sold after termination of
this Agreement. Accounting for such sales shall be as provided for in paragraph
17 herein below.
10. CONFIDENTIALITY. LICENSEE agrees to maintain as confidential all of the
subject matter licensed hereunder, including trade secrets, and the like, as may
be disclosed by LICENSORS to LICENSEE, in conjunction with or subsequent to the
execution of this Agreement. LICENSEE shall maintain as proprietary and
confidential all information relating to design and improvements that are or
maybe the subject of United States and/or foreign patent applications. LICENSEE
will, within its manufacturing facility or the like, maintain close controls on
entry and movement of persons within such manufacturing facility as are
appropriate to maintain as confidential and as trade secrets the activities
conducted within such facility, including, but not limited, requiring persons
entering such facility to agree in writing to be bound by the terms and
conditions of an acceptable Confidential Disclosure Agreement. Such
Confidential Disclosure Agreement is to be approved by LICENSORS in advance of
use and shall be maintained after signing by LICENSEE for LICENSORS' inspection.
11. PATENT APPLICATIONS. LICENSEE, by this Agreement, agrees to be responsible
for paying for the filing and prosecuting additional patent applications, if
any, utilizing patent counsel as selected by LICENSORS only, covering the
licensed subject matter of this Agreement in the United States and foreign
countries and improvements thereon as it elects, to allowance, final judgement,
refusal or abandonment. LICENSEE shall timely elect specific countries as they
determine to file patent applications in and shall notify LICENSORS of such
determination. LICENSORS, at their option and with the cooperation of the
inventors, shall then have the right to select any additional foreign countries
as LICENSORS elects to file patent applications in. Should LICENSORS so elect,
then, at the option of LICENSEE, any patent rights granted in such additional
foreign country shall and will become part of the licensed subject matter of
this Agreement, and are then considered as having been licensed hereunder to
LICENSEE.
Should this Agreement be terminated, as set out above, upon the request of
LICENSORS, LICENSEE will promptly execute appropriate documents for transferring
any title to LICENSORS as they may be acquired to issued patents and patent
<PAGE> 6
applications, and shall turn over to LICENSORS all materials associated
therewith and shall, at the request of LICENSORS, cooperate with the LICENSORS
in continuing the prosecution of such patent applications and will take all
reasonable steps necessary to protect and preserve such patent rights to the
benefit of LICENSORS.
12. TRADEMARKS. LICENSEE, whether with or without the input of LICENSORS, may
adopt a trademark or trademarks covering "units" of the inventions, for example
turbulent dry injection system. Upon termination, LICENSEE agrees that such
marks as have become identified with the subject matter of this Agreement shall
be conveyed by separate assignment to LICENSORS. Which assignment shall include
a conveyance of the rights, as LICENSEE shall have acquired in such mark or
marks, as will expressly including the goodwill associated therewith. This
Trademark Assignment will be made without cost to LICENSORS and shall be
executed in conjunction with other assignments and conveyances of the rights
licensed as called for herein.
13. PATENT NOTICE. LICENSEE acknowledges the importance of protecting patent
rights and accordingly agrees to attach a suitable name plate, located in a
prominent position, to each "unit," covered by this Agreement, which name plate,
label, or the like, shall indicate that the product has been manufactured under
license from LICENSORS and will set forth the U.S. and foreign Patent Numbers,
and any additional patent numbers, if any, both United States and foreign, and
may indicate that other patents are pending at the time of the manufacture, if
applicable, covering the licensed subject matter. This notice shall be in
conformity with requirements of United States statutes relating to the marking
of patented devices.
14. INFRINGEMENT. LICENSEE agrees to notify LICENSORS promptly of any claim
of, or threatened action or suit for infringement, of any patents belonging to
third parties, made or brought against LICENSEE by reason of LICENSEE's exercise
of rights granted hereunder. LICENSORS, upon notification, shall have the right
to take charge of the defense of such action, as LICENSORS determine, including
the hiring of attorneys of its own selection, or may elect to indemnify or hold
harmless LICENSEE, who shall defend any such action through attorneys of
LICENSEE's own selection. If any such action should be instigated against
LICENSORS and LICENSEE jointly, LICENSEE shall defend such action on behalf of
both parties through attorneys of its choosing providing such attorney is
acceptable to LICENSORS. LICENSORS shall assist with such defense and
accordingly shall without charge make available to LICENSEE any relevant
records, information, samples, tests, reports, engineering data, and the like,
and shall at its own cost make all reasonable efforts to secure the testimony of
its employees and shall cooperate with such defense as requested by LICENSEE.
LICENSORS, however, shall have the right to participate in the defense of any
such action at their own expense through counsel of their own choosing.
In the event LICENSEE shall determine that one or more of the patent rights
licensed hereunder are being infringed, LICENSEE shall not communicate with such
suspected infringer and shall provide LICENSORS with evidence as LICENSEE may
have acquired showing such infringement. If LICENSORS shall determine that an
infringement exists, LICENSORS may take action to suppress the infringement to
the extent of bringing suit against such infringer, if necessary. LICENSORS,
however, are under no obligation to bring such suit or to prosecute more than
one suit at a time involving a claim for infringement of any of the patents
licensed hereunder. In the event LICENSORS decline to bring suit or to
prosecute more than one suit at a time involving a claim for infringement of
their patent or patents licensed hereunder, LICENSEE, with the permission of
LICENSORS, may bring such suit at their own expense. If LICENSEE shall bring
<PAGE> 7
such suit and recover, then LICENSEE alone shall enjoy the benefit of such
recovery. Should LICENSEE and LICENSORS determine to jointly or collectively
bring action for infringement, then any recovery therefrom shall be divided
between LICENSORS and LICENSEE based on the financial contributions of the
respective parties, which contribution of LICENSORS may be provided by his
foregoing royalties as provided for herein.
15. PATENT INVALIDITY . It is agreed that if a judgement is entered by a court
of competent jurisdiction in any proceeding in which any claim or claims of one
or more of the patent or patents licensed under this Agreement is found to be
invalid for any reason, and should such judgement become final, such rights to
such invalidated claim or claims will cease to be part of the subject matter
licensed hereunder. However, the parties hereby acknowledge that this Agreement
is not founded on any single patent or claim or claims thereof but is also to
technology, know how and trade secrets, and therefore the invalidity of a single
claim, claims, patent or even several patents of the licensed subject matter
shall not alter or modify the terms and conditions of this Agreement.
16. ASSIGNMENT. This Agreement is personal to LICENSORS and may not be
assigned without written approval by LICENSEE except in the event of the death
of LICENSORS, the rights to payments provided for hereunder shall survive and
are inheritable by their estate to continue for as long as this Agreement is in
full force and effect. It is, however, assignable by LICENSEE to a successor to
its entire business or to a third party as approved by LICENSORS who will not
unreasonably withhold their approval, which third party will agree in writing in
advance of such assignment to be bound to the terms and conditions of this
Agreement. Assignment will, however, in no way relieve LICENSORS or LICENSEE of
their obligations under the provisions of this Agreement.
17. REPORTS, RECORDS, AND PAYMENTS. Before the thirtieth (30th) day following
each quarterly period ending September 30,1999, December 31, 1999, March 31,
2000 and June 30, 2000 and so on, respectively, from the date of the signing of
this Agreement, all production minimums and sales, and related royalties payable
hereunder shall be reported to LICENSORS. LICENSEE shall furnish to LICENSORS a
statement, certified by an officer of LICENSEE, showing all licensed "units"
manufactured and sold by LICENSEE during such quarter. This report shall
include details of all production and sales and a computation of the royalties
payable pursuant to paragraph 3 hereof In that itemization, sales of all
companies operating as sublicensees of LICENSEE shall also be reported. This
statement shall be submitted to LICENSORS even if no sales have taken place
during the applicable quarterly period.
Concurrent with the conveyance of such royalty report, LICENSEE shall pay to
LICENSORS all royalties as are due and payable. All sums of money payable by
LICENSEE to LICENSORS under this Agreement shall be paid in United States
currency and to the LICENSORS directly, or to an account designed by LICENSORS.
Payment shall be made in accordance with the definition of net selling price of
"units" of the inventions licensed hereunder, as set out in the definitions
portion of this Agreement. Where foreign currency is received, such shall be
converted into United States currency using the foreign exchange rate as set for
bank transfers in the United States for payment abroad, less all expenses
relating to the conversion and/or collection thereof. The exchange rate shall
be that which is in effect for the last business day of a calendar quarter in
which the sales were made.
LICENSEE shall keep complete, true and accurate books of account containing all
particulars of their business activities as necessary for demonstrating the
<PAGE> 8
accuracy of the report rendered to LICENSORS setting out the amount to be paid
to LICENSORS by way of royalties, as set forth above. Such books of account and
supporting data shall be open at any reasonable time for a period of five (5)
years following the end of a calendar year to which they pertain for the
inspection of LICENSORS, or their representatives, for the purpose of verifying
LICENSEE's royalty statements, or LICENSEE's compliance with respect to other
aspects of this Agreement.
18. DISCLAIMER OF LIABILITY. LICENSEE agrees to assume all financial and
service obligations for products manufactured and sold by it, and hereby
expressly absolves and holds harmless LICENSORS from all liability and/or
responsibility to LICENSEE and/or to others, including third parties, for any
failure in production, design, operation or otherwise, including fitness of
purpose and inherent defects, for products manufactured and sold by LICENSEE.
19. NON-WAIVER PROVISIONS. Failure by LICENSORS or LICENSEE to enforce any
provision of this Agreement, or any right in respect hereto, or to exercise any
election herein shall in no way be considered to be a waiver of such provision,
right, or election nor in any way shall such effect the validity of this
Agreement. The exercise by LICENSORS or LICENSEE of any of their rights, herein
or any of their elections under the terms or conditions herein shall also not
preclude or prejudice LICENSORS or LICENSEE from exercising the same or any
other right as they may have under this Agreement irrespective or any previous
action or proceeding taking by LICENSORS or LICENSEE hereunder.
20. TERMINATION/BANKRUPTCY. Unless otherwise provided by law, LICENSORS shall
have the right to terminate this Agreement and any sublicense or sublicenses
granted hereunder upon the filing by LICENSEE of a petition in bankruptcy or
insolvency, or upon or after a declaration of bankruptcy or insolvency, or upon
or after the filing by LICENSEE of any petition or answer seeking
reorganization, readjustment or arrangement under any law relating to bankruptcy
or insolvency, as could involve the appointment of receiver for all or any part
of the property of LICENSEE, or upon or after the initiation by LICENSEE of any
proceedings for the liquidation or winding up of its business or for the
termination of its corporate charter; and upon the exercise of such rights, any
licenses or sublicenses granted shall automatically terminate fifteen (15) days
after notice in writing to that effect has been given by LICENSORS to LICENSEE
or to sublicensees.
Should, however, a petition in bankruptcy or insolvency, or upon or after a
declaration of bankruptcy or insolvency, or upon or after the filing by LICENSEE
of any petition or answer seeking reorganization, readjustment or arrangement
under any law relating to bankruptcy or insolvency, as could involve the
appointment of receiver for all or any part of the property of LICENSEE, or upon
or after the initiation by LICENSEE of any proceedings for the liquidation or
winding up of its business or for the termination of its corporate charter, and
a court block termination it is agreed that the provisions of paragraphs 2 and 3
shall remain in force and effect and all amounts due and payable thereunder
shall accrue as a responsibility of a subsequent taker, who acquires from such
court the rights and responsibilities under this Agreement.
21. CONSTRUCTION. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America and the State of Utah.
This Agreement constitutes the entire agreement between the parties with respect
to the subject matter licensed hereunder, and shall supercede any previous
communications, representations, understandings and agreements, either oral or
written, between the parties or any officer to representative thereof with
respect to the subject matter of this Agreement.
<PAGE> 9
22. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties hereto pertaining to the subject matter hereof, and supercedes all
prior agreements, understandings, negotiations and discussions, whether oral or
written, relating to the subject matter of this Agreement. No supplement,
modification, waiver or termination of this Agreement shall be valid unless
executed by the party to be bound thereby. No waiver of any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
23. NOTICES. Any notice or other communication required or permitted hereunder
shall be in writing and shall be deemed to have been given (i) if personally
delivered, when so delivered, (ii) if mailed, one (1) week after having been
placed in the United States mail, registered or certified, postage prepaid,
addressed to the party to whom it is directed at the address set forth below:
If to LICENSORS:
Richard A. Steinke Robert W. Hood
1580 Bermuda Dunes Drive and 11555 Southeast Street Lucy Lane
Boulder City, NV 89005 Clackamass, OR 97015
With a copy to:
M. Reid Russell, Esq.
261 East 300 South, Suite 300
Salt Lake City, Utah 84111
If to LICENSEE:
American Environmental Corporation
705 Yucca Street
Boulder City, NV 89005
Either party may change the address to which such notices are to be addressed by
giving the other party notice in the manner herein set forth.
24. THIRD PARTIES. Nothing in this Agreement, expressed or implied, is
intended to confer upon any person other than LICENSORS or LICENSEE any rights
or remedies under or by reason of this Agreement.
25. INJUNCTIVE RELIEF. Each party hereby acknowledges and agrees that it would
be difficult to fully compensate the other party for damages resulting from the
breach or threatened breach of any provision of this Agreement and, accordingly,
that each party shall be entitled to temporary and injunctive relief, including
temporary restraining orders, preliminary injunctions and permanent injunctions,
to enforce such provisions without the necessity of proving actual damages or
being required to post any bond or undertaking in connection with any such
action. This provision with respect to injunctive relief shall not diminish,
however, the right of either party to any other relief or to claim and recover
damages.
26. HEADINGS. Section and subsection headings are not to be considered part of
this Agreement and are included solely for convenience and reference and in no
way define, limit or describe the scope of this Agreement or the intent of any
provisions hereof.
<PAGE> 10
27. ATTORNEYS' FEES. In the event any party takes legal action to enforce any
of the terms of this Agreement, the unsuccessful party to such action shall pay
the successful party's expenses (including, but not limited to, attorneys' fees
and costs) incurred in such action.
28. ARBITRATION. Any controversy arising out of or relating to this Agreement
or the transactions contemplated hereby shall be referred to arbitration before
the American Arbitration Association strictly in accordance with the terms of
this Agreement and the substantive law of the State of Nevada. The board of
arbitrators shall convene at a place mutually acceptable to the parties in the
State of Nevada and, if the place of arbitration cannot be agreed upon,
arbitration shall be conducted in Las Vegas, Nevada. The parties hereto agree
to accept the decision of the board of arbitrators, and judgement upon any award
rendered hereunder may be entered in any court having jurisdiction thereof
Neither party shall institute a proceeding hereunder until that party has
furnished to the other party, by registered mail, at least thirty (30) days
prior written notice of its intent to do so.
29. FORCE MAJEURE. Except for obligations of payment neither LICENSORS nor
LICENSEE shall be liable for non-performance caused by any circumstances beyond
their reasonable control, including, but not limited to, lightning, earthquake,
storm, strike, lockout or other industrial disturbance, shortage of necessary
labor, acts of enemies, sabotage, war, blockage, insurrection, riot, epidemic,
landslide, flood, fire, washout or the order of any court or authority, which
circumstance by the exercise of due diligence the party invoking this paragraph
29 is unable to prevent or overcome; provided, however, that (i) lack of
financial capacity shall in no event be deemed to be a cause beyond a party's
control and (ii) no party shall be entitled to invoke this paragraph 29 if the
failure to observe or perform any of the covenants or obligations herein imposed
upon it was caused by such party failing to act in a reasonable and prudent
manner under the circumstances, or failing to remedy the condition with
reasonable diligence, or failing to give notice as soon as possible after
determining that an event of force majeure has occurred and specifying those
covenants or conditions such party will be unable to perform, or was the result
of a knowing or negligent breach by such party of any applicable laws,
regulations, agreements or contracts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first written above.
/S/RICHARD A. STEINKE, INVENTOR and LICENSOR
/S/ROBERT W. HOOD, INVENTOR and LICENSOR
AMERICAN ENVIRONMENTAL CORPORATION, LICENSEE
By:/S/David K. Griffiths
Its: Secretary
<PAGE> 1
Exhibit No. 6 REPRESENTATION AGREEMENT
BETWEEN
AMERICAN ENVIRONMENTAL CORPORATION
AND
MW McWONG INTERNATIONAL, INC.
1.0 Scope
This Agreement is to confirm the terms and conditions of the appointment by
American Environmental Corporation ("AEC") of MW McWong International, Inc.
("MW") as its exclusive representative for the sale of AEC Pollution Control
Systems and related spare parts and supplies/consumables in China. The AEC
System is defined as the equipment and/or parts and supplies manufactured or
procured by AEC. This Agreement constitutes the entire Agreement of the
parties and the terms and conditions contained herein supersede all prior
agreements between the parties relating to the subject matter of this
Agreement.
2.0 MW's Responsibilities
2.1 MW will perform marketing activities, including, but not limited to
the development of Chinese product literature, arranging seminars and
conference in China, developing marketing and pricing strategies for AEC
products in China monitoring the activities of competitors and identifying
trends in the China market.
2.2 MW will identify and qualify China clients interested in the
purchase of AEC Systems and technology. MW will work with the China party to
obtain the required information to ensure the technical, logistical, political
and financial progress of the project. In addition, MW will also assist AEC
with business issues during the installation and commissioning of the
equipment.
2.3 MW will use its expertise in doing business with China as well as
its extensive connections with Chinese government officials and leaders in the
China environmental industry to facilitate the progress of the Project.
2.4 MW will identify China support staff for AEC's future China branch
office.
2.5 MW will identify a China facility with the appropriate requirements
for the AEC System and the willingness to be it demonstration/test site for
the first AEC Pollution Control System.
3.0 AEC's Responsibilities
3.1 AEC will provide engineering, design and technical support for MW's
sales efforts in China.
3.2 AEC agrees to hire an engineer by May 31, 1996. This engineer will
be under contract for AEC and all costs relating to his/her employment will be
covered by AEC. This engineer will be stationed at the best strategic location
to assure success in China, by providing MW's organization engineering and
marketing support for all of AEC products.
3.3 AEC agrees to secure a bag firm with the technical capabilities and
production capacity to support the China program.
3.4 [Omitted]
<PAGE> 2
3.5 Once a suitable location has been identified by McWong in China, a
prototype AEC system will be developed and sent by boat to China within 90
days of a qualified lead. The shipping cost will be covered by AEC. This unit
is owned by AEC and may only be used for testing purposes.
3.6 AEC agrees to hold MW harmless and AEC takes all liability arising
from equipment malfunction. AEC patents and marketing rights in China.
3.7 AEC will warrant all equipment accordance to its standard warranty
in Addendum A. All subcomponents will carry the OEMs original warranties.
3.8 AEC will immediately advise MW of significant changes to the
equipment/technology which would affect performance.
3.9 AEC agrees to provide MW a minimum of sixty (60) days advanced
notice on any changes in product cost/pricing. This will cover all fabricated
items controlled by AEC. Any and all subcomponents will have a complete price
pass through from the current vendor at their advance notice time schedule.
4.0 Exclusivity
AEC appoints MW as its exclusive sales representative for sales of AEC System,
technology, spare parts and supplies/consumables in China. AEC agrees not to
circumvent MW, directly or indirectly, and to protect MW on all China sales
according to the terms of this Agreement. AEC also agrees to offer MW in
writing the first right of refusal to represent other equipment or
technologies developed by AEC. MW must respond to AEC's offer for
representation within 45 days. If AEC receives no written response within 45
days MW will forfeit the offer of first right of refusal.
5.0 Compensation
AEC will work on a buy and sell arrangement as follows:
5.1 AEC will provide the AEC System to MW at a fixed price. The fixed
price will include AEC's profit. MW will mark-up AEC's System to include MW's
profit.
5.2 AEC will sell all other technology, equipment, spare parts, supplies
or consumables will be at fixed prices (see addendum B). Any profit in excess
of the agreed costs in Addendum B, less expenses will be shared equally by AEC
and MW.
5.3 AEC will assist and help secure any contracts that MW asks for
assistance. The first couple of contracts will be done at each parties
expense. After the completion of the second contract, all future sales or
marketing meetings will be done at the expense of MW unless prior arrangements
have been approved by AEC.
6.0 Termination
6.1 Both parties acknowledge that this shall be a continuing Agreement
from the date of execution, provided, however, that either party may terminate
this Agreement upon 120 days prior written notice to the other party, via
certified mail, return receipt requested.
6.2 In the event that 6.1 is enforced MW will provide AEC within 30 days
from receipt of certified mail all pending proposals. These proposals will be
honored with a contract signing required with 8 months and installation
<PAGE> 3
beginning no later than 14 months form effective date of termination. In the
event that AEC is unable to begin installation within 14 months from effective
date of termination. MW will still receive the full commission due when the
project is completed. Commissions after termination of agreement will be paid
out as moneys are received by AEC. After receiving 65% of quoted amount form
client. MW will be paid 10% on the due amount of commissions. After AEC
receives 85% of quoted amount from client, MW will be paid 30% of due amount.
The balance of commissions due MW will be paid in full after full payment from
the client has cleared AEC's banking account.
7.0 Independent Contractor
MW and AEC acknowledge that MW is an independent contractor engaged in
international trade with China. It is expressly agreed that this Agreement
does not create a relationship of employer/employee, joint venture or
partnership. MW acknowledge such independent status and thus will be liable
for all income and related taxes as well as any other expenses related to
commissions earned.
8.0 General
Should any provision of this Agreement or portions thereof be found invalid by
any court of competent jurisdiction, the remainder of this Agreement shall
nonetheless remain in full force and effect. The parties agree that this
Agreement has been entered into in Clark County, State of Nevada on the date
accepted by AEC and the parties hereby submit themselves respectively to the
exclusive jurisdiction and venues of such courts for the purposes of any
action at law or in equity. If legal action is necessary to enforce the terms
of this Agreement, the prevailing party shall be entitled to reasonable
attorneys fees in addition to any other relief to which the party may be
entitled. This provision shall be construed as applicable to the entire
Agreement. This entire Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada.
Accepted:
Todd W. Hooks, President Date: 4/21/96
American Environmental Corporation
2001 E. Flamingo, Suite 100G
Las Vegas, NV 89119
Margaret Y. Wong, President Date: 4/20/96
MW McWong International, Inc.
3680 Industrial Boulevard, Suite 100
West Sacramento, CA 95691
<PAGE> 1
Exhibit No. 7 MINERAL SALE AND PURCHASE CONTRACT
THIS MINERAL SALE AND PURCHASE CONTRACT (this "Contract") is entered into
effective this 21 day of August, 1998, between American Environmental
Corporation, a Nevada corporation ("Buyer") and NatureNu Corporation, a Nevada
corporation ("Seller"), based on the following:
RECITALS
A. Seller is a Nevada corporation and owns certain mining claims that
contain inorganic micronutrients and other trace mineral (the "Sea Soil")
located in Esmeralda County, Nevada.
B. Buyer is a Nevada corporation that desires to market to Sea Soil to
interested parties in substantial quantities for a multiplicity of uses.
C. The parties have reached an agreement as to the terms of the sale and
purchase of Sea Soil and desire to set forth in this Agreement the details of
those terms.
AGREEMENT
NOW, based on the above premises and in consideration of the mutual
covenants, representations, and warranties set forth below and the mutual
benefits to be derived from the Purchase, it is agreed as follows:
ARTICLE I
SALE OF SEA SOIL AND PAYMENT BY BUYER
Section 1.01 Sale and Purchase of Sea Soil. Seller agrees to allow the
Buyer to extract up to 5,500 tons of Sea Soil, provided, Buyer shall make all
extractions at Buyer's cost and expense, with no cost or expense to the
Seller. Buyer shall extract the Seasoil from the property within eighteen (18)
months from the date hereof. The actual extraction shall be done by Seller at
Buyer's expense at Seller's cost plus twenty percent (20%) or by a contractor
approved by Seller, which approval shall not be unreasonably withheld. Any
extraction by Buyer or its contractor shall be done in such a manner as to
maintain the integrity of the property and any improvements, fixtures and
roads on or to the property. Any extraction by Buyer shall be done in
compliance with all Bureau of Land Management rules and regulations, in
accordance with good construction practices, and through a licensed
contractor. In the event that Buyer or Buyer's contractor performs extraction
of any Seasoil, Buyer shall defend, indemnify and hold Seller harmless from
any claims or causes of action resulting from the acts or omissions of Buyer
or Buyer's contractor or their employees, agents or representatives, including
attorneys' fees, costs and related expenses and Buyer and Buyer's contractor
shall demonstrate to Seller reasonable satisfaction that a policy of insurance
covering such activities is in full force and effect.
Section 1.02 Payment by Buyer. As consideration for the 5,500 tons of
Sea Soil to be extracted by Buyer, Buyer has issued 320,332 shares of its
common stock in satisfaction of certain indebtedness and financial obligations
of Seller. For purposes of this Agreement, the Sea Soil is being sold to
Buyer at a purchase price of $150 per ton, so that total consideration
received by the Seller hereunder shall be valued at $825,000 (the "Purchase
Price").
<PAGE> 2
Section 1.03 Further Assurances. From the date of this Agreement,
Seller shall use its best efforts to obtain all permits (including, without
limiting the generality of the foregoing, consents of any governmental
agencies) necessary to maintain right, title, and interest in the mining
claims containing the Sea Soil so as to permit the sale contemplated pursuant
to this Agreement.
ARTICLE II
MISCELLANEOUS
Section 2.01 No Representation Regarding Tax Treatment. No
representation or warranty is being made by either party to the other
regarding the treatment of this Purchase for federal or state income taxation.
Each party has relied exclusively on its own legal, accounting, and other tax
advisers regarding the treatment of this transaction for federal and state
income taxes and on no representation, warranty, or assurance from any other
party or such party's legal, accounting, or other adviser.
Section 2.02 Governing Law. The Seller and Buyer intend that this
Agreement and Purchase shall be governed by, enforced, and construed under and
in accordance with the laws of the state of Nevada.
Section 2.03 Notices. Any notices or other communications required or
permitted by this Agreement must be in writing and shall be sufficiently given
if personally delivered to the other party, or, if sent by electronic
communication and confirmed by postage prepaid registered mail, certified
mail, or overnight courier addressed as follows:
If to Buyer, to: AMERICAN ENVIRONMENTAL CORPORATION
Attn: Richard A. Steinke
705-B Yucca Street
Boulder City, NV 89005
Fax: (702) 294-3873
If to Seller, to: NATURENU CORPORATION
Attn: Stephen L. Vonderheide, President
P.O. Box 10136
Reno, NV 89510
Fax: (702) 331-5131
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices. Any such notice or communication given in
accordance with this section shall be deemed to have been given as of the date
personally delivered, or one day after the date when sent by electronic
communication and confirmed by registered mail, certified mail, or overnight
courier as outlined above.
Section 2.04 Attorney Fees. In the event that any party institutes any
action to enforce this Agreement or secure relief from any breach, the
breaching party shall reimburse the nonbreaching party for all costs,
including reasonable attorney fees, incurred in connection therewith and in
enforcing or collecting any judgement.
Section 2.05 Amendment or Waiver. Every right and remedy provided for in
this Agreement shall be cumulative with every other right and remedy, whether
conferred in this Agreement, at law, or in equity, and may be enforced
concurrently. No waiver by any party of the performance of any obligation by
the other shall be construed as a waiver of the same or any other default then
<PAGE> 3
or thereafter occurring. This Agreement may be amended by a writing signed by
both Buyer and the Seller with respect to any of the terms contained herein.
Any term or condition of this Agreement may be waived or the time for
performance thereof may be extended by a writing signed by the party or
parties for whose benefit the provision is intended.
Section 2.06 Assignments. No party may assign any of its rights or
delegate any of its obligations under this Agreement without the express
written consent of the other party.
IN WITNESS WHEREOF, the corporate party and the individual parties hereto
have caused this Agreement to be executed on the date above mentioned.
BUYER:
AMERICAN ENVIRONMENTAL CORPORATION
BY:/s/Richard A. Steinke, Its Duly Authorized Officer
SELLER:
NATURENU CORPORATION
BY:/s/Stephen L. Vonderheide, Its Duly Authorized Officer
Exhibit No. 8
Subsidiary of American Environmental Corporation:
Fabric Filters Air Systems, Inc., incorporated in the State of Oregon on
November 15, 1985.
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<NAME> AMERICAN ENVIRONMENTAL CORP
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<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
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